But Amazon is also a marketplace. In that role it acts as a "rentable retail space". Using the data of the retailers in your marketplace to decide what to make/wholesale and then retail is another layer.
You could easily argue that it reduces to the same thing. But societally we've excepted that the retailer is a full layer in the system and gets full access to the data flowing through it. The marketplace itself is historically more of a fee-for-use type of thing, so its not an ingrained concept for us.
In practice that's not the case at all. Many if not most retailers require suppliers to buy back unsold inventory
This combination basically nets out to be financially the same as pure consignment. They won't pay me for my product until well after it has sold-thru to an end user. Everything that's unsold comes back to me (and they bill me for shipping both ways!) In the meantime, all I have is basically an "IOU" promise to someday pay IF it eventually sells (and they always drag out the payment beyond the already-extended due date).
Also, if I want to be featured in their circular I have to "buy" that just like an ad in a magazine except the retailer will (usually) DFI (deduct from invoice) the "ad" cost, which means they just owe me less (if and when the product sells and they actually pay). The same is true for getting my product displayed on an end cap or with in-store signage.
The big retailers bring in new products to "test" all the time and do so at basically no financial risk to themselves (other than the opportunity cost of the shelf space) while capturing all the sales data.
That's pretty much their business model isn't it? Make money on investing for the days between product sold and payment.
If Amazon carried the entirety of their inventory themselves like Costco or like Walmart used to be (before the expansion of their own online marketplace), it would be a distinctly different situation.
Costco can determine that Best Brand shoes sell in its stores and decide to source shoes themselves and stop carrying Best Brand.
Amazon can determine that the Footlocker in their mall is making a killing selling Best Brand shoes and either sell Best Brand shoes in their anchor store or source their own shoes, all at a price that Footlocker can’t match. They can also advertise those shoes throughout their mall and change the layout so customers have to walk past their cheaper shoes to get to the Footlocker.
None of what you've described about Amazon differentiates it from Costco at all.
Space is at a premium with a physical location, so the likelihood of an actual store exploiting that is extremely unlikely
Your logic is backwards - when space is at a premium, making the most profit off each item in that space is critical. It makes more sense for Costco to do this than it does for Amazon, not less.
The only end-goal that would actually solve the problem fairly is if companies couldn't sell first-party products (or products from a partner where they have a vested interest in) in their store. If you just take care of the one company, you end up with other companies doing the same thing in 20 years like how iOS still has a default music player when MS got burnt for that with having a default browser.
When Costco decides to make a store brand alternative they are using sales data for things they have sold in their store. Amazon is using data for things other people have sold. Amazon is not doing what Costco does.
It's not like Amazon sees sales data from someone's shopify site if people choose to sell on both brand.com and amazon.com.
Costco pays for the items that appear on its shelves (excepting the <1% of goods that are on a consignment basis, usually new trial products). The distributor of the store brand and the name brand have already been paid for the products (and are usually the same company).
Amazon gets paid by the distributors (aka third party sellers) on Amazon.com for handling their sales (even in instances where it is not handling fulfillment), while also competing against them. That is where the anticompetitive concerns arise.
If Amazon just sold stuff through the Amazon.com seller, and didn't have third-party sellers, (or if it operated a separate website for third party sellers) that would be fine.
Effectively the difference in practice is a matter of financing and grain of operation - older retail would gain more and give no extra to upfront sales of say toliet paper after a demand spike raised prices while Amazon would give them a per sale percentage cut.
At what point does own involvement in consignment sales models become not fine? If it works at 1% consignment. Is it 25%? 50%? 75%? 90%? Or more likely it doesn't exist because the whole concept is a fabrication that pays no attention to real law and operates in the court of public opinion to push their bullshit which wouldn't even need a defendant motion before winding up dismissed by a judge because they cannot point to any real laws?
Also, Amazon does not give a per sale cut of the percentage, nor would they, since that's not how consignment works. Consignment goods are still sold at retail price; the only difference is that the supplier only gets paid for goods that sold. They don't get to share in the (additional) profits if the retailer (aka "Amazon.com")charges more due to spiking prices.
Amazon is much more like a digital mall in that they rent out their store features for sellers.
However, Amazon would like to be seen by the customer as Costco and this causes dissonance between how they treat sellers, and how they treat customers.
