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The report suggests Amazon is taking 34% of third-party sellers' revenue.
This sounds like a lot, but "revenue" in this case is the retail sales price of the goods.
Traditionally, in a wholesaler-retailer model, the retailer "keystones" their cost on the good, meaning they arrive at the selling price by doubling their cost. This is of course a somewhat antiquated idea now (markups are generally lower now) but it gives you an idea of typical gross margins before selling costs (doubling the cost would give you 50% margins).
34% means that Amazon is keeping 34% of the retail price of the product as profit. That doesn't actually strike me as particularly high. It's not low (Costco is much lower, with 15% selling margins) but it's not particularly high either.
The article goes on to complain about advertising costs. Welcome to retail! Are you ready to play slotting fees? End-cap fees? Promotional and coop fees? Most big retailers do this. I know of not-huge companies that pay millions per year, in advance, to a home improvement retailer to secure exclusivity over an entire shelf.
It's one reason why selling to retail is annoying (versus selling to businesses), because almost all big retailers are extractive and prioritize their profits over great prices to consumers. But this article comes across as if they don't know anything about retail.
There's a good argument that this kind of behavior is perhaps Day 2 behavior - the conversion into a big company that pushes for margins above all else. But it's not different from traditional retail.
That is why it is annoying to read Silicon Valley / tech or mainstream media's take on Retail.( As well as supply chain... or pretty much everything other than their own tech.) Not to mention that 34% is _gross_ profits. There are huge amount of operation cost involves.
I understand some press, or parties want to take down Amazon or whatever it is. But they need to do a better job at it.
From my perspective, this misses the point.
If we were talking about Amazon as just a retailer, yes, everything you've said would be true.
If we were talking about independent 3rd parties being retailers on their own web sites, then yes, everything you've said would be true.
But we're actually talking about independent 3rd parties selling through Amazon's marketplace. Amazon hasn't really promoted its store as if it was a department store, but rather as a mall owner (and perhaps operator of the keystone store in that mall). In that context, the usual arrangement is that the 3rd party sellers just rent space from the mall owner, but the mall owner gets no cut of their sales (nor any information about their sales).
Most 3rd parties selling on Amazon do not consider themselves as "selling retail" the way they would if they put their products in Nordstrom or Target or Neiman Marcus or Dillards. They (imagine) are using Amazon as a way to sell direct to customers, but instead, Amazon's arrangement is indeed more like the traditional retail model that you've described.
Mall owners at top malls do get a cut of profits and stores have minimum profit or they can be let out of a lease.
Strip malls no. Strip malls with an anchor store could have some profit going to the anchor stores.
Amazon has solved the shipping end and that's where much of their value is.
From the customer's viewpoint, Amazon is a Department Store. Customers see a unified product list, reviews, checkout, shipping, returns, etc.
I think it is somewhere in between. All the things you listed are true, but Amazon will still say things like "Sold by ...", and there is still the option for drop shipping (or something very close to it).
I am fairly sure that if Amazon had started the marketplace by promoting it just as an online department store, with all the "selling to retail" elements in the GP, it would have been much less successful than it was given their actual promotion of it as a _marketplace_.
Valid points. But to me, this just raises the question of whether comparing business practices of Amazon (ecommerce) to someone like Bed Bath & Beyond (brick and mortar) is a fair comparison to begin with.
Is it really apples to apples, or more of an apples to oranges type of comparison? I'm not convinced we should be using brick & mortar retail business practices to justify/rationalize business practices of Amazon.
> 34% means that Amazon is keeping 34% of the retail price of the product as profit. <...> (Costco is much lower, with 15% selling margins)
then later
> But it's not different from traditional retail.
Aren't these contradictory?
Costco is not traditional retail. If you compare Amazon's margins to Costco it will look bad, if you compare it to a cosmetics store, it will probably look good. The (now old fashioned) rule of thumb was 50% margins, but as GP pointed out margins are lower now. 34% is within the ballpark of a brick-and-mortar store.
> 34% means that Amazon is keeping 34% of the retail price of the product as profit
34% is Amazon's average cut, but it's not profit. They are getting this number including advertising and fulfillment spends.
