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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.
I must be misunderstanding this. Are you saying that if I have a product that sells for $1, my costs would be:
$0.50 actual cost
$0.34 Amazon fees
So Amazon gets $0.34 and I get $0.16? I don't know anything about retail, but that doesn't seem like a very good deal. Amazon is taking virtually no risk. Why should they get 2x what the seller does?
Let's keep it simple and comparable, and say the traditional retailer also has 34% gross margins.
In the wholesaler-retailer model, the process looks like this:
Wholesalers buys item from manufacturer for, say, $0.25. They sell item to retailer for $0.50, and keep $0.25 in gross profit. Retailer sells for $0.76, for a selling margin of 34%. The $0.26 of profit the retailer gets pays for the store, staff, logistics, net profit etc.
In Amazon's third party model, it looks like this:
Wholesaler buys item from manufacturer for $0.25. They sell item to end-customer for $0.76. They get $0.51 of profit! But now they pay Amazon a litany of fees amounting to 34% of the price the item sold at: 34% of $0.76, or about $.26. That leaves the wholesaler with the same $0.25 of profit.
The main difference in these two processes is that in the third party model, the wholesaler keeps the inventory on their books for longer, because they ship it to Amazon and then the inventory sits at Amazon (but is still owned by the wholesaler) until it sells. That means that even if they get the same profit in the end, they've employed more capital, and it gooses Amazon's return on invested capital (they don't have to own that inventory) while reducing the wholesaler's.
Wouldn’t it be significantly cheaper for a wholesaler to have a small number of B2B relationships selling to retailers than to have a ton of B2C relationships selling directly via the Amazon marketplace?
The immediate post sales support could be pretty huge and typically the retailer would handle most of that, wouldn’t they?
Your example made it more clear, so thanks.
Amazon is handing discovery, payment, fulfillment, warehousing, etc. You are fronting the capital to buy the product.
Walmart makes $0.02-0.03 on the dollar in margin. Retail is either speciality or volume driven.
I've never thought about it this way!
Have always thought of Amazon as "providing services / platform" to seller.
But from the reverse perspective, Amazon is outsourcing to sellers. Amazon is handling so much of the transaction, the seller may never actually see the product. Sellers are getting paid, primarily, for managing inventory risk.
The Amazon marketplace thing is genius because it hacks the metrics that Wall St likes. By converting inventory to a service, they transmute a liability into an asset. Amazon is a retailer without stock.
The liability (from an accounting perspective) of the inventory lives with the mostly small business sellers who don’t care as much.
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.
Amazon provides a service, and the market ultimately decided what the price can be.
Coca Cola doesn’t want to pay your local supermarket to be in the front of the soda aisle. But they do, because it drives sales.
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.
It's a marketplace.
Therefore, Amazon, Walmart, etc, should be prohibited from competing with their own customers. Vertical partitioning.
Further, the advertizing business must be separate, for all of FAANG et al. Horizontal partitioning.
Busting these trusts up will unlock shareholder value, allow competition, boost innovation. Same as before (oil, railroads, telephone, etc).
I'm ok with Amazon remaining in logistics, shipping. Once Amazon Prime is no longer run at a loss, it probably won't be anti-competitive.
Why would you apply these rules to Amazon and Wallmart and not countless other vertically integrated businesses?
Amazon is barely a vertically integrated business (now that it actually has its own branded products, it is inching its way there). It is a retailer _and_ operator of what it like to call a retail "marketplace".
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_.
> 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.
> 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.
thank you
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?
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?
competing is not anti-competitive.
> Even though some competing platforms charge much lower fees, if Steve lowers his prices on another shopping site, Amazon’s algorithms punish him
I think in most cases, this "fair-pricing" bot kicks in because a seller has instead inflated prices on Amazon to squeeze more profit from Amazon customers. Amazon thinks that such tactics diminish the value of their marketplace, so they apply this crude heuristic as a way to disincentivize it.
So to answer your question: it's good for you, because if you're shopping on Amazon you can reasonably expect that you're getting good prices (at least in theory). This leads to a virtuous cycle which feeds the beast: people buy more stuff from Amazon, Amazon can operate more efficiently, you get lower prices.
Steve is griping against Amazon, but quite possibly he just has a bad business, and the core of his problem is that he can't compete effectively with other sellers on Amazon. But to him, Amazon seems like the problem because he feels like he's between a rock and a hard place.
