It’s not often you see a CEO so sanguine about an ass whooping.
“Something strange and remarkable has happened over the last 20 years,” Amazon’s Jeff Bezos said in his annual letter to shareholders. “Third-party sales have grown from 3% of the total to 58%. To put it bluntly: Third-party sellers are kicking our first-party butt.”
Bezos has reason to be happy about the numbers, of course. They still mean more money for Amazon, whether Amazon is making the sales itself or just collecting the fees from sales by independent sellers on its marketplace.
As Bezos pointed out, both types of sales have grown substantially in the past 20 years. In 1999, Amazon did $1.6 billion in physical gross merchandise sales itself, compared to $100 million by its third-party sellers. Last year, Amazon’s direct sales were $117 billion and third-party sales, mostly from small- and medium-sized businesses, came in at $160 billion. Independent sellers moving everything from diapers to diamonds now collectively sell more stuff on Amazon than Amazon does.
The huge growth of the Amazon Marketplace hasn’t been without challenges for the company. Sellers that ignore the code of conduct they agree to when they register may use it to peddle fake or pirated goods. The problem has grown to be significant enough that German sandal maker Birkenstock pulled its products from Amazon over it. Late last year, a trade group for the US fashion industry very publicly called out Amazon on the issue.
On April 3, Donald Trump issued a memorandum directing US government bodies to start compiling a report on combating counterfeit and pirated goods. Among the report’s objectives is to “develop a deeper understanding of the extent to which online third-party marketplaces and other third-party intermediaries are used to facilitate the importation and sale of counterfeit and pirated goods.” It didn’t mention Amazon by name, but it hardly needed to, given that Amazon runs the most prominent online third-party marketplace in the US. (Trump, incidentally, doesn’t like Bezos.)
Amazon has measures in place to fight these problems on its site. “We invest tremendous resources to protect our marketplace from inauthentic goods,” the company said in reply to the move by the US fashion group, noting that it has a global team working on these issues around the clock. It added that it investigated and acted on 95% of the infringement notices it received from its brand registry within eight hours.
It’s going to have to keep investing as its third-party marketplace grows, or that marketplace may start kicking Amazon’s butt in a way it doesn’t like.