Amazon [insert term here] and Pillaging
Amazon's unusual pricing power in their 3rd party marketplace
Amazon reported a knock out Q3 result in late October. The company finds itself at an unusual juncture. As I stated in my last update:
Secondly, Amazon’s traditional North American e-commerce business has been undergoing a sea change in business quality. While the company was originally, and most famously, a retailer in it’s own right, it’s infrastructure is being utilised more and more by 3rd-party independent merchants. Access to Amazon’s infrastructure and demand aggregation is extremely valuable, with remarkable lock-in. Small businesses are price-takers, and once they are locked into Amazon’s various fulfilment, advertising, and merchant services they have very little choice but to dance whatever tune they are told. While sales in NA Online Stores continue growing at an anaemic pace, it’s what is happening between the margins that’s exciting. The rapid growth of high margin verticals in advertising, 3rd party merchant services, and subscriptions is pushing margins aggressively higher - and again this is set against slowing investments in [this] business.
Q3 saw an all time high in reported Operating Income, Operating Margins, and Gross Margins that were just barely eclipsed by the outstanding results in Q2. The good operating results at AWS aside, a large portion of the contribution to these results came from North American e-commerce. The microeconomics at play in Amazon’s North American 3rd party marketplace are worth closer inspection.