But, hypothetical harm aside, Amazon (FBA especially) is currently a really good deal for sellers in terms of shipping costs and access to customers.
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.
You don't seem to be discussing this in good faith. Obviously most consumers prefer what is good for consumers rather than what is good for giant retailers. We don't have to justify that to anyone.
You are missing the point of the whole argument. Amazon is successful because it does TONS of things that are GREAT for consumers. And lots of other stores do too. When a store opens at 6am on Black Friday, do you think they are doing it because their employees requested it? No, consumers did. Do you think retailers like slashing margins razor-thin? No, but if they don't, consumers will go elsewhere. Result is lower prices across the board. "Good for giant retailers" would be for you to pay shipping on all orders. To limit refunds as much as possible. To be "out of stock" on popular items they put on deep discounts and have you select an expensive alternative instead (i.e. bait and switch). Amazon and Walmart have enabled consumers to buy all kinds of goods without paying the premium that established brands charge -- the cheapest tent at REI.com is an $80 Kelty. Meanwhile Amazon has a wide selection at $60 and below from "SEMOO" and "ILOFRI" and "TEKOMI".
The OP suggested lawmakers should somehow make it illegal for Amazon to offer preferential treatment -- prominently featuring their items -- to suppliers that don't charge less to other retailers. Every store does the exact same thing -- and this is GOOD for consumers. When your supermarket puts Coca-Cola on sale (because Coke paid the supermarket), it brings out extra bottles and places them at the front of the store and makes it easy to buy. Sure you can still buy Pepsi, it's back somewhere on aisle 12 where it always is.
_...suppliers that don't charge less to other retailers._
Haha you can't even _pretend_ to have misunderstood the situation to this extent. QED on the bad faith. Amazon DGAF what percentages other retailers get. How would they even know those? They are penalizing suppliers for the prices that _consumers_ pay at other retailers. So long as Amazon are allowed to do this, they'll just keep slowly increasing their cut. What's 34% today will be 40% next year, etc.
I concede that in haste I wrote "to" instead of "at". Amazon offers preferential treatment to suppliers that don't charge less (to consumers) AT other retailers. And before you say it's up to the retailers what to ultimately charge the consumer, this is not true in today's economy, where sites like Amazon, Newegg, eBay and Walmart act as marketplaces enabling direct manufacturer to consumer sales.
Although I made the initial mistake, I'm pretty sure you just piled on with more bullshit. I'm rather confident Amazon has a good read on what its suppliers charge other vendors, just Wal-Mart and Target do in the B&M space, and that they do very much care.
>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.
Allowing sellers to price their items higher on Amazon than elsewhere means it's possible for the seller to offer me a better price, and still make more money (because their costs are lower when Amazon isn't involved).
When Amazon can force a "lowest price" the cost of Amazon's service always gets passed to me, and the lowest possible price is higher.
> 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.
> an unelected corporate bureaucrat in Seattle
Do board votes or shareholder votes not count ?
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 those Senators 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.
Amazon wants to be the place with the lowest prices, and to be known as such.
If Steve wanted to sell through a traditional retailer, he would wholesale to them and they would set the price to whatever they want.
Amazon's model is different, but not really. Imagine Steve could come in to negotiate a wholesale price with an Amazon rep.
Amazon would say: "Steve, we want to have the lowest prices in the marketplace. We checked 10 other stores, and the lowest price we found is $10. So, if we make a deal today, that would have to be our retail price. Now, working backwards, if we subtract our profit margin and expenses, the best wholesale price we would buy at from you is $3. Take it or leave it."
Also, what are these competing platforms charging much lower fees? In any case, if you're not profitable selling at the lowest price on Amazon, you don't have to sell on Amazon. You can go to these other platforms, or set up your own website. And the reason you won't want to do that is because actually Amazon offers a lot of value both to sellers and customers.
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? :->
> 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?
I'm mad it's the other way around, the cheapest price should always be direct. If someone wants to "add value" let them justify the mark up.
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.
Absolutely not. It is obvious that different sales channels have different overheads, that _should_ be reflected in the price. E.g. shops owned by farmer co-ops are able to offer lower prices because there are fewer middle-men taking a cut.
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.
