Wednesday, October 24, 2007

3P the New Ecommerce Buzz Word!

3P stands for third party sellers. They used to be called “eBay sellers” but oh how times have changed. 3P sellers are being credited for the resurgence in Amazon's share price as well as the company’s revenues and more importantly profit. More and more 3P sellers are looking for the exits in regards to eBay.

The marketplace dynamics are changing. eBay over-estimated their hold on sellers and Amazon was there to woo them. Now a strange phenomenon is taking place. The type of product many 3P sellers are selling on eBay is trending toward end of life, liquidation, etc. Many 3P sellers are now using eBay for capital recovery while the lion share of their product is being purchased on Amazon at a higher margin. The IT has moved and continues to move to Amazon from eBay.

Why are 3P sellers shifting their mix of product to Amazon?

  • Amazon wants them there or at least acts like they do. Not all sellers are happy with Amazon but far more are upset with eBay. eBay management pushed sellers too hard and the result of that is showing itself in the migration. The problem is once the genie is out of the bottle its hard to get him back in. So eBay has to run promos to drive listings.
  • Higher ASP’s: 3P sellers know the % they will pay Amazon on the backend and they can calculate the number in their pricing. Because of listing fees on eBay if conversion decreases marketing expenses can accelerate as a % of sales therefore affecting profit margins.
  • Customer Service – The eBay buyer is plain and simply too much work. Customer service emails are 100 times more on eBay than on Amazon. eBay buyers want the lowest price yet they want Nordstrom’s service (last time I checked Nordstroms wasn’t considered a discounter) while Amazon customers want a fair price with Amazon service and reputation.
  • Constant turmoil and business plan changes on eBay and minimal changes or business disruptions on Amazon.
  • Amazon is a retailer (wow, so are 3P sellers) and eBay is a marketplace promoter that has a history of soaking its clients.

These are just a few of the reasons 3P sellers are migrating over to Amazon and as they open up new categories 3P sales will continue to be the main driver behind Amazon’s growth and profits. Imagine an Amazon where 60% of their business is 3P and they benefit from the profit margins that business brings allowing them to fine-tune their own retail operations.


chipseo said...

We made the move over a year ago from full time with eBay to full time with Amazon. We did change products along the way, but the difference is incredible.

What I don't get is the flop flopping I read about on the boards where sellers are talking about going back to ebay just because they lowered their fees for the next few weeks.

Changing back and forth won't work, but finding a solution that will work for your company is what should be done. Sometimes it is a little of each sales channel. Scott

Marty said...

Very good article. I currently think the trend is not in Ebays favor but that within a reasonable time frame Ebay can take moves to get a lot of that business back. Amazon is also under margin pressure from those shipping deals and their own site updating has left some people confused as well. I do think within the next 6 months to a year the window for eBay to take meaningful action will be over. Thanks as always for your insights!


Mary said...

Great article and it's echoing what I'm reading on the Ebay Discussion boards and at other places as well.

And I agree with Marty. If Ebay doesn't make any positive changes within the coming months, things are really going to take a turn for the worst.

Teresa Rothaar said...

Very well-written article, particularly because it's so logical and dispassionate. =) Some eBay sellers have an emotional attachment to eBay; in the business world, to have an emotional attachment to any one company (or person) turns into a deadly weapon against oneself.

Your article explains why it makes sense to look at eBay as a business partner/landlord and nothing more. If a retailer rents space in a mall and the LL starts letting the place go to hell (not fixing things, letting security go lax, etc.), the retailer can't "stand by their man" out of some bizarre sense of loyalty and attachment to the LL, at least not if they want to remain in business. They need to move to another mall, one with a LL who's willing to take care of the place.

eBay is my only venue right now, but this is because my store is strictly a part-time venture at this point. In 2008, I may turn it up a notch, and if I do, I know I cannot stick with eBay as my only venue, because it's possible to make only a part-time income on eBay at best.

I agree with Scott that for some sellers, multi-channel sales is the best option. This is why I won't go so far as to say that eBay has NO use at all; many sellers successfully use it as an advertising vehicle or as an adjunct to other "locations" (Amazon, their own dot-com, and so on).

I've been looking into Amazon's storefronts and will consider them if I grow my business in '08.

Randy Smythe said...

Thanks for your comments! I think eBay's best chance to keep product and sellers on the site is to change their position on stores.

The fees in stores would be managebale if stores had visibility. Without visibility it is a waste of money for many sellers.

Anonymous said...

I have been on eBay since 1998 currenly paying about $1500 a month in eBay fees. I just launched my own site and had nearly $1000 in sales in first 3 weeks. I don't want all my eggs in one basket so Amazon looks like a 1st "real" alternative to eBay. I just hope down the road that Amazon does not become glutted with 99 cent items and $10 shipping like eBay.

Ansgar-John said...

"eBay underestimated their hold on sellers " Did you mean OVERestimated ?
Great piece.

Randy Smythe said...

Yep, I did mean over-estimated. That's what happens when I proof my own stuff.


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