For consumers, there’s no denying that Amazon is a one-stop shopping paradise that’s become the epitome of convenience. But for retailers looking to build or expand their ecommerce channels, Amazon might be a bit more like paradise lost. While Amazon is currently the undisputed king of online retailing, when compared with an alternative merchant platform, like that offered by Ebay, Amazon doesn’t appear to make as much sense or, more to the point, cents. Here are several reasons why.
Amazon Competes with Their Merchants
Amazon offers an excellent ecommerce platform. Their own. So, as a merchant, you can expect to have your products listed alongside the hundreds of thousands of products Amazon sells directly to consumers. For many product categories, that means Amazon is competing head-to-head against the merchant for every sale. Should a merchant offer a unique product line of widgets, then they may carve out a unique niche for themselves on Amazon. Unless, of course, Amazon sees that one of their merchants is particularly successful (see below). In that case, Amazon may just decide to enter the widget business, which then makes them a direct competitor for each and every sale. You can see the pattern here.
Amazon Knows Your Business
Wouldn’t it be great if you had access to all of your competitor’s operating data—the exact price they charge for every product, their warehouse and fulfillment costs? That would certainly provide a competitive advantage. Well, Amazon knows all these details about their merchant’s businesses, and more. It sets the stage for many of the business decisions that follow, all of which are focused on the overall success of Amazon, not their individual merchants.
Amazon Knows Your Metrics. You Don’t.
While shoppers navigate the Amazon site, every click, search query, page view, purchase and abandoned shopping cart is being captured and parsed for further evaluation. This is a veritable treasure trove of business intelligence that can be used to refine business practices and make improvements that impact the business’ bottom line. For Amazon merchants, this could be a vital source of information that could make the difference between their long-term success and failure. Except Amazon won’t share any of this information with their merchants, leaving them to operate their businesses blindly and hope that Amazon makes decisions that will ultimately allow them to be profitable.
Amazon Owns Your Customer Data
The same is true of customer data. On any standalone ecommerce platform, as well as the Ebay marketplace, small online merchants can reap the benefit of their customer information, allowing them to directly market to their repeat customers, target shoppers who abandoned their purchase at some point during the checkout process and gather demographic information to go after new customers. On the Amazon platform, customer information, along with the associated fees, is stripped out. This leaves merchants with their payment and information with what they sold, just not who they sold it to. This is not a best practice for merchants looking to build a profitable online business over the long run.
Amazon Buying Power & Cost Structure
Whatever price a merchant pays for their inventory, you can be assured that Amazon can buy it cheaper. Amazon’s sheer scale gives them buying power that only a few of the world’s largest retailers (think Wal-Mart, Carrefour, etc.) can hope to match. And beyond product price, Amazon has lower per unit operating costs for every aspect of running a business. Warehouse space? Amazon has tens of millions of square feet spread across the country, of which, they lease a few hundred square feet to each merchant. Shipping? Scale is what allows Amazon to offer their Prime shipping service, which is actually a profit center for their business. And the list goes on.
The Wal-Mart School of Retailing
Speaking of Wal-Mart, in the brick and mortar world of grocery retailing it’s not uncommon for the retailer to take a loss on milk in order to drive traffic that will lead to other higher margin sales. And many can attest to the effect Wal-Mart has had on small town America. Wal-Mart goes in. Small, family-owned businesses go under. Amazon has this same power. At any time, Amazon can alter their pricing to, at best, squeeze their merchant’s profit margins and at worst…
Ebay Won’t Compete and Will Share Data
On the other hand, Ebay is an ecommerce marketplace, not an online retailer. Ebay does not sell any products directly to consumers, so their overall success is directly tied to the success of their merchants. To accomplish this, Ebay provides their merchants with both customer data and metrics on interaction with the merchant’s online storefronts, as well as other information merchants can use to make informed business decisions.
At the same time, Ebay has taken aggressive steps to make their overall commerce offerings better, both within and outside the Ebay framework. This ranges from their recent acquisition of Magento, which includes their small business focused SaaS-based Magento Go offering, to aligning their payment services (PayPal), enterprise-class ecommerce, logistics, and warehousing provider (GSI Commerce), the Magento Enterprise platform, and local services (Where, Milo) within the recently launched X.Commerce ecosystem.
For many small merchants, selling online is all about listing and selling fees. (We’ll let you make that comparison for yourself.) But the overall considerations run far deeper than that. Make sure you know all the facts before making a commitment.