On Amazon Prime

2021/11/14

... I preemptively apologize for the exceedingly ugly illustrations below. But only half so. Making ugly things fast is kinda fun.

This is post no. 44 for Kev Quirk's #100DaysToOffload challenge. The point is to write many things, not to write good ones. Please adjust quality expectations accordingly :)

Amazon might seem to be a monopoly to buy from; there aren't a whole lot of companies competing with it. However, where it is truly a monopoly is if you're trying to sell via their site.

Here, I'm presenting a very short summary of Matt Stroller's article, along with this New York times one that presents a bit more information on actual prices.

The main point is the following. If you're a company selling products (battery packs, baking supplies, etc...) via Amazon, you'll be charged a fee for doing so. According to the NYT article, these are nontrivially high: about 40-45%. In exchange, they'll use their own warehouses to store your product and will ensure that they'll get to the consumer in 1-2 days, as one would expect for Prime shipping.

So, if you're paying for a $50 garbage bin, about $20 of that will go to Amazon for shipping and handling and $30 to the manufacturer. Which... sounds realistic: shipping is not exactly cheap.

bar chart with the $50 = $20 + $30 idea

Here comes the catch though. They actually have software that, if it finds the same product anywhere else on the internet that's cheaper, they'll stop selling it.

... well, they'll just put it behind one more click so that you have to look up the list of sellers, instead of clicking "add to cart". They do know all too well that no one will actually go and look up the list of sellers.

Now, imagine you're a shipping company that can ship this thing for $10, instead of $20. (Maybe it's not in 2 days but 3. Different prices, different tradeoffs.) You do try to get as many manufacturers as you can get to sell through you; scale, after all, makes things cheaper. They'd be actually happy to do so: cheaper shipping, what's not to like? Similarly with consumers.

With the new shipping company, you could do an end user price of $40 = $30 to the manufacturer + $10 shipping (no benefit to the manufacturer but consumers would happily flock over), or...

... $50 = $40 manufacturer + $10 shipping (... which consumers wouldn't really care about, but the manufacturer gets to keep a lot more profit).

In an ideal world, it'd land somewhere in the middle.

bar chart with a version where the end price is about $45, with the savings shared between the customer and the manufacturer

So why is Prime evil?

... because it makes $50 = $40 + $10 the only option.

Remember the software watching prices on the internet? If you try to appeal to the consumer by lowering prices, they'll nuke out of the Amazon Marketplace. If most of your sales are going through it, you'll not risk this. So... all you can do is keeping more profit while charging consumers more, but...

... why would a consumer buy via Store with Cheaper Shipping (TM) if all they see is a $50 sticker price in both cases?

They just won't. Since Amazon has fast shipping and they have a login anyway and it's just easier.

Thus, Amazon gets to keep the $20 for shipping on things that are perfectly shippable for $10. In fact... they probably are shipping them for $10, they just keep the other $10 as a profit.

... comments welcome, either in email or on the (eventual) Mastodon post on Fosstodon.