Some Thoughts on the Future of Amazon

The future of Amazon is quite bleak if you are a 3rd party Amazon Seller. If you are the customer, Amazon will become a service that you would not be able to function without (similar to Internet access and using a smartphone). As for the Amazon 3rd party sellers, their days are starting to look limited.

One of Amazon’s first goals is to make it as easy as possible for 3rd party sellers to sell (in volume) on their website. They achieved this step by introducing the fulfilment by Amazon program. The fulfilment by Amazon (FBA) program sets Amazon apart from all other online retailers (2006 Press release).

Fulfilment by Amazon is what sets Amazon apart from other online marketplaces like eBay and Jet.com. With other online marketplaces, the seller is responsible for sending out each individual order to each individual customer. The way the FBA system works, is that the 3rd party sellers send inventory into Amazon’s warehouses as a holding station. Once a customer has ordered the product, Amazon will handle all customer service, shipping, and picking and packing of the product for a fee. This is why some products are Prime and some are not. If a product is prime, that means that it’s in stock at one of Amazon’s fulfilment centers.

As Amazon has made it so easy to sell on their website, there is currently a gold rush underway. Sellers are making millions doing basic arbitrage just because they are on one of the world’s largest marketplaces. Though the business model of these sellers is not a long term strategy, Amazon does not care because their main goal is to collect as much information as possible about the customers. Now that they have made it impossibly easy to sell on their marketplace, they can have every product in the world in stock without paying for any inventory and still get a portion of each sale! Amazon is currently in phase two of their master plan.

Phase one: get third party sellers to add every product in the world on their marketplace. This way they can offer every product in the world and collect as much data as possible on the customer’s buying habits and on product pricing.

Phase two: source the best sellers and sell them on their own marketplace. They will use that data to figure out what the best selling products are. Once they know what the best selling products are, they can accurately forecast the perfect amount of inventory, since they have years of historical data.

Eventually, as they grow and invest more and more into inventory, every product on Amazon will be shipped and sold by Amazon. I guess this will take anywhere from 5-10 years.

I’ve been contacted and I sell to Amazon. I understand how their vendor central system works and they are ruthless and do not have to play fair on their own marketplace. (Example: If you are on the same listing as Amazon, they know when you are low on inventory and will order when you are low so they can control the Buy Box longer while you try to restock.)

In the end, 3rd party sellers should be very worried and Amazon customers should sit back and watch the prices and shipping time slowly drop.