Is this the start of something huge?
Sometimes speculated, often dreaded and nearly always terrifying to the company’s product suppliers, Amazon’s third-party Marketplace may be being positioned as a near total replacement for the company’s own product selling efforts.
Thousands of companies that do business with Amazon were notified last week that they had been removed from the company’s own list of vendors, defacto being pushed to do business on Marketplace. Amazon is only saying the move is part of its regular review process and while some are speculating there may be other reasons for the change, the push is seen by many as part of a longer-term strategy to eventually eliminate most of its own direct selling efforts.
The move, specifics of which have not been confirmed by Amazon, appears to impact smaller sellers, perhaps those doing in the range of $5 million or less a year of sales through the company.
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In its most recent quarter Amazon said third party sales represented 52% of its total merchandise sales, by unit. That’s up from 43% over the past four years. That amounted to $13.4 billion in commissions for Amazon for the quarter, up 27% from the $10.5 billion figure a year ago.
By comparison, what the company calls “net product sales” – essentially the products it sells directly – accounted for $44.7 billion of its total $72.4 billion in revenue for the quarter.
All of this comes amidst anecdotal reports from both former employees and sources in the trade that Amazon’s ultimate goal is to largely get out of the direct product sale business. By transitioning to a business model in which it doesn’t own any inventory and only collects a commission on third-party sales Amazon could have a cleaner balance sheet with less money tied up in buying goods itself.
For vendors who have counted on Amazon buying products and paying for them regardless of when they were sold and for how much – the traditional wholesale selling model – the impact of this shift could be devastating. Many suppliers do not have the sophisticated systems in place to manage their online sales directly at the scale of Amazon, even though they could eventually come to own and control their sales data better than they do now.
And for consumers, the question is, does it matter to them? Do most shoppers even realize the difference between buying a product directly from Amazon or from a third party, given that many of those latter orders are still serviced through the Amazon fulfillment process? And what it would mean for prices is anybody’s guess.
If this is in fact actually happening, this big shift from Amazon could represent yet another fundamental change in the online business—just as the industry was getting used to the last one.
Update: March 13, 2019: Additional information from Amazon and other sources indicates that this cut-off of vendors may have been an administrative snafu more than a concerted effort to eliminate vendors. That said, it still appears that Amazon’s intention is to move suppliers to the Marketplace model or at the very least combine its two e-commerce platforms. Amazon is still being somewhat mysterious about its long-range plans.
Date: March 14, 2019