"Amazon Prime Is an Economy-Distorting Lie"

I've just come across this article and, through it, have learnt a few things about Amazon and its Prime program.

Assuming what's said in the article is true (probably not too hard to verify):

  • The Prime "free shipping" service is not really free. It costs Amazon a lot, ~ $38B just for 2019. I imagined it would be much more than that in the last Covid year.
  • The selling fees on Amazon to third party sellers are really high, around 30%, almost 3 times of eBay!
  • Despite the high fees to Amazon, sellers could not really sell their products cheaper elsewhere or they would risk getting punished, e.g. "cut off from the Buy Box" and so effectively removed from Amazon because most customers often just buy directly from that Buy Box.
  • The exorbitant fees that the third party sellers have to pay Amazon are what effectively "fund" the free shipping service that Amazon provides to customers. Customers have to pay more as the result.
  • "Prime, in other words, is basically a money laundering scheme."

I still have a few questions though.

  • Regarding the high selling fees on Amazon, I'm not sure if I got it correctly, as if it's true then how can sellers on the Amazon marketplace compete with eBay and other market places? A quick search showed that for the same product, prices are not significantly different between them ($75.95 on Amazon vs $77.95 on eBay).
  • Amazon may have forced many independent sellers to raise their prices, but I'm not sure if it's equal to "distorting the economy". There are plenty of retail giants still (Walmart in the US, or Kmart, Aldi and Woolworths in Australia). Even smaller ones like Bhphotovideo, Newegg, JB-Hifi are still being able to compete very well aren't they? Or will these companies eventually give up if no one doing nothing to stop Amazon now?
  • It's not uncommon for a retailer to only accept a product from a supplier if it's not sold cheaper elsewhere. So is it a good argument to accuse Amazon (and Apple for their Appstore as well) of being monopoly by preventing customers from getting the product cheaper at other places?
  • As a consumer, I'm all for having more competition that would lead to lower prices and better services for customers, but I'm not sure forcing Amazon to "unbundle" their Prime program is a good solution? Prime has become so convenient and it's probably hard to find an Ozbargainer without a Prime membership I reckon. We've also seen others following the same practice (eBay Plus, Kogan First, Club Catch…). Could we say they are "forced" to do so to compete with Amazon?

Just thought I'd share it with my Ozbargain fellows.

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Comments

  • +24

    What's the alternative , eBay? Having a free for all of listings with a bunch of fakes mixed in and some fake shipping location from Asia when listed as 'Darwin' doesn't seem like the future to me. The Amazon model isn't perfect but there's a reason it keeps stealing market share.

    • I thought the point is not to find an alternative, or break up or destroy Amazon or anything (that'd be a loss to consumers), but rather, like the cases with other tech giants like Google, Apple, FB, to determine if Amazon is a monopoly and if so force it to adjust its behaviour to make the market more competitive, so that smaller sellers at least get a chance to compete with it fairly and we won't end up with a single ecommerce empire on the internet.

      • +1

        to determine if Amazon is a monopoly…

        But it's not. You can buy products from many other sources if you wanted to. Some cheaper, some more expensive.

        However, Amazon are most convenient, free shipping to Prime users and have fantastic customer service should something go wrong and Prime Video has Top Gear/Grand Tour.

        What am I missing?

  • +1

    I'll just throw this out there:

    Amazon Empire: The Rise and Reign of Jeff Bezos

    https://youtu.be/RVVfJVj5z8s

    • Would you mind provide some TL;DW? It looks interesting but also a bit long.

  • +9

    Also Amazon monitor all sales, when a 3rd party seller has success Amazon themselves start competing with them, or worse OEM the product themselves under the Amazon Basics brand and effectively kill/own the entire market.

    • That's another good point not mentioned in the article, unless I missed it, although personally I like Amazon Basics products for their good value and decent quality.

      Btw could we say it's the same as the "home brand" products sold at Coles and Woolworths? I'm sure the suppliers won't be too happy to see these compete with their own products on the shelf, but could not really do much about it.

  • +34

    The Prime "free shipping" service is not really free

    No shit Sherlock.

