Over the last six months, I have spent hours and days researching Amazon accelerators. This is another sector created during the pandemic, seemingly driven by business modeling and the need to monetize the Amazon ecosystem. Does this make sense long term?

Amazon accelerators are agencies that have tried to replicate Amazon’s vendor services. They purchase products from brands at wholesale pricing and then sell them on Amazon. The brand generates revenue from purchase orders, and the accelerators then sell them on Amazon with higher margins to generate profits. What can go wrong? Simply put, a lot.

Accelerators are Agencies with PE funding

Pattern and Spreetail are the most well-known accelerators, as they have raised funding from private equity funds. Pattern raised $275M in three funding rounds, Spreetail raised $208M, and Netrush raised an undisclosed amount of funding in 2019. It’s worth noting that another sector constituent, Packable, filed for bankruptcy in 2022.

At a time when Amazon aggregators were raising funding from alternative investors and private equity, Amazon accelerators raising capital seemed to be a safer long-term bet as these companies were generating fees end-to-end, and by purchasing inventory, they had the opportunity to grow their revenues. The reality, sadly, is far from this.

Private equity investors love cash-generating businesses as they can utilize the revenues to acquire new growth from acquisitions. Pattern and Spreetail acquired a dedicated e-commerce/Amazon agency and bought startups to help their operations.

What happened in reality versus the spreadsheet

I have heard various thoughts about why these accelerators were good concepts. You decide which makes sense and those who do not.

• Amazon accelerators enabled investors to indirectly own Amazon stock.
• The accelerators grew top line aggressively, hoping it would be used for exit multiples.
• These businesses generate billions in revenues with margins ranging between 4-9%.

These accelerators did not invest in building proprietary software that generated profitability calculations but focused on marketing software to scale brands on Amazon quickly. The companies bought inventory without understanding ASIN-level profitability. Buying inventory from brands via purchase orders sounds great in principle but requires discipline to ensure that the inventory moves and generates revenues. Looking at brands sold by Spreetail and Pattern on Amazon does not showcase any strategy.

These businesses did not realize that their marketing investments commodified their operations and decreased margins. To generate revenues in 2024, Spreetail and Pattern have utilized fulfillment by merchant (FBM) on Amazon as a tool to generate margin per item sold. Spreetail can be seen as a specialist logistics company for non-standardized product sizes. It is hardly interesting or generating 10x opportunities for its investors.

Pattern sells on various marketplaces, while Spreetail has remained Amazon-only. A European investment bank evaluated one of these companies for a potential exit. This generated the question for me: What is the benefit of a brand or a platform in acquiring an accelerator? I am still looking for an answer to this question.

A few weeks ago, I heard unconfirmed rumors that a global beauty brand considered buying an accelerator and ended up walking away from it and is rather hiring an internal team.

Where to Now for Accelerators?

As humans, we tend to overcomplicate things. Creating new names or descriptors for a business model generally leads to another version of the business in its most fundamental state. Have we not learned anything?

These companies are agencies, and I believe that agencies atrophy from their start. New competitors take 1% of your total business daily; in most cases, agency founders are building for an exit multiple. Companies acquire a book of business with certain metrics and numbers that determine the price of the business. Topline is never a metric that leads to an exit.

In conclusion

Amazon accelerators will go down in commerce history, similar to Amazon aggregators. Those who can execute better than their competitors will survive and either IPO or be acquired by a strategic. Amazon-only accelerators make no sense.

For executives and brand owners – why do you think a purchase order is a good outcome for you? I have seen multiple Amazon ASINs where these companies compete against the brand for the buy box. Really? Secondly, you lose control over the pricing and margin of your product in exchange for a lump sum. Amazon picks the brands they offer 1P/vendor services. Why would an agency offer this to every brand under the sum? Why are you selling your most profitable SKU to a partner who is uninterested in your long-term future?

Agencies, why are you subcontracting your Amazon business to an Amazon accelerator? Is it due to a lack of talent and tools, or is it an admission that you have no idea how to operate agency services for Amazon brands? I have seen this, and honestly, you harm your business as these businesses are not the best at scaling brands on Amazon. Agencies must offer brands the opportunity to grow their businesses at scale on Amazon using the less is more strategy. Charging fees and billable hours help no one. Brands want to be able to access third-party selling on Amazon to control their pricing and margin. In most cases, Agencies are more interested in vendor solutions. Non-alignment of incentives are a real thing.

For private equity funds, buying Amazon stock is done via an investment platform. Secondly, it may look good in a finance model, but does your asset have the right access to the right people and tools in reality? I have yet to experience it.