Shut down by algorithm: Small businesses suffer online nightmare

Small businesses’ online shops are being switched off by computer algorithms with no warning or apparent human oversight, the small business ombudsman’s office says, as digital platform disputes become its biggest source of complaints.

These disputes have quadrupled to 48.3 per cent of all new cases managed by the Australian Small Business and Family Enterprise Ombudsman in the June quarter, up from 12 per cent a year earlier. Businesses built over a decade or more, with millions of dollars a year in sales running through their online accounts, can now be closed off in seconds by a system nobody has to explain, the agency warns.

Sellers increasingly report their accounts being switched off entirely, rather than the isolated problems that once dominated: a hacked login, a withheld payment, a single listing pulled down.

“Small businesses seeking our assistance describe how a ‘community standards’ algorithm has taken down their account without any apparent human oversight,” the ombudsman’s office told this masthead.

Last month, at least five Melbourne and Sydney queer venues were locked out of Facebook and Instagram accounts they had spent more than a decade building, with the stated reasons ranging from human exploitation to a review over alleged drugs and guns. Meta later said the accounts had been flagged in error.

A suspension freezes a company’s account on such platforms, cutting sellers off from customer details and product photographs. The ombudsman’s office has urged digital platforms to provide human contacts, specific reasons and structured appeal paths before taking such action.

One of the disputes has recently been taken to the competition watchdog: US inventor Jack Nekhala has lodged a complaint with the Australian Competition and Consumer Commission (ACCC) against Amazon Commercial Services, the online giant’s local arm, after his amazon.com.au seller account was deactivated on April 11, 2025.

He says there had been no Australian investigation or notice, and is asking the ACCC to establish whether anyone in Australia had assessed the decision or if it automatically followed a US block.

Nekhala invented the ‘Bed Scrunchie’, a sheet fastener business that turned over about $US6 million ($8.5 million) a year, almost all through Amazon. Trouble began in September 2024, when Amazon accepted two patent infringement complaints against the product. Nekhala’s listing was disabled for nine days and took 19 calls to Amazon support. The fix, which he eventually found in a two-year-old Reddit post rather than from Amazon, was to formally retract a complaint he says he never lodged.

Then, on October 30 that year, Amazon deactivated Nekhala’s US, Canadian, Mexican and Brazilian accounts over alleged review rule breaches – the platform’s guidelines for consumer feedback, testimonials and online ratings, with nine European marketplaces following days later.

Weeks later, a man on LinkedIn offering Temu sales support connected Nekhala to a woman calling herself Jenna, who said she was a bedding seller with contacts inside Amazon. She was not an Amazon employee, and Nekhala says he never dealt with one directly.

Over four calls, Jenna showed him internal Amazon material about his account, including enforcement classifications and investigator notes invisible to standard sellers. The records described his account block as final with an instruction not to disclose the investigation’s reason to the seller. This masthead has reviewed Nekhala’s complaint records, correspondence with Amazon and his submission to the ACCC.

Jenna offered to have an internal contact release roughly $US90,000 in frozen funds for a 20 per cent fee. Nekhala says he refused to pay, but kept the conversation going to understand the offer.

“If confidential account information can leave Amazon, or if intermediaries can sell supposed influence over suspensions, complaints, reviews, listings, or frozen funds, honest Australian sellers may be competing in a marketplace where the official rules are not the only rules,” he said.

Amazon said the account was permanently suspended following multiple enforcement actions for policy violations.

Asked about the case by Bloomberg in June, Amazon confirmed the employee who leaked Nekhala’s information had been sacked for unrelated misconduct. A spokesman said employee involvement in fraud is very rare, and Amazon invests heavily in prevention. Nekhala says Amazon has never named the employee, provided access logs, or said whether other sellers were affected.

Contacted by this masthead, Amazon confirmed that Nekhala’s account had been suspended for policy violations, without providing further details. It rejected the entrepreneur’s account that it was because it found his warranty cards, which offered customers a free accessory in exchange for registering and leaving a review, amounted to review manipulation. Nekhala says the reviews were published on his own website, weren’t linked to Amazon and never required a positive rating.

Independent sellers account for more than 60 per cent of Amazon’s global sales and thousands of Australian businesses, most of them small and medium-sized, sell in its stores, according to the online retail behemoth.

Australian sellers have several routes to support, Amazon says, including phone, email and live chats, with access to Selling Partner Support and account health specialists. Email support runs around the clock, while phone and live chat are handled between 9am and 6pm.

Whether local consumer law can protect Nekhala’s contract is contested. A seller’s account being immediately deactivated due to a platform’s own risk assessment, with financial consequences and no disclosed reason, could be unfair under the Australian Consumer Law, according to University of Melbourne law professor Jeannie Paterson.

“A service provider can terminate at will, but generally needs sound reasons for doing this and ideally criteria for when it will take place,” she said.

Nekhala’s Australian revenue was modest, at $US31,444 in 2023. After the shutdown, about 650 stranded bed scrunchies were handed to a distributor. The product now reaches Australian shoppers through that distributor at $99.99, up from Nekhala’s direct $79.99 price.

University of Sydney academic Rob Nicholls said complaints of this kind hinge on whether they reveal a systemic problem. “If this problem has also affected a number of other, likely Australian, small businesses, then the ACCC will be concerned,” he said.

The ACCC said it does not comment on complaints it receives, or on individual businesses. A spokesman said obligations under the Australian Consumer Law applied equally to every business trading in Australia, whether based here or overseas, and that whether particular conduct breached the law depended on the circumstances.

“The ACCC has consistently been advocating for adequate mandatory minimum standards for digital platforms’ internal dispute resolution, and an independent external dispute resolution body for digital platform services,” a spokesman said.

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.