The Amazon Jungle. Rick Cesari
initial 49% market share estimate down to 38% following a vague comment Bezos made in his annual shareholder letter. In it he said that 58% of its e-commerce sales come from Third Party Sellers. This downward revision from such a closely followed researcher highlights a glowing problem. No one really knows how many retail sales go through Amazon.com. Only Amazon knows, and they aren’t sharing that information despite the fact that they are a publicly-traded company. Additionally, DigitalCommerce 360 reported $602 billion in 2019 online sales7 and MarketplacePulse estimated that Amazon’s Gross Merchandise Value was $335 billion.8 If these numbers are accurate, then it is clear that Amazon has increased its market share to 55%, well beyond the 2018 market share estimate. I didn’t buy what eMarketer was selling when they decreased their estimate, but one thing is clear: Amazon wants to appear a lot smaller than they actually are, especially as the trustbusters gather at their gate.
Either way, when you look at Amazon’s reported sales, it’s easy to see how big they are. But consider this: they’re even bigger than what’s being reported. Amazon does not disclose the full retail value of goods sold on its platform, known as the Gross Merchandise Value (GMV) because more than half of its sales come from Third-Party Sellers, for which Amazon must only report the fees it charges them. If I sell a $100 chair on Amazon as a 3P Seller, for example, Amazon will charge me a $15 seller fee for the right to sell my product on their website. While I must report the full $100 GMV to the IRS, Amazon need only report the $15 fee, typically 15% of GMV. With 58% of Amazon sales coming from Third-Party Sellers, the sum value of what’s not being reported by Amazon is staggering. Estimates range in 2020 from $330 billion9 to as high as $530 billion,10 which already makes them larger than Walmart. Just sayin’.
Amazon has been so successful and so dominant that the U.S. and European Union governments may be the only overseers with the power to slow the company’s upward trajectory. Mr. Bezos’s empire has a slew of detractors calling for, among other things, increased taxes on the business and, in the most extreme case, a full-blown breakup. Even if Amazon were to be brought to heel, its competitors would likely still be outrun by the Amazon equivalent of the Baby Bells, a reference to the U.S. regional telephone companies that were formed from the breakup of AT&T (“Ma Bell”) in the mid-1980s. Third-Party Sellers already sell more on Amazon than Amazon sells on its own platform, and a breakup would move Amazon.com from the #1 largest e-commerce website to the #1 and #2 largest e-commerce websites. I know a lot of 3P Sellers who would welcome the thought of not competing against Amazon on their Marketplace, but who knows what might happen if Amazon Retail has its own website and is forced to compete? We’re likely some years away from knowing how the current antitrust inquiries play out, but until then, Amazon will continue devouring the competition; of that, you can be certain.
IF YOU’RE NOT ON AMAZON, YOU’RE NOT ONLINE.
I tell my clients, if you’re not on Amazon, your product isn’t really online. It’s a slight exaggeration, but I’m convinced that being on Amazon has become a necessity in today’s retail environment because Amazon has literally become The Internet of Products. Why? A major reason is that consumers don’t have to start on Amazon.com to wind up there. The company’s tentacles spread throughout the entire internet, and it is tough to avoid them. Forty-seven percent (47%) of people searching for a product to buy start their search on Amazon.com compared to 35% who use Google.11 And that’s not even the most amazing part. Because of Amazon’s long internet history and its massive online presence, search engines like Google and Bing give Amazon prime digital real estate on their Search Results Pages (SRPs). As a result, Amazon not only enjoys millions of unpaid organic search results links, but it also pays for clicks on those same search engines and comparison shopping engines (like Shopzilla and Pricegrabber) for top-ranking product search results. If all product searches lead to Amazon (and most do), then that’s where you need to be to sell your products. Simple as that.
The Google Search Results Page (SRP) pictured below demonstrates my point. In this scenario, a shopper enters two words into the Google search field: “water flask.” In return, several rows of information are displayed, starting with Google’s Product Listing Ads (PLAs). The pay-per-click PLA program gives priority position to products for which retailers have paid top dollar to drive traffic to their websites. In this case, Amazon has two products featured, the Hydro Flask and S’well bottles. Google AdWords Ads are displayed next, both with links to Amazon. Additionally, and as a result of Amazon’s page-rank power, Amazon products also top the free organic search results, with links back to their website. Of the nine product links for this SRP, Amazon owns five of them. Wait a minute. Is this Google or Amazon? (see image on next page)
Amazon also has millions of affiliate publishers, digital display banners (virtual billboards), review sites, and a dozen new media stories each week, all driving traffic to their platform. When it comes to consumers searching for a product to buy, Amazon has it locked down. Amazon.com has always been about selling you products and making that purchase as frictionless as possible. Every update or iteration since its inception has cleared the buyer’s path of roadblocks. Their entire e-commerce ecosystem is built around making the path to purchase as smooth and fast as possible, and no other competitor comes close to matching that experience. How do they do it?
Thirty years of purchasing data gives Amazon a tremendous advantage—especially because they are competing on their own platform against Sellers who don’t have access to the same information. They’ve been able to translate decades of Seller data into a delivery system that is custom-fit for their customer, or any customer for that matter. As a result, Amazon enjoys a much higher purchase intent than other e-commerce retailers. It’s not unusual for conversion rates to go as high as 25% on Amazon, for example, while other e-commerce sites are typically thrilled to see rates of 2 to 3%. The folks at Amazon Advertising put it best when they said that Facebook knows what you like, Google knows what you search, but Amazon knows what you buy! To further this point, Amazon Sponsored Brands, formerly known as Headline Ads, get 42% more clicks and 3.5 times the conversions compared to Google PLA Ads.12 I see these numbers every day when assessing data for my clients. Amazon has stopped at nothing to satisfy its customers. In return, their customers are more comfortable buying their products on Amazon than from any other online retailer.
SUCCESS IN THE MARGINS
As formidable a competitor as Amazon is, with a greater number of products online than there are people in the United States, don’t let their dominance discourage you from listing your products on their platform. Here’s why. Of the 2.7 million U.S. Amazon Sellers, fewer than 7% are producing $100,000 or more in annual sales; which means 93% are treading water.
Instead of thrashing around with the bottom millions, hold your own against the Top Sellers by using strategies like ours to get to (and stay) on top. For nearly two decades, I have invested tens of thousands of hours picking and developing products to sell on Amazon. I have also created cool brands, all while negotiating an online platform that aims to eat me for lunch. The fierceness of this experience forced me to develop a battle-tested plan that has kept me in the game.
When I look back on the distance my brothers and I traveled on Amazon since we launched our first products in 2003, it honestly feels like we orbited the sun—with the scorch marks to prove it! Countless algorithm changes, platform updates, policy tweaks, and Buy Box refinements created a mess of headaches (and heartaches) over the years, while also teaching us to be responsive and poised for change. Hackers, counterfeiters, tricksters, and Amazon itself soured us at times, but they also hardened us to the realities of this savage landscape. As we navigated this unique ecosystem, we learned that the best way to survive was by following