Individual Case Assessment

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BUS 189: Strategic Management Case Analysis

Stihl is a manufacturer of chain saws and other similar power tools. It has been shunning big retail chains like Home Depot and selling primarily through small retail shops. It has been doing well.

Recently, however, the growth and popularity of online market platforms such as the Amazon Marketplace – where manufacturers can sell directly to consumers if they choose – has created both opportunities and threats to manufacturers such as Stihl.

Review the attached documents about the platform business model, Stihl, and Amazon.

Suppose that you were a strategic consultant and Stihl hired you to evaluate whether it is worthwhile for Stihl to use the Amazon Marketplace to sell its power tools. Your analysis and answers will be considered by Stihl’s CEO as he develops company’s strategic planning for the next five years. Based on information in the provided documents, please answer the following three questions.

1. What are pros and cons of Stihl using the Amazon Marketplace to sell its tools?

2. Based on your analysis, what would be your recommendation to Stihl on whether to use the Amazon Marketplace?

3. Might any changes in situation – such as increasing competition, change in product quality, or change in its customer base - lead you to reverse your recommendation or call for a different approach?

Enclosed are five documents.

1. Rothermeal, F. T. (2019). Business Strategy: Innovation, Entreneurship, and Platforms. Strategic Management, 4th Edition. Dubuque, Iowa, McGraw-Hill Education 249-253.

2. Stock, K. (2014). Stihl Chain Saws Thrive Outside the Big Box. Bloomberg.

3. Marketplace-Pulse (2019). Marketplaces Year in Review 2018, Marketplace Pulse.

4. Danziger, P. N. (2018). Thinking of Selling on Amazon Marketplace? Here Are the Pros and Cons. Forbes.

5. Greene, J. (2019). Amazon Tests Pop-up Feature Touting Its Lower-Priced Products. Wall Street Journal.

The paper should thoroughly address each component above, be professionally written and formatted, and be no more than three single-spaced pages.

You instructor will give you additional details on the submitting the assignment on Canvas.

Document 1

Document 2

Marketplaces Year in Review 2018

The largest online retailer in the US is not Amazon, but the Amazon Marketplace. Made up of millions of sellers it will account for 31.3% of total e-commerce sales this year, according to market share estimates by eMarketer. It’s close to twice as big as Amazon itself.

At $175 billion, Amazon marketplace sales will make up 68% of Amazon’s $258 billion gross merchandise volume (GMV) in the US. Marketplace sales will grow 35.6% in 2018, double the rate of Amazon direct sales’ 17.5% growth. eBay, the second largest marketplace in the US, is ve times smaller at $35 billion in domestic sales. Next is Etsy and Wish with roughly $2 billion in GMV each, then followed by Walmart Marketplace.

Despite their size and growth rate, marketplaces are the most overlooked player in the US e-commerce. Amazon doesn’t mention theirs often, retailers and brands are focused on Amazon the retailer, and shoppers don’t notice it thanks to FBA and Prime.

The Year in Review looks at the state of marketplaces and their challenges, and makes predictions on what’s to come next year. Unless otherwise noted all metrics mentioned in this report are calculated by our technology platform. Our software parses unstructured and semi-structured data sources and programmatically extracts the key pieces of structured data we care about. We collect more data on e-commerce marketplaces than any organization in the world.

In short, the industry continues to spin around Amazon. Amazon is growing both in the US and internationally, as the company struggles to make up its mind between being a retailer, a product creator, and a platform. Amazon’s ywheel is enabled by the marketplace, FBA, and Prime. A lot of the goods sold on Amazon are sold directly from China. Competition is trying to match Amazon’s two-day shipping, but it’s just one of the services they fail to offer to their marketplaces. eBay is struggling to reinvent itself, Walmart is doing ok, and Jet.com is forgotten. Two newcomers in the form of Google and Facebook are making moves. There is also Wish and Etsy, both nding their own niche and growing. Overall the power of services built around Amazon cannot be matched by the competition, and the rise of advertising is sparking the creation of a whole new industry - Amazon brand agencies.

Amazon Marketplace 31.3%31.3%31.3% Amazon Marketplace 31.3%

Amazon Retail 16.7%16 %16.7%16.7% Amazon Retail 16.7%

The ResttThe RestThe Rest 52.0%52.0%52.0% The Rest 52.0%

Amazon Sellers Funnel

The Amazon marketplace size is most often described as “there are currently more than 2 million sellers on Amazon worldwide.” The 2 million gure has become common speech. But not only is the marketplace bigger in terms of the number of sellers, it also has better metrics to benchmark its performance.

