It’s hard to believe that this big 800 Pound Gorilla named Amazon began as an online bookstore that many did not think would create any sort of following. Now it has become such a part of our lives that some folks don’t feel that they could do without them. The question is, should it be?
Amazon operates with a constantly growing web of mega distribution centers and a huge number of agents who fulfill the orders that we place on the web site. If there is anyone who has mastered ecommerce – it’s Amazon. They are “Big Brother” on steroids. Search for a product, buy it or not and you are getting emails constantly with that product or another similar product. It can be a bit discomforting, but I guess it works well enough for Amazon to continue doing it.
I have read that as much as 40% of Amazon’s volume is being fulfilled by small business contractors. WJ Office was contacted by Amazon, but I didn’t call them back because I realized that this a way to cut your throat with a thousand little gashes.
Think about it. Amazon finds a product, doesn’t know if it will sell or not, they “fulfill” this product through a contractor. They get a percentage (I believe it’s 15%) of the selling price and they never even have to own or stock the product. This contractor that is fulfilling the order has a huge increase in volume, even though it’s at a very small profit margin, and as he increases his exposure with this Amazon behemoth he becomes utterly dependent on the Amazon web site to drive volume for him. Amazon basically used these contractors to be their test market. Those products that move well will be stocked in the AMAZON distribution centers and eventually this contractor will have the rug pulled out from under him for the very products that he partnered with Amazon to fulfill! Just like boiling a frog. He never saw it coming.
It’s not all gravy for Amazon, however. They have a serious problem with counterfeit products. Yes, under the above scenario, they have acquired a way to “test market” product and get the names of the customers who are buying those specific items, but their contract fulfillment partners are also benefitting while hurting Amazon. In the office products industry, the annals are filled with stories of counterfeit or out of date toner or ink being shipped to a customer. If the customer complains, the contractor might take care of it, but he definitely has the contact information to market to that person other products as well.
But, eventually that contractor is severely impacted by Amazon’s practice of taking the best, highest grossing items away from that contractor because of their buying power and the fact that they now know that they have a product that has been proven. Meanwhile, the contractor “stocked up” because he was moving so much product, and now he’s taking a financial bath. Interesting, huh?
Though many people seem to like the Amazon business model it has its shortcomings. I guess the old adage still applies, if a deal seems too good to be true it most likely is.