How did it come to this? How did Amazon.com (AMZN +3.46%), the biggest and arguably the best Internet retailer, lose out to Johnny-come-lately upstarts in what analysts think could be a $500 billion opportunity? In a word: indifference. Amazon just isn't that into you. Or rather, your business.
Image source: Getty Images.
An expanding universe
Amazon is by far the largest Internet retailer in the world, recording more than $29.3 billion in net fourth-quarter revenues, and a surprise profit of $214 million. Of that total, about $23.1 billion came from merchandise it actually sold to consumers, a figure which was up 9.6% year over year.
The rest, or $6.2 billion, came from what Amazon calls "net service sales," which represent the commissions it earns from third-party merchants that sell wares on Amazon's various marketplaces, through its Amazon Web Services cloud-computing operation, and via other smaller revenue sources. They jumped almost 38% from the year-ago period.
That explosive growth is part of the larger trend in seeing e-commerce assume a growing percentage of all retail sales. And according to the industry watchers at Internet Retailer, not only is e-commerce growing faster than bricks-and-mortar retail sales, but Amazon is growing faster than e-commerce as a whole, even if, in more recent quarters, that expansion has slowed a bit.
Even if rates of growth are slowing, Amazon.com remains an e-commerce behemoth. Data: U.S. Department of Commerce, Amazon.com, Internet Retailer.
At the end of 2014, Internet sales in the U.S. accounted for 6.5% of all retail sales, and that's expected to hit 8.9% by 2018, or around $500 billion total. China, which is the world's largest e-commerce sales market with more than $426 billion in Internet sales last year, is expected to grow to more than $1 trillion all by itself. In three years time, e-commerce is expected to total $2.5 trillion, with China and the U.S. accounting for more than half of all the Internet retail sales made.
And as Amazon's quarterly results indicate, a good portion -- 21% in the fourth quarter -- comes from providing a platform for other merchants to sell their goods and services on the Internet.
You're on your own
Through its Marketplace service, Amazon helps Internet retailers create and run their own online stores by providing them with the tools, technology, and expertise to manage their own direct-to-consumer business.
But being the biggest and best at selling goods yourself doesn't mean you can replicate that when helping others to do the same. Last week, Amazon began informing the small and midsized business customers of its Webstore platform that they needed to find a new home for their businesses, because it was closing the service down on July 1, 2016.
According to a copy of an email Amazon sent to Webstore customers that was obtained by MarketingLand.com, it advised them of what to do before Amazon shut off the lights: "Please make sure you secure all relevant data from your Webstore by July 1, 2016, as you will not have access to Amazon Webstore content or features after this date. Amazon Webstore's data export features can be used for this purpose as you migrate to a new platform."
While Amazon doesn't say why it's closing down its Webstore, it follows a similar decision made last year by eBay to shutter its Magento Go software service for small businesses. It recommended they move to Bigcommerce, an up and coming e-commerce platform that caters to small e-tailers with between $1 million and $2 million in annual sales.
David against Goliath
But Bigcommerce is actually a smaller player; the leader would be Shopify, a purpose-built platform for the e-commerce industry that is rated as both better and cheaper than Webstore. In fact, just as Shopify was securing $100 million in funding in December 2013, Amazon was doubling the rates Webstore charged.
Shopify is now the engine powering more than 150,000 businesses worldwide, a better than tenfold increase in three years, or a compounded annual growth rate of more than 125%. For businesses that had outgrown Craiglist or eBay, Shopify provided a means of businesses controlling their own destiny. According to Shopify's website, more than $5 billion in gross merchandise has been sold on Shopify's platforms since 2006.
And though small- and medium-sized businesses have found a home with Shopify, some of the largest retail brands in fashion, automobiles, entertainment and media use the platform, including Tesla Motors, Google, and Anheuser-Busch InBev's Budweiser beer.
Game over
And that's how Amazon lost when, in theory, it should have won. It's because the e-commerce powerhouse is really only interested in building its own business and brand, and not those of its third-party affiliates. Even when customers buy from Amazon's Marketplace, they still consider themselves buying from Amazon. Who the actual retailer is remains a secondary consideration, store ratings notwithstanding.
That's why a Shopify initial public offering is generating considerable interest. Anticipated sometime this spring, the web-hosting platform is planning to raise roughly $100 million in a dual U.S.-Canada offering with backing from Morgan Stanley, Credit Suisse, and RBC Capital Markets.
No one has to worry that Amazon.com is going to wither away; but as this episode in B2B commerce highlights, the bigger they are, the harder they really do fall.