In both cases, they still use the sales data available to them to create and sell their own products at the expense of third party sellers. In Amazon's case, that means diverting customers away from third party listings to their own. In Costco's case, that means making fewer purchases from third party sellers because the amount of shelf space available decreases as Costco puts more of its own products out.
The type of sales relationship that they have with third party sellers doesn't change the fact that both are using sales data to create and sell their own products at the expense of those third parties.
Costco doesn't have any third party sellers. Costco is the only seller.
That the defining feature mate!
Getting paid an extra to provide premium service to a customer is normal in some areas, but it's a crime of you hold public office.
There are no third party sellers at Costco, it’s only Costco.
Costco purchases the items from the suppliers, generally. They then resell them to you for a markup.
With few exceptions, every single item in Costco is sold by the first party seller: Costco. So my point stands: third party sellers are generally not a part of the Costco experience.
Generally, for the sales you have described, the consignment sales are paired with marketing efforts by the distributor to demonstrate customer interest. If the test succeeds, the store will purchase future lots from the distributor. If the test does not, the product disappears from the shelves and the distributor stops selling it.
If you pick up a random item in Costco, it’s paid for and sold by Costco.
The difference really comes down to three things: the layer on which the competition occurs, whose data is being used, and whether the competition is fair (which comes down to risk/reward).
At Costco, the competition occurs between manufacturers. Costco uses its own retail data as a retailer. The risk to the vendor to sell at Costco is marginal (even if they have to pay for shelf space) compared to being in the market at all. Costco can compete with a store brand, but if they want to sell the vendors products they have to go to the vendor. They can't undercut the vendor with an equivalent product unless they make an equivalent product for cheaper. The risk is spread out and Costco owns a healthy amount of it.
At Amazon, the competition occurs between retailers. Amazon uses its competitors data, which it gains by being a 'marketplace'. The other retailer carries all the risks associated with being a retailer. Amazon takes a piece of it, the size of which depends on what 'services' the retailer uses through Amazon's marketplace. If the retailer fails, Amazon loses nothing. If the retailer wins, Amazon can use the retailers' data and begin selling the same product. It can use its size and the retailers' own numbers to get a better deal with the vendor and undercut the other retailers price on the same exact product. (Store brands are also an option and an issue, but if you're focused on that, you're missing the forest for the trees.) The retailer takes the vast majority of the risk, but Amazon can, at its option, swoop in and take the majority of the reward.
It's similar, although personally I think the relationship between the companies is meaningfully different:
Costco purchases product from manufacturers, and may choose to source product from other manufacturers (including under its own brand name). It uses it's own sales data to make this decision.
Amazon acts as a marketplace for other businesses to list and sell their own products. These businesses are online retailers which use the Amazon platform, and pay Amazon fees for this service. Amazon is then using other retailers sales data in order to inform it's own business.
The difference is with Costco it is their own sales data, while in Amazon it is the sales data of other retailers. It would be an issue if Walmart had access to Costco's sales data and not visa-versa (this would provide Walmart with an unfair competitive advantage). Similarly other smaller online retailers do not get access to Amazon's sales data, but Amazon get's access to the other retailers sales data who use their platform, and will then use this to compete with them.
Plus, walmart is now a marketplace as well. This overpriced GPU is 'Sold & shipped by Monoprice Inc'. It's only a matter of time before Walmart commits the same anticompetitive acts as Amazon using Marketplace data. https://www.walmart.com/ip/Zotac-NVIDIA-GeForce-RTX-3080-Gra...
In the current scenario someone else sells things on Amazon and is taking the risk that the item they're selling will not sell well. If the item is a hit, Amazon swoops in and starts selling it themselves or possibly makes a competitor and sells it themselves. Either way, Amazon reduces their own risk of selling poorly performing products while also cutting into the upside for the vendor who took that risk when they are successful.
Edit: I forgot to mention above that the people taking this risk are paying Amazon to do so.
With the Costco example, Costco as a retailer holds power over their product suppliers. If they are making an own brand, what they are doing is buying it from another supplier and asking that manufacturer to put their own label on it. These relationships can be anti-competitive and present opportunities for market-abuse, but in a meaningfully different way to the Amazon example.
With the Amazon example, Amazon holds power over other retailers using their platform.