To sell $10,000 worth of clothing today, Steve explains, he must pay Amazon $1,700 in referral fees and spend another $1,500 to $2,000 on ads
So hold up... the "fees" include fulfillment and _optional advertising expenses_? And it's still only 34%? That's a bargain! In brick and mortar retail, you are lucky to get 50% margin on a product, and that's just in the stocking (fulfillment) costs - let alone advertising!
It's also worth noting those referral fees are not just free money for Amazon - they are buying ad space on other sites on behalf of their customers (likely at a loss). So their report that Marketplace is secretly crazy profitable is mostly bunk - it basically assumes Amazon incurs no costs to ship and advertise products.
The real problem they are dancing around here is that Amazon allowed the direct inclusion of international storefronts in the marketplace. Companies abroad can operate at much lower margins, and the traditional e-retail business model (buy from wholesalers, resell at markup to consumers) basically doesn't make sense anymore.
I'm not going to speak for the Amazon situation. But comparing it to toll roads in the real world is disingenuous. Untolled roads are paid for by public taxes, they encourage driving, and people who don't drive end up subsidizing people who do drive.
“fair pricing policy.” Even though some competing platforms charge much lower fees, if Steve lowers his prices on another shopping site, Amazon’s algorithms punish him
How the hell is this legal? Who do I donate to in order to start the ball rolling on making it illegal?
I think there's context & detail beyond immediate outrage.
In context of article with specific point to make, it sounds awful. But think about it: if e.g. Marriott starts selling rooms for $100 on their website, but $120 on any other site such as Bookings or Expedia or whatever, isn't this ALSO something you as a consumer would get peeved at? Wouldn't you immediately demand that they put a stop to that insidious practice, and regulate some law that forces Marriott to give same low prices to everybody? :->
I'm sure Expedia would try to spin it that way. But no, if Expedia wants a $20 cut, they should be providing a $20 service.
https://en.wikipedia.org/wiki/Most-Favoured-Customer_Clause
Thanks for pointing me to the name. These things are gross, and we need to get rid of them ASAP.
The whole spirit of market capitalism is "players are allowed to be relentlessly self-interested but we rely on competition to keep them in check." MFCs clearly undermine competition and therefore undermine the very foundation of our economy.
They exist on the other side of too:
Discover typically charges the merchant lower fees than AmEx does when you checkout at a retailer. However the merchant is forbidden by it's agreements with AmEx (and Visa, and Mastercard) from giving you a discount if you use Discover card.
You'll never guess what I think about credit card interchange fees and the contracts that prevent these prices from being exposed to the customers who could force Visa, Mastercard, and Discover to actually compete on price.
This should also be illegal, but one wouldn't expect much movement on this issue during the presidency of "the senator from MBNA".
Why would you possibly want a bureaucrat in Washington, or committee of such, overseeing Amazon's pricing decisions?
Amazon's policy makes total sense. If you discover an item on its site, benefit from its reviews, specs and descriptions, and then last minute, go buy at Newegg or Walmart or wherever because its $20 cheaper, how does that help Amazon? Amazon would rather have you "discover" items that it sells at the lowest price, and thus lowest probability of you going to an alternative store. I don't like Amazon's massive dominance but I can't blame them for directing you to items you are most likely to buy from them.
Obviously Amazon's anticompetitive behavior is good for Amazon. Why on earth does that make it good for me? Why _shouldn't_ I oppose it?
Your comment isn't an argument, just a pair of questions. Don't ask me to justify your opinion, figure it out yourself.
Amazon promoting products that Amazon is most likely to sell is NOT "anticompetitive behavior."
Every company seeks to do things to benefit themselves. Do you oppose them all?
Yeah, yeah, you're "just asking questions." Lol. Questions that relentlessly frame the matter in an agrgessively pro-amazon stance.
Amazon is obviously free to show the best deals on Amazon. That's not at all what this is about, and you know it.
>Why would you possibly want a bureaucrat in Washington, or committee of such, overseeing Amazon's pricing decisions?
Alternatively
"Why would you possibly want your democratic representative in Washington, or committee of such, regulating markets to work in favour of the average citizen?"
How would higher prices work in favor (sorry, favour) of the average citizen?
Amazon promotes items that it sells for the lowest price. Your local supermarket sends out a flyer every week with all the items it has put on sale, then makes sure those items are easy to find in the store. It's the same thing. Or maybe you want Senators to have final approval over supermarket flyers too.
