Why You Should Avoid Selling on Amazon: The Hidden Risks of the E-Commerce Giant

If you’ve ever thought about starting an online business, chances are someone has told you: “Just sell on Amazon.”
It sounds simple - millions of customers, global reach, fulfillment handled by Amazon - what could possibly go wrong?

But selling on Amazon is not the dream many think it is. Behind that glossy promise of quick profits and “passive income,” there are pitfalls that can silently destroy small businesses. In this article, we’re going to peel back the curtain and show the real reasons why you might want to avoid building your e-commerce business on Amazon.

The Illusion of “Instant Success” on Amazon

Let’s address the myth first: Amazon is not a shortcut to wealth. Yes, it’s the biggest online marketplace in the world, but that’s exactly what makes it so fiercely competitive and unforgiving.

Many new sellers believe that listing a few products and letting the algorithms do the rest will bring in steady sales. Unfortunately, Amazon doesn’t work like that anymore. The platform is flooded with competitors, many of whom are large Chinese manufacturers or sellers with deep advertising budgets.

Amazon’s pay-to-play environment has made it nearly impossible for new sellers to organically rank their products without spending thousands of dollars on ads and promotions.

What used to be “easy profits” ten years ago is now a high-stakes game that only big, heavily funded sellers can win.

1. Amazon Owns the Customer, Not You

This is perhaps the biggest reason so many experienced e-commerce entrepreneurs step away from Amazon.

When you sell on Amazon, you don’t really own your customers. You don’t have access to their email addresses, phone numbers, or any meaningful way to build a relationship. Every sale you make builds Amazon’s brand - not yours.

Imagine this:
You spend months choosing the right product, designing packaging, and building a reputation through reviews. Then, Amazon changes its rules or suspends your account, and overnight, your entire customer base is gone. You can’t reach out. You can’t re-market. You can’t even say thank you.

In contrast, when you run your own store - say through platforms like Shopify, WooCommerce, or your custom-built site - you own everything. The email lists, customer data, and brand identity are yours to nurture and grow over time.

2. Brutal Competition and Price Wars

Amazon’s algorithm heavily rewards low prices and fast delivery. That sounds great for consumers, but for sellers, it’s a nightmare.

Most shoppers filter by price, not brand. If someone undercuts you by even a few cents, you can lose the “Buy Box,” which determines who gets the sale. And if you’re in the FBA (Fulfillment by Amazon) program, your storage costs can quickly eat into your already thin profit margins.

You’re essentially in a race to the bottom, where sellers are forced to:

• Lower prices just to stay visible
• Spend more on Amazon Ads to drive visibility
• Cut corners or sacrifice quality to maintain margins

This environment rewards scale, not creativity. As a small seller, it’s almost impossible to compete against massive brands or manufacturers that control their supply chain and can afford to operate on razor-thin margins.

3. Hidden Costs of Selling on Amazon

Many beginners underestimate Amazon’s fees. Between referral fees (typically 15%), FBA storage fees, long-term storage penalties, shipping to fulfillment centers, and advertising expenses, the “real” profit margin often shrinks to under 10%.

Here’s a common scenario:

• You buy a product for $10.
• Amazon’s referral fee takes $1.50.
• FBA fees add another $3.
• Amazon Ads cost you $2 per sale.
• Now your $15 sale nets you around $8 - meaning you lost money.

Amazon’s “small cuts” add up quickly. Many sellers discover too late that they’re effectively working for Amazon, not themselves.

4. Account Suspensions: Your Business Can Vanish Overnight

Amazon is notorious for suspending seller accounts - sometimes permanently - for vague or even algorithmic reasons.

You can spend years building a six-figure business, and then one day wake up to an email that says: “Your account has been deactivated.”

The reasons range from “suspected policy violations” to “intellectual property complaints,” often filed by competitors or triggered by automated systems. And the worst part? There’s virtually no human support. Appeals can take weeks or months, if they’re ever resolved.

Unlike on your own e-commerce site, where you control your destiny, on Amazon you’re always at the mercy of an opaque, automated system.

5. Amazon Competes Directly with You

Amazon is not just a marketplace - it’s your biggest competitor.

Over the years, numerous reports and investigations have shown that Amazon collects data from third-party sellers and uses that to develop its own private-label products. Once Amazon sees that your product sells well, it can replicate it using its massive resources, slap on the “Amazon Basics” label, and undercut your price instantly.

That’s not paranoia - that’s documented reality.

A 2020 investigation by The Wall Street Journal revealed that Amazon employees used seller data to identify profitable niches, even though the company publicly claimed it didn’t. In 2022, the European Union fined Amazon for this very behavior.

So while you’re trying to grow your business, Amazon may be using your data to eliminate you.

6. Intense Advertising Costs and Algorithm Dependency

Amazon’s advertising platform (Amazon PPC) has become increasingly expensive. Since organic visibility is so limited, most sellers must pay to rank. The average cost per click has risen dramatically in recent years, often exceeding $1-2 in competitive niches.