And with the Walmart example you have stated, I do think that suffers from the same problems.
In one situation you run a stall and buy products from people to sell at that stall. At some point you use what you've learned doing this to sell your own product.
In the other, you don't buy anything from anybody. Instead, you rent out a stall for other people to sell things from. You then watch the stall and use that information to open your own stall.
The first case seems pretty normal to most people, I think. The person you were buying from originally doesn't inherently get some kind of assurance that you will always buy from them in the future. There's no difference to the seller if you buy from somebody else, don't sell any of that product, or make your own. We just don't expect that buying goods from somebody inherently adds any other kind of obligation. It's two equal parties making an exchange, and nothing more.
The second case, however, I think is not so clear cut. All of the sudden you have a lasting relationship between two unequal parties. These are the sorts of situations where you tend to find more implicit or inherent obligations on the participants. It's no longer the guy you sold that thing to not buying from you again, it's your landlord competing with you.
I'm not trying to pick a side here, so much as I am trying to explain why people might not see the two situations as identical. And of course there are plenty of real-world complications too.
Amazon rents space to merchants where those items are sold through the site for a fee. Amazon is never on the hook for a sale and is basically getting paid to do the market research to set up as a competitor.
Yes, Costco does do some referral sales but I can't think of anything which has gone on to be a Kirkland product.
If you are anything other than a massive corporation, any manufacturer that chooses not to sell through Amazon and utilize all or most of its services (marketplace listing, payments, warehousing, delivery) will be at a massive cost disadvantage and will not be able to compete with other sellers that do choose to participate with Amazon.
And more significantly, perhaps, if you don't sell through Amazon's marketplace, you are often unable to compete with Amazon itself.
I sell dog treat mix (coopersdogtreats.com) - I do much better both in terms of margins and overall sales on my own website (with traffic coming primarily via paid FB ads) than on Amazon.
That's not even including other huge marketplaces like walmart.com, Chewy, Etsy, etc.
Amazon doesn't have a monopoly on small-seller logistics - I'm about to move all of my logistics over to a 3PL, and there are plenty that will cost-effectively work with startups (ShipBob, Shipmonk, etc. - just Google "ecommerce 3PL" and you'll see what I mean).
How much Amazon plays into your business obviously depends on the category, but the idea that it's impossible to compete in ecommerce unless you're on Amazon is an easily disproven myth.
Amazon isn't terrible, but it has two big problems for me. First, margins are lower because I'm not only paying them a cut of every sale, I'm also paying for Amazon advertising. Second, I don't have a relationship with the buyer, which is the real killer. I do really well with repeat sales via email, and those are where the real margin is since I'm not paying to acquire those users again. On my site, I can afford to break even (or even lose a little money) on the first sale, where I must make money on each sale on Amazon.
I will say the one big difference between my product and many on Amazon is that it's not something that you seek out - very few people are searching for "dog treat mix" on Amazon (or Google/Bing/etc.). Amazon does have some types of advertising that work well for targeting other luxury dog goods, but my volume is going to be limited there. Facebook advertising works better for me, because I can target people by demographics and explain the product in an ad.
To that point, it may be important to be on Amazon if you're in a commodity business. On the other hand, it sucks to be in a commodity business for so many other reasons that I hardly think it's reasonable to pin the blame on Amazon for the difficulties there.
The one thing I will say about Amazon vs. Shopify that surprised me is that Amazon's support tends to be quite competent (at least if you call them - you get nothing but canned responses via email), while Shopify's is just terrible. They can help with basic issues using the software, but when it comes to real problems, like bugs in reporting (or more recently in my case, a bug where they undercharged a customer), they just say they'll get back to you and never do unless you are incredibly aggressive about hounding them.
My other question to comments : > What are the Amazon level logistics and delivery service that is available to a smaller retailer? I see some nascent choices but they really aren’t that close.
I wonder, though. Do you think your experience is typical?
Am I wrong to think that your product is more niche and premium than the most products that are sold via the Amazon marketplace? Do you think that you might get more repeat business than most products sold on Amazon?
It's been a while since I've looked into pricing for FB ads, but my sense is that a product with more narrow margins and less potential for repeat business could find it difficult to attract customers via advertising without increasing prices beyond what could be found on Amazon for competing products.
