How Amazon is torpedoing world e-commerce

Those curious about Amazon’s financial results have often wondered why, for God’s sake, the world’s number one e-commerce company doesn’t describe what it loses with its Prime Loyalty Program (200 million subscribers worldwide) and what it earns with its Marketplace. that allows third-party vendors to sell on Amazon?

The Institute for Local Self-Government (ILSR), an American NGO that defends small and medium-sized businesses and is widely listened to by regulators, has found the answer: because if Amazon releases them, these figures would reveal the scale of its Predator global e-commerce strategy.

In an extremely well-documented study, ILSR analyzes this strategy in detail, based on two pillars: massive and deliberate losses on Prime – perceived as anti-competitive – and increasing exploitation of third-party suppliers in the Marketplace to recoup losses and establish dominance gained thanks to Prime.

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Deliberate loss of $ 15 billion on Prime in 2020.

According to the report, Amazon is spending heavily to make its Prime service as appealing to consumers as possible. Indeed, it is difficult to compete with such an offer: for 49 euros a year or 5.99 euros a month, Prime not only gives access to free and priority deliveries, sometimes in a few hours, of products sold on Amazon – but a good supply market – but also on a huge catalog of services: free and unlimited photo storage on Amazon Photos, a streaming competitive Netflix video that includes thousands of titles on Prime Video, free listening to 2 million music titles on Amazon Music Prime, hundredse-books for consultations, free games with Prime Gaming …

With responsible and friendly customer service, considered one of the best in the world, Amazon also markets its range of so-called basic products, “Amazon Basics” (computers and electronics, home appliances, DIY, etc.), at competitive prices with those in specialty stores.

This very aggressive strategy works: Amazon Prime now has more than 200 million subscribers worldwide, including 7 million in France. The service benefits from the impressive snowball effect: the company has doubled its subscribers in just under three years. Jeff Bezos, until recently the brilliant founder and CEO of Amazon, perfectly understood the power of the “catalog effect” or “bundle” that Gafa – Google, Apple, Facebook, Amazon – masters to perfection: , Amazon Prime ensures unparalleled appeal to the general public. More importantly, once the subscription is launched, it is very difficult for the user to give it up: you quickly get used to free shipping, unlimited photo storage or streaming offer … So much so that today 70% of American households buy on Amazon and one in 10 purchases on the Internet in the world is done on a platform.

But for Amazon, the cost of these services, including logistics logistics and streaming music and video are colossal. If Prime Service were a stand-alone business, it would go bankrupt very quickly because its current business model absolutely does not cover its costs: in 2020 alone, Prime led to a loss of $ 15 billion (!) From Amazon, according to ILSR estimates. But Amazon doesn’t care.

… largely offset by 24 billion in Marketplace profits

If Amazon voluntarily allows Prime to be a pit of money, it is because the company is compensating with its Marketplace, the study reveals. As sales on Amazon have become necessary for most small and medium-sized businesses that want to be online in the United States, Amazon is forcing them to pay dearly for this market access.

Thus, third-party sellers have to pay fees that, according to the study, represent 34% of the selling price of each item. This includes Amazon’s commission as a market, and paid services such as advertising for better referencing, delivery … This amount is constantly increasing: Amazon’s fees weighed 19% of the selling price in 2014 and 30% in 2018. In other words: as much as possible Amazon is consolidating its “gatekeeper” position, charging tolls more.

In just two years, Amazon’s revenue taken from the turnover independent retailers have more than doubled, from $ 60 billion in 2019 to $ 90 billion in 2020, to $ 120 billion in 2021 according to our estimates “This represents, according to ILSR, which is based on Amazon’s own data and data from e-commerce experts e-Marketer, $ 24 billion in profits in 2020. In other words, more than enough to make up for the losses suffered by Prime.

