March 19, 2013
Is Amazon Facing a Mutiny?
Amazon.com has a pretty good business going with third party sellers. According to Reuters, goods sold by other vendors now account for roughly 40 percent of total unit sales on the site and Amazon takes a cut on each one. While the deal between the parties has benefits for all involved, there appears to be some resentment by retailers over rate hikes put through by Amazon in recent years.
"If they increase fees too much, some sellers will decide to not sell there anymore," Niraj Shah, CEO of furniture retailer Wayfair, told Reuters.
Mr. Shah’s business, which operates its own website as well as selling on Amazon’s, eBay’s and Walmart’s marketplaces, thinks merchants now have other options and can do quite well without Amazon.
Apparently, not all Amazon merchants share Mr. Shah’s sentiments nor come to the same conclusion regarding the Reuters report. One post in the Amazon Seller Forum by Lake concluded that there was abuse of the system by third-party sellers, particularly in electronic accessories, and that Amazon was simply doing what was needed to be profitable. Lake wrote, "When your strategy for running a business is dependent on your landlord acting against his own interests, you always discover you fail."
Another merchant indentified as Intranet Works called the article a "tempest in a teapot. … Many Amazon sellers already sell in other venues. There’s no Hobson’s Choice except in the writer’s imagination; business-like sellers sell where they sell because that’s where they choose to sell."
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Recent Discussions
Discussion Questions
Do any of the current or upcoming internet marketplaces appear as though they will be serious competition for Amazon.com? Do you see Amazon merchants leaving in big numbers to go to competitive marketplace sites?
Poll
I was all set to say “Very unlikely” but you put the time frame out 5-10 years, and the only thing I can say to that is “Who knows?” I dont see Amazon customers moving to Walmart.com. For the short term, I think it is indeed a tempest in a teapot.
It’s hard to tell what exactly will take over as the next “big thing.” I know eBay is revamping to complete with Amazon as a marketplace for retailers. Merchants will have to evaluate the value proposition of what they are getting from Amazon in terms of exposure and service levels and determine if it’s the business model for them.
We all have to do some spring cleaning from time to time…merchants should be reviewing operating procedure on a regular basis to determine their effectiveness and necessity.
If sales decrease and continue to decrease, and if Amazon.com is no longer profitable, companies will stop selling on Amazon. If sales continue and profitability decreases, companies will consider alternatives and complain, but are not likely to leave unless another marketplace offers a better deal, keeps current customers, and offers the opportunity of new customers.
Amazon is clearly in the catbird seat now, and for the foreseeable future, in part because they’re so aggressive. They continue to find ways to be relevant to consumers of a variety of products. Think of almost any product—aspirin, sofas, First Holy Communion outfits—and they’ve got it. Amazon Prime was a genius idea.
They’ll be smart to watch their back, but for now, there’s a reason that they’re America’s favorite retailer.
This is just my opinion, but Amazon is trying to get more fees to cover their ever increasing shipping to all the customers. Free just isn’t free anymore, and they feel that their suppliers will stick with them regardless.
But maybe not…this is going to get interesting to see how it works out.
This question begs for clarification. If we’re talking about Amazon simply as a retailer, where it seems to have about a 30% share of online sales, then clearly it already HAS “serious” competition…always had and always will (and if we adopt the popular view that this is an omni-platform world, then they have even more competition). OTOH, if we’re talking about Amazon as a marketplace for third party sellers to piggyback onto, then obviously they’re relatively much more important.
Will other forums threaten this dominance? Ultimately yes, though whether it will be the “usual suspects” (eBay, Facebook, etc.) or sites not yet in existence is impossible to say.
I just bought a new smartphone through one of the wireless companies — in their store. I was amazed at how they were trashing iPhones. As much as that said about the salespeople, it told me a lot more about the state of things between Apple and its partners.
Amazon.com is a great company and a pioneer in online retailing. They have paved the way for many, and therefore must always be looking over their shoulder to see who is sneaking up on them. There will be competition—no doubt about it.
On the merchant side, Amazon.com must always keep in mind that there is a partnership with the merchants. Should the fees get too high or other demands seem unreasonable, the merchants may look to other sources to sell their products. Like in any business, there could be a tipping point where enough merchants switch to an Amazon.com competitor to make them a viable player in the marketplace.