You are 100% right that my products are niche and premium, and that definitely makes a difference. But on the other hand, if you're a startup selling a commodity product, you're in a bad position for a whole lot of reasons other than Amazon.
From an advertising standpoint, you're right - I have the advantage of selling a product that has a high repeat rate, and that's helpful. On the other hand, my AOV is fairly low and my margins are okay but not extraordinary.
I think that the points you're raising here are what matter - not Amazon. If you're in a business that is one of: high AOV, high margin, subscription/frequent repeat customers then you're okay. If you're in a low margin, commodity business and you aren't operating at a huge scale, you're not in a great spot.
Ultimately, I think the actual value added by Amazon for startups is trust - I know that if I order from them, your product will arrive on time, and if there's an issue it'll get fixed ASAP. All of the other stuff, like two-day shipping and customer-friendly return policies, is doable off of Amazon. Even trust is achievable in other ways, though - my company was featured in an Associated Press article that was broadly syndicated, and when I slapped "AS SEEN ON USA TODAY, FOX, KTLA AND MORE" on the top of every product page and the top of my FB ads, it made a huge difference immediately.
And actually now that I've typed that I'll add one more thing in Amazon's favor - ease of use. If you don't know a lot about ecommerce, it's pretty easy to get set up and ship them product. It's also easy to advertise, simply because their advertising is much, much simpler than Facebook. There's no copy and limited ability to use creative outside of your product images, so you don't have to constantly test stuff. While my sales on Amazon aren't high margin, they're also extremely low effort.
Most brick and mortar retailers also sell space to manufacturers. Product positioning in the store and even on the shelves isnt solely due to UX
> An appeals court in California has ruled that Amazon can be held liable for products sold through its marketplace by a third-party seller
That seems to obviate the distinction of 'marketplace facilitator' vs. 'retailer' for them. That makes them much more like Costco with a special relationship with vendors to set up vendor-specific sections in their store.
Personally, I've always detested the 3rd-party market in Amazon and wouldn't mind seeing it go away.
Meanwhile, https://news.ycombinator.com/item?id=24174276
"Amazon Liable for Defective Third-Party Products Rules CA Appellate Court"
It seems both regulators and Amazon want whether or not it's a marketplace to go both ways whenever it's convenient.
So no big difference...
There is a fundamental difference between being a retailer and providing a retail platform.
All Costco would really have access to is how much they've bought and how that has performed for them. Meanwhile Amazon is providing a platform for companies with a policy that they will only use their data to help them, which is what is allegedly not happening.
This isn't really how it works. Retailers very often have arrangements to defer payments until after the product is sold.
In fact, in France, retail margins are so thin that supermarket chains reportedly make most of their profit by selling the inventory, investing the money in short-term funds, then paying the suppliers one month later and keeping the interest.
https://data.oecd.org/interest/short-term-interest-rates.htm
So, even if we had our own competing labels for some products, the manufacturers would never be left in the cold with unsold stock (if for example we chose to drop one brand or run a promotion for our own).
Most large grocers:
- Sell shelf location slots to the highest bidder.
- Include a consignment clause in their vendor agreements requiring vendors to take back spoiled, customer-damaged, and unsold inventory at X point or on-demand.
- Require merchandisers to keep inventory in-stock for as many products as they can get vendors to manage (e.g. the coke delivery person is in-store several days a week.)
The modern grocery store is effectively managed like a flea market and is allowed to do so because the chains have so much leverage.
So while we can take issue with Amazon’s practices, we have to remember that most of large-scale retail operates in ways that if written about to the level of Amazon, we’d also be griping about.
Possibly related is that EU grocery margins are amongst the lowest in the world.
Slotting fees and consignment clauses only apply to new products. Slotting fees are used as an alternative to consignment; they are basically a discount on the wholesale price paid by the store for new products that may not sell through. Alternatively, the store may sell the items on consignment, in which case it only pays the distributor for products actually sold through.
Merchandisers...are employees of the stores (they're responsible for internal marketing efforts)...Perhaps you meant distributor? Only a few store chains have an in-stock requirement (Walmart and Costco), and that is due solely to the volume at which they sell-through.
More importantly, and the crucial legal distinction: retail stores pay the distributors for the inventory on their shelves, except for the 1% offered on consignment (i.e., new products sold on a trial basis), while Amazon gets paid by the distributors. That legal distinction is at the heart of why what Amazon does is problematic.