This is the Amazon marketplace funnel. Millions of sellers at the top, only tens of thousands at the bottom. There are millions of sellers with products listed for sale, there are more than 6 million sellers in total to have ever sold on Amazon, but the top 20,000 sellers with $1 million or more in sales represent the most important cohort.

Analyzing the current top sellers on Amazon, approximately 67% of them were also in the top one year ago; 53% of them were also in the top two years ago; and 41% of them were also top sellers three years ago. This highlights the apparent long- term sustainability of businesses relying on the Amazon marketplace and the relatively low churn rate. Churn rate, also known as the rate of attrition, is the percentage of sellers on a marketplace who stop selling within a given time period. Retention of top sellers is the opposite of churn.

More than one million US-based small and medium-sized businesses are selling on Amazon. US sellers are mostly located in California, representing 18% of all sellers. Other common locations include New York, Florida, and Texas. These four biggest states make up 40% of US sellers.

20,000 Sellers with $1 million in sales

Number of sellers worldwide with more

than $1 million in sales a year.

140,000 Sellers with $100,000 in sales

Number of sellers worldwide with more

than $100,000 in sales a year.

2,500,000 Sellers with products for sale

Number of active sellers worldwide with

products listed for sale.

This breakdown showcases Amazon’s economic impact across the US. Amazon estimates that the Amazon Marketplace has created more than 900,000 jobs.

Sellers are a unique type of business. Their business processes, capital funding, launching of new products, and inventory is built to work speci cally on marketplaces. They understand keyword optimization much more than they do store layouts. They are not going around their brick-and-mortar store picking products off the shelves to ful ll an online order either.

Amazon China Sellers

On Amazon, 39% of the top sellers are based in China. This is based on a combined average of the 5 European marketplaces (Spain, Italy, France, UK, and Germany). Retailers in Europe are required to disclose their business location as part of European Union law, this thus also apply to sellers on European marketplaces. The business information is analyzed in this report to determine what country is the seller located in. Unfortunately this is only possible for the European marketplaces, and the same analysis is not possible for Amazon.com.

Nonetheless China sellers share of Amazon.com marketplace is at least that of Europe at 39% or even higher. The US marketplace generates the most sales overall, thus the interest from sellers is highest there. In a study from 2016, Payoneer interviewed 900 Chinese sellers and found that 62% of respondents are selling on Amazon marketplaces. Of the 62% gure, 91% sell on Amazon.com in the US.

California >175,000>17>175,000>175,000 California >175,000

New York >81,000>>81,000>81,000 New York >81,000

FloridaoridaoFloridaFlorida >75,000>75,000>75,000 Florida >75,000

Texas >62,00062 000>62>62,000>62,000 Texas >62,000

IllinoisooIllinoisIllinois >38,000>38,000>38,000 Illinois >38,000

Pennsylvania >35,000>35,000>35,000 Pennsylvania >35,000

Virginia >28,000>28,000>28,000 Virginia >28,000

Ohio >28,0002>28,000>28,000 Ohio >28,000

Michigan >28,00028 000>28,000>28,000 Michigan >28,000

Georgia >28,000 Georgia >28,000

Washington >27,000>27,000>27,000 Washington >27,000

North Carolinah lNorth CaroNNorth CarolinaNorth Carolina >24,500>24,500>24,500 North Carolina >24,500