You could word this as "AmEx protects its customers by ensuring stores cannot tack on an AmEx surcharge" and it would be exactly as true as the way you stated it. Two sides to every story, and all that.
Except cardholders are not the same thing as customers. AmEx makes most of its money from merchants not cardholders. AmEx attracts cardholders with low fees and perks, and leverages the resultant large base of cardholders to force its customers (the merchants) to pay higher transaction fees.
Low fees? Amex?
They do make about half their revenue off swipes, but I wouldn't describe Amex as low fee to cardholders. Their flagship card has an annual fee of $695.
That's relatively low fee for a membership-perks charge card. They also offer zero annual fee credit cards.
Pretty much every lender offers some zero-fee cards, and Amex is pretty unusual in having charge cards at all. Amex relies more heavily on annual fees than their competitors in the space - Chase, Citi, Wells Fargo, Capital One...
What lender are you thinking of that makes Amex look low-fee?
If the deal is so awful for the merchants, they can choose not to accept AmEx cards at all. Nobody is "forced." Costco switched to Visa.
This should also be illegal, but one wouldn't expect much movement on this issue during the presidency of "the senator from MBNA".
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."
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.
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.'
As others point out, those “losses” are more than made up by the customer lock in effects and market dominance they bring.
A sale on item “x” is not a loss if it’s net effect is to bring in massive profits. If there was no overall monetary benefit to prime it would be peculiar for Amazon to keep it.
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.
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?
I meant if I was building just a system, it would be obvious to me not to nah that much, or even to provide a means to not be bothered again for 6 months or whatever.
You're right that it's difficult to measure goodwill over long timescales, but IMO not everything needs to be 100% science driven - the team behind Amazon Music _must_ know that excessively, relentlessly nagging already paying customers is going to a not them.
An A/B test should probably measure user complaints. A complaint is an indicator that a user’s usage pattern may change in the future. Of course, it may not.
Although, as a user I’ve learned to complain by canceling (and explaining why when possible).
Thanks for the heads up.
Cancelled mine recently. I had to get back in the habit of shopping from other retailers. It's been just fine.
Some lively debate on this on Amazon's own Seller Forums:
https://sellercentral.amazon.com/forums/t/amazons-toll-road-...
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...
The two statements are logically equivalent.
If you can't list at a higher price on Amazon than anywhere else, then you also can't list at a lower price elsewhere.
Not really, you have to make several huge assumptions for them to get close to logical equivalence like
1) ALL PRODUCTS ARE LISTED ON AMAZON
2) ALL PRODUCTS ARE LISTED ON AMAZON BY THE ORIGINAL UNIQUE MANUFACTURER
Are two major ones.
The net effect is Amazon is setting a minimum price on sellers listings outside Amazon’s walled garden, forcing all prices to be the inflated Amazon prices.
If a seller wants to sell on momnpop-example.com which only takes a 5% cut and Amazon.com with its 30-40% cut, they are disallowed to pass any of the lower overhead for customers on momnpop-example.com back to the customer as they must price the same as on Amazon.
I guess it’s a little confusing because when Amazon sets a maximum price policy on their marketplace pegged against others, it in effect creates a minimum price policy on other marketplaces.
> I guess it’s a little confusing because when Amazon sets a maximum price policy on their marketplace pegged against others, it in effect creates a minimum price policy on other marketplaces.
I just don't find it a convincing argument of harm to the consumer.
Let's look at restaurants & delivery apps as distribution channels. They charge 12-15 dollars through the menu on the app for a 10 dollar-hamburger if I had ordered in person, because the margins are different. It's not benefiting the consumer, it's benefiting the business and is actually a deceptive practice to the consumer.
This example proves the opposite of what you appear to intend. Amazon is the more expensive channel. Of course they would _want_ to force the in-person hamburger price up to $15, so no one gets off his ass and walks down the block when he craves a hamburger. Doordash or whoever don't have the market power to do that now. If somehow they gained such market power (say a worse covid strain appears and only their drivers get to deliver food?), that would harm both consumers and restaurants, helping only the abusive rent-seeking middleman. Free people don't have to abide this kind of shit.
This has been illegal in USA since 1890. The only hope for Amazon is to hire every decent economic torts lawyer in the nation before e.g. Shopify get their act together. This is open-and-shut restraint of trade. Given the sums involved, it might actually be possible that a year or two could pass when Bezos doesn't get even more stinking rich...