(Source: Kroger was a former client.)
I struggle with it as well because conceptually in my mind this is the same as a grocery store using customer buying data to inform itself. Grocery chains have been using private label brands to compete with name brands for years. Check your cereal aisle for the "fruit loops" in the back without a box that are ~50% cheaper than the name brand boxed real fruit loops.
I never saw this as wrong growing up. I saw this as the store offering a cheaper comparable and consumers were able to chose which they want. In fact, the grocery store also controls what is on the end cap and what is on top and bottom of each shelf.
I think the landscape is heavily skewed in favor of the dominant online retail merchant. This skew and dominance is what causes people to claim afoul behavior is going on.
Amazon provides a platform through which "everyone" can sell "anything" with no tightly constrained space/slots.
As far as I know Amazon is legally closer to a market place where everyone is up their own stand (but they are required to look mostly the same) and which happens to also require you to use their payment system.
I.e. Amazon is just a proxy while the grocery store legally buys and resells the products.
There are kinds of behavours that are acceptable for an individual or a single groceries store, but if a large company adopts it across the country and puts it in the policy, then they are beaking the law.
Is this fair to the vendors?
I think the real issue is how people shop online versus in stores. Online, they see a linear feed of individual products and buy whatever is near the top. In a store, they see a variety of displays, and it's almost hard not to comparison shop even a little bit.
It's much, much easier to be "anti-competitive" on a web store than a physical store. Imagine if Costco did what Amazon does, deliberately making Kirkland products easier to find in the store and look more reputable/trusted compared to other brands.
So I don't think the problem is that this particular move by Amazon is any more anti-competitive than anything a normal store with store brand would do. The problem is that Amazon already engages in other anti-competitive activity, so pretty much anything they do related to their own store brand is distasteful.
Actually there had been legal cases with unfair market practices in grocery stores between different competing products sold there. I think there is currently a ongoing case with Oreo.
I don't think your example really holds weight. I goto Costco because they offer products I want at a price I like. If during shopping they were trying to give suggestions to better deals I'm not sure as a consumer I get to complain about it do I?
I wouldn't be surprised if Amazon lets the fraud and ratings scams go somewhat unchecked so as to make their own house brand look "safe" and desirable.
Most important grocery stores and similar are resellers, Amazon is a proxy.
Sure that pretend they sell you things but actually you just buy things through them, not from them. (Except their own products.)
Each captured sales data and built private label alternatives to key brands on a regular basis. Small differentiator in the case of Costco is that they have a practice (though not a policy) of offering the leading vendor the opportunity to produce the private label before doing it themselves. But that’s a small detail.
Besides the fact that headlines about this get traction, there is a differentiator with Amazon in that they actively market themselves as a marketplace for small businesses in the way we’ve come to view Shopify. Costco and Walmart were always very clearly retailers...they buy stuff and sell stuff at a margin.
So while I think a lot of the blowup about this is overdone, there is a legitimate argument about the difference between how Amazon markets itself and what it does. But, frankly, for anyone with any level of experience with retailers or, frankly, tech platforms, this kind of capture behavior should be expected.
It's 100% different. Costco doesn't make any of the Kirkland brand products. Their suppliers do. And Costco usually only carries one brand of, say, batteries. They go to Duracell and say "We want to buy X Duracell batteries and Y Kirkland batteries from you over the next Z years". If Duracell doesn't want it, their next call is the same thing to Energizer.
Basically, Costco says to their suppliers "We want to give you X high margin sales and Y much lower margin sales." And you know that going in. And are ecstatic because all those sales would otherwise go to your competitor.
Amazon says "here's a flea market", then uses their security cameras to see what items are selling at everyone's stalls. The next day, the stalls of the people who run the flea market (right next to the front door) also have the best selling items. Oh, and their tables are infinite and maybe they also fuck with the listings on the map to make it harder to find that those items are also at your booth.
In contrast Amazon takes on zero risk. It snoops on the data of transactions, and then launches competing products.
To make it clear, Here you should consider Amazon.com different entity than Amazon Seller Account. Now would you sell on amazon.com if amazon.com leaks your data to "amazon seller account" owner to boost his sales of a similar product, which you sell.