    • Yep, same for any online store offering delivery free (e.g. spend over $49, $99, etc..)!

      Unless it was that other OP wanting to have the cake and eat it too with the pickup only sell and now wondering how to ship without costing them any $…

    • I know it's obvious and no one would really think "free shipping" is actually free. My point, in the same paragraph, is more about how expensive it is (~ $38B just for 2019) for Amazon to provide this "free shipping" service.

      • +2

        But Amazon isn't absorbing this cost; it is passing it on to the sellers through the high fees.

      • which is a good thing, keeping local people employed by making them deliver drivers
        u cant offshore delivery drivers!

    • +8

      I find this unbelievable!

      I always thought the end-to-end cost of distribution centres, labour, planes, ships, trucks, avgas, diesel, tolls, packaging, logistics, etc. was provided to Amazon at no cost by altruistic entities.

  • +15

    My next door neighbour sells toys on Amazon marketplace.

    $49.95 per month fee to sell on the platform
    Around 10% taken from ever sale as a commission
    (eBay takes almost 12%)

    he also stores his items at amazon warehouses which he pays for (Shipped by Amazon service)

    he makes more per product sold than he does on eBay

    so not sure article is relevant to Amazon Aus thats for sure

    • +1

      Cherry picked for news sensationalism worthiness of cos.

    • +2

      he makes more per product sold than he does on eBay

      As in real money or just makes 'more' for the amount of time put in for the sale? The big sell of putting stock in amazon warehouse etc, is its all automagic. The buyer buys and pays, and amazon just ships it out.You as the seller basically have to do nothing. But you do pay for this, idle stock costs money sitting in the warehouses!

      • +1

        Ebay Fees (about 12%)
        Shipping fees (varies but lets use minimum which is $9.15) He does free shipping on ebay

        Amazon Fee: 9%
        Shipping fee (Prime Customer No charge to seller / non Prime customer: Buyer pays)
        Fulfilment Fee $3.43
        Storage Fee (varies depending on time of year around 20c per month per item

        So .. He MAKES more money per item sold on Amazon VS eBay

        Both ebay and amazon charge $50 per month for a store front / marketplace (Amazon also have a no monthly fee option + 99c per item sold)

        It of course depends on the category, he sells in toys and games which is 9%

        • Saying behalf of a friend? Seems sure you do 😁

    • That's interesting. That'd make more sense to me actually, as otherwise they could not sell at similar prices on eBay and other marketplaces. I'm not sure if it's just the beginning to attract Australian sellers and Amazon will raise the fees later on, similar to US market? I still find it hard to believe that exorbitant fees of 30%+ though. Would be great if we have someone selling (or knowing someone selling) on Amazon US chiming in here to confirm whether the numbers in the article are legit or not.

    • Is this Amazon FBA in AU? Or does your neighbour just do FBA in the US with stock sent from China?

  • +4

    Amazon let's me access such a huge variety of products that others simply don't want to sell in Australia.

    Within a week I can get spare parts from overseas that the manufacturer themselves refuses to sell in Australia.

    So I don't know if they raise prices, but it means I can keep using products that I otherwise would throw out.

  • +1

    The article is garbage. Amazon makes money on AWS and sub 3% margins on retail sales. They have marketplaces, FBA, buy wholesale, and approved vendor offers. Selling fees vary by category.

    • Do you have more concrete numbers, particular for the US market, for the selling fees?

      Also I know AWS is the largest profit source of Amazon, and Retail makes little, but it does not contradict with the points mentioned in the article I believe. I.e. Amazon can still "distort" and "bully" the third party vendors and uses the fees to fund their other activities, like Prime, without generating any substantial profit, for now.

      • Absolutely they can bully and use all sorts of tactics. Selling fees will vary by category which I think are all readily available online and public. They don’t need to generate profit as they want customer acquisition… get people into their world.

  • +2

    Amazon Prime This Article Is an Economy-Distorting Lie
    FTFY

  • Member Since
    19/09/2010

    You didn't realise from all that time you were on here? (facepalm)

  • What did ACCC say when you pointed out the anti competitive actions?

