Amazon's Jeff Bezos Committed to 3P Merchant Program
By Ina Steiner
Amazon.com CEO Jeff Bezos gave a keynote presentation at the ShopSmart Shopping Summit, an invitation-only meeting of ecommerce executives, journalists and bloggers that took place at Consumer Reports headquarters in New York on May 11th. Bezos fielded questions from Consumer Reports Senior Editor Tod Marks and ShopSmart Magazine Editor-in-Chief Lisa Lee Freeman, then he took questions from the reporters and bloggers in attendance.
I had an opportunity to talk briefly with Bezos after his keynote, and after attending discussion panels on Online Community Building and Shopping Scams, I toured the Consumer Reports labs where they conduct the rigorous testing behind their product reviews.
I also interviewed ShopSavvy executive Matthew Weathers, who previously worked at eBay and PayPal, about mobile commerce, Google product feeds and the digital wallet - you can watch the video interview on this page.
Bezos was very open about Amazon.com's strategy and philosophies. There doesn't appear to be a transcript of the talk, so I'm sharing some of the highlights and, except for direct quotes, I am paraphrasing. He also spoke about the Kindle, the tablets Amazon is rumored to be developing, Amazon Fresh, its moms' program, and collection of Internet sales tax - I recommend you watch the entire presentation if you have an interest in Amazon.com.
"Link to Video on Ustream
"Link to Video on Consumer Reports Facebook
Mobile, Social and Innovation
When asked about the most interesting trends in online retail, Bezos said a big one is mobile. Fifteen years ago, consumers may have had one desktop in their homes, while now, thanks to mobile, they are leaning back on their sofas and shopping online. Smart phones and tablets "are very exciting for us," he said. It's a "new environment to experiment and invent on." He said Amazon launched a window shop for tablets using a different user interface.
With regard to social networking, Bezos said the label "social commerce" gets applied to a lot of things, including customer reviews, but said, "I think of a friend's network as the heart of what I would call social commerce."
Bezos said Amazon's new MyHabit private sales site hopes to differentiate itself from other sites through the website technology. "Go look at MyHabit.com, it's pretty innovative in terms of the photography." It shows what some of the next wave of sophisticated apparel ecommerce will look like - "that team is pushing the envelope."
He said traditional photography in clothing retail makes it hard to see how clothes look on a moving figure - it's not good for the consumer, and not good for the retailer because you get more returns, he said.
Regarding digital innovation, he said, "We are focused on what is not going to change, and that is customer needs. Ten years from now, customers will still want low prices, fast delivery, and selection & choice. We can build a strategy around that."
Amazon's Growth Strategy
Bezos shared Amazon's growth strategy. "Broadly speaking we are in most categories now, so most of the growth, seen from that point-of-view, will come from deeper growth inside existing categories. Breadth-wise, we've gone very far. And our goal is to have every single product that you might want to buy, not necessarily directly, but including through third-party sellers, available for very fast delivery."
Asked about how confident he was when he tried new strategies, Bezos said that at a top level, Amazon's main driving principles were:
- customer obsession;
- willingness to invent;
- and long-term orientation.
Anytime you do something new, there will be critics. "We do hundreds of experiments every day in our fulfillment centers to get a little bit better - incremental invention. And then sometimes we do whole new broadcloth things like Amazon Web Services, like Kindle, like third-party sales on our own detail pages."
Importance of Third Party Merchants
Continuing to discuss new initiatives, Bezos said it would be unreasonable to expect that they would all work. "On those big things, we want to be stubborn on the vision, and flexible about the details." And that's what happened with the third-party selling, he said.
"We launched auctions, and that didn't work. We launched Zshops, and that didn't work. And we finally launched Marketplace, which has morphed into Merchants@, and Marketplace was very successful. Our vision was, we want to have a place with universal selection, and we didn't believe we could do universal selection without a whole bunch of third parties helping us."
"The reason why Marketplace worked where auctions had not is because Marketplace was convenient, it was still one-click shopping. And our customers didn't want to do auctions. They were busy. They wanted to come in, find what they want, buy it, and go away."
During the Q&A session, I had the opportunity to ask Bezos how important long term sellers were to its long-term strategy, and how they could compete with manufacturers getting onto the platform to sell directly.
Third-party sellers contribute just above 30% of unit sales, and are a very significant part of Amazon's business, he answered.
As far as competition from manufacturers, Amazon itself has faced that challenge as a retailer. "It's not easy to be really, really good at two things," he said. "It's hard enough to be a world class manufacturer. So far, we haven't seen - there are exceptions, I'm sure - but by and large, I haven't seen a lot of effective competition from manufacturers."
