The future of Amazon is quite grim depending on who you ask. If you are the customer, Amazon will become something that you do not know how you ever lived without (similar to Internet access). As for the Amazon 3rd party sellers, our days are limited.
Phase 1: Grow Amazon’s marketplace through 3rd party sellers
Amazon’s first goal is to make it as easy as possible for sellers to sell (in volume) on their website. They achieved this step by introducing the fulfillment by Amazon program. The fulfillment by Amazon (FBA) program sets Amazon apart from all other online retailers. The way the FBA system works, is that the 3rd party sellers send inventory into Amazon’s warehouses as a holding station. Once a customer has ordered your product, Amazon will handle all customer service, shipping, and picking and packing of your product for a fee. This is why some products are prime and some are not. If a product is prime, that means that it’s in stock at one of Amazon’s fulfillment centers. Since Amazon has made is so easy to sell on their website, there is currently a gold rush underway. Sellers are making millions doing basic arbitrage just because they are on one of the world’s largest sales platforms. As we all know though, all good things must come to an end.
Phase 2: collect data and conquer
Amazon is an A/B testing machine. They are all about collecting as much data as they can on sales, customers and traffic. Now that they have made it impossibly easy to sell on their marketplace, they can have every product in the world in stock without paying for any inventory and still get a portion of each sale! Genius! Amazon is currently in phase 2. They collect data on what sells the best, and then and go source that product themselves. They start at the top of the best seller list and work their way down. Eventually as they grow and invest more and more into inventory, every product on Amazon will be shipped and sold by Amazon. I guess this will take anywhere from 5-10 years.
I’ve been contacted and I have sold to Amazon. I understand how their vendor central system works and they are ruthless and do not have to play fair on their own marketplace. If you are on the same listing as Amazon, They know when you are low on inventory and will order when you are low so they can control the buy box longer while you try to restock.
All in all, this is great for customers but obviously bad for 3rd party sellers. You need to diversify starting now if you are a seller . Start your own brand and start trying to drive traffic to your own website.
If you are just a customer, sit back and watch the prices slowly drop as shipping speeds up!
I think I see a pattern here. Amazon is leveraging sellers to collect data and help itself conquer eCommerce just like Google leveraged SEOs to collect data to shape leading search algorithm and since then they tried to shake off SEOs with ever increasing algorithm updates. There’s always agenda…
The only way to stay ahead of the game is to find small products with limited exposure. Sell $1000 per day and be happy. Find 20 like that and you are laughing.
After reading “The Everything Store” (the official bio about Amazon & Jeff Bezos), I couldn’t agree more. There are many examples in Amazon’s past which tell us that 3rd Party Sellers are simply a means to an end and essentially disposable. Selling on Amazon offers a huge reward, but also huge risk. As you say…. be aware & diversify.
So what is the strategy for sellers? Would a differentiation strategy still work? I understand this means the end of “me too” products where there are twenty different sellers of the same product but will Amazon consolidate all of the niche products too? I’m just curious because I am a new seller. Am I shooting myself in the foot getting in now?
I became involved in creating niche sites, made a little easy money on Adsense, then ramped up with a partner, got hit with algorithm change after change and we had 30 sites that were too much trouble to deal with. Understanding that there is an element of rigging to this is very helpful when planning for the future. I was naive before. I see Amazon FBA for third parties as an excellent way to launch a brand and then build away from Amazon. Things are more complicated than most internet marketers can explain. Reality is kind of a buzz kill.