ColoradoColoradooloradoColoradoColorado >20,000>2>20,000>20,000 Colorado >20,000

ArizonaArizonaoArizonaArizona >19,000>>19,000>19,000 Arizona >19,000

MinnesotaesotoMMinnesotaMinnesota >17,0007>>17,000>17,000 Minnesota >17,000

Missouri >15,000>15,000>15,000 Missouri >15,000

UtahUtahUtahUtah >14,000>14>14,000>14,000 Utah >14,000

Tennessee >14,00014 000>14,000>14,000 Tennessee >14,000

Oregon >14,000>14,000>14,000 Oregon >14,000

South Carolina >9,000>9,000>9,000 South Carolina >9,000

NevadaNevadaNNevadaNevada >9,0009 000>>9,000>9,000 Nevada >9,000

Kentucky >8,000>8,000>8,000 Kentucky >8,000

Alabamab alAlabamaAlabama >8,0008 000>>8,000>8,000 Alabama >8,000

KansasKansasKansasKansas >7,0007 000>7>7,000>7,000 Kansas >7,000

Iowa >7,000>7,000>7,000 Iowa >7,000

Oklahomah aklOklahoOklahomaOklahoma >6,500>>6,500>6,500 Oklahoma >6,500

LouisiananaioLouisianaLouisiana >6,500>6,500>6,500 Louisiana >6,500

IdahodahooIdahoIdaho >5,000>5,000>5,000 Idaho >5,000

NebraskaNNebraskaNebraska >4,500>4,500>4,500 Nebraska >4,500

Arkansas >4,500>4>4,500>4,500 Arkansas >4,500

New Mexico >4,0004 000>4>4,000>4,000 New Mexico >4,000

Maine >3,500>>3,500>3,500 Maine >3,500

Delaware >3,500>3,500>3,500 Delaware >3,500

Hawaii >2,70072>2,700>2,700 Hawaii >2,700

Montanao taMoMontanaMontana >2,5002>2,500>2,500 Montana >2,500

VermontV oVermontVermont >2,000>2,000>2,000 Vermont >2,000

South Dakota >1,700>1,7>1,700>1,700 South Dakota >1,700Wyoming

>1,600>1,600>1,600 Wyoming >1,600

North Dakota >1,500>>1,500>1,500 North Dakota >1,500

Alaska >1,400>1,400>1,400 Alaska >1,400

Sellers from ChinaoSellers from ChinaSellers from China 39%39%39% Sellers from China 39%

Based Elsewhere 61%61%61% Based Elsewhere 61%

In two years the number of successful sellers from China on the Amazon marketplace has doubled. 39% of the top sellers are now based in China, up from 15% two years ago.

More than ten thousand Chinese sellers attended the 4th annual Amazon Global Store Seller Summit ( ). The event was held in Ningbo, Zhejiang province on December 6-7th. Twice as many participated in the live online

broadcast. In comparison, Amazon’s only event in the US, titled Boost with FBA and held in New Orleans, LA this year, attracted less than three thousand sellers. But comparing the size of the events is not as important as the difference in the topics discussed. The US’ Boost with FBA focused largely on inventory management and starting-out advice, while the China’s Global Store Seller Summit - as the name suggests - is about international expansion, product innovation, and brand building.

Amazon’s message in China is simple: innovate on great products, expand worldwide, and build brands. And it’s working.

Amazon.co.uk Amazon.de Amazon.fr Amazon.it Amazon.es

“Why buy a $40 bikini made in America when you can buy a $4 bikini directly from China? For that matter, why buy a $20 bikini

made in China but imported by a U.S. company like the Gap when you can buy a $4 bikini directly from China?”

– Alana Semuels, The Atlantic

Amazon Marketplace Growth

This year more than 1.2 million sellers joined all Amazon marketplaces. This equals to 3,459 new sellers every day, or 144 every hour, or more than 2 every minute.

This is adding to the millions of marketplace sellers, and was mostly contributed by Amazon.com in the US, Amazon.in in India, and Amazon.de in Germany. Although few of them will ever become active - many sellers end up never listing even a single product.

In India it took four years for Amazon to grow the marketplace from zero to 200,000 sellers, but just over a year to double from 200,000 to 400,000 sellers. Amazon launched in India in June 2013 and it took the company 37 months to reach the rst milestone, 100,000 sellers, in July 2016. It then took 11 months to double to 200,000 sellers in June 2017. Since then the marketplace growth has accelerated reaching 300,000 sellers in 8 months in February this year. Only 7 months later it reached 400,000 in September 2018.

“While Amazon and Flipkart (ex-Myntra and Jabong) were neck-and-neck in terms of GMV in FY17, Amazon has taken the clear lead in FY18 with GMV of $7.5 billion as compared to $6.2 billion for Flipkart on a standalone basis,” according to a report from Barclays. Walmart acquired 77% in Flipkart earlier this year paying $16 billion, valuing it at $22 billion.

In Australia Amazon launch 12 months ago may not have lived up to the hype, but the company is on track to put the building blocks in place for years to come. “It’s been a big year and we’re only getting started,” said Amazon Australia’s country manager Rocco Braeuniger. Amazon managed to grow the assortment from 7.5 million products at launch to close to 100 million twelve months later. 20 million of which are from Amazon US available through the Global Store. The biggest driver of the growing catalog is the marketplace, which has grown from 2,000 to 25,000 sellers in a year. 40% of sellers, or 10,000 to be exact, are based in Australia, while the rest are international sellers, mostly from China.