You end up spending money just to stay visible, even to your own previous customers - a situation not unlike running expensive ads on Google without building an email list.

Worse, Amazon frequently changes its algorithm. A tweak to the “A9” ranking system can tank your listings overnight, undoing months of optimization. You’re constantly chasing a moving target.

7. Fake Reviews and Bad Actors

Amazon’s review system, once a cornerstone of trust, has become a battleground of manipulation. Fake reviews, black-hat competitors, and sabotage campaigns are rampant.

Some sellers use shady tactics to flood their own listings with fake 5-star reviews - or even worse, attack competitors by posting fake negative reviews to trigger Amazon penalties.
Meanwhile, honest sellers must fight uphill - and reporting abuse rarely leads to swift action.

If you’re a genuine, small business, you’ll constantly be at a disadvantage competing with unethical players who know how to “game the system.”

8. Brand Building Is Almost Impossible

Amazon discourages branding. Product listings are standardized, and your ability to customize the shopping experience is minimal. Even with Brand Registry or A+ Content, Amazon controls the layout, visual presentation, and checkout flow.

Customers can easily jump from your listing to a competitor’s, often tempted by a cheaper option or faster shipping. That makes it nearly impossible to create brand loyalty.

In the end, your product becomes just another SKU in Amazon’s massive warehouse - easily replaceable and forgettable.

9. The Fulfillment Trap (FBA Frustrations)

Fulfillment by Amazon (FBA) once promised a hands-off logistics experience. It worked beautifully… when there weren’t millions of sellers using it.

Today, FBA warehouses are overcrowded, and storage fees spike during peak seasons. Amazon also imposes strict inventory limits that change unpredictably. If you overstock, you pay long-term fees; if you understock, your listings lose ranking.

Worse, returns and reimbursements are another hidden cost. Many sellers report that customers return used or damaged items - and Amazon refunds them instantly without question. Sellers often have little recourse.

FBA can work for some, but it’s not the seamless dream it once was.

10. Lack of Community and Support

Unlike Shopify or WooCommerce communities, Amazon sellers don’t have much support from the platform. The seller forums are full of frustrated entrepreneurs begging for help with issues like lost inventory or rejected appeals.

Amazon’s support system often pushes generic copy-paste answers or redirects you endlessly between departments. If your business depends on quick resolutions, this can be devastating.

In short, you’re on your own - and Amazon doesn’t care about your small business survival.

11. Ethical and Strategic Risks

Some sellers are also reassessing Amazon from an ethical standpoint. The company has been repeatedly criticized for:

• Exploitative warehouse conditions
• Aggressive anti-competitive practices
• Sustainability issues tied to over-packaging and returns

Building a business that depends entirely on such a platform can clash with values like transparency, fair trade, and environmental responsibility - values that increasingly matter to modern consumers.

So, What’s the Alternative?

Now that we've gone through the reasons why you might avoid selling on Amazon, what should an aspiring online entrepreneur do instead?

Here are some powerful strategies that let you build a brand on your own terms:

1. Start Your Own Online Store

Platforms like Shopify, WooCommerce, and BigCommerce give you full control. You own the data, design the customer journey, and can integrate powerful marketing tools - from SEO to email campaigns.

2. Leverage Social Media and Content Marketing

TikTok, Instagram, and YouTube have democratized visibility. A single viral post can generate more brand awareness than months on Amazon Ads - and it builds real, sustainable loyalty.

3. Utilize Independent Marketplaces

Don’t completely ignore platforms - sites like Etsy, eBay, or Not On The High Street allow more creative freedom and niche distinction compared to Amazon.

4. Focus on Community and Retention

Create a customer experience that Amazon can’t replicate. Personal emails, loyalty programs, and storytelling around your brand values make your business emotionally engaging - something Amazon simply can’t do.

5. Automate Smartly, But Maintain Control

You can still use logistics partners like ShipBob, SendCloud, or your local 3PL (third-party logistics provider) to automate fulfillment. The difference? You remain in control of inventory, packaging, and brand touchpoints.

12. The Future of E-Commerce Belongs to Independent Brands

The golden age of “drop shipping on Amazon” is over. The winners of the next decade will be those who own their audience - entrepreneurs who blend content, community, and commerce into cohesive ecosystems.

Amazon may give you exposure, but exposure doesn’t equal stability. True freedom in e-commerce means not depending on one marketplace that can change the rules overnight.

Final Thoughts

Amazon might look like a gateway to easy success, but it’s really a trap of dependency. You get convenience at the cost of control - traffic at the cost of loyalty - and revenue at the cost of freedom.

If you want to build an enduring business, start building your brand, not Amazon’s.

After all, every sale on Amazon strengthens Amazon.
Every sale on your own website strengthens you.