Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Mon May 21 2012 22:04:07

Is Fulfillment Service Key to Online Marketplace Success?

By: Ina Steiner

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AuctionBytes Blog Editor Julia Wilkinson was covering the Monsoon Conference this weekend and reported that two of the major marketplaces had executives speaking about their fulfillment services during presentations - Buy.com and Amazon.com.

Buy.com's Randy Smythe told attendees about a new fulfillment service it expects to launch later this year. The company has five warehouses across the U.S., and the program is designed to be similar to Amazon.com's FBA (Fulfillment by Amazon) program.

Meanwhile, Amazon continues to build out fulfillment centers around the world. Amazon executive Jeff Moore told MonCon attendees that 57% of its FBA merchants saw an increase of 20% as a result of joining the program - 91% said their sales increased in general.

Moore showed a graphic of Amazon's "virtuous circle." Wikipedia says that's an economic term similar to vicious circle, only instead of events reinforcing themselves through a feedback loop in a detrimental fashion, a virtuous circle has favorable results.



The Amazon virtuous circle shows sellers playing an important role in the company's growth. By adding selection, sellers help the customer experience, which increases traffic to Amazon.com, which attracts more sellers.

eBay has nothing but third-party sellers offering an incredible selection of goods. But there's a tremendous variation in the quality of sellers on eBay.

Amazon has two things going for it in terms of attempting to control the quality of third-party seller transactions. The first - it processes payments on behalf of sellers, so it has a greater knowledge of the transaction details. And secondly, it can control the quality of the customer experience to a much greater degree for transactions that are fulfilled through FBA - its own warehouse workers pack and ship the products to the customer.

Wall Street analysts have urged eBay to consider adding a fulfillment service, and it was a year ago that the Wall Street Journal blogged about eBay plans to test a fulfillment service for sellers. eBay's Johnna Hoff told me at the time that eBay planned to roll out two tests - one for a limited number of domestic sellers, and another test for China-based sellers who ship into the U.S.

It may seem unlikely that another marketplace could catch up to Amazon, which has first mover advantage in the fulfillment area. On the other hand, sometimes it's easier to copy than to innovate - Amazon has paved the way and has demonstrated to sellers the value proposition of marketplace fulfillment services.

Fulfillment services help marketplaces grow, but what's in it for sellers? They can offer sellers increased visibility on the marketplace. However, sellers don't have complete control and run into many challenges.

In his newsletter today, Skip McGrath wrote about one major problem that some FBA sellers have run into - having products be classified as hazmat (hazardous material). Another problem is that the marketplace can raise fees unexpectedly.

Can Buy.com and eBay compete with Amazon FBA? And as a seller, what makes you consider the use of online marketplace fulfillment services?




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This user has validated their user name. by: Ric

Mon May 21 23:42:20 2012

Terrabytes of digital carbon paper will not help eBay overtake Amazon, and fulfillment centers run by eBay will make no difference.

eBay management does not have the vision necessary to grow eBay based on it's own merits. Thus far, the attempts to mimic Amazon have failed to drive genuine transactional growth.

Instead of monetizing the SKU diversity eBay once offered, vision impaired management has attempted to reduce SKU diversity and stock the shelves with common every day merchandise.

The only reason eBay's GMV has increased is due to managements increased pressure to get sellers to offer free shipping, thus allowing eBay to claim GMV is increasing.

Clear away the smoke... smash John Donahoe's mirrors and it is clear to see that retail prices inflated by including shipping costs is the only reason eBay can boast increased GMV.



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This user has validated their user name. by: Ming the Merciless

Tue May 22 02:57:26 2012

Ina asks, "...as a seller, what makes you consider the use of online marketplace fulfillment services?"

Nothing. Ebay's fulfillment center would likely by more inept than their current programmed by amateurs selling platform.

Fulfillment centers probably do work reasonably for some businesses and business model, but they wouldn't work for mine or my product line.

Fulfillment centers are the current flavor of the month and may actually temporarily supplant mobile, mobile, mobile in The Ho's always trendy b school vocabulary.

One thing is for sure. Fulfillment centers in many cases serve to increase corporate profits and decrease yours.

