Amazon’s policies continue to face scrutiny, as a recent report showed that it has been bringing in tons of revenue from its Marketplace platform – about 34% of the total revenue from the sellers.
The report by the Institute for Local Self-Reliance (ILSR) showed that the stream of revenue coming from Amazon’s Marketplace amounted to nearly $121 billion from fees and advertising payments this year, an increase from the $60 billion in 2019. This exceeded the revenue Amazon earns from Amazon Web Services (AWS), which is known to offer reliable and inexpensive cloud computing services. AWS provided $13.5 billion in revenue in 2020.
This has made Marketplace Amazon’s most profitable segment as well as its fastest-growing revenue stream.
Amazon’s Marketplace enables third-party sellers to sell new or used products on a fixed-price online marketplace alongside Amazon’s regular offerings, and Amazon has touted it as one of its most successful departments. Now, the report shows that it is Amazon that has got the biggest slice of the pie, and has been concealing the same in its financial reports.
Amazon founder Jeff Bezos, when asked about the increased fees at Congress in 2020, said that sellers were buying more services. The report finds that Amazon hiked the base price it charges sellers simply to list and sell a product.
Amazon is undoubtedly one of the most popular and biggest e-commerce sites out there – the report finds that over 60% of Americans who are looking to buy something online start their search on Amazon instead of a search engine, and in 15 out of 23 categories, Amazon clocks over 70% of online transactions.
According to the report, sellers will be giving Amazon an average of 4.6% of their sales revenue to pay for ad space, an increase from 3.4% in 2020, and 1.1% in 2016. It also highlighted two practices by Amazon it finds to be anti-competitive – using the seller fees to compensate for losses incurred by Amazon Prime and utilizing the profits from seller fees to subsidize its online retail vertical.
“Amazon continues to downplay its third-party marketplace, presenting it as merely an add-on to its retail business, a service for small businesses, and not the main source of its power and profits,” wrote Stacy Mitchell, author of the report, adding that the company uses creative accounting to mask the revenues generated by seller fees, grouping the profits of Amazon’s Marketplace with the losses incurred in building out their shipping infrastructure.
The report also highlighted the route that needed to be taken by policymakers. “To stop Amazon from gouging sellers and using the proceeds to expand its dominance, policymakers must target its market power directly. Because of its monopolization strategy, and its control over sellers, depending on the integration of its various divisions, policymakers should focus on undoing that integration.
An effective policy solution would separate Amazon’s marketplace, retail division, AWS, and logistics operation into stand-alone companies. This would compel these divisions to compete on their own merits, releasing Amazon’s hold over the online market and opening the way for other shopping sites to vie for both shoppers and sellers, including by offering sellers lower fees,” it said.