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Ask Anything About: Amazon

Chances are good that Amazon has impacted you in some way: you use Amazon Web Services, you are a Prime member, you've looked into personalization on your website, you've lost revenue to Amazon, you've thought about selling there or a number other scenarios showcasing Amazon's influence on the Web today.

Perhaps, however, you've had some questions about Amazon you didn't know where to ask or just didn't want to ask. Juozas "Joe" Kaziukenas of Marketplace Pulse, a provider of marketplace analytics for Amazon, eBay, Walmart and others, offered up some helpful insights and tips about Amazon in our version of Reddit's "ask me anything."

Stay tuned for "Ask Anything About: Blockchain."

Q: How is Amazon different from other retail companies?

A: I always joke that Amazon must be the most misunderstood company out there. I mean, on the surface it is obvious what Amazon is, and what they do, but it's almost like an iceberg - only the tip is visible if you don't look close enough.

Amazon started off as a retail company selling books, but things have changed a lot since then. Today Amazon is not a retail company, as most of the sales on Amazon are not even done by Amazon, and they have over a dozen more businesses inside. From the cloud hosting service Amazon Web Services, to Amazon Video which is going after Netflix, and more recently devices like Echo. The list goes on.

Q: If Amazon isn’t a retail company, then what are they?

A: Amazon is an infrastructure company. 

To me, this is the key point to understand what Amazon is. While they used to do retail, they spent the last 10 years ago building infrastructure for e-commerce. Which includes cloud hosting, fulfillment, payments, advertising, lending, etc. They are all building blocks for which Amazon is the largest customer, but they are also available for others to use.

This is where the marketplace comes in. Many years ago Amazon enabled others to sell on their websites. Today this is known as the Amazon marketplace, and is one of the infrastructure pieces of Amazon. Together with services like Fulfillment by Amazon (FBA) which allow inventory storage at Amazon's warehouses, and advertising services, the marketplace has allowed millions of products to become available on Amazon.

And yet, just to reiterate, the key that all of this is infrastructure. Building blocks. Many more retailers have launched marketplaces, all to varying degrees of success. But few have achieved the scale of Amazon marketplace, because only it has the building blocks to power more of the retail pipeline than just listing products online. 

Q: So, you’re saying Amazon is more of a marketplace, like eBay, can you give us an idea of their size?

A: Amazon marketplace has grown to now account for more than a half of units sold on Amazon. It passed this threshold a few months ago, as reported by Amazon, and I think marked a big milestone for the marketplace - for years it was growing, but still smaller than Amazon itself. And the way trends look right now it will continue to get bigger. 

Credit Suisse estimates that Amazon marketplace will total $135 billion in sales this year. I know it might be hard to grasp just how big that number is, so for perspective $135 billion is larger than most European countries' e-commerce markets. Thus without much fanfare Amazon marketplace has become an e-commerce economy inside of Amazon. 

This presents a huge opportunity for retailers, and brands to tap into a new market. While Amazon continues to work on their own infinitives, and building products like the mentioned Echo devices, the marketplace only continues to grow. Credit Suisse estimates that by 2020 the marketplace will have grown to $259 billion, which is almost double that of this year!

Currently more than 5 million marketplace sellers sell on Amazon marketplaces globally, however this big number exaggerates the size of the competition. Amazon recently said that there are 100,000 sellers with $100,000 or more in sales a year, a much more relevant estimate for the marketplace size. 

I know it's a lot of big numbers, but the point is that the marketplace is big, much bigger than it might appear, and it's only going to get bigger.

Q: How do you succeed as a seller on Amazon?

A: First, it might look the market is over-saturated, but there are still plenty of opportunities. 

Technically the marketplace favors those who can offer the lowest prices. If there are 10 marketplace sellers with a box of LEGOs for sale, the one with the lowest price will get all sales, since obviously customers want to pay less. So if anything, pricing is crucial. 

Thankfully, there is more to this, as customers now often care about more than just the lowest price. Things like shipping speed, customer satisfaction, and quality are all important. Plus, customers with a Prime membership expect the same two-day shipping they get otherwise, which is only available when sellers use Fulfillment by Amazon (FBA) to store their inventory.

And yet selling on Amazon, or any marketplace to be honest, doesn't have to be about reselling products from bigger brands. That type of business is actually hard and can often see very low profit margins. That's why many new sellers are trying to develop their own products, get exclusive deals from manufacturers, or private label products sourced from China. Sellers are adapting to the changing landscape. 

These are just a few basic insights about the different things sellers can do. Ultimately a seller is a retailer, and in retail there are only two variables - supply and demand. Depending on where the products are coming from, a seller has a way or doesn't have a way to influence one, two, or none of those. The golden ticket is having control of both supply and demand, but this is rare without proper expertise. 
Q: What does the competitive landscape for sellers look like?

A: Like I mentioned before there are millions of sellers on Amazon, but the list gets shorted if you only look at sellers with a significant amount of sales, like the 100,000 sellers with more than $100,000 a year in sales. 

Another interesting vertical to look at is where the sellers come from. Even on a surprising amount of sellers are not actually based in the US. This is being helped by Fulfillment by Amazon (FBA) which allows international sellers to store inventory in the US, and thus offer the same shipping guarantees like a local seller would do.

That's why international sellers are a major group. And of those, Chinese sellers are the largest group still. This is actually one of the questions we were very interested in researching, but because of the fact that is an anonymous marketplace were not able to do. But marketplaces in Europe are not anonymous, so we measured them and found that more than 25 percent of sellers are based in China. I think this number is even higher in the U.S., as that's where the biggest opportunity is.

So if anything selling on Amazon means selling in a global marketplace, thus sellers and brands need to be more aware of this. The usual geographical limits of traditional retail are completely out of the window. 

Q: What type of products are selling on Amazon?

A: Amazon itself doesn't want to sell everything. Amazon wants to sell top products, leave the long-tail to marketplace sellers, but the total catalog on Amazon is hundreds of millions products big, and includes everything imaginable. 

Gone are days where a certain category wasn't being bough online. For example clothing for a very long time was considered impossible to sell online, but these sort of things never stay the same for long. And over time customers got used to buying online, knowing how to try on different sizes, and thus clothing online has become a norm.

There are still many categories, like groceries, which are still at their infancy online but those will inevitably change too. When it comes to products selling on Amazon - everything sells. 

Q: Lastly, while we have you … we have to ask … is Amazon killing retail?

A: Well, yes and no. I think Amazon is a manifestation of what people want. E-commerce itself is that manifestation. 

More people are buying online because that's what they want to be doing. In turn that means traditional retailers are struggling to grow, but it's not the e-commerce which is killing them. It's customers' preference. 

Amazon is thus riding the wave of changing preferences, which means retailers have the only way out - adapt and change. Customers will do what they want, the trends cannot be stopped. And as much as it hurts to see companies struggle, retail is changing.

Most retailers will agree that a customer is always right. Well if that's true then they will do shopping whenever they want. The market is always right. 

And yet e-commerce in the U.S. is barely 10 percent of all retail. Slowly growing every year. Amazon is half of that growth.

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