Amazon’s Push and Pull With Its Marketplace

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Amazon Chronicles
Amazon’s Push and Pull With Its Marketplace
By Tim Carmody • Issue #41 • View online

One way to read a good chunk of the last week or so of news stories about Amazon is as a complex push and pull between Amazon and the third-party sellers that make up its marketplace. On the one hand, Amazon wants to present itself as absolutely essential to those third-party sellers’ businesses, with all other options looking like shabby second-best choices; on the other, in order to actually be essential, Amazon needs to sweeten its arrangements with its sellers to actually make it substantially better than its competition.
Let’s start with a story that seemed a little silly when I first saw it: the Online Merchants Guild told David Dayen at The American Prospect that Amazon had sent emails threatening its third-party sellers that government regulation of Amazon’s marketplace could force it to shut down entirely.
The emails pushed sellers to register at an in-house website, supportsmallsellers.us, to “stay informed and involved on legislation that could impact your business”… The website asks for emails and physical addresses from sellers, and says that signing up will “afford you opportunities to communicate directly with your elected officials.” With physical addresses, Amazon could target messages from potentially thousands of seller constituents directly to their own members of Congress. This amounts to building a large lobbying army out of its seller partners, by asserting that their livelihoods are at grave risk from the legislative effort.
On the one hand, this makes sense; raise the specter of a worst-case scenario for your sellers, and then position yourself as the champion of small businesses, rather than be painted as their exploiter, especially before what could be a costly showdown with Congress and another unionization showdown (this time in a major media market that’s more labor-friendly.)
But even as a gesture, it feels unusually dramatic: could or would Amazon actually shut down its marketplace rather than oblige itself to relatively modest bills curtailing Amazon’s tendency to push its own products at its partners’ expense? (On this self-referencing, see Adrianne Jeffries and Leon Yin’s recent report at The Markup; on Amazon’s willingness to go a step further and clone its competitors’ products, then rig the search results to favor its copies, see the latest report from India. )
If anything, Amazon seems to be looking to expand its relationship with its third-party sellers. “Local Selling” is a brand-new set of services that facilitate buying online at Amazon.com and picking up in store (or fast local delivery) from its third-party partners. It gives bigger brick-and-mortar retailers more incentives to use Amazon’s storefront, while keeping a bigger chunk of the profit. And Amazon can head off both big retail competitors (Walmart, Target) and platforms like Shopify looking to offer the same service.
In his most recent Amazon Briefing at Modern Retail, Michael Waters argues that in-store pickup is a win/win on its face for Amazon and its partners:
[F]or Amazon and for third-party sellers, in-store pickup is especially tantalizing because it is so cost-effective. Target said last year that it saves 90% on costs when customers pick up products in its stores versus having them shipped to their homes. “If you look at what the consumer trends are, the BOPIS model is becoming much, much more prevalent,” said Harvey Ma, svp of consumer and retail performance at NielsenIQ. For Amazon, with Local Selling, “what they’re doing is capitalizing on what is hot right now.”
But Amazon would keep a tasty slice just for itself:
Every customer who buys a product from a third-party seller is technically Amazon’s customer – Amazon, rather than the third-party seller, keeps each customer’s email address. Amazon has made the fact that it can handle everything from fulfillment to customer service on a seller’s behalf a central part of its justification. In exchange, sellers have grudgingly parted with customer information. But stores in the Local Selling program might end up doing most of the work on each order themselves – including selling their own products and facilitating pickup for local customers. Even after that, they still won’t retain any information on who their customers are.
Why would third-party customers take that bargain? Some of it has to do with Apple’s decision to wall off data sharing on its smartphone apps. This lowers the amount of data that can be gathered by companies like Facebook and Google, which in turn lowers the effectiveness and desirability of their ads. If you can’t reach your customers using search or social, then you have to go back to the one site where you’re downright sure a customer is trying to buy something: the great bazaar, Amazon.com.
This, at least, is Eric Savitz’s argument at Barron’s, and by Nivedita Balu at Reuters; both think Amazon has been the perhaps unlikely winner in the Smartphone Retail Scramble.
So to its third-party customers, on the one hand, Amazon portends doom; on the other, it offers opportunity. And all the while, the company knows that retailers large and small are pressing tighter against a ledge that’s getting ever closer, and Amazon might be their only way forward. For a company under as much external and internal pressure as Amazon, it’s a pretty strong move.
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Tim Carmody

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