  • +8

    Prime, in other words, is basically a money laundering scheme

    I don't think so.

    Which funds, exactly, are they receiving illegally?

    It's sounds more like offsetting one income stream against a massive liability. That's not laundering.

    • -2

      Yeah I'm not sure about this point either. I'm not financially knowledgeable enough to comment further however. I'm sure other finance experts here could chime in though.

      • If you're not sure, why did you write it then?

        • +1

          That’s why I put the quotes around it. I put it out there to see what people think about it.

          • @GreenRomeo: Sorry, I don't understand.

            Why did you put quotes around a statement (which is factually incorrect) when you didn't know about the topic?

            Did you mean to ask a question and put a question mark at the end?

            • @DisabledUser370150: I put the quotes to make it clear that this is a quote from the article and not from me, or paraphrased by me. I included it in the OP to see what people think about it. I think the OP was clear enough and I didn't need to add "what do you think about this, do you think it's right or wrong…" to every sentence or statement or quote from the article, wasn't it?

              MS Paint has given some comments on that, which I tend to agree, but I haven't seen anyone actually proved that it's "factually incorrect", as you said, yet.

              • @GreenRomeo:

                I haven't seen anyone actually proved that it's "factually incorrect"

                Is it concealing the source of illegally obtained money? No. It is not.

              • @GreenRomeo:

                I haven't seen anyone actually proved that it's "factually incorrect"

                That’s an argument from ignorance statement you’ve made.

                also known as appeal to ignorance (in which ignorance represents "a lack of contrary evidence"), is a fallacy in informal logic. It asserts that a proposition is true because it has not yet been proven false.

  • +3

    The Prime "free shipping" service is not really free

    Colour me surprised that 'free' shipping isn't free!

  • +1

    The Prime "free shipping" service is not really free. It costs Amazon a lot, ~ $38B just for 2019. I imagined it would be much more than that in the last Covid year.

    But Amazon are still profitable.

    Wouldn't Uber or Netflix be a better example of an "Economy-Distorting Lie"?
    I read that they are actually using investors money to subsidize their services.

    If I want something delivered the same day, only Amazon can provide this (for $10). Other than that, 1 or 2 days with free shipping, and free returns if I don't like it! Hate the late packages on Ebay which end up shipped from Asia, which I could have bought from aliexpress for 1/3 the price.

    • Agree 100%. eBay is a cess pool of fakes, scams, misleading titles and false shipping times. At least Amazon is fairly clean on that front.

    • I think the points are not quite about Amazon is still profitable despite the huge cost of their Prime program, but more about how the free shipping service got funded. The article argued it's funded by the other sellers with the consequences of consumers not being able to buy the products cheaper elsewhere… and that's how Amazon leverages their power to "distort" the economy.

    • But Amazon are still profitable.

      Barely if any at all once you remove the Cloud computing business.

  • +1

    Considering most of my purchases on Amazon are to avoid a 30-50% Australia tax it still works in my best interest.

  • +2

    Amazon market place hasn't taken off by Australian sellers because it's not smart to sell there. If you're successful Amazon will scam you by flagging you falsely for selling imitation goods (even if they're your brand). They'll demand you reveal your suppliers during the 'investigation'. Then finally they'll still ban you. Wait a few months and you'll magically see your products being sold against you under the "Amazon Basics" brand from that very supplier.

    The only reason why the US is big on Amazon market place is because you either sell there or you're nothing. Amazon has destroyed small business over there.

    That's why on OzB I know most people just want the cheapest price (I do too), but think twice about what you're supporting.

  • Prime membership for me just means I don't have to pay for Netflix + Spotify. Free delivery is just a bonus, as per OP don't see much that is cheap on Amazon unless it is flagged up on OzB or 3Camel price watch.

  • +2

    I'm not sure you know what money laundering means. You can't just slap that everywhere like a rhetorical duck tape.

    • My thoughts exactly

  • The selling fees on Amazon to third party sellers are really high, around 30%, almost 3 times of eBay!