Amazon.comon.coAmazon.comAmazon.com 28.5%8 %28.5%28.5% Amazon.com 28.5%

Amazon.in 11.7%11.7%11.7% Amazon.in 11.7%

Amazon.de 10.8%10.8%10.8% Amazon.de 10.8%

Amazon.co.uk 9.7%9.7%9.7% Amazon.co.uk 9.7%

Amazon.frAmazon.froAmazon.frAmazon.fr 8.6%8.6%8.6% Amazon.fr 8.6%

Amazon.itoAmazon.itAmazon.it 8.2%8 2%8.2%8.2% Amazon.it 8.2%

Amazon.esa o eoAmazon.esAmazon.es 7.8%7.8%7.8% Amazon.es 7.8%

Amazon.ca 5.3%5.3%5.3% Amazon.ca 5.3%

Amazon.co.jp 4.4%4.4%4.4% Amazon.co.jp 4.4%

Amazon.com.mx 2.1%2.1%2.1% Amazon.com.mx 2.1%

Amazon.com.au 1.7%1.7%1.7% Amazon.com.au 1.7%

37 monthsso37 months37 months37 months

11 months11 monthso11 months11 months11 months

8 months8 monthso8 months8 months8 months 7 months7 o7 months7 months7 months

The marketplace, FBA, and Prime are starting to spin the ywheel in Australia. As a result, in November it saw the most visitors yet at 16.3 million, according to SimilarWeb. That’s more than in December last year, and thus this December is going to be even bigger still. Before Amazon launched in Australia the website was attracting 4 to 5 million visitors a month, but has steadily grown since - Amazon.com.au has doubled website traf c so far this year.

Ful llment by Amazon (FBA)

Amazon’s Prime program now includes more than 100 million members worldwide. That makes it one of the largest loyalty programs in the world, and as a result Prime members as a group are in uencing retail as a whole. Not only are other retailers waking up to having to offer “free” two-day shipping, other marketplaces are nding their own ways to enable unifying shipping experience.

The number of sellers offering products through Prime is steadily increasing. More than 90% of the top sellers now offer Prime for at least one product, up from 70% three years ago in 2015. Furthermore, 73% of the top sellers offer Prime for more than half of their assortment, up from 40% three years ago. Sellers choose to store inventory in FBA not because it is more convenient or cheaper than the alternatives. They do so because it unlocks access to more shoppers on Amazon. And thus over the years those who do got more successful than those who don’t. It’s all about that Prime checkmark.

The growing Prime catalog is enabled by FBA. Launched twelve years ago on September 19th, 2006 Ful llment by Amazon (FBA) has become a cornerstone service enabling the Amazon ywheel. FBA is an Amazon program which allows sellers to of oad most of their warehouse operations to Amazon for a fee. Customers buying from FBA sellers get the same two-day Prime shipping and thus sellers get preferential treatment in buy-box rotation.

Joe Walowski said this during the announcement in 2006. At that time it was already clear that Prime memberships will be one of the key pillars in the future, even though less than a million customers had signed up for one. Prime combined with FBA has made the marketplace almost invisible to most shoppers. A decade ago Amazon made three long-term bets: Prime memberships, ful llment consistency, and third-party sellers are going to be key. By most estimates half of the US households have a Prime membership. The convenience of two-day shipping, and even same-day delivery has become the norm. And the third-party marketplace has grown faster than Amazon itself because it deeply integrated into all of this. They were the right bets to make.

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“We created Ful llment by Amazon because it is good for Amazon.com customers, and therefore, great for our third-party sellers.

With membership in Amazon Prime growing every day, more and more Amazon.com customers want a great deal on shipping and

to receive their orders quickly. Ful llment by Amazon makes it possible for sellers to offer Amazon.com customers this

convenience.”

– Joe Walowski, Product Manager, Ful llment by Amazon

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Across all Amazon marketplaces the number of sellers offering Prime shipping is increasing. On February 26th Amazon launched Ful llment by Amazon (FBA) in Australia. Ten months later 33% of sellers had already committed to using FBA for most of their catalog.

Those who use FBA on average have less products listed than those who don’t use FBA (referred in the table below as Ful llment by Merchant (FBM)). This is because listing products when using FBA requires sending those items to Amazon. For example, many of the books sellers have hundreds of thousands of products listed, but are rarely using FBA because of high storage fees.

Free Two-Day Shipping

Free two-day shipping is an inalienable right, as Christopher Mims of The Wall Street Journal put it, “alongside life, liberty and the pursuit of happiness.” This is mostly thanks to Amazon. Amazon launched Prime in 2005 and in thirteen years since has created a perception that two-day shipping is the standard every other retailer needs to meet too. The company offers free two-day shipping for Prime members for 100 million products.

