Wednesday, July 30, 2008

Competitive Concerns with Amazon Payments

With yesterday's launch of Checkout by Amazon and Amazon Simple Pay, several reporters, bloggers and analysts have commented on their concerns that Amazon would use payment transaction data to identify the top selling product and then source it directly, eventually cutting out their 3P partners. Scot Wingo had this to say;

"Amazon's biggest weakness in general in the world of ecommerce technology like this is that they are trying to be both a technology provider to retailers and a competitor. Large retailers (TRU, Borders, etc.) have left Amazon's third party business en masse because of this and I don't imagine they will be jumping for joy to add Amazon's checkout to their sites. For example, you won't be seeing Wal-mart.com add this any day soon. This actually plays to PayPal and Google's advantage and I'm sure as a first response we'll see them play up these fears: "Do you REALLY want Amazon seeing all of your transactions, learning about your top sellers and then using that data to compete with you?" The fact that Amazon
has a well [documented] history of using partner data to their advantage in
the third-party selling world will make this argument very believable."
This is certainly a concern and there appears to be some historical evidence for the argument, but from what I have observed, and heard directly from Amazon employees, they have systems in place to keep the retail side of the business separate from the marketplace business. I'm not saying that it doesn't happen, but they've assured me that they have systems in place to limit the problems. So, it would be the ethical and intelligent choice for them to follow the same approach with payments. I am not naive enough to believe it couldn't happen, but I wouldn't be concerned unless I was one of the top 100 online retailers, who compete directly with Amazon.

It wouldn't make sense for companies like Zappos, Best Buy, JC Penny, etc. to accept Amazon payments without contractual protection against such practices and smaller retailers don't need to sign-up unless the contract provides similar protection.

So once this barrier is removed, what would stop them from offering Amazon payments as an option for their customers? Amazon has over 81 million active users who buy a lot of product; what are their options for getting access to those customers?
  • They can sell on the Amazon platform, which is very restrictive and does not allow them to market directly to those customers.
  • They can use Product Ads on Amazon to acquire those customers
  • They can advertise using Amazon's package insert program or other advertising programs.

But, if they do any or all of these things and don't accept Amazon payments, that adds friction to converting those customers into sales and nobody wants to add friction to that process.

Hey, Amazon has enough faith in the their own customers to offer this service to competitors. I have an Amazon account and I would choose Amazon payments over any other payment method if I bought from Zappos, Best Buy or any other online retailer because of the A-to-Z guarantee and the 1-Click convenience, but it wouldn't stop me from continuing to buy from Amazon.

Scot also had some additional "cons" to adopting Amazon payments:
Fees - The fees are pretty standard, if not on the high side. I was hoping we'd
see something bold like ACH for a nickel or something like that. As-is
they are kind of 'yawn'. It could be that this is initial pricing and maybe by the holidays they will run some special pricing. It could be they are also looking to understand the fraud models.

I thought the fees would be lower, but it is harder to raise prices than it is to lower them, so I can see why they did this initially. Perhaps, as Scot said, they are trying to gauge the fraud models and since they are offering the A-to-Z guarantee without controlling the entire shopping experience, this fee structure was more reasonable -- BTW, for orders under $10 they are less expensive than PayPal. My thinking is that in the future rather than lowering prices they will work toward adding value, perhaps running promos for Product Ads, discounts on Basic FBA rates for purchases made through Checkout, etc.

Certainly, eBay will not authorize Amazon payments as an acceptable payment method on eBay properties, but they won't be able to use the silly "not a safe payment method" argument they used with Google Checkout. Heck maybe they can use Amazon payment on StubHub, they haven't figure out how to add PayPal yet :)

I think this is a very interesting development and as Amazon gets more experience in this space they will have so many more options available to them than PayPal does. (Bill Me Later, Prime, FBA, Product Ads, WebStore, etc.)

If the biggest downside to accepting Amazon Payments is the fear they will take your transaction data and use it against you, that is not a problem without a solution -- Read the contract before you sign it.

Just my 12%

6 comments:

Rich said...

I am trying to create some transaction data...

Randy Smythe said...

Rich is my hit-and-run commentor.

Yes, creating transaction data is the goal.

Anonymous said...

You need to be especially careful with Buy.com, they will target your vendor, distributor, or manufacturer.

They don't need to be the payment processor to see what's selling good and likely to make money for their site.

Your best best is always your own site and natural search + tageted PPC.

rent to said...

Hi,

Nice article.

I was reading the article and i was thinking in adding to my website that is not on amazon.

However my website are mainly customers outside from US.

Do you know if "amazon Payments" accepts international orders?

And how safe it is to accept international orders through them?

Thanks

Jon Smith said...

Mercnatinc.com is a good company to use. If you havent heard of them check them out. Ive been using them for 6 years now and love them.

Anonymous said...

I considered using Amazon but found their discount rates were a bit too high. I also didn’t like that they imposed a set processing limit per month. I do about $5,000 give or take per month and with Amazon I wasn’t allowed to process more than $2,000. After doing some research online I went with www.merchantinc.com The rates were decent and I got to set my own monthly processing volume.