Third Party Sellers and the "Bad Apples"
ShopSmart Magazine's Freeman asked Bezos about Amazon's third-party marketplace and the challenge of keeping "bad apples" from selling on the site. He answered by relating the story of an eyeglass seller profiled in the New York Times who had been accused by customers for years of poor business practices and failing to deliver items they ordered.
Bezos said that when they asked him if he used the same "evil techniques" on Amazon.com, the seller responded, "Oh no, those guys are Boy Scouts. They kick you off right away."
"We have, I think, industry best practices on finding the bad apples and inviting them to go sell on, elsewhere," he said.
He also discussed Fulfillment by Amazon (FBA), where they invite third-party sellers to send inventory to Amazon fulfillment centers. "That really brings the customer experience to parity for those third-party sellers and for our customers. That program is going very well and gaining speed, and I hope that will continue."
The FBA program increases sales for third-party sellers, who are happy about that, Bezos said, and all of Amazon.com's customer service tools work the same way, so Amazon can accept returns rather than requiring the buyer to go through the seller to accept returns.
Amazon also uses a sophisticated algorithm designed to find feedback abuse, similar to the way credit card companies detect fraud.
Senior Editor Tod Marks said Consumer Reports research, as yet unpublished, shows consumer dissatisfaction with their inability to connect to a live person, and asked what Amazon.com was doing to improve customer service.
Bezos said the best customer service is if the customer doesn't need to call you, and the biggest reason for calling is to ask the question, "Where's my stuff?" One of its primary metrics is "Customer Contacts per Unit Sold," which Amazon has improved every year by incrementally improving in every area single aspect of its operations. "The way we've done it is delivering everybody's stuff."
He said Amazon's Customer Connection program requires every employee at headquarters to spend 2 days working in customer service every other year. "It's excruciating," he said, because through defect reduction, they've eliminated most of the easy contacts.
Amazon.com also includes an inline order update on order detail pages to let shoppers know if they've previously purchased an item - Amazon.com doesn't want the customer to accidentally purchase a duplicate item.
"Our calculus on things like this is, it may hurt sales in the short term, but in the long term, it earns trust." It's the same reason Amazon allows negative customer reviews on its website. Bezos said Amazon.com doesn't make money when it sells things - "we think we make money when we help customers make purchase decisions."
With a long term point-of-view, Amazon.com believes customers and shareholders are very aligned, he said.
Security and Privacy
Security is dynamic - the bad guys are getting better, it's not a static situation, Bezos said. Online crime will never go away, and it's one of Amazon.com's top priorities.
Consumers can do more to protect themselves - the most important thing they can do is choose safer passwords, and not use the same password across multiple websites. The problem is, he said, that it's inconvenient.
In a question on privacy, ShopSmart Magazine's Freeman noted, "you know what we buy, you even know what we wish for." Bezos said Amazon tries to be straightforward about the data it gather and how it uses the information. The site greets visitors by name and has offered personalized recommendations for 15 years. The way it designed the website "clues people in" and lets them know they have information about past purchases and that "we're using that information to try and do something that will help you."
Toward the end of the session, Bezos answered a question about which competitors it monitors, and while he did not identify any companies by name, he provided an interesting answer, including the advice that companies should never be complacent and should "always have the beginner's mind."
Amazon benchmarks lots of competitors, he said, and places orders from them to make sure Amazon has faster delivery.
But, if someone is doing a better job than you, "celebrate it," he said.
Jeff Bezos spends a lot of time thinking about the big picture and what customers want, and how Amazon can deliver what shoppers want quickly and conveniently. It's something for all online sellers to think about. What do your customers want, and how can you improve the customer experience?
After the session, I had a chance to talk to Jeff Bezos, who told me about Amazon's obsession with the customer, and said Amazon considers third-party merchants to be their customers.
I asked him if he saw Amazon as a destination for antiques lovers and collectors? His immediate thought was auctions, which he'd already said does not work on Amazon because their shoppers want their items quickly.
But I've talked to sellers who have been approached by Amazon to sell their collectibles through Amazon's FBA program. However, collectibles - not necessarily high value, but one-of-a-kind items - can be damaged in the warehouse. I think it's important for sellers to know if Amazon wants collectibles on its site. He said he would be interested in putting together a panel of sellers to talk to the team at Amazon.
What do you think? Have you sold antiques or collectibles on Amazon.com directly or through its FBA program? Do you think Amazon will ever make sense as a site for collectors?
Can third-party merchants align themselves with Amazon.com's mission, or should sellers be wary of Amazon as a competitor?
As for right now, it's clear Amazon needs third-party merchants to achieve its vision of universal selection.
Comment on the AuctionBytes Blog.
About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to firstname.lastname@example.org.
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