E-mail invitation for small business summit at Amazon’s Virginia headquarters, sent by USDA on July 12, 2024.

The U.S. Department of Agriculture announced earlier this month that it will host a summit for small businesses interested in government contracting at Amazon’s Virginia headquarters. The event will feature experts from USDA and Amazon who will teach business owners about selling to the government using a platform called Amazon Business. Since 2016, Amazon has grown its position as a middleman between federal, state, and local-level government buyers and suppliers of everything from office supplies to lab equipment.

Amazon says that its familiar interface helps governments find local vendors and helps small businesses navigate complex government compliance and bidding processes. But small business advocates say Amazon is “small-washing” a monopolistic business model that drives out independents and takes a cut of their government contract sales.

“In most sectors of the economy, Amazon is the single biggest threat to independent small businesses,” says Stacy Mitchell, the co-director of the Institute for Local Self-Reliance. “They want to intermediate every single transaction in the consumer economy and if they are the gatekeeper they are going to take every penny of profit and then some.”

In fiscal year 2023, U.S. federal agencies (not even counting the Department of Defense) spent $248 billion on services and $55 billion on products. State and local governments spend an estimated $3.7 trillion annually.

This spending has wide-ranging socio-economic effects, which is why most governments have policies that require a portion of their procurements to come from local businesses or businesses owned by women, veterans, or people of color. The federal government has a general goal of awarding about a quarter of all contract dollars to small businesses. Food justice advocates are particularly interested in opportunities for USDA to support regional food systems and promote competition by buying food from local, independent producers.

The largest e-commerce platform, Amazon, also wants a cut of our taxpayer dollars. In 2016, Amazon poached a top federal procurement official from the Obama administration, Anne Rung, to help grow its government contracting platform. Amazon already had a platform for businesses to buy supplies in bulk, called Amazon Business. Amazon.com sellers with a professional-level account can cross-post their products on Amazon Business and elect to offer special discounts or bulk sizes just for business customers. Amazon Business for Government uses the same concept and platform, except instead of businesses, the buyers are government agencies. Users include school districts, universities, the U.S. Air Force, and city procurement departments. Today, 90 of the 100 most populous local governments use Amazon Business.

USDA started buying goods through Amazon Business, and other online platforms, in 2021 as part of the General Services Administration’s Commercial Platforms Program. “USDA has received value from the CP Program since it allows for free shipping, no minimum order quantities, sales tax exemption, and additional purchasing compliance,” explained a spokesperson for USDA. The agency also uses online platforms to find products from small businesses and socio-economically disadvantaged businesses. A USDA spokesperson said that their Office of Small and Disadvantaged Business Utilization came up with the idea for an event on the CP Program and reached out to Amazon about collaborating.

USDA said that its departments use Amazon Business to fill some of their micro-purchases, which are smaller purchases (generally under $10,000) that officials make with government credit cards. Government buyers do not need to solicit competitive bids to make micro-purchases. A spokesperson for USDA confirmed that its main food procurement agency, the Agriculture Marketing Service (AMS), does not purchase any food through Amazon and AMS is not exploring buying food through Amazon in the future.

Amazon markets its platform as a tool for small businesses to reach government customers and for governments to search for certified businesses owned by women, veterans, or people of color. However, some small business owners and advocates say Amazon’s expansion into government procurement will hurt them, just as the goliath has in the general retail market.

Amazon makes money by becoming an essential middleman between buyers and sellers. Now that half of online searches begin on Amazon, the company can squeeze sellers who feel they have no choice but to join its marketplace. 

To sell on Amazon.com, individuals pay 99 cents per item sold or a flat $40 per month service fee, plus a referral fee equal to a portion of the sale price (normally 15% but can be anywhere from 5% to 20%). These fees are just the baseline. If sellers wish to carry a Prime badge or appear at the top of search results, they need to pay for Amazon’s fulfillment services and advertising.

Altogether in 2023, Amazon took an average of 45% of sellers’ revenue, up from 27% in 2017, according to the Institute for Local Self-Reliance. Amazon made at least $140 billion in e-commerce fees last year, not including advertising fees. While Amazon does charge lower referral fees on bulk orders through its Amazon Business channel, the incentives to pay Amazon for fulfillment and advertising remain.

By institutionalizing an Amazon marketplace in government procurement, Amazon will amass more gatekeeper power to raise fees and divert dollars designated for local businesses to itself. When governments use Amazon to reach their local purchasing quotas it dilutes their financial impact, since Amazon will take some of that money from small businesses as a fee.

“Amazon is inserting itself between businesses that sell to government and [their customers] and using that position to skim off a chunk of their revenue,” Mitchell argues.

While some vendors may be able to access government contracts that they couldn’t before on Amazon, other small businesses that specialize in serving local and national governments say that Amazon Business cuts them out, even when they can offer better prices and same-day delivery. Working through an intermediary can also make it hard for aspiring government contractors to grow their business, explained LaJuanna Russell who runs a human capital and technology consulting firm, Business Management Associates. “It appears that businesses are still selling through Amazon, who is then selling to the government, and Amazon is adding their costs on top of that. That company is not establishing or making a relationship with that federal agency,” Russell said.