Online item profitability is the key for sustaining in the online world. Vendors selling through a marketplace need to operate and think like a CPG company. Understanding where the buyer is for their items also becomes crucial. Most marketplace vendors do not have volumes or infrastructure to operate like a CPG company and hence are heavily dependent on the online retailer to do all of the thinking for them.
Popularity of other marketplaces have given the vendors options to reach out to larger audience, however, the item needs to be relevant—right price, quality and available for the vendor to succeed. Higher listing charges by Amazon are justified, since listing on Amazon undoubtedly gives vendor products most exposure combined with analytics and many times, even the supply chain powered by Amazon.
Amazon and eBay have created a model which has lowered the barriers to entry into a market. The demand for easy entrance to any market will certainly always exist. Research has indicated that marketplace companies provide their sellers with credibility. Marketplace sellers instantly establish attitudinal loyal instantly with sellers. Amazon will lose most of their current merchants if they continue to hike up the costs. However, they will acquire new merchants just as quickly due to the low barriers of entry.
Amazon is in the driver’s seat. They will continue to raise rates as long as their perception of having every product a consumer could need is not jeopardized. Due to Amazon’s increasingly efficient model, they will not lose this until the next major disruptor comes along. Hint—it’s not same day delivery….
First, all competition is serious competition for Amazon. Cathy Hotka correctly points that out.
Secondly, the iPhone is barely over five years old. In this era when the speed of technology nearly as fast as lightening, it is nearly impossible to predict out five to ten years. The entire way the world appears in this market could have a completely different landscape by then. That could be true even one year out.
What if an entirely new gateway erupted in two years? The rapid expansion of technology could change everything. In the meantime, many of these merchants are growing and expanding as a result of an entirely new portal that gave them access to consumers they had no imagination of how to reach prior to Amazon. That is up to both Amazon and the merchants themselves to lose. Unless a viable alternative becomes even more affective, they’re right where they are for a while.
The forecast for tomorrow is snow. That could change. There could be kid in a basement in headphones working on something right now that we can’t even imagine.
At present, no. But as one one looks out over the longer term, it really is hard to tell. It is all about balance. If the fees get too large or sales decline, things could shift, but for the time being, advantage Amazon.
Although Amazon has the early lead and the traffic to make it one of the most attractive marketplaces for merchants, I would not count the others out for a few reasons: 1) Amazon *could* stumble. The early leader does not always win the race. I am not saying that I expect that to happen here, but it is always a possibility. 2) Each marketplace has their own offering, and merchants need to choose which are the best ones on which to showcase their products. Each marketplace is a channel for the merchants, and they may find that another marketplace gets less traffic, but better profitability. 3) As is often the case, it may make strategic sense for merchants to list their products on more than one marketplace in order to reduce Amazon’s pricing power, and to risk-diversify in the event that something makes it undesirable to continue listing with Amazon.
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I was all set to say “Very unlikely” but you put the time frame out 5-10 years, and the only thing I can say to that is “Who knows?” I dont see Amazon customers moving to Walmart.com. For the short term, I think it is indeed a tempest in a teapot.
It’s hard to tell what exactly will take over as the next “big thing.” I know eBay is revamping to complete with Amazon as a marketplace for retailers. Merchants will have to evaluate the value proposition of what they are getting from Amazon in terms of exposure and service levels and determine if it’s the business model for them.
We all have to do some spring cleaning from time to time…merchants should be reviewing operating procedure on a regular basis to determine their effectiveness and necessity.
If sales decrease and continue to decrease, and if Amazon.com is no longer profitable, companies will stop selling on Amazon. If sales continue and profitability decreases, companies will consider alternatives and complain, but are not likely to leave unless another marketplace offers a better deal, keeps current customers, and offers the opportunity of new customers.
Amazon is clearly in the catbird seat now, and for the foreseeable future, in part because they’re so aggressive. They continue to find ways to be relevant to consumers of a variety of products. Think of almost any product—aspirin, sofas, First Holy Communion outfits—and they’ve got it. Amazon Prime was a genius idea.
They’ll be smart to watch their back, but for now, there’s a reason that they’re America’s favorite retailer.