The truth is that achieving nationwide free two-day shipping is hard and expensive. It requires inventory planning and mirroring, a warehouse network, and sophisticated technology to manage it. And all of that complexity needs to happen at a price point which still allows it to be marked as “free”. Scale is essential too. None of this can be done by mom-and-pop shops or small retailers without the help of someone who has aggregated many of them.

Walmart, the largest retailer in the country with close to 5,000 stores locations and close to ten e-commerce ful llment centers, can’t do it perfectly. Customers on the east cost have access to 2 million products with two-day shipping, but on

Amazon.com 57 818

Amazon.in 37 102

Amazon.co.jp 36 472

Amazon.de 32 763

Amazon.co.uk 29 593

Amazon.fr 27 608

Amazon.it 25 508

Amazon.es 24 373

Amazon.ca 11 245

Amazon.com.au 5 19

Marketplace FBA Seller Median Products FBM Seller Median Products

“In today’s world of e-commerce, two-day free shipping is table stakes.”

– Marc Lore, president and CEO of Walmart U.S. eCommerce

the west coast the availability is 20% smaller at 1.6 million products. In some states like Montana or Wyoming only 1.5 million products are available with two-day shipping.

Walmart Two-Day Shipping launched with two million products in 2017 and so far has failed to grow. Two years later it is still hovering at two million products. Prime is Amazon’s golden ticket and there is no point discussing Amazon vs Walmart without Walmart being able to match it. Two million items is no match for one hundred million. This is where the marketplace will play a crucial role in the future. It has allowed Walmart to expand the catalog, but hasn’t always integrated into the shopping experience well since ful llment was up to the seller. Walmart doesn’t offer an FBA equivalent, and without it the growing catalog by the marketplace doesn’t contribute to the two-day shipping selection.

In September 2017 eBay launched a new program called Guaranteed Delivery, allowing shoppers to lter search results to show only items that offer guaranteed delivery within 3 days or less. eBay automatically guarantees the delivery dates on

Alaska 1,394,9661,394,9661,394,966 Alaska 1,394,966

Arkansas 1,675,35071,675,3501,675,350 Arkansas 1,675,350

ArizonaArizonaoArizonaArizona 1,644,19744,1971,644,1971,644,197 Arizona 1,644,197

California 1,641,99741,9971,641,9971,641,997 California 1,641,997

ColoradoColoradooloradoColoradoColorado 1,582,56321,582,5631,582,563 Colorado 1,582,563

Delaware 2,000,99662,000,9962,000,996 Delaware 2,000,996

FloridaoridaoFloridaFlorida 1,632,785721,632,7851,632,785 Florida 1,632,785

Georgia 2,036,522362,036,5222,036,522 Georgia 2,036,522

Hawaii 1,394,3714,371,394,3711,394,371 Hawaii 1,394,371

IowaooIowaIowa 1,984,4194,41,984,4191,984,419 Iowa 1,984,419

IdahodahooIdahoIdaho 1,603,2391,603,2391,603,239 Idaho 1,603,239

Illinoisll oIllinoisIllinois 1,987,7497,741,987,7491,987,749 Illinois 1,987,749

KansassKansasKansas 1,816,79671,816,7961,816,796 Kansas 1,816,796 Kentucky

2,024,3612,024,3612,024,361 Kentucky 2,024,361

LouisiananaioLouisianaLouisiana 1,998,1061,998,1061,998,106 Louisiana 1,998,106

Maine 1,968,7931,968,7931,968,793 Maine 1,968,793

Michigan 2,000,91772,000,9172,000,917 Michigan 2,000,917

MinnesotaesotaoMMinnesotaMinnesota 1,795,9211,795,9211,795,921 Minnesota 1,795,921

Missouri 1,989,0271,989,0271,989,027 Missouri 1,989,027

Mississippi 2,005,7447442,005,7442,005,744 Mississippi 2,005,744

MontanaMontanaMoMontanaMontana 1,447,827447,8271,447,8271,447,827 Montana 1,447,827

North Carolinah lNorth CaroNNorth CarolinaNorth Carolina 2,035,6632,035,6632,035,663 North Carolina 2,035,663

North Dakota 1,779,644779,6441,779,6441,779,644 North Dakota 1,779,644

NebraskaNebraskaNNebraskaNebraska 1,797,9587971,797,9581,797,958 Nebraska 1,797,958

