During Amazon’s wonkish earnings call this week, Chief Financial Officer Tom Szkutak revealed a number that offered a surprising glimpse into the company’s ambitious future — a future where Amazon doesn’t sell stuff. At least not directly.
In the Q&A with analysts, Szkutak said that a full 39 percent of the “product units” sold on Amazon during the most recent quarter were from third-party sellers, up from 36 percent a year earlier. In other words, more than a third of everything sold on Amazon during the last three months wasn’t sold by Amazon itself, but by someone else selling through Amazon.
Szkutak went on to say that unit sales on Amazon overall grew 32 percent during the quarter. Third-party sales rose at an even faster clip — more than 40 percent.
When I shop on Amazon, I tend to check price first, then reviews, then whether the thing I want to buy is eligible for Prime. Only then do I tend to check the actual seller, which Amazon lists below whether the item is in stock. From the success of third-party sales on Amazon, I’m clearly not the only person indifferent to who has title to the merchandise I’m buying. If it’s on Amazon, I tend to think of it as from Amazon.
That might not always be wise, since third-party sellers might, for instance, have a different return policy than Amazon’s standard guidelines. But that kind of variation seems less and less likely as Amazon makes standardization the most appealing option.
The company’s not-so-secret secret to smoothing the path for third-party sellers is Fulfillment by Amazon, the Amazon Web Services of non-digital stuff. In the same way that Amazon leveraged its own existing digital infrastructure to become the backend of many of the web’s most popular sites, Fulfillment by Amazon offers up the company’s existing physical infrastructure to third-party sellers who want to outsource such joyless tasks as warehousing their inventory, shipping orders and handling returns.
While Fulfillment by Amazon gives even small mom-and-pop sellers access to Amazon’s global visibility and reach, the arrangement also works to Amazon’s advantage. Last year, Amazon opened up 20 new fulfillment centers and has plans for several more, including one near San Francisco and three planned for Texas, each more than 1 million square feet in size. By investing so much in shelf space, Amazon has every incentive to keep those shelves filled. And the more third-party stuff Amazon can move through its distribution hubs, the better, since that’s all inventory Amazon doesn’t have to pay for itself. As analysts at Baird Equity Research point out, third-party sales are 100 percent gross margin for Amazon. In other words, the only cost to Amazon of providing third-party fulfillment is money they would have spent anyway on the infrastructure, labor, transportation and whatever else they need to support their direct sales operation.
Considering these advantages, third-party sales loom as an important part of Amazon’s business future. Last year, sales of services — including commissions on third-party sales — accounted for about 15 percent of Amazon’s total sales. If current trends continue, that percentage will rise, giving all the more reason to stop thinking of Amazon as a seller of stuff and to start thinking of the world’s biggest online retailer as a platform for stuff — an API for the material world.
Amazon's Future Is Not in Selling Stuff — And That's a Good Thing
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Amazon's Future Is Not in Selling Stuff — And That's a Good Thing
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Amazon's Future Is Not in Selling Stuff — And That's a Good Thing