This is just my opinion, but Amazon is trying to get more fees to cover their ever increasing shipping to all the customers. Free just isn’t free anymore, and they feel that their suppliers will stick with them regardless.
But maybe not…this is going to get interesting to see how it works out.
This question begs for clarification. If we’re talking about Amazon simply as a retailer, where it seems to have about a 30% share of online sales, then clearly it already HAS “serious” competition…always had and always will (and if we adopt the popular view that this is an omni-platform world, then they have even more competition). OTOH, if we’re talking about Amazon as a marketplace for third party sellers to piggyback onto, then obviously they’re relatively much more important.
Will other forums threaten this dominance? Ultimately yes, though whether it will be the “usual suspects” (eBay, Facebook, etc.) or sites not yet in existence is impossible to say.
I just bought a new smartphone through one of the wireless companies — in their store. I was amazed at how they were trashing iPhones. As much as that said about the salespeople, it told me a lot more about the state of things between Apple and its partners.
Amazon.com is a great company and a pioneer in online retailing. They have paved the way for many, and therefore must always be looking over their shoulder to see who is sneaking up on them. There will be competition—no doubt about it.
On the merchant side, Amazon.com must always keep in mind that there is a partnership with the merchants. Should the fees get too high or other demands seem unreasonable, the merchants may look to other sources to sell their products. Like in any business, there could be a tipping point where enough merchants switch to an Amazon.com competitor to make them a viable player in the marketplace.
Online item profitability is the key for sustaining in the online world. Vendors selling through a marketplace need to operate and think like a CPG company. Understanding where the buyer is for their items also becomes crucial. Most marketplace vendors do not have volumes or infrastructure to operate like a CPG company and hence are heavily dependent on the online retailer to do all of the thinking for them.
Popularity of other marketplaces have given the vendors options to reach out to larger audience, however, the item needs to be relevant—right price, quality and available for the vendor to succeed. Higher listing charges by Amazon are justified, since listing on Amazon undoubtedly gives vendor products most exposure combined with analytics and many times, even the supply chain powered by Amazon.
Amazon and eBay have created a model which has lowered the barriers to entry into a market. The demand for easy entrance to any market will certainly always exist. Research has indicated that marketplace companies provide their sellers with credibility. Marketplace sellers instantly establish attitudinal loyal instantly with sellers. Amazon will lose most of their current merchants if they continue to hike up the costs. However, they will acquire new merchants just as quickly due to the low barriers of entry.
Amazon is in the driver’s seat. They will continue to raise rates as long as their perception of having every product a consumer could need is not jeopardized. Due to Amazon’s increasingly efficient model, they will not lose this until the next major disruptor comes along. Hint—it’s not same day delivery….
First, all competition is serious competition for Amazon. Cathy Hotka correctly points that out.
Secondly, the iPhone is barely over five years old. In this era when the speed of technology nearly as fast as lightening, it is nearly impossible to predict out five to ten years. The entire way the world appears in this market could have a completely different landscape by then. That could be true even one year out.
What if an entirely new gateway erupted in two years? The rapid expansion of technology could change everything. In the meantime, many of these merchants are growing and expanding as a result of an entirely new portal that gave them access to consumers they had no imagination of how to reach prior to Amazon. That is up to both Amazon and the merchants themselves to lose. Unless a viable alternative becomes even more affective, they’re right where they are for a while.
The forecast for tomorrow is snow. That could change. There could be kid in a basement in headphones working on something right now that we can’t even imagine.
At present, no. But as one one looks out over the longer term, it really is hard to tell. It is all about balance. If the fees get too large or sales decline, things could shift, but for the time being, advantage Amazon.
Although Amazon has the early lead and the traffic to make it one of the most attractive marketplaces for merchants, I would not count the others out for a few reasons: 1) Amazon *could* stumble. The early leader does not always win the race. I am not saying that I expect that to happen here, but it is always a possibility. 2) Each marketplace has their own offering, and merchants need to choose which are the best ones on which to showcase their products. Each marketplace is a channel for the merchants, and they may find that another marketplace gets less traffic, but better profitability. 3) As is often the case, it may make strategic sense for merchants to list their products on more than one marketplace in order to reduce Amazon’s pricing power, and to risk-diversify in the event that something makes it undesirable to continue listing with Amazon.