Amazon (NASDAQ:AMZN) already dominates the global e-commerce space, but a recent patent win could unlock another door to profits for the online retailer. Last month, the company won approval for a 2009 patent that lets users resell digital content. Publisher's Weekly broke the news last week. Let's take a look at what this means for the company and investors.
The power of secondary markets
Amazon CEO Jeff Bezos launched the Internet company in 1995 as a seller of online books. Since that time, Bezos has grown Amazon into the world's leading online retailer. In addition to direct sales, Amazon offers a platform where consumers can sell both new and used items through the company's online marketplace.
This has been a lucrative business for Amazon because the company charges individual sellers' fees as a percentage of the products' final sale price. In fact, increased sales of third-party sellers on Amazon.com significantly boosted Amazon's margins for fiscal 2012, according to Forbes.
Clearly, Amazon understands how to monetize the resale process. Of course, it certainly helps that the Amazon Marketplace attracts more than 85 million unique monthly visitors. For comparison, online auction site eBay only generates about half this amount of traffic to its website each month.
As Amazon continues to grow its online traffic, it makes it easier for third-party sellers on Amazon Marketplace to move their products more quickly. As of last year, the company had more than 2 million third-party sellers worldwide, according to The Wall Street Journal.
Now take Amazon's global resale network and add digital content into the mix. With the company's new U.S. patent, Amazon resellers may soon be able to pawn used e-books and audio files.
Amazon hasn't yet given specific insight into what it plans to do with this patent. And there's always the chance that this was merely a move to lockdown intellectual property before competitors did. However, it seems to make more sense that Amazon would integrate this into its established secondhand marketplace, thereby creating another layer of profitability within its Amazon Marketplace.
However this plays out, one thing is clear: Amazon will continue to dominate the online retail space in the foreseeable future. Still, for investors the question, remains whether or not Amazon's stock is worth owning at its sky-high valuation today.