> Why would you possibly want a bureaucrat in Washington, or committee of such, overseeing Amazon's pricing decisions?
Presumably for the same reason(s) that you want an unelected corporate bureaucrat in Seattle making these decisions instead.
The guy in Seattle is a capitalist. If you don't like his decisions, you are free to ignore him and not do any business with him. Of course, many of his decisions do benefit you -- low prices, free delivery, wide range of products, displaying reviews, etc. -- but again, you aren't obligated to participate or interact. In fact, even if you refuse to buy from Amazon, you still benefit -- because of competition, your favorite store probably also offers free delivery or has low prices because it needs to compete.
If a committee of Senators, on the other hand, makes a declaration -- Amazon cannot sell Chinese goods cheaper than American-made alternatives -- or maybe, delivery times to rural areas must match those to cities -- then everybody loses, and you can't opt out of that.
You can only ignore a capitalist until he becomes a monopolist.
You can ignore a commitee of senators at any time by voting them out.
I agree Amazon has an uncomfortable amount of power and influence in retail. But they are very far from a monopolist. And "voting them out" doesn't erase laws that they passed.
Amazon isn't motivated to make the best economy, they're motivated to make the most money. They absolutely cannot be trusted and are not accountable to anything or anyone other than shareholders. By contrast, a burecrat can be held responsible for doing things contradictory to the goal of creating a fair marketplace.
A major advantage Amazon has over traditional retailers is that it will sell anything from anywhere, in fact it seems to prefer no-name brands from random Chinese factories over more established brands. Go try to buy power tools from Home Depot. It's Ryobi, Bosch, DeWalt, Craftsman, Makita, etc. Amazon has a ton of random brands at prices 30-60% less. The same holds true in many, many categories of goods. Camping gear. Lighting. Cookware. Surely some of these goods are inferior -- but given how much manufacturing has moved to China, some are just as good as name brand items. I think most retailers are overestimating the importance of familiar brands vs bottom line price.
Amazon has mastered the art of selling cheap, crappy goods. At some point Walmart was the leader in this strategy but now Amazon has taken over the lead. I am increasing dreading to buy from Amazon because when you look for something you get 20 different listings of the same looking product with sketchy reviews. Their search also seems very manipulative sorting and showing and hiding of filter criteria based on probably an algorithm that benefits them.
But the quality of name brand goods has declined. The cheap, crappy stuff isn't all bad, some is quite good.
I think more people are abandoning brands as they realize they paid a premium for a non-premium item. I think more people are embracing no-name stuff (with a return policy) than "dreading" it as you describe.
(and yes, Amazon's algorithm benefits Amazon)
That’s because more than 60 percent of Americans looking to buy something online start their product search on Amazon, rather than a search engine
Even if you use a search engine, most of the top results are usually amazon, or a website that links to Amazon. At least in my experience.
> more than 60 percent of Americans looking to buy something online start their product search on Amazon
I’d say it’s worse in other countries. The US probably has the most developed non-Amazon e-commerce market out there.
In Canada, doing an eBay search too is usually a non-starter, and there we have fewer niche online retailers in the first place.
Other countries without an e-commerce market right now risk becoming 100% dependent on Amazon.
To give you some insight about the situation in France:
It is very difficult to maintain diversity. Challengers can hardly face the leader head on. Amazon's dominance in e-commerce can always be put into perspective, as it only represents 13% of commerce in France today. Its position is much less dominant in France than in the United States. Except that e-commerce is far from having reached its saturation point.
Translated with Deepl
Source: Interview wiwth Philippe Moati,
https://www.lenouveleconomiste.fr/philippe-moati-la-force-da...
Is it not a clue for regulators that nobody even dares to be quoted by name in such articles?
The statistic that stood out to me:
"For every $100 sellers earn in sales, Amazon is taking $34, up from $19 in 2014."
Including AWS and other products, Amazon’s total revenue is about 2% of total retail revenue. Calling it a retail monopoly is a bit of a stretch, to say the least.
I try to avoid doing business with Amazon but I think arguments should start from a reasonable basis.
I'd claim that retail is such a vast category that it is entirely monopolistic.
