Monday, October 20, 2008

Online retailing Amazon vs eBay. Selling on Amazon or selling on eBay? Which is the best option for online vendors (Part 1)

With Amazon increasing more 30% every year on 3rd party sales and recent news of layoffs in eBay, the question of selling on eBay or selling on Amazon is more important to online sellers now than ever. The economic slowdown and financial crisis has also made e-commerce vendors take a much closer look on listing fees, commissions, tools, etc in order take a more informed decision about which 3rd party platform they choose. This article will try to give some information to online stores about the advantages and disadvantages of selling on and

Let’s start the analisys with the current state of both platforms in terms of sales by 3rd party goods. This could be one indicator (certainly not the only one) of the platform’s success. The first impression is that eBay is the overwhelming leader in marketplace solutions for 3rd party ecommerce companies. In an analysis done by Piper Jaffray of Gene Munster, it’s estimated that in the last 12 months eBay sold 3rd party goods by a market value of roughly $62 billion, while Amazon sold just $6 billion. Although the difference might seem huge in favor of eBay, taking a closer look can prove otherwise. eBay sales have grown less than the industry average, increases in listing fees have outraged groups of important power sellers and as a result of this, the stock has underperformed S&P 500 and Nasdaq Index in the last year. On the other hand, Amazon’s third party sales have been growing steadily at the same pace as total revenues (30-35% a year). Amazon has outpaced Industry growth by a huge margin. Another important reason for the difference in the amount of US$ worth of goods sold is just one of geographical reach. While eBay is present in 32 countries, Amazon has presence in only 7 so any volume comparison would have to be adjusted accordingly. With a clearer picture of the figures now, the trend is very clear: eBay sales are stagnating while more and more vendors are opting for Amazon as their marketplace platform.

The immediate following question would be Why? Why more and more vendors are choosing Amazon instead of eBay to sell if fees are more expensive? Some of the reasons why, that I’ve found are the following.

· Fee structure and pricing formats: While, on average, Amazon’s fees are higher, averages always hide important information. Amazon’s fee structure is easier to understand. There is one monthly payment for almost unliimited listings and a commission based on a Fixed price (not variable like in eBay). This makes Amazon’s marketplace more appealing to vendors with high volume / high rotation goods, meaning goods with not much differentiation and more like a “commodity” type. On the other hand, eBay’s auction format and fee structure is much more appealing to high price / low rotation items. No wonder why eBay started as a platform almost only for “Antiques and Collectors” and has moved gradually to mainstream vendors.

· Better customers: Amazon customers have proved to be more loyal, spend more, and most importantly, pay on average higher prices for the same items than on eBay. These are very appealing reason for an Online Vendor to choose Amazon’s Platform; let’s check them one by one.

o More loyal customers: Even when Amazon sells goods from a third party seller, It retains customer information and the right to follow up on that client with any marketing action Amazon considers appropriate. This means that all direct marketing actions are centralized and controlled by Amazon and this is a huge advantage to make customers more loyal. On the other hand eBay does not control this information. If a seller sells something on eBay, the seller retains billing and contact information, not eBay. Therefore, follow up marketing actions are spread between many vendors, with no coordination or consistency to the eyes of the buyer.

o Customers that spend more: What Amazon does with the purchaser information is pure and “state of the art” direct marketing to increase revenue and profitability per customer. By sending relevant e-mails, cross selling items before checkout, whish lists, giving away shipping fees, personalization tools, etc, Amazon has achieved loyal customers, and in this case, loyal customers spend more than in any other site.

o Higher average prices: There are a couple of reasons that I can say why prices on Amazon are higher than on eBay. First and most important is the marketplace structure: Amazon is a fixed price marketplace while eBay is an auction based marketplace. By its nature, an auction based marketplace will be much more competitive on prices. For similar items, a difference of $1 might make a buyer decide to go for the cheapest option. Also, it’s much easier to compare prices between different vendors because the website was originally designed to do this.

The other reason, easier to understand is just that fees on Amazon are higher, therefore on average, as sellers tend to maintain their prices, prices for similar items will be higher on Amazon than on eBay. In any case, is important for an online vendor to know that Amazon’s customers will be less picky on prices than eBay’s customers.

For these three reasons we can say that Amazon’s customers are better customers: they are more loyal customers, spend more money on each purchase, buy more often and pay higher average prices. This are very important reasons for sellers to use the platform, even at the cost of paying higher fees.

Related content: eBay vs. Amazon, the Buyer's perspective

The rest of the article, conclusions and a summary of pros and cons will continue in Part 2

Copyright MBA Internet Marketing Manager

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