New Mexico 1,507,5351,507,5351,507,535 New Mexico 1,507,535

NevadaNevadaNNevadaNevada 1,641,90341,641,9031,641,903 Nevada 1,641,903

New York 1,990,01771,990,0171,990,017 New York 1,990,017

Ohio 2,009,3902,009,3902,009,390 Ohio 2,009,390

Oklahomah aklOklahoOklahomaOklahoma 1,817,4267,421,817,4261,817,426 Oklahoma 1,817,426

Oregon 1,615,8541,615,8541,615,854 Oregon 1,615,854

Pennsylvania 1,998,7761,998,7761,998,776 Pennsylvania 1,998,776

South Carolina 2,026,9522,026,9522,026,952 South Carolina 2,026,952

South Dakota 1,786,6771,786,6771,786,677 South Dakota 1,786,677

Tennessee 2,034,5412,034,5412,034,541 Tennessee 2,034,541

Texas 1,804,95841,804,9581,804,958 Texas 1,804,958

UtahUtahUtahUtah 1,629,81021,629,8101,629,810 Utah 1,629,810

Virginia 2,003,6142,003,6142,003,614 Virginia 2,003,614

VermonttoVer oVermontVermont 1,979,09809871,979,0981,979,098 Vermont 1,979,098

Washington 1,615,9791,615,9791,615,979 Washington 1,615,979

Wyoming 1,504,0071,504,0071,504,007 Wyoming 1,504,007

listings from stores with 100 or more transactions per year, a late shipment rate of 5% or less, and same-day or 1-day handling time.

Of the 800 million items on eBay in the US, 18 million are available with 3-day guaranteed delivery, 8 million are available with 2-day guaranteed delivery, and close to 2 million are available with next day 1-day guaranteed delivery.

eBay’s Guaranteed Delivery is an attempt to offer Amazon Prime-like convenience without a membership and without eBay owning any warehouses. “In today’s world of e-commerce, two-day free shipping is table stakes,” said Marc Lore, president and CEO of Walmart eCommerce for the U.S. market. eBay wants to offer the same, but unlike Amazon or Walmart, it wants to achieve that without investing into physical infrastructure.

eBay is probably right. eBay is too late to join the game of building an Amazon FBA competitor, and even if tried to it would take years. However the relatively small percent of eBay’s catalog available with guaranteed fast shipping is showing that sellers often don’t have the capability to do it themselves either. Most of the tens of millions of sellers on eBay are small operations, often one-person side-businesses. They can’t offer nationwide fast shipping without the use of a third-party logistics infrastructure. eBay has built the website functionality to showcase fast shipping, but not partnerships and services to help, educate, and enable sellers to offer it.

18,000,00018,000,00018,000,00018,000,00018,000,000

8,000,0008,000,0008,000,0008,000,0008,000,000

2,000,000,000,0002,000,0002,000,0002,000,000

“The one thing I don’t think we need to do is deploy large amounts of capital to build the warehouse strategy. I’ve never thought

that. I don’t believe that and I think that we use data and we use the diversity of our inventory to close the gap.”

– Devin Wenig, CEO of eBay

When Walmart or Google launch their new marketplaces the idea is that sellers will ock to them. But the reality is that most of them have a well-oiled process with Amazon and doing anything else is distracting. The repeatability of selling on Amazon, combined with expertise in launching products, reviews building, advertising, and other skills is not easily transferable.

The notion of multichannel, selling on dozens or even hundreds of marketplaces, is often a pipe dream. As Amazon gets bigger and as more shoppers join Prime, more sellers buy-in into FBA. And thus as a result for those sellers multi-channel becomes something they do to appear diversi ed, and not an actual business strategy. Multichannel inventory storage is an unsolved problem, at least competitively compared to FBA prices.

From 30,000ft above the Amazon ecosystem does look like the castle protected by an unbreachable moat, as Warren Buffet, American business magnate and philanthropist, described: “In business, I look for economic castles protected by unbreachable moats.” Other castles - to continue the analogy - in the form of Walmart and eBay don’t have a moat because they don’t have what built Amazon’s: Prime and FBA. Even if Amazon continues to upset some number of sellers, change rules, or increase fees, the moat only gets deeper as more sellers join and as more shoppers subscribe to Prime.

Amazon provides growth as a service. All of its services - warehousing, ful llment, international expansion, lending, advertising, etc. - combine into a marketplace built on services. It continues to work on sellers because as long as they have cash ow to support it, the marketplace provides avenues for growth. Competing marketplaces are lacking, for example none offer warehousing and ful llment, and thus cannot achieve the same.