    30% third party seller fees are not really high and pricing controls are the absolute norm. That the 30% covers shipping and warehousing which makes it incredibly worthwhile. Tell me, what other retailer can you ship your goods straight from China to someone else's warehouse to customer without having to incur any costs?

    30% is roughly the markup on most supermarket items (depending on what it is, roast chooks are sold at break even, chocolate bar at the counter is a massive markup), despite this Cadbury don't just open up their own website and sell wholesale because it would piss off the supermarkets. They're better off getting all those supermarket sales rather than doing it on their own through a website. The only website based stores that work well have absolutely massive volumes.

    Speciality stores have even higher markups, all those shoe stores rely on 50-60% margins in order to stay alive. Nike and Adidas would lose all their market presence if they lost that massive distribution chain though.

    Pissing on Amazon is all the rage at the moment, but all they've done is streamline the retail model and, in a lot of cases, make it cheaper rather than more expensive for consumers.

    • I think the difference is Nike and Adidas are the suppliers, while most of the 3rd party sellers on Amazon are resellers. I'm sure the suppliers like Nike and Adidas would have no problems paying Amazon 30% fees to have their products on the website, like they would to the physical stores, but does it mean we don't need to care about resellers selling the same products, competing with Amazon?

      Will it be better to consumers if eventually we end up the suppliers only able to provide to a few giant online retailers like Amazon? Would we still see more deals on Ozbargain as the result?

      • Most products (I don't know about Nike and Adidas in particular) usually come through wholesalers, so I don't think it's a huge difference.

        In the case of resellers, I don't really care that much. What service do they supply? They get goods shipped from a supplier to an Amazon warehouse and do basically no work. Some resellers make a fortune by picking the right product and the right level of demand at the right time. They're a middleman and often not of that much benefit to the consumer.

        No idea what it would be like if a few giant online retailers took over, but that wasn't what I said, I said we're better off with online retailers. Those being killed are companies that were taking much larger margins than were reasonable. The claim that they're "economy-distorting" is laughable, if anything they bring some reasonableness to products.

        Which would you prefer to see, a world where sneaker stores take up incredibly high rent locations with flashy layouts to convince people shoes are worth $300, or the shoes just be reasonably priced to begin with? I'd be more than happy with less deals on Ozbargain if the cause was things were just priced properly to begin with, rather than the imaginary feeling of getting a bargain.

        • I know Amazon has changed the way we do online shopping (or just shopping), revolutionised the shipping industry, and effectively created the Cloud service industry, and we all benefit from it. I also have doubts about the "economy-distorting" claim, as in my question in the OP. Personally I've always been a very happy Amazon customers and until last night, when I stumbled across the article, never given much thoughts to the resellers on its marketplace.

          I agree we should not reward unnecessary middle men and retailer taking unreasonable margins. However I'd rather see Myer and the likes, as well as small retailers, around even if I don't buy from them, just to keep Amazon in check. I don't want to see we end up with suppliers having no choice but only supply to Amazon at its terms, and consumers having no choice but buying from Amazon at its prices.

  • +1

    How do the fees differ to selling a product in a bricks & mortar establishment?

    • Again, difference between suppliers and resellers, as mentioned in the comment above.

      • Not really - the 'reseller' in your description is the wholesaler that the supermarket buys from.

        • Nope the third party sellers on Amazon marketplace being discussed here are not wholesalers as they sell directly to end customers.

          • @GreenRomeo: The sale is transacted through Amazon's channels and Amazon buyer protections are in place. Amazon is still the retailer.

            I fail to see the problem?

            If the seller wants to be a retailer, avoid Amazon's channels.

  • +1

    The Prime "free shipping" service is not really free. It costs Amazon a lot, ~ $38B just for 2019.

    LOL did you think auspost was delivering out of the goodness of their hearts?

    That's why it costs $60 a year.

    It also 'locks' people into buying everything from them..at the very least checking Amazon first.

    • It may be worth reading the article first before you commented? $60 is just a fraction of the actual cost of the Prime shipping service, and it's not even the main point.

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