The tricky thing about these third party (‘3P’) sales is that Amazon only recognizes revenue from the services it provides to those companies, not the value of the goods sold. This alone should point to the weakness of the idea that Amazon’s growth is based on selling at cost or at a loss. This means, in passing, that for close to half of the units sold on, Amazon does not set the price, it just takes a margin.
Third party sales of products through Amazon’s own platform are now 40% of unit sales, and the fees charged to these vendors are now 20% of Amazon’s revenue. Just as AWS is a platform both for Amazon's own internal technologies and for thousands of startups, so too the logistics and commerce infrastructure themselves are a platform for lots and lots of different Amazon businesses, and also for lots of other companies selling physical products through Amazon’s site. Trying to look at the profitability of the video alone misses the point.Īnd then there are the third party sales.
#Amazon ask and it is given Offline#
Prime membership in turn draws people to switch more and more of their online and offline spending to Amazon. The clearest expression of this is Prime, in which (amongst other things) entertainment content is included at a high fixed cost to Amazon (buying the rights) but no marginal cost beyond bandwidth, as a way to enhance the appeal of being a Prime ‘member'. There’s a widespread perception that Amazon sells books at a loss, but the average sales price actually seems to be very close to physical retailers - it discounts some books, but not all, and despite all the argument in the Agency lawsuits, quite how many and how much is (deliberately) as clear as mud. Some are very profitable, and some sell at cost or at as loss-leaders to drive traffic and loyalty to the site. Others are new startups building their business and losing money as they do so, like any other new business. Some are relatively old, and well established, and growing slower, and are profitable. Meanwhile, all of these businesses are at different stages of maturity. Each of these businesses, incidentally, sets its own prices. So, say, shoes in Germany, electronics in France or makeup in the USA are all different teams. Amazon is in fact organized not just in these segments, but in dozens and dozens of separate teams, each with their own internal P&L and a high degree of autonomy. This still doesn’t really give an accurate picture, though. It seems pretty likely that these businesses, selling very different products bought with different bargaining positions to different people with different shipping costs, have different margin potential.