|Mon May 21 2012 22:04:07|
Is Fulfillment Service Key to Online Marketplace Success?
By: Ina Steiner
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?