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In Amazon’s annual letter to shareholders, CEO Jeff Bezos noted that third-party sellers account for more sales on Amazon than Amazon’s first-party retail business, and that they have for several years.
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Bezos even said, “Third-party sellers are kicking our first party butt. Badly.” This shows how outside merchants are thriving on Amazon, but their success is positive for the firm as well, even if it appears to be behind.
Here’s what it means: Third-party sellers are the dominant driver of sales on Amazon’s marketplace, possibly due to some key initiatives from Amazon.
- Third-party merchants racked up $160 billion in physical gross merchandise sales on Amazon in 2018, accounting for 58% of Amazon’s sales. This is a steep jump from 1999 when third-party sellers made up just 3% of Amazon’s physical gross merchandise sales — worth just $.1 billion — meaning that the segment saw a compound annual growth rate (CAGR) of 52% during that stretch. Third-party sellers first eclipsed Amazon’s first-party business in 2015, and their share has grown by 2% or more each year after 2009.
- Bezos attributed some of these merchants’ success to Amazon including them in valuable programs and providing useful tools. He noted that Prime and Fulfillment by Amazon (FBA) made shopping with third-party sellers better for consumers, while tools for inventory management, payments, shipping, and more gave them capabilities that both made them attractive and more efficient.
The bigger picture: Impressive sales from third-party sellers actually benefit Amazon’s business and perceptions.
- Having a strong base of third-party sellers boosts Amazon’s selection and revenue. By serving as a marketplace for many quality sellers, Amazon can add more products consumers might want, increasing the likelihood that they go to it first when shopping online. It’s also reportedly more lucrative for Amazon to have suppliers operate as third-party sellers on its marketplace than it is to buy from them wholesale, making the billions of dollars in third-party sales extremely valuable to it. This is likely because it can charge for services and take a commission rather than purchase products, explaining why Amazon is pushing suppliers to sell on its marketplace instead.
- It can also enable the e-tailer to distract critics that want it to face antitrust regulation. Amazon has been scrutinized by government officials around the world lately for its ability to sell on its own marketplace and the advantages that affords it. Being able to point to the leading performance of third-party sellers on its marketplace may assuage some of those concerns, whether it’s truly an indicator of fairness or not.
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