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Amazon.com, Inc.
Amazon Merchant Partners

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By swapusa
December 9, 2009

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The Amazon brand is so powerful for merchants that even competitors to Amazon that once bragged about how they were going to go head to head with Amazon have now joined Amazon to sell their stuff.

The best example is Buy.com, the other once giant online retailer that was in direct competition with Amazon. Buy.com even has its own 3rd party merchant offering, providing an Amazon-wanna-be platform to other merchants to sell their goods on Buy.com. But that venture has been so unsuccessful due to lack of sales that even merchants who went through the trouble of listing items on Buy.com have stopped the simple task of replenishing their inventory on the site. And now Buy.com is selling its products on Amazon.com.

See Buy.com's storefront on Amazon.

As a matter of fact, Buy.com now has over 177,000 products listed on Amazon as you can see here.

Now, I don't remember hearing or reading anything about Buy.com joining Amazon as a merchant partner. I am sure that would have been important for the stock market, but I guess Buy.com wanted to save face and they agreed to do this quietly. By looking at their feedback below, I can take a pretty good guess that Buy.com joined Amazon less than 2 months ago.

As of this post, there are a total of 5821 feedback comments for Buy.com with 5651 of them left in the last 30 days and that tells me that they are quite new to Amazon. Now, from our own experience, only about 4% of Amazon buyers leave feedback of any kind for sellers. So, my estimate is that Buy.com has had about 140,000 sales on Amazon in the past 30 days. Now see Buy.com's press release of last 2 weeks (the top 3.)

No wonder they had their best Black Friday and Cyber Monday in their history. Because they are now selling on Amazon. And then the headline of the news release dated 11/23/09: "Buy.com Enhances Payment Options with Checkout by Amazon and Amazon PayPhrase."

It is not coincidental that both Wal-Mart and Sears announced their own 3rd party merchant offerings this past few months. They are scared of Amazon and the online retail market share it is taking away.

Of course, for small merchants like us and large ones like Buy.com, there is clear and present danger of selling our items on Amazon and here is why:

It appears that Amazon Retail (the division responsible for all items owned and sold directly by Amazon) and FBA (the division that deals with all 3rd party merchants) are 2 separate and competing divisions, but it is not a fair competition. Here is how they compete:

The FBA division and all its individual stores and department managers are responsible for signing up as many 3rd party merchants as they can and get them to ship as much inventory as they can to Amazon FBA warehouses. And then they have to ensure that everything runs smoothly, ensure that these 3rd party merchants preserve the customer experience that customers of Amazon are accustomed to, and weed out the bad apples and the sellers that do not meet Amazon's stringent customer satisfaction requirements, something that eBay failed to do and was punished for it.

Amazon Retail managers and merchandise buyers have full access to all the data generated by all of us 3rd party merchants. They know what we sell, who the manufacturer is, for how much and how fast we sell them, and what products consumers are happy with. Armed with all this data, then Amazon Retail simply cherry picks the best selling items and procures them directly from the manufacturers and starts competing with its own 3rd party merchants, and they are ruthless competitors. To see how ruthless this competition is consider that more than 5 years ago, at the height of the Texas Holdem poker fever, Amazon Sports Store manager called us and invited us to become one of their merchant partners. Back then we were one of the larger online poker products sellers through our own web sites, and Amazon didn't have any poker products on its site and they wanted them bad. Their timing was good as we were turned off by eBay at the time and needed to go elsewhere, so we accepted and joined. Just a year ago, if you searched for the word "poker chips" on Amazon, Amazon Retail did not have a single product come up on the first page of search results. As a matter of fact, for a period of 2 years, we typically had 10 of the top 16 items on the first page of "poker chips" search results on Amazon. Now, 3 of the top 4 items are owned by Amazon Retail, and Amazon Retail has 5 of the top 16 items that come up on the first page search results.

The same thing is true in the chess category, in the backgammon game sets, and in almost every other category of products you look at, in every department and store. Amazon collect data on its 3rd party merchants, as it has the right do do so because it is their site after all, and then sells their best selling items directly not sharing any profits with them. Quite smart!

Do we 3rd party merchants have a choice? Probably not. Target made the hard choice of ending their Amazon relationship as they recently announced that they will not renew their contract with Amazon in 2010. I guess they realized what was happening and decided to not provide anymore information to Amazon. But it is only giants like Target and Toys R Us that can sever their ties with Amazon so easily as their online sales are only a very small fraction of their overall revenues and is nothing but rounding error on their financials spreadsheets. But thousands of small and medium size merchant partners of Amazon do not have that luxury and have to stay with it until they are run over and squished by the Amazon Retail juggernaut. How can we forgo over 50% of our annual sales?

If you think about it, Amazon is doing to other online retailers what China is doing to all industrial manufacturers in the world. You see, if a manufacturer like GM or Dell, or Caterpillar wants to have a factory in China, by Chinese law they have to be in a joint venture with a Chinese company with 51% of the control in Chinese hands. So, an outfit like GM partners with Shanghai Motors, they share with their partner all their automobiles blueprints, manufacturing techniques, assembly line technology, and management skills and methodology. The Chinese then methodically learn everything they can about the technology at no cost while making hefty profit selling cars. And then in 10 or 20 years when they feel confident that they can do it on their own, they will probably get rid of the American or European counterparts. But does GM have a choice? China is the only market in the world where GM is making huge profits. Can they simply not partner with the Chinese and leave China? Interesting to know that up to today, Toyota has refused to open a factory in China as they do not want to teach them what they know.

One last thing. The news release from Buy.com dated 11/23/09 was about Buy.com now using Checkout By Amazon (let's call it CBA.) Almost every month we get another invitation from Amazon to ditch our current merchant service provider in favor of CBA, or offer CBA in conjunction with our own Visa/MC/Amex offering. And, of course, we have refused so far. you see, Amazon is not satisfied with all the data it collect from us on Amazon.com. It also want to know what we sell on our own sites so they can start cherry picking those items also and start selling them on their own site. I am not sure how many stores are now using CBA, but I am not that stupid.

It would be interesting to see how Wal-Mart and Sears 3rd party merchant offerings work and if they become successful. We were approached by Sears at a trade show last summer in Las Vegas to sell our stuff on their site and we signed up over 2 months ago, but have not put up any products yet. Maybe in 2010. I certainly would like to be able to have other choices to reduce our dependence on Amazon.