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Summary:

Anyone who has closely watched eBay, the giant online auctioneer, knows that their sellers don’t need them as much as they once used to, mostly because of contextual and performance based advertising. A retailer looking to acquire customers doesn’t need big marketplaces, because Google Adwords (and […]

Anyone who has closely watched eBay, the giant online auctioneer, knows that their sellers don’t need them as much as they once used to, mostly because of contextual and performance based advertising. A retailer looking to acquire customers doesn’t need big marketplaces, because Google Adwords (and other such tools) do a pretty good job of directing buyers their way. And cheaper!

And like the Bird Flu, this disease known as the bigmarketplaceinitis, is now spreading to Amazon.com. On Thursday, the Seattle-based e-tail giant lost another third-party vendor, Borders, which is going to try its hand at online retail on its own. Last year, Amazon.com lost another key vendor – Toys’R’Us.

The Ann Arbor, Mich.-based book retailer Borders won’t be the last of Amazon.com’s partners to fly the coop. The word on the street is that another one of their partners, one with cool and iconic television and billboard advertising has issued an RFP and is looking to go solo.

This is pretty disturbing news, because according to some analysts this third-party vendor arrangements carry high margins for Amazon.com. Not to mention lost revenues: Borders’ accounted for more than 2% of Amazon.com’s sales, according to Citigroup Internet analyst Mark Mahaney. In a note to his clients, Mahaney wrote:

The loss of one of Amazon’s largest ecommerce partners — with the implication that Amazon’s potential for signing up extensive third-party partnerships — which are generally high margin revenue streams — may be limited.

For now Amazon.com can brace some of these losses – it has dozens of partners – but over the longer term, the company will face an increasingly hostile future, one where more Adwords type, or even more brutally efficient systems such as performance-based advertising networks diminish the role of big marketplaces.

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  1. Is Amazon.com catching the eBay disease?…

    Anyone who has closely watched eBay, the giant online auctioneer, knows that their sellers don’t need them as much as they once used to, mostly because of contextual and performance based advertising. A retailer looking to acquire customers doesn’t n…

  2. One question : is this deal only about the integration of the catalogue inside amazon.com ?

    Could make as much money if they sale the wharehouse and computer (S3) infrastructure in BtoB. What do you think ?

    On my view the website is on the verge of getting out of Amazon core competencies. API, S3, Unbox, Wharehouse … are now the real keys.

  3. I was the design director on one of the big ten retailer sites when they first hit the net (1999-2000) and we always wondered why others (biggies) were signing up with Amazon in the first place. They have the brand, they need to control their own destiney and don’t need an Amazon skimming off some of the cream. I’m amazed that it’s taken this long for them to bail.
    Bet the next is Target.

  4. I should ammend my comment slightly…
    The big hurdle at the time was not the font or backend of the site, it was distribution. The big retailers were set up to send semis loaded with goods to distribution centers and individual stores, not individual orders to homes/businesses. So, Amazon helped in that respect.

  5. Nick Hawkins Friday, March 23, 2007

    I’m sure that Amazon won’t be hurting. Borders, I think, is pretty much screwed.

  6. Damon Billian Friday, March 23, 2007

    “A retailer looking to acquire customers doesn’t need big marketplaces, because Google Adwords (and other such tools) do a pretty good job of directing buyers their way”

    I think the primary strength here is that eBay has buyer/seller feedback, something that won’t be identifiable if someone is simply directed to a site’s homepage for a sole proprietor(if they aren’t a large & well-known brand, customers are going to be somewhat wary about buying from a site that they know nothing about).

    Disclaimer: I used to work for eBay/PayPal. And while eBay has obvious problems, I do think that the feedback platform still helps folks a lot.

  7. I was always surprised that a merchandiser like Target would outsource its online selling to Amazon.

  8. Yes, I think the eBay feedback does help (although note you have to evaluate eBay feedback with a cynical eye). Similarly, Amazon’s reviews are pretty handy.

    I think another factor is trust. I’m tired of adding online accounts with passwords. One good thing with Amazon and eBay is that you can buy from different companies and don’t have to give them your CC info and establish accounts with them.

  9. I think the future will indeed be big marketplace free as more and more innovative services are being released to help independent and free standing retailers.

  10. Comparing an ecommerce platform (Amazon, eBay)with an online ad system (Adsense, AdWords, PPA, etc.) is ludicrious. In this era of outsourcing and specialization, smart companies focus on the activities that add value to their customer base and make operational sense. By taking the DIY route, Borders is going back to the dark-ages.

    This move makes sense ONLY IF Borders can replicate the exceptional user-experience, social (collaborative) elements like customer feedback/ratings, loyalty-building personalization, backend (fulfillment) system, online cross-promotional features and other competencies that Amazon has mastered over the years.

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