Thursday, September 20, 2007

The Growth Bet is On Amazon!

I've spent the last year observing two ecommerce giants in eBay and Amazon and I have to say, from what I am seeing, Amazon has the advantage in this high stakes arena:

  1. They are leveraging their technology and assets to further expand their reach by programs like AWS (Amazon Web Services), FBA (Fulfillment By Amazon) and WebStore by Amazon. While each of these programs is in its infancy they allow Amazon to invest heavily in Technology while leveraging those costs by selling services to thousands of developers and small businesses.
  2. They continue to grow their 3p (Third Party Seller) business which is a high margin business that enables them to manage their own inventory more effectively. They do not need to stock the Long-Tail as deeply as in the past. Why stock 10 Dido CD's when you can stock 3 and still sell 20 through 3P sellers. This approach is as much a sales tool as an inventory management tool. This also allows them to manage their own pricing more effectively.
  3. Amazon knows Online Retail! While eBay knows auctions, Amazon has them beat hands down on the retail side. eBay, is now in the midst of a huge change to their UI and search while Amazon has perfected online merchandising.
  4. Timing is on Amazon's side. Amazon ready for the 4th Quarter - eBay still hasn't released Finding 2.0 and the 4th Quarter starts in 2 weeks.
  5. 3P Sellers are leaving eBay for Amazon. Amazon has plenty of room to grow their 3P business while eBay is trying to save theirs.
  6. Amazon does not have fraud and buyer experience issues. eBay has tons of fraud and buyer experience issues.
  7. You can fin IT on Amazon these days and even get free shipping. IT has moved off of eBay and the S&H charges are excessive.
Sure, eBay Inc. is far more profitable than Amazon but Amazon is still growing while eBay's Marketplace business is stagnant. Amazon invests in new technology while eBay milks the Cash Cow.

eBay is in a "Dip" right now (that's a reference to Seth Godin's book) and I don't see the moves they are making as the way out of the "Dip", mostly because I believe their insistence that the Auction model still has life, is the wrong bet.

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