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  How to improve its margins…without driving its customers away? Amazon's answer  

At a time when even the biggest eTailers haven't yet been able to prove whether or not they will ever reach break-even point (Amazon included), the net auction business model is one of the few that passed the "Internet" exam.

No stocks and no eLogistics to control, no online pricing policy problem to deal with, and no single payment problem: this is the cyber-retailers' dream come true!

The three biggest online auctioneers today are called eBay, Yahoo! and Amazon.

Advertising revenues are on the decrease and when you know that investments are high, not always lucky and above all, never profitable, you might be able to understand why, when a cyber-retailer holds a trump card, he is highly tempted to use it to improve its method.


This is why Yahoo! and Amazon have decided to start charging its customers a listing fee on their auctions. eBay has been using this system for a while now and has decided to increase its listing fees by as much as…65%!

It seems that the "everything-for-free" era has now come to an end. But this should not come as a surprise and, after all, everyone knows that any work deserves paying.

What proves more interesting is the roundabout way Amazon.com has just found to increase its margins in the net auction system.

For a long time now, Amazon has been giving its users the option of paying for their purchases trough its online payment service called "Amazon payments". In return, the money coming from these corresponding purchases is managed by Amazon itself, which benefits from it in the same way as traditional bankers would.

This does not only prove interesting for Amazon, but also for the user who benefits from a risk insurance that can go up to $2.500 each time he makes a purchase through the Amazon Payments service.

There is nothing unusual so far.

And yet, comforted by the fact that it managed to customize its users with such a level of success, Amazon.com just decided that any seller that uses its auction system will have to offer its potential buyers, in addition to the standard banking payments, the possibility of paying through … the Amazon's Payment service.

One can easily understand why the buyer finds it appealing, since even though it does not seem to cost him anything extra, this method of payment still protects him up to $2.500 in case the item does not arrive as expected.

If all the sellers start offering this compulsory "alternative" payment, it might well happen that most of the other net auction payment methods will disappear and leave way to the sole "Amazon Payments" system.

Even though such decision might appear trifling (since it is nothing more than an alternative that is being offered to the user), we can easily understand why it creates great agitation among the service users.

Such announcement creates consternation among the people who live outside the United States since one needs to have a U.S. address as well as a bank account within the United States to be able to use Amazon Payments…this explains why Canadians, for instance, are particularly unhappy with Amazon's announcement.

In my opinion, this new idea by Amazon gives us an idea of what the web might look like in a few years time: the biggest actors might easily become all-powerful in some sectors and this type of nearly monopolistic drifting could become a usual practice.

You might well argue that as long as Yahoo! and eBay do not force their users to take up such proprietary payment method, Amazon is likely to loose a great part of its "auction" traffic.

Unfortunately, this way of thinking proves very naïve since we know for certain that if the method launched by Amazon proves to be a success, Yahoo! and eBay will waste no time in setting up the same system on their own sites.

We have already witnessed such "drifting" on the portal sites that prompt companies to pay listing fees, promising them a faster service. The closing of Go.com by Disney, as it will reduce even further the number of actors, will probably result in encouraging portals to keep on doing so.

Amazon always claimed its desire to become a worldwide supermarket, and this is just one more proof. It will try and increase its margins using its users' money, which is only one of the most classical and lucrative way to do so.

Source : eCommerce Times

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