I don't understand the amount of hate for Amazon. I travel around the world, and whenever I was in the US and ordered from Amazon, got my package the same or next day for a very cheap price, I thought of moving to US just because how much easier it makes life there.
All of us play several different roles in life. Child, parent, employee, employer, friend, colleague, enemy, competitor, producer, consumer, activist, defendant, victim, oppressor, buyer, seller, exploiter, exploited, citizen ...
Amazon is an amazing thing when we're wearing our consumer hat. Not perfect, but really deeply amazing.
But if you put on some of the other hats, it's no longer so clearly a good thing. Wearing our consumer hat all the time ("Cheap! Fast! Great!") is not a positive thing for the overall structure of society.
Nobody is saying that they're not doing a good job.
For me it's about the externalities such as poor treatment of their workforce, tax avoidance, worsening the consumption culture and environmental impact.
I think it's mostly ethical concerns. Poor treatment of workers, anti-competitive practices, supporting a billionaire, etc.
Amazon is consistently ranked near the top of trusted organizations. In real life I only know 2 or 3 people who might actually complain about Amazon.
But being big means you draw more attention. And journalists love to give them attention.
Because they know the actual cost of the convenience. The cost is far more than the item price being deducted from ones bank, there are externalities.
alleging that its pricing policy functions as an “anticompetitive restraint” that has “artificially raised the price of goods to consumers across online marketplaces”
They are arguing that Amazon policy of having the lowest price for listings, artificially inflates the prices?
So in order to not inflate prices, Amazon needs to raise prices???
Sellers are not allowed to price lower on other online sites, how does Amazon setting a minimum allowed price not keep prices higher?
Are you thinking of if Amazon had instead set a maximum allowed price policy?
> not allowed to price lower on other online sites
Except the the policy is you cannot list on Amazon at a higher price, because they can only dictate the terms of their platform. Are they setting a minimum or a maximum?
"Setting a price on a product or service that is significantly higher than recent prices offered on or off Amazon"
[1]
https://sellercentral.amazon.com/gp/help/external/G5TUVJKZHU...
LOL that's some serious spin. "Amazon policy of having the lowest price" = Amazon punishes any listings if they discover off-amazon channels with lower prices and savings passed on to consumers.
That right there is the very spirit of anticompetitive behavior. Refined, distilled, purified, and concentrated. And yes, it absolutely raises prices and puts the proceeds squarely in Amazon's pocket.
> LOL that's some serious spin. "Amazon policy of having the lowest price" = Amazon punishes any listings if they discover off-amazon channels with lower prices
Is it spin? Amazon's policy is that they can't list on Amazon at a higher price [1]. So they want to charge a higher price on Amazon, but they can't. How do consumers win with them charging higher prices on Amazon?
[1]
https://sellercentral.amazon.com/gp/help/external/G5TUVJKZHU
...
Because then when Amazon cranks prices, like they are doing, customers could go elsewhere and pressure them to stop.
Amazon would have to provide a service that was actually worth the premium they charge. Perish the thought.
> Because then when Amazon cranks prices, like they are doing, customers could go elsewhere and pressure them to stop.
> Amazon would have to provide a service that was actually worth the premium they charge. Perish the thought.
I don't follow this argument... They need to raise prices, to put pressure on themselves to provide a better service to customers because they raised prices?
I am not a fan of the tech oligopolies, there are tons of legitimate criticism of them but this seems circuitous
Or you're not allowed to punish Amazon customers for using Amazon and charging more on the platform....
You're not "punishing" them by passing off the higher costs of that channel to the consumer. You're creating an incentive to buy your product via lower-cost channels, so everyone wins (except Amazon).
No only the business wins here, I'm on Amazon's site because I want to order from Amazon. I don't want to deal with ur shitty shipping and re-entering all of my information constantly.
So then pay the Amazon premium. Why should I pay more off-Amazon because you want to shop on Amazon?
If those are benefits you value, you should be happy to (indirectly) pay Amazon the premium that they charge for it.
If I'm selling widgets and eBay wants a $5 cut while Amazon wants a $10 cut, it is Amazon that is asking for $5 more. Not me.
The customer doesn't care. It's the price of business. Charge the same price or don't use the platform.
Wow, this thread is lousy with Amazon spin doctors!
