This article addresses the question of how aggregators have affected marketplace innovation. It’s an interesting read.
“We are changing the American Dream. People no longer want to start their own companies—I’ve done it several times; it’s a pain in the ass. They simply want to be their own bosses.” Whether he was onto something or not, in 1999 Ari Horowitz began beating a drum and hasn’t stopped. Back then, he was running a temp worker site called FreeAgent.com, but in 2018 he helped start Thrasio. The name comes from a Greek myth and means “boldness.”
Thrasio is a self-proclaimed Amazon rollup business; it buys up successful Amazon sellers. Its alleged value-add is industry expertise, access to capital, and streamlined services, another way of saying “economies of scale.”
So far, this striving for bigness has allowed Thrasio to reach a valuation of $1 billion within two years of its founding, making it the fastest U.S. company to ever reach what the startup world calls “unicorn” status. This past fall, Thrasio was valued at between $5 billion and $10 billion.
Rollup strategies are most commonly used by the private equity industry. But Thrasio is changing that notion by pioneering what is now, unironically, being described as the hyper-competitive rollup commerce space. In 2021 alone, Amazon aggregators, which third-party sellers call “gators,” collectively raised more than $12 billion. And the seemingly endless investor interest has prompted at least 85 Thrasio look-alikes in e-commerce and neighboring sectors.
Thrasio’s competitive advantage is mainly its capital reserves of $3 billion, which can be used to scoop up more sellers. “It’s becoming a pay-to-play marketplace and will increasingly [become so],” said Ken Kubec, Thrasio’s VP of acquisitions, in an interview on The Tom Wang Show.
Being able to pay has clear upsides. Thrasio now owns more than 22,000 products on Amazon Marketplace with $1.5 billion in annual sales in 2021. The company estimates that 1 in every 6 U.S. homes have purchased a Thrasio-owned product. But this success points to a potentially ominous reality—has market dominance become more valuable and attractive than real innovation?
IN 1995, AMAZON was a closed platform that sold books. Jeff Bezos always had higher aspirations (the URL relentless.com still directs you to Amazon’s website), and in 2000 he planted the seed for the “Everything Store” by opening up the platform to third-party sellers. Today, over 60 percent of Amazon Marketplace is made up of third-party sellers, while the remaining 40 percent comes from Amazon’s in-house product lines like AmazonBasics.
Amazon running its own private labels on top of its marketplace has always meant trouble for independent vendors. FTC Chair Lina Khan described the imbalance in her 2017 paper “Amazon’s Antitrust Paradox”: “It is third-party sellers who bear the initial costs and uncertainties when introducing new products; by merely spotting them, Amazon gets to sell products only once their success has been tested. The anticompetitive implications here seem clear.”
Amazon has been caught using seller data to launch competing products and put the original seller out of business. Vendors also allege increasingly automated account suspensions, a crippling experience for suspended companies. Just last month, Amazon paid $2.25 million to settle a price-fixing investigation into a program that allowed Amazon to set the prices of third-party seller products. The program was subsequently shut down.
The gators tip the scales even further. Thrasio’s founders Carlos Cashman and Joshua Silberstein, who had experience in advertising and SEO optimization, saw an opportunity to use purchasing power to gain an advantage. Amazon third-party sellers didn’t have the capital to grow their businesses, didn’t have the expertise or the number of employees needed to operate on Amazon’s platform efficiently, and didn’t have the ability to withstand supply chain bottlenecks—all of which are limitations that independent sellers continue to face today.
In 2021 alone, Amazon aggregators, which third-party sellers call “gators,” collectively raised more than $12 billion.
In other words, the second-class experience that sellers have on Amazon Marketplace guarantees Thrasio a pool of potential acquirees. Coming before Congress to testify against Amazon, sellers have used words like “bullying,” “fear,” and “panic” to describe their relationship with Amazon. For Thrasio and the gators that followed, this translates to a buyer’s market.
In speaking with several third-party sellers, I gained a clearer picture of how the gators fit into the Amazon seller ecosystem. Gators can best be understood as a euthanizer of Amazon independent sellers, providing a less painful path to their inevitable death.
One business owner, who requested anonymity because he was in the middle of negotiations with Thrasio, told me that if he built another brand, it would exist under constant risk of being taken off the Amazon platform. “At any point in time, you can get taken down,” he said. “You are at Amazon’s mercy.” Another seller, named BisonPuncher on Discord, lamented about being automatically miscategorized and subsequently kicked off for weeks at a time, finally driving him to contact a gator and sell the business. Many third-party sellers who now spend more than a third of their revenue on Amazon’s fees wonder whether it’s all worth it.
Every negative experience an independent seller has on Amazon Marketplace is a win for Thrasio, and they understand it as such. One current Thrasio employee told me that “having worked at Thrasio, I cannot imagine being an individual seller.”