A great marketplace is a combination of reach and services. Amazon is not only the biggest shopping website, but has 100 million Prime members. That, combined with the infrastructure it has built around itself, makes it great. Competing marketplaces like Walmart and eBay have reach, but are weak in services.

One of the services offered by Amazon is lending. This year Amazon has loaned more than $1 billion to sellers worldwide. Loan sums range from $1,000 to $750,000, and are invite-only - Amazon’s systems decide which sellers are worthy by analyzing their sales data. It’s a win-win for both parties - Amazon gets to fund overall marketplace growth with relatively small risk, while sellers get to expand through extra capital which is often not available otherwise.

“It doesn’t seem appealing to me to add an enormous burden of having another inventory somewhere other than Amazon just to

be able to sell 10% more than we currently sell on Amazon.”

– Amazon Seller

Amazon runs 14 marketplaces around the world which includes USA, UK, Germany, France, Canada, Japan, India, Italy, Spain, Mexico, Australia, Turkey, Brazil, and China. An increasing number of sellers are expanding internationally, for example, US sellers add the European marketplaces and Japan to reach more customers. Amazon and the industry around it offers various services to help with international expansion. Taking what used to be a challenging business, and making it more accessible through the infrastructure of services built around the marketplace.

In May this year Amazon launched the Marketplace Appstore, which includes software tools to handle pricing, inventory, advertising and other needs for pro sellers. The software industry has long existed around Amazon, but the appstore makes it easier for sellers to discover new tools. It is also another layer of the services infrastructure around Amazon.

Amazon Advertising

Amazon is the third largest advertising platform, behind Facebook and Google. Facebook and Google together account for more than half of the overall online advertising market in the US, but Amazon advertising is growing six times faster than the incumbents.

Amazon advertising is the one to watch because the company is building towards a full-journey, attributable marketing experience. Amazon has historically shared very little data with sellers and brands, but recently it is starting to run experiments with advertising agencies and brands to change that. The consensus among some is that eventually this will lead to a data service provided to brands and agencies.

Amazon is becoming a pay-to-play platform because it’s better to pay Amazon to show up on top of the sort order - even more on top of other fees - than not to be found. The internet makes it possible for any product from anywhere in the world to be on Amazon. But how do shoppers nd your brand? Advertising.

The struggles of brands on Amazon, and many more standing by the sidelines trying to decide what to do, has over the past few years created a new industry - Amazon brand agencies.

Google $24,065 $28,954 20%

Facebook $10,142 $13,539 33%

Amazon $1,123 $2,495 122%

Twitter $503 $650 29%

Snapchat $208 $298 43%

Advertising platform revenue in millions 2017 Q3 2018 Q3 Growth

Amazon brand agencies are also known as Amazon digital marketing consultants, marketing agencies, strategy consultancies, etc. They are primarily in the business of “we’ll hold your hand.” They manage listing creation, optimize brand content and keywords, run advertising campaigns, etc. They do the things Amazon rst-party vendors used to get, but have over time lost to Amazon’s own automation. For many brands they solve the problem of being on Amazon in a way which retains control.

Big driver for this is advertising on Amazon. WPP is the largest advertising company in the world measured by billings and revenue. Last year its clients spent a combined $7 billion on advertising on Facebook and Google alone through WPP. In theory both Facebook and Google ad platforms are self-service, but in reality most businesses get better returns having experienced agencies manage these services for them. The same is happening with product advertising on Amazon. Brands are ocking to agencies to manage their ads on Amazon.

Amazon brand agencies are in many ways similar to distributors of the past. But instead they only have one place they distribute to - Amazon. This reshuf es the relationships of retail in a peculiar way and almost adds a new layer of middlemen Amazon was set out to remove. These brands are sellers on the marketplace, sometimes with a mix of also selling some inventory directly to Amazon, but all managed by a third-party.

Amazon Own Brands

This year ago Amazon began selling a $130 AmazonBasics foam mattress. Prices range from $129.99 for the 8-inch twin to $349.99 for the 12-inch king size. Right in line with some of the least expensive foam mattresses currently available. There are three reasons why Amazon got into the bed-in-a-box business:

“mattress” is the 42nd most searched term on Amazon.com Best selling mattresses on Amazon.com are brandless Mattress as a product is hard to differentiate on

First, it might be surprising that people shop for mattresses on Amazon, but data shows that they often do - “mattress” is the 42nd most searched term on Amazon.com. It’s a more popular term than “iphone charger”, “paper towels”, or even “baby wipes”. Terms like “twin mattress”, “queen mattress”, “memory foam mattress”, and “full size mattress” are in the top 1,000 search terms too.

