Amazon's $185 Billion Pay-to-Play System

[Celerity]

A new report shows that Amazon now takes 45 percent of all third-party sales on its website, part of the company’s goal to become a monopoly gatekeeper for economic transactions.

https://prospect.org/power/2023-09-21-amazons-185-billion-pay-to-play-system/



Amazon now takes 45 cents in fees out of every dollar of third-party sales at its marketplace, according to updated statistics in a new report from the Institute for Local Self-Reliance. The e-commerce giant’s extraction from third-party sales revenue was just 19 percent in 2014. It grew to 27 percent in 2017, 35 percent in 2020, and reached 45 percent this year, according to ILSR’s figures. This has imposed significant pressure on sellers’ ability to make a profit, and is contributing to inflation woes as fees get passed on to customers in the form of higher prices. Overall, Amazon is projected to make $185 billion in fees from third-party sellers in 2023: $125 billion from U.S. third-party sellers and another $60 billion from foreign-market businesses and vendor ads. In 2014, that number was $13 billion. Put another way, in nine years, Amazon has increased its fee revenue 14-fold.

The fees far exceed Amazon’s costs. For example, Amazon has already made $82 billion in fees from domestic and foreign third-party sellers in the first half of 2023, enough to cover all of its fulfillment facilities, which ship products sold by both third-party sellers and Amazon itself. “In other words, Amazon doesn’t have to build warehousing and shipping costs into the price of its own products, because it’s found a way to get smaller online sellers to pay those costs,” writes Stacy Mitchell, ILSR’s co-executive director and author of the report. In this sense, the third-party seller fees subsidize the below-cost sales that allow Amazon to drive competitors out of the market. ILSR’s updated numbers are roughly in line with other analyses like that of Marketplace Pulse, which estimated earlier this year that nearly 52 percent of third-party seller revenue is captured by Amazon.

Third-party seller exploitation is likely to be a major facet of the Federal Trade Commission’s antitrust case against Amazon, which is expected to be filed soon. The reason that third-party sellers don’t just leave the platform, given this abuse, is that Amazon has grabbed so much control of online commerce that these sellers can’t just bypass it. “Amazon’s dominance of online retail means that businesses that make or sell products have little choice but to rely on its site to reach customers,” ILSR writes. Most third-party businesses on Amazon don’t survive, in fact, at least not ones based in the U.S. Of the top 10,000 sellers on the site, more than half are based in China, according to data from Marketplace Pulse.



Amazon fees on third-party sellers fall into three main buckets: referral fees, advertising fees, and fulfillment fees. The referral fee is a straight off-the-top commission for the privilege of selling on Amazon, and that totals 15 percent for most products. Advertising and fulfillment have been the growth areas for Amazon. Advertising fees do not come from what most laymen would think of as traditional advertising. Much of it comes in the form of businesses paying to list products in Amazon’s search results under labels like “highly rated” (which often have nothing to do with the rating of the products). As with Google, those who get the visible space at the top of search listings are paying for it; those who do not are pushed to the bottom of search, typically unseen by customers. Because Amazon’s organic search “favors products with more sales,” ILSR writes, paying for search ads that boost sales increases a business’s listing in organic search as well. Referral and search ad fees combined have increased by almost 50 percent since 2017.

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[2naSalit]

1. Convenience is far more costly than people think.

[2naSalit]

2. Amazon is a predatory operation...

Always has been. People need to understand the costs of their conveniences.

[sinkingfeeling]

3. I have tried my best to never buy anything on Amazon. Twice I've ordered something

online only to be dismayed when it arrives in an Amazon package.

[forgotmylogin]

4. I understand how this is predatory...

Devil's Advocate: But aren't they furnishing the world's most popular storefront to third parties and handling logistics of ordering and delivery? That sounds like it could be half of the work. Would third parties save money by making a SquareSpace website and doing it on their own?

[Merlot]

5. Except that their fees have doubled after the store front was built

Their outflow has not increased to justify the increases to 3rd party vendors is how I'm reading this.

SquareSpace also takes a cut of sales.

[forgotmylogin]

6. That makes sense.

Amazon isn't a total monopoly but they might as well be.