Moral thing is, Amazon seller division who deals with product directly sold by Amazon, should never have access to the data of other sellers.Fullstop.
When they start by doing independent market research, selecting a product, building/sourcing it and marketing it, then analyzing data generated by their own sales of these products in their own stores (brick & mortar or online), they are the same.
The DIFFERENCE is that Amazon also hosts other sellers and uses THEIR data.
So, an entrepreneur comes along having designed, arranged fabrication, and imports a product, then pays fees to sell it on Amazon. Amazon now uses THE MERCHANT's own data against them to notice the successful product, decide that it will be profitable, then search out the same manufacturer, offer a better deal, start selling on their own market as Amazon Basics, then kick the original seller off the market. [1], [2] It happens repeatedly enough to call it systematic.
So, if you are only marginally successful, you can continue selling unmolested.
But, if you find good success, Amazon will use your data to chop the top success zone right off of your business, after charging you for services while you spend decades building it.
It is even better than Zuckerberg's plan - at least Farcebook doesn't charge you to hijack your data for their purposes - Amazon charges you AND hijacks your data.
Just because it evades existing laws does not make it right.
I will certainly not be selling anything on Amazon that either 1) I'm 100% certain cannot be reproduced elsewhere or 2) I only intend to be a small or temporary market.
[1] https://www.wsj.com/articles/amazon-competition-shopify-wayf...
[2] https://www.hitc.com/en-gb/2020/12/24/amazon-tripod-company-...
Costco is legally a "reseller" that purchases items from manufacturers/distributors (at wholesale prices) and "resells" them to customers. (Note: only a tiny fraction (<1%) of Costco's inventory is sold on a consignment basis, meaning that the manufacturer/distributor only gets paid for units actually sold on. This arrangement generally only applies to some new products being sold on a trial basis.)
Amazon is also a reseller of items sold through the Amazon.com seller...but not for items "sold" by third-party merchants. The distinction is that for Amazon.com seller sales, Amazon has legally purchased the inventory sold, even if the payment terms may more closely resemble consignment transactions than wholesale transactions.
AmazonMarketplace is a software vendor and data should belong to sellers only.
But perhaps one way to resolve this dissonance is to consider that Costco's behavior is anti-competitive too. They are a beloved brand, but that doesn't mean our emotional attachment to Kirkland products is an accurate reality-based moral stance.
Who are Costco customers?
Who are Amazon customers?
Although, I have not seen any real data on this. Just my gut read.
Costco has to buy the goods they sell. If it's on a shelf, Costco wants it to sell. If they don't want something to sell, they stop buying it/carrying it. They can't make any money by buying a competitor's product and letting it sit in a warehouse.
The incentive structure for Amazon is bad for everyone else. Their ideal profit scenario is to have warehouses full of other companies' stuff that never sells, and to sell an Amazon branded alternative to each consumer with demand. Costco's ideal profit scenario is to never buy third party products and only sell Kirkland goods (assuming demand stays the same). Amazon needs to pick one; they're either a marketplace, where their ideal profit scenario is to sell literally anything they have without preference, or they're a retailer and their ideal profit scenario is like Costco.
only seems worse because amazon is so big, and so monopolistic, that a lot of people hold them to different standards.
It's the same idea that people expect a rich person to pay more taxes, or contribute more philothropically.
"only seems worse because amazon is so big, and so monopolistic"
as:
"only seems worse because amazon is so big, and so dominant"
I don't think monopolistic is a fair adjective because it has an implied legal connotation. Is Amazon a monopoly or just the largest e-commerce retailer today?
Amazon launching new product lines and boosting them to the top of the search results is almost textbook leveraging. Having information showing they used their internal data to find which products to market is basically icing on the cake.
Google has already been dinged for this with their Google Apps boosterism on their search results. I can't imagine this goes any differently from that.
Having much less than 50% of a descriptive market can be enough, if, e.g., you have pricing power, which demonstrates that irrespective of what other players may be described as being in the same market, they are not actually competing with you.
> Courts do not require a literal monopoly before applying rules for single firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long term ability to raise price or exclude competitors. That is how that term is used here: a "monopolist" is a firm with significant and durable market power.
[1] https://www.ftc.gov/tips-advice/competition-guidance/guide-a...
This has to do with diminishing marginal utility of wealth and nothing to do with holding different people to different standards.