Amazon is not allowing the the price to be raised for the Consumer.
My local FiveGuys sells a Cheeseburger for $11.87 Thru DoorDash app but for $9.89 thru the FiveGuys App. We aren't even talking about a different service like Delivery vs Pickup, those fee's get layered in later -- its the same menu priced 20% higher to pass costs of the partnership onto the customer. This is anti-consumer and deceptive and is the sort of behavior Amazon prevents with their policy.
The additional $1.98 is going to Doordash. It represents the additional value that their service provides. If the service isn't worth that much to you, then don't use Doordash. $9.89 is a surprisingly high price for a cheeseburger, but that is apparently what it costs for Fiveguys to pay their costs and make a suitable profit. They don't have $1.98 left over to subsidize Doordash, any more than they have $19.98 left over to subsidize Doordash's more expensive competitor ThresholdSaunter or $199.98 left over to subsidize their even more expensive competitor PorchCrawl. So, in every case, the costs of the additional service are passed on to those customers who want that service. If you can explain why PorchCrawl's service costs $199.98 per cheeseburger then you might have a clue why Doordash's service costs $1.98...
You're still completely confused about your own analogy. Fiveguys are analogous to product vendors, in that they actually have the thing that the customer wants. Doordash are analogous to Amazon, in that they charge a fee for delivery of the thing that the customer wants.
> The additional $1.98 is going to Doordash
Yes it is
> It represents the additional value that their service provides.
In theory but that is with non real world assumptions.
In this case, I would be charged 20% more for the identical hamburger either being delivered to my house or me picking it up from the store because of how I placed the order. It has more to do with lack of transparency on the platform and deceptive billing practices than value add.
Amazon uses their leverage to not allow vendors to charge 20% to pad their margins. F@#$ DoorDash for lying about prices on their platform and allowing vendors to pass it on to consumers.
You’re missing a major point, it’s similar to credit cards if a cash discount is banned. People would be forced to subsidize the credit card users and their cash back points as credit cards cannot be charged more.
Continuing the doordash if it were like Amazon, the 1.98 extra for ordering on door dash is forced to be also charged to people who go pick it up themselves. That doesn’t make sense but that’s what Amazon is doing. Amazon is not forbidding them from padding the price, its forcing them to pad the price elsewhere in order to make that elsewhere uncompetitive. it’s forbidding them to pass on cost saving from using marketplaces that don’t charge the exorbitant tolls that Amazon does.
For your view of it to be correct, the cost of an item would have to be separated into two categories, marketplace fees and base item cost. Market place fees would include every cost of selling on Amazon, any percent they take. Then if Amazon said that the base item cost must not be lower anywhere else, but the marketplace fee portion can vary, then yes your view would be correct. However, Amazon is actually saying yeah our marketplace fee portion may be exorbitantly higher, but you have to charge people our high prices even on other cheaper marketplaces
>it’s similar to credit cards if a cash discount is banned.
[1] A merchant is permitted to offer discounts for paying in cash, however, the discount must be given as a reduction from the standard price.
Does Amazon prevent you from offering promotions or discount code's on your own Shopify site? Otherwise I don't think it's analogous.
> it’s forbidding them to pass on cost saving from using marketplaces that don’t charge the exorbitant tolls that Amazon does.
No it's forbidding them from passing on the costs of the partnership, to Amazon's customers
> For your view of it to be correct, the cost of an item would have to be separated into two categories, marketplace fees and base item cost.
Which in my example you do have. The consumer experience is almost identical... I can place order for pickup/delivery thru the FiveGuy's app or thru the DoorDash app, but thru DoorDash the FiveGuys menu is priced 20% higher to pass-on the cost of the partnership to DoorDash's customers, instead of FiveGuy's selling a burger at lower margin.
If Amazon remove's the policy, prices go up 20% on Amazon to be at the same margin of their Shopify app or w/e. It's the businesses Amazon was squeezing who will benefit not the consumer. Maybe we shouldn't let Amazon or other oligopolies have that much power over vendors but they are taking the side of Amazon customers here.
And at the end of the day... some distribution channels are more expensive than they are worth. If the commercials don't make sense, stop listing on Amazon.