Searches for mattresses are a great example of this. Shoppers are not looking for a particular brand. Maybe because few mattress brands outside of Casper are common speak. This means search volume (and thus demand) is big, but no particular brand owns it.

Second, when customers search for a mattress most of the time they end up buying one of the brandless affordable options. Products from Zinus, Signature Sleep, Linenspa and Night Therapy are most popular. They are all in a similar price range and mostly compete on reviews and ratings. The top selling mattress from Zinus, for example, has more than 22,000 reviews and is rated 4-out-of-5. Any new product can launch in such environment and start amassing market share if its reviews are better, price is lower, advertising is more aggressive, or if Amazon pushes it. They of course do.

Third, most mattresses are made by a few manufacturers in China. For example the one Amazon just launched is by WAI KIN HOME FASHION (HUIZHOU) CO., LTD. Some premium brands have unique features to offer, but most of the market is comparable products sold under different names. www.sleeplikethedead.com, one of the most trusted websites for unbiased ratings of sleep products, rates Casper at 79% customer satisfaction. But Zinus and Signature Sleep are not far off with 76% each. At similar price points the winner is whichever ranks rst. Few customers can objectively decide based on quality of a mattress. As a result no one knows which is the “best” mattress.

So it’s not about Amazon having more data on customers than anyone else. Nor it is about them pushing their own brands. It’s about understanding the environment that is Amazon shopping. Most customers search by generic keywords and they have no problem buying brandless goods if reviews are great. All Amazon, or anyone else making private label products, has to do is nd niches which have the same behavior. Sleeping mattress is one.

“About 70 percent of the word searches done on Amazon’s search browser are for generic goods.”

– Julie Creswell, The New York Times

Sellers Representing Brands on Amazon

For over a decade the Amazon marketplace worked as a trick to get brands unwilling to sell directly to Amazon onto the platform. Most brands would refuse to sell to Amazon, but their products would still end up on Amazon because a few small retailers would list them there. It wasn’t uncommon for those retailers to hide the fact that they sell on Amazon as the brands wouldn’t sell to them if they knew. Some Amazon sellers even had fake brick-and-mortar stores set up, all so they could tell to brands their products will be sold in stores

Brands woke up to Amazon. This happened in the last few years. First, brands tried to control distribution on Amazon through only allowing a set list of sellers. Second, they tried to become sellers themselves. And most recently they started hiring Amazon agencies to manage their presence on the platform. For most brands - especially for big brands like Apple - it is often damaging to ignore Amazon. Shoppers search for Apple products on Amazon and there is nothing Apple can do to stop that. Neglecting Amazon means a disappointing shopping experience, and with Amazon capturing more than half of all shopping searches that’s too much to ignore.

Last year Amazon made a deal announcing that Nike will start selling on the website. It made the same deal with Apple this year. Not unlike Apple, Nike was trying to weed out counterfeits and improve their presence on the platform. One seller described the impact of this deal to their business the best - their opportunity is brands which don’t work with Amazon. If they do, the opportunity closes.

The future of Amazon is brands represented by Amazon, an Amazon agency, or by the brand itself. The opportunity for sellers to represent brands is shrinking. Sellers aware of this shifting dynamic are building their own brands, experimenting

“That’s how I make my money. Amazon is the No. 1 marketplace. Nike is the No. 1 brand. If they’re not in bed together, that’s my

opportunity.”

– Amazon seller talking with The Wall Street Journal

with private labeling, and diversifying internationally. The opportunity is still great, but the way Amazon sees brands, and the way brands sees Amazon is not the same.

Looking Forward to 2019

Unanswered questions:

Marketplace Sales Tax Antitrust investigating Amazon’s dual role in the market China Import Tariffs Counterfeits and knockoffs Black-hat techniques on Amazon

Areas to watch:

Advertising on Amazon Amazon brand agencies Google shopping Ful llment infrastructure Brand building

Winners:

Amazon Marketplace Amazon in India Etsy Amazon Prime Direct-to-consumer brands Sellers from China

Losers:

eBay Jet.com Voice shopping Blockchain for e-commerce US cities competing for Amazon HQ2

22,803 views | Apr 27, 2018, 01:55pm

Thinking Of Selling On Amazon Marketplace? Here Are The Pros And Cons

Retail

Pamela N. Danziger Contributor

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 more than 300,000 U.S.-based small and medium-sized businesses (SMBs) sell through its Marketplace service.

 For small and mid-sized businesses, selling through Amazon Marketplace is a gamble.

(Photo by S3studio/Getty Images)