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This user has validated their user name. by: Al G

Tue May 22 09:53:23 2012

Define marketplace.

If you are selling "commodity goods" i.e. mass manufactured - fulfillment centers make sense - unless you are using a fulfillment center in International Falls Minn. to ship bikinis & sun-tan products.

However, if you specialize in one-of-a-kind, customized products, low-volume merchandise (jewelery perhaps) - why bother with an additional step.

The question we should be asking here is - IS EBAY GOING TO ABANDON ITS CURRENT MODEL FOR AN AMAZON MODEL.

Let's call a spade a spade.

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by: JoyfulA This user has validated their user name.

Tue May 22 23:59:13 2012

The costs mount up fast for long-tail goods like mine. Fulfillment centers aren't an option.

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This user has validated their user name. by: Tula

Wed May 23 09:39:10 2012

@JoyfulA has a good point. Current fulfillment services don't work for sellers of unique or long-tail items that don't have fast turnover. They're simply too expensive for those or for lower-priced goods. If eBay targeted those areas in their fulfillment plans, then maybe it would be a good thing. But I doubt that's where they're going, given how they're trying to eliminate those sort of goods from the platform.

It's a shame eBay doesn't/didn't take advantage of their huge SKU diversity, as Ric said. If they would actually *help* those sellers of non-commodity goods, then maybe they wouldn't have a need to eliminate them for "noise" or poor buyer service.

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by: Moonwishes This user has validated their user name.
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Wed May 23 09:43:36 2012

Nothing would induce me to use a fulfillment center. Unless I'm missing something, sellers are paying amazon to store their goods until sold and then to sell them they almost always have the lowest prices. So they pay extra for the shipping and storage and then to sell they are giving steep discounts. I don't see how they make any money, although I do understand that their 'sales' are up. I notice that they didn't say anything about profits being up.

I don't want my stuff sitting in a storage facility where any employee could pilfer my goods and of course if they ship the wrong item, who is going to get called on the carpet and then you have an inventory mess on your hands.

Perhaps I don't understand fulfillment centers well enough but they don't impress me at all and I don't care who is running it.

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by: fvh This user has validated their user name.

Wed May 23 09:46:31 2012

Amazon has set things up to make FBA the only logical option for many sellers. Third-party Amazon sellers are unable to provide Prime customers with free shipping or free shipping when ordering $25+. Thus, they can't compete with other Amazon merchants whose items are fullfilled by Amazon, especially for lower-priced items, as their shipping cost can double the cost of the item. Additionally, Amazon sorts the listings for a particular item by price and assumes the Amazon-fullfilled item will come with free shipping when doing so.

I used to think I'd rather pay myself to pick, pack, and ship... But Amazon's options are so much more complex than that.

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by: fvh This user has validated their user name.

Wed May 23 11:32:23 2012

To be clear in my comment above, I should have said "Third-party Amazon sellers WHO DO NOT USE FBA are unable to provide Prime customers with free shipping or free shipping when ordering $25+."  

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by: Steevo This user has validated their user name.

Wed May 23 12:13:56 2012

Remember last year when Amazon raised their warehousing prices, all the complaints from their sellers?

They made the warehousing costs unreasonably low to get people to use it, then later on after the warehouses were filled they raised the prices to the level they had to be at so they wouldn't lose money on it.

So now sellers had to either pay up or pay to have their inventory shipped back to them.  Or stop selling on Amazon.

That kind of warehousing is very expensive, you cannot have someone else warehouse your items for you anymore than you can have a drop ship service shipping out your items, unless you have a way to get buyers to pay full retail or more which a lot of Amazon seems to be.  

But on eBay everything is really really cheap and you *can't* either pay or charge the actual cost for warehousing, packing and shipping.  

It's either subsidized by you or you won't sell anything, and buyers will give you bad DSRs for shipping costs. Even though they knew to the penny what shipping would cost them before they bought!  

Not really fair, is it?

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by: Steevo This user has validated their user name.

Wed May 23 12:15:41 2012

FWH Said:
>I used to think I'd rather pay myself to pick, pack, and ship...

But you can't.  You'd have to do it all for free.  Heh.  



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