A Huge Opening for Amazon's Competitors?


Amazon.com can't seem to catch a break these days. Just a week after book authors accused the company of "anticompetitive" behavior, it had to deal with gripes from an even more powerful customer group: sellers.

Some third-party vendors complained to Reuters that the e-tailing giant has gone too far with the fees it charges for access to its selling platform. Sellers are apparently mad, and they're not going to take it anymore. Is this the opening that rival marketplaces like eBay have been waiting for?

Going, going, gone
There's no doubt that sellers are critical to Amazon's business. The 2-million-strong army of vendors accounted for 39% of the company's product sales last quarter. And those third-party sales are also big profit drivers. Since Amazon takes care of logistics like shipping, warehousing, and customer service, it collects higher margins on those sales than it does for its own products.

Those sellers might have some good reasons to gripe. First, unlike with eBay or the new shopping service that Google is testing, Amazon directly competes against many of its sellers by hawking its own wares. That's always been an uncomfortable position, but it's been made even more so as Amazon hikes its fees, whether for legitimate reasons or not.

And on top of that, the company might be squeezing sellers to pad its own margins. Shipping costs fell fast last quarter, which was a big reason that Amazon's gross margins surprised to the upside. The company pointed to more efficient delivery as the reason. But as sellers are being asked to kick in more for shipping and logistics, many of them suspect that those fatter profits are coming at their expense.

But it's working
Still, Amazon is clearly helping its sellers hawk more stuff. Third-party sales were up by 3 full percentage points last quarter. While Amazon's total sales growth was a strong 32% over the holiday quarter, third-party sales grew even faster, by 40%.

That spike in sales was goosed by the massive investments Amazon has been making in its shipping network. The company opened up 20 new warehouses last year, bringing fulfillment centers ever closer to end customers. And all those new locations made for faster and cheaper shipping, so that shoppers saw lower prices and near-instant gratification on many orders.

The result was that consumers embraced Amazon over the holidays, with revenue leaping by 22% to over $20 billion. If Amazon is charging sellers a bit more, it's probably for good reason: so that they can sell more.

Is it enough?
But maybe that progress won't be enough to keep sellers happy as the competition heats up for their business. Just a day after the Reuters article, eBay announced sweeping changes aimed at wooing sellers. The company said it was cutting its listing prices and boosting seller protections in a bid to make eBay "the best -- and most competitively priced -- place to sell in the U.S." It took a clear dig at Amazon in the announcement, pointing out "unlike other merchants, eBay doesn't compete with our sellers at the marketplace."

Google is testing its own rival service that could pawn sellers away from Amazon, too. The gorilla of search has teamed up with a few big retailers like Target to try to sell products through a service called Shopping Express. The big selling point here is that Google aims to provide same-day delivery for thousands of products for a yearly membership.

No one has been able to make same-day delivery work on a national scale yet. But if Google can make it happen, that's the kind of game changer that could convince sellers to switch from Amazon's platform.

Bottom line
Still, it all comes down to volume. As one vendor told Reuters, "the vast majority of Amazon sellers are perfectly happy to go to any marketplace offering meaningful volume."

By that measure, Amazon is still the far and away leader. eBay had $6 billion in marketplace transactions last year. But Amazon moved $39 billion in products through its warehouses over that time, 36% more than the year before. As long as Amazon can keep logging results like that, its sellers should be happy to stay put.

The opportunity for Amazon investors
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The article A Huge Opening for Amazon's Competitors? originally appeared on Fool.com.

Fool contributor Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, and Google. The Motley Fool owns shares of Amazon.com, eBay, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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