A. It's Amazon doing the charging, B. No, it's the price of a regulatory environment that frees the largest distribution channel from the need to compete on price, and C. we're talking about the legality of retaliating for exactly that.
They could leave their prices as they are. The suggestion is that they should stop punishing vendors who sell for less through other stores.
Amazon now pockets a 34 percent cut of the revenue earned by independent sellers
I'm curious how this compares with other channels. I guess there's a wide range of spectrum; from having their own online/offline stores all the way till Amazon/Ebay etc.,
Cancel your prime subscription, you don't need it. I canceled mine 3 years ago - couldn't handle the feeling that I was feeding the beast.
I like mine. Aside from package delivery (which isn't really a big selling point for me, TBH), my family and I watch a lot of content on Amazon Prime Video, and listen to a lot on Amazon Music. I find it good value for money.
Now, rant about Amazon Music incoming!
What I don't like though is all the _spam_ Amazon does in Amazon Music to try to get you to upgrade to Amazon Music Unlimited - honestly, it's absolutely _relentless_! Multiple times a day it brings up a full-page and/or popup nag, and sometimes even does it in the middle of a track! I've been a member for several years, and must have said "no" thousands of times by now - you'd think the system would have realise by now that all they're doing is damaging good will.
What mechanism would the system have realized it has damaged good will?
You said you haven’t canceled your prime subscription, but have you started using the service less? I think this is a case where the relentless A/B testing ubiquitous in modern tech fails: how would one even measure this long term sentiment that may not affect user behavior for a very long time?
Thanks for the heads up.
If this article is correct, you are not "feeding the beast" by subscribing to Prime, you are taking food from the beast, since Prime is subsidized by Amazon.
If you have prime, you’re ordering a lot from Amazon. (Because otherwise why have prime) so having prime is feeding the beast unless analyzed with an excessively narrow bounding box.
Whereas if one doesn’t have prime, there’s many other retailers.
"The losses Amazon sustains on Prime’s free shipping and selling goods below cost are how it maintains its monopoly power."
According to this article, if you use Prime, you cost Amazon money.
No, that's not what the article says. What the article says is that if you subscribe to Prime _and purchase a certain amount, type, and quantity of goods in some configuration_ you might cause Amazon a loss.
If you subscribe to Prime in any other way, Amazon might make less profit, but you're not costing them money, you're 'feeding the beast.'
Maintaining monopoly power > losses
Amazon inflates prices to include shipping costs on prime goods, despite the subscription giving free two day shipping. It's most obvious on smaller items that typically only cost only a dollar so, but with Prime free shipping they include the shipping cost in the price.
The customer pays for the prime shipping.
Cancelled mine recently. I had to get back in the habit of shopping from other retailers. It's been just fine.
That’s because more than 60 percent of Americans looking to buy something online start their product search on Amazon, rather than a search engine.
Steve has tried to escape Amazon’s grip by selling on other platforms. But he’s had no luck generating more than a trickle of orders on these sites.
Kinda gives the game away, right? You're either sharecropping on Amazon's land or Google's. There is no scalable way for companies to reach their markets that doesn't involve _something_ being the portal that people use to do product discovery. Whatever business finds themselves in this position will by its very nature wield disproportionate market power. You can't "break up" Amazon, Google, YouTube, Apple, and the countless other people who act as discovery portals into different markets -- you can only regulate them.
It would help if he could lower his prices on these sites, he says, but Amazon effectively blocks him from doing so under its “fair pricing policy.”
You can't get the benefit of free marketing by being listed on Amazon and then try to screw them over by lowering prices on your own sites. This isn't monopoly power inasmuch as businesses not realizing that they're trying to get advertising and discovery for free without paying the piper.
This is a strange understanding of "screw them over". Lots of products are sold for a range of different prices, and have been throughout economic history. Amazon appoint themselves "lowest-price king" because they can, not because they have some sort of moral right to that position.
why should a business be allowed to overcharge Amazon customers? Your product should have a price not a Amazon price and a Shopify price.
Every product varies in price depending on the conditions of sale. Shopify's fees are lower than Amazon's. Why shouldn't there be a free market in online fulfillment?
Huge opportunity for alternative search engines but most of them don't do paid results
from the title, I thought Amazon actually invested in toll roads. It sounds like an interesting idea if we could make big tech build infrastructure for the public.