[1]
https://usa.visa.com/support/consumer/visa-rules.html
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.
If those are benefits you value, you should be happy to (indirectly) pay Amazon the premium that they charge for it.
So then pay the Amazon premium. Why should I pay more off-Amazon because you want to shop on Amazon?
Because you choose to put ur product on that platform. Because I'm more likely to purchase the item if it's on Amazon. The fair pricing rule is literally pro consumer.
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.
A. who sets the price? ... not amazon. B & C You want to pass on standard costs of business on to the customer. The fair pricing rule restricts that practice and is pro consumer. As a consumer I don't care the rule hurts ur bottom line. Just like sellers paying for fake reviews should be criminal fraud.
This practice is anti-consumer and pro-Amazon. The "fair pricing rule" means the Amazon-related costs of doing business are spread across all a business' pricing rather than only the Amazon-sold merchandise. This can mean higher prices for non-Amazon customers. This benefits Amazon, has some (possibly small) negative effect on margins and/or sales for the business, and costs customers more.
The best you can argue for is that if you are an Amazon customer, you're paying less for the convenience of Amazon than you would be otherwise; but it's not clear that's a net win for consumers at all.
Don't hold your breath on that last one. Fake reviews are good for Amazon, so they will continue unabated.
They could leave their prices as they are. The suggestion is that they should stop punishing vendors who sell for less through other stores.
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.
I think it's mostly ethical concerns. Poor treatment of workers, anti-competitive practices, supporting a billionaire, etc.
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.
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.
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.
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)
I think one solution is to force Amazon to charge itself seller fees on its own products and listings like Amazon basics products. That would help prevent it from anti-competitively under cutting competitor listings on price.
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.,
What people in this thread aren't _getting_, because they're not in the industry as a 3rd party seller:
Amazon is double dipping, because not only do you pay them a 15% fee to sell _anything_ on their platform, now, increasingly in order for your products to get ANY visibility and traction, you also have to spend ~15-20% on advertising in order for your products to not get relegated to the 2nd or 3rd page, where customers won't go.
This isn't because Amazon is evil. This is mostly because Amazon became too successful, so now where 4-5 sellers used to compete in a category, you now have 30+. So now you have no choice but to get them into a bidding war with each other for front page space, eating into their margins.
Who's the main beneficiary of this? Amazon, of course.
What's scummy of them is that they fully recognize this, yet refuse to reduce their 15% fee. In the past, the fee represented money paid to Amazon for your products to be visible on their platform (and for hosting product data and images). These days if you JUST pay the 15% fee, you will get literally 0 visibility and never get off the ground.
But that's not all folks!
Another way they're being scummy is having piss-poor algorithms that prevent you from raising the price on a product and disabling the listing for something they consider a high price. Well, obviously if you've created a system where you take 40% of the 50% markup, you constrain the 3rd party seller to never making more than 10% margin. Remember, this 10% must pay for
1. Returns
2. Employees that manage the catalog
3. Employees that manage order processing
4. Employees that deal with Amazon customer communication
5. Developers that make integrations for fulfillment purposes and help develop software to make catalog management easier.
Is it any wonder then when this big brother is telling you to stop hitting yourself, while using your own hand to do so, that people get mad?
Yet ANOTHER way they're being scummy is blatantly ripping off successful products, pushing them down, and promoting Amazon Basics brand or whatever they have now, selling the exact same thing.
Tails I win, heads you lose indeed.
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?
Is it really more competitive to let companies like Apple pick winners in that space? Maybe (probably?) to an extent, at least in this circumstance, but it seems like there's more of a balance needed here.
I'm not sure what role you're envisioning for Apple here? Assuming you're referring to their role as a vendor selling electronic doodads, this is overstating their influence. iPhones are expensive, but they are a small portion of overall sales at Amazon. Besides, they own the iPhones! Ownership includes the right to sell what one owns, to whomever one chooses, for whatever price one can negotiate. (Well, unless one has signed over these rights to Amazon.)
If this is "picking winners" then every participant in the economy is picking winners all the time. Usually I think the term means something more like an outside actor deciding that results will be different than what the buyers and sellers would have decided in the absence of that outside actor. One might think that "the government" is the only such outside actor. However I feel that other large organizations with plenty of money and political power also qualify.
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.