Last time we had a look at Amazon heavily advertising its devices in the earnings release. Let us now have another look at the context for the numbers Amazon released as its third quarter sales went up 23% to $25.4 Billion.
The Channeladvisor blog has good analysis and visualizations on the earnings data. Both Retail (first party) and marketplace (third party) are growing but the marketplace is accelerating:
To understand the scale we are talking about here it makes sense to compare Amazon’s marketplace with eBay which is falling further and further behind:
In Holiday 2012, Amazon’s 3P marketplace was larger than eBay for the first time and that was repeated in Holiday 2013. Then in Q2 2014 the lines crossed for the first time outside of Q4 and since that point, Amazon has been dramatically pulling away from eBay as you can see. For example, in Q3 2015, Amazon’s 3P GMV is 12b larger than eBay by our estimates (Amazon is $31.6b compared to eBay at $19.6b). If Amazon’s growth continues into Q4, we could see another milestone – Amazon’s 3P GMV would be 2X the size of the eBay marketplace for the first time.
Everyone should see now why Amazon is (usually) investing all its profits back into growing new business areas and is especially pushing the marketplace. There is tremendous value in being the default starting point or even destination for shoppers. And Amazon has a realistic shot at becoming at least the former in at least the Western world.
Already we are seeing the start of a new industry of service providers helping brands and marketplace merchants get better search positions on Amazon. It is obviously quite similar to Google and SEO.
What is not clear yet is how far into ‘black hat’ gaming this marketplace optimization will and can go. Plain old paid reviews aside the dangers for getting cut out by Amazon are far higher than by Google once one starts depending on the distribution one gets on the Amazon marketplace. Imagine Google not only penalizing an online shop’s search results but also shutting down the shop itself. That is and will be the power on Amazon’s marketplace side.
So right now it doesn’t look like there are any downsides to Amazon’s growing marketplace and its growing ecosystem, for Amazon at least.
Amazon’s market power increases. Its ‘vendors’ (brands, other marketplace actors) are doing the metadata work for it.1 Amazon’s shopping search gets better and becomes more attractive to be the default starting point for any deliberate2 shopping search. Which in turn increases the reach of the platform making it not only more attraktive but more and more necessary for more and more companies to be on the marketplace. A positive feedback loop. And a loop which is only going to increase once Amazon manages to make dedicated device-driven platform distribution channels go mainstream.
Makes you wonder what eBays management were thinking all these past years, doesn’t it.