During last year’s hearing before the US Congress, Jeff Bezos confirmed that Amazon takes most of the revenue from third-party vendors. But he justified it by the fact that they chose to benefit from more services than Amazon. “ In fact, the average price paid by third-party vendors just to pour and sell their products on the Marketplace has increased by 28% since 2015. “, Condemns the report. What summarizes:

“The market is the backbone of Amazon’s monopolization strategy. This huge revenue stream allows him to engage in two anti-competitive tactics that are key to maintaining dominance in e-commerce. First, Amazon uses reseller fees to absorb Prime’s huge losses. These losses are predatory because they are a key way for Amazon to attract consumers. Second, Amazon uses the profits from selling fees on its Marketplace to subsidize its own retail division at aggressive prices. ”

Diving in the jungle of clouds, a huge and increasingly sought after market

Marketplace even stronger than the cloud?

These estimated $ 24 billion in profits for the Marketplace are striking. Because that figure is nearly double the $ 13.5 billion reported by Amazon Web Services (AWS), Amazon’s subsidiary dedicated to the cloud, a segment in which Seattle’s Ogre is also number one in the world. However, all players in the industry and many media consider AWS to be Amazon’s cash, or its real source of power. By publishing its financial results in a way that opposes AWS on the one hand, e-commerce on the other, without separating Prime from the Marketplace, Amazon itself maintains the perception that clouds is his main source of profit.

However, if the ILSR figures are correct, they are show that this perception is false: clouds Although it is a powerful ATM, it is almost half as profitable as the Marketplace. So why is Amazon continuing to downplay the importance of Marketplace in its business model? Stacy Mitchell, author of the study, sees two reasons:

The first reason is this creation billions in profits amid a captive base of small businesses doesn’t look good “She wrote in a tweet. ” Another reason is that discovering profits on the Marketplace would force Amazon to reveal exactly how many billions of dollars it is deliberately losing on Prime and its own retail. But these losses are a form of predatory pricing, a means of monopolizing the market “, She analyzes.

However, the group’s management is regularly pleased that half of Amazon’s sales are made by third-party vendors. But his communication on this topic aims primarily to give her the image of a company concerned about its ecosystem, as if Marketplace benefits third-party vendors more than itself. Amazon presents this service as a simple addition to its retail business, a desire to improve the visibility of small businesses on the Internet … while at least in the United States Amazon gained power thanks to Prime – 70% of households are subscribers – forcing third-party vendors to use their Marketplace if they want to access the market.

Amazon’s double play and threats of dismantling

These figures also reveal Amazon’s double play in front of the media and, above all, regulators. Thus, during last year’s hearing before the Congress, CEO Jeff Bezos warned of the temptation to ban the company from being a player in the market in which it operates, which would mean banning Amazon from combining the retail business and the market. Jeff Bezos indicated that he would close the Marketplace if he had to choose, while he refused to tell MPs the income from the latter. But could he really sit on such a jackpot knowing that Prime is a money pit?

It’s a bluff. The market is so central to Amazon’s strategy that it hides its advantages. Instead, Amazon would close its own retail division »understands Stacy Mitchell.

In its final part, the report therefore calls on regulators to take action. Left without control, Amazon will continue to exploit small businesses and use the revenue from them to turn its monopoly wheel, bringing more and more of our economy under its control. »whether it is written.

Especially since Amazon is already under investigation for non-competitive practices in its Marketplace. The U.S. Congress and the European Commission are working on cases involving abuse in the practice of exploiting third-party vendor data, copying their products, or preferentially placing their own brands in search results.

Strict regulations are even on the table on both sides of the Atlantic. In Europe, it is the Digital Markets Act (DMA), whose main principles have just been confirmed and which could be finalized as early as 2022 to be adopted in 2023. In the United States, it is Abolition of the Platform Monopolies Act, a bipartisan text aimed at breaking monopolies great technology. These two texts could prevent Amazon from being a judge and jury in e-commerce and force it to detach itself from one of its two activities. Stacy Mitchell goes even further and advocates the abolition of Amazon:

“As Amazon’s monopolization strategy and power over third-party vendors depends on the integration of its many departments, regulators should undo this integration. They should separate the Marketplace, the retail department, AWS and logistics, ”she argues.

i ” meanwhile, Congress should force Amazon to announce its Marketplace profits with the help of a subpoena. Or SEC [l’autorité de contrôle des marchés financiers, Ndlr] you should do it “Adds the one who has been considered as for two years” terror from Jeff Bezos, for his studies of Amazon’s business model, which Congress takes very seriously.

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