Amazon is nixing ads for unprofitable products on its site (AMZN)

Amazon has been telling a growing number of third-party sellers on its marketplace that they can't buy ad space to promote products that aren't earning a profit for the e-commerce titan, CNBC reports . Amazon is reportedly sending vendors emails instructing them to lower costs for items that are generating losses in order to become eligible to buy ads for those items again.

Portion of brands' e-commerce sales from Amazon Business Insider Intelligence

The news comes amidst several recent steps Amazon has taken to boost its profitability.Historically, Amazon has been known to operate on thin margins, but it's broken profit records for the past three quarters and likely want to keep up the hot streak.

It is reevaluating how it sells unprofitable items.Such products, which Amazon refers to as CRaP short for cant realize a profit are often items such as bottled beverages or snacks that sell at low prices and tend to be expensive to ship. Amazon is working with brands to change the way these items are sold in order to boost their profitability, by selling them in larger formats or moving some of them to its Amazon Prime Pantry category, which consolidates items into fewer boxes to reduce costs. These changes could give Amazon a boost by helping it milk profits from items that previously were yielding a loss.
The e-tailer is pushing its suppliers to become third-party sellers on its marketplace.Amazon has canceled orders from thousands of wholesalers it previously worked with, instead encouraging these vendors to sell directly to consumers on the Amazon marketplace. While the company didnt specify a motivation for making this change, it is reportedly more profitable for Amazon to assist a company in selling straight to customers than it is for the e-tailer to purchase and resell products.

These moves may help Amazon achieve the greater profitability it seeks, but they may also draw ire from sellers and lawmakers.

Sellers:Because many brands have such a high degree of dependence on Amazon for sales, they are not in a good position to resist changes to marketplace policy that the e-tailer makes. But if enough sellers start feeling agitated, or as if the new policies are unfair, they might start experimenting with selling on other marketplaces like eBay or Walmart in earnest to lower their reliance on Amazon.
Lawmakers:An even more serious problem could come in the form of antitrust legislation. US Senator Elizabeth Warren, who is running for President in 2020, has already expressed skepticism about Amazons power and suggested that Congress should pass a law preventing large companies from owning a marketplace and selling on it simultaneously. If Amazon goes too far in exercising its power over its marketplace, it could give ammunition to these types of proposals, increasing the chance that Amazon will have to face a serious regulatory hurdle in the future.

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Amazon is nixing ads for unprofitable products on its site (AMZN)

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