Amazon

Amazon Marketplace: It's Bigger Than It Looks

A contributor gleans from Marketplace Pulse founder Juozas Kaziukenas some of the things sellers need to know about Amazon Marketplace.
Amazon Marketplace: It's Bigger Than It Looks
Image credit: Shutterstock
Contributor
Founder of FE International
7 min read
Opinions expressed by Entrepreneur contributors are their own.

During a talk I gave at the Retail Global Conference, I met Juozas Kaziukenas, founder of Marketplace Pulse, and had the opportunity to discuss with him the current and future state of the Amazon marketplace, one of the larger marketplaces his company researches.

Related: Amazon Rolls Out New Marketplace for Startups

Marketplace Pulse is an independent research company that collects ecommerce data from sellers and marketplaces around the world and seeks to deliver valuable insights into, and updated business intelligence about, ecommerce trends. Its research team collects information about all aspects of marketplaces, from Amazon to eBay to Etsy. It then sells the data-driven insights gathered to ecommerce business owners looking to learn from and leverage trends in the industry.

After all, data is king in 2017, right?

Talking to Kaziukenas at the conference, I found it eye-opening to learn about the size of the Amazon marketplace (bigger than most would think) as well as other fascinating insights, such as the way China affects the market, the average seller's income from the platform and Kaziukenas's own views on the relative competition inside the Amazon marketplace.

My questions just kept coming . . . How many sellers are in the marketplace? How many are selling more than $1 million per year? What makes a successful seller? Read my interview with Kaziukenas to learn his responses, and more.

Q. To start, what is the Amazon marketplace?

A. Some sales on Amazon.com are done by Amazon itself, and some are handled by marketplace sellers. Amazon has done a good job hiding the complexity of this from customers, meaning that they often are not even aware of this.

In 2017, in the second quarter, the units sold by marketplace sellers for the first time exceeded those [sold] by Amazon itself. I find this to be surprising to most, but over the years Amazon has built infrastructure to allow sellers to grow, and in turn [to help] Amazon grow, itself. 

Many successful retailers are now being born, only selling on Amazon. It's almost a special skill, being good at selling on Amazon, as it involves managing the tools available in the ecosystem, various services like fulfillment and advertising, etc.

Related: Amazon's Business Marketplace Hits $1 Billion in Sales

Q. How big is the Amazon marketplace market?

A. Credit Suisse has published some estimates on this, and I think they make sense. They estimated the marketplace to contribute $135 billion globally to Amazon's own sales. Yep, $135 billion. They also estimate that by 2020, the marketplace will have grown to $259 billion. This makes the Amazon marketplace a much bigger market than most countries' ecommerce markets are -- which also means many sellers and brands are trying to be part of it.

My best estimate is that the marketplace has at least five million marketplace sellers on Amazon, two million or more of which are on Amazon.com alone.  

We estimate that roughly one million new sellers will join in 2017 -- half of that on Amazon.com, and half on the other international marketplaces.

Q. Wouldn't that mean, then, that the competition for any seller is millions of other sellers?

A. While there are millions of sellers out there, it's a weak metric, as it misses the point. Many sellers are not often active, and even fewer are businesses of size. The most relevant number for this is something Amazon said earlier this year, when they mentioned that there are 100,000 sellers with $100,000 or more in sales a year.

This is a few orders of magnitude smaller than the oft-mentioned millions. But I feel like this is important to grasp: Marketplaces always have a long-tail distribution of sellers. There might be many of them, but only a small percent sell in volume.

Scott Schenkel of eBay recently said that, "About 80 percent of our gross merchandise volume is through B2C sellers that do over $10,000 a month, and the rest is 20 percent; that’s less than that." It's similar on Amazon too.

Q. How many are selling more than $1 million a year then?

A. We researched this earlier this year and came up with a solid estimate. The number we got was that there are roughly 10,000 sellers with sales at $1 million a year or more. This compares to the 100,000 sellers with $100,000 yearly sales. Of course, this is estimating the market size for the overall Amazon marketplace; and not all of those sellers are selling on Amazon.com.

Q. What do these successful sellers have in common?

A. First, they often use the Fulfillment by Amazon [FBA] service to off-load inventory to Amazon. We again estimated that more than 60 percent of top sellers on Amazon.com are using Amazon Marketplace, and this number has only increased over time. It is simply hard to compete with other sellers while handling the fulfillment yourself. Plus, customers with Prime memberships get to have the same two-day shipping experience when using FBA.

Second, they either do private labeling really well, or they have mastered retail arbitrage. These two different types of sellers are quite distinct, with private labeling definitely being the golden ticket for now. It has simply become very hard to compete while offering the same products everyone else can sell.

The margins in resell make it a decreasingly inviting business venture on Amazon. This may also shed some light on the rise in Amazon affiliate websites, which don't involve ecommerce themselves but instead market products from Amazon marketplace sellers. A great example is Family Tent Center, which reviews the best camping gear and markets its content to earn a commission when people buy products from Amazon through their site. 

Q: You mentioned China. How is the Chinese market affecting Amazon?

A: Yet another thing we researched! Estimating how many Chinese businesses sell on Amazon is quite hard, as the marketplace is anonymous, and thus it is nearly impossible to determine where a seller is located -- especially if they use FBA for inventory, making their inventory domestic.

Thus, for the United States, it is similar, if not higher. Every Chinese business wants to sell on Amazon.com -- it is the biggest market. So, a third or more sellers on Amazon.com are based in China. And, no doubt that number is only going to get bigger.

Amazon is a widely known market in China, and the [number] of businesses going after it is hard to grasp. Sellers definitely need to make sure they don't find themselves competing on price with them, as often that is impossible to win.

Q. In the end, is it worth buying an Amazon marketplace business?

A. Most of the time it is. The market opportunity, as I mentioned earlier, is massive, and buying a business can kick-start a venture faster than starting from scratch. It looks like there are plenty of options in the market, and growth opportunities are big, too, as Amazon.com continues to get bigger, as more Prime members join.

Related: 4 Reasons Why Amazon's Product-Search Dominance Matters

I'm eager to see consolidations of Amazon businesses: someone combining a seller, or more than one, with a software provider for sellers, and maybe a logistics expert -- or, some mix of those. In a way, creating a super company which has more things under its control. I think, especially, that combining great minds for product development, with manufacturing experts, and logistics experts can make a big difference.

More from Entrepreneur

Learn to be a better leader and develop successful marketing and branding strategies with Dr. Patti Fletcher's help.
Book Your Session

For a limited time only, get this bundle of Entrepreneur PressĀ® titles for less than $30 (60% OFF) on our bookstore when you use "LEAP" at checkout.
Buy Now

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.