What happened
E-commerce giant Amazon.com (AMZN +1.96%) stock got a lift this morning after announcing that it will expand its Buy with Prime shopping program to make it "widely available to U.S.-based merchants by Jan. 31."
As of 11:45 a.m. ET, Amazon shares are up 2.1%.
NASDAQ: AMZN
Key Data Points
So what
Amazon describes the program as a "direct-to-consumer offering for merchants' own online stores," whereby these other merchants maintain virtual stores on Amazon's own website. This makes Amazon.com a sort of platform for the hawking of other retailers' wares, while backing up those sales with Amazon's own sales and delivery infrastructure.
Amazon notes that when participating in this program, its merchant partners enjoy a 25% increase in "conversion." This is to say, when shoppers on Amazon's site find an item for sale by a merchant with the Buy with Prime logo featured, they are 25% more likely to buy the item they were looking at. And three weeks from now, Amazon plans to extend this opportunity to essentially every seller, large or small, in the country.
As a bonus, Amazon says that product reviews posted on its own website can now also be displayed at merchants' own online stores on Amazon.com.
Now what
Investors seem to like the news, and it's not hard to see why.
Essentially, what Amazon is doing through Buy with Prime is monetizing its reputation for quality of service by allowing other merchants to ride on its coattails. Granted, this was already true in the past with merchants using Buy with Prime, but the program was limited in scale, allowing in only those merchants that Amazon had specifically invited. Going forward, merchants all across the U.S. will be able to petition Amazon for admission to the program -- and for the right to pay Amazon a fee for participation, as well as fees for fulfillment and storage of goods.
Granted, now more than ever, Amazon needs to ensure that it maintains a quality reputation -- by fixing problems such as fake and manipulated reviews of goods offered for sale on its website. But if it succeeds there, it will be good news both for Amazon and for its merchant partners -- which should attract even more partners, bringing even more high-margin revenue to Amazon.
Thus, Amazon has the opportunity to earn twice the bang for every buck it invests in quality of service.
