Patrick Semansky/AP Photo
Amazon has pushed more and more of its sellers into using its shipping and logistics network, called Fulfillment by Amazon.
Amazon now takes 45 cents in fees out of every dollar of third-party sales at its marketplace, according to updated statistics in a new report from the Institute for Local Self-Reliance.
The e-commerce giant’s extraction from third-party sales revenue was just 19 percent in 2014. It grew to 27 percent in 2017, 35 percent in 2020, and reached 45 percent this year, according to ILSR’s figures. This has imposed significant pressure on sellers’ ability to make a profit, and is contributing to inflation woes as fees get passed on to customers in the form of higher prices.
Overall, Amazon is projected to make $185 billion in fees from third-party sellers in 2023: $125 billion from U.S. third-party sellers and another $60 billion from foreign-market businesses and vendor ads. In 2014, that number was $13 billion. Put another way, in nine years, Amazon has increased its fee revenue 14-fold.
The fees far exceed Amazon’s costs. For example, Amazon has already made $82 billion in fees from domestic and foreign third-party sellers in the first half of 2023, enough to cover all of its fulfillment facilities, which ship products sold by both third-party sellers and Amazon itself. “In other words, Amazon doesn’t have to build warehousing and shipping costs into the price of its own products, because it’s found a way to get smaller online sellers to pay those costs,” writes Stacy Mitchell, ILSR’s co-executive director and author of the report. In this sense, the third-party seller fees subsidize the below-cost sales that allow Amazon to drive competitors out of the market.
ILSR’s updated numbers are roughly in line with other analyses like that of Marketplace Pulse, which estimated earlier this year that nearly 52 percent of third-party seller revenue is captured by Amazon.
Third-party seller exploitation is likely to be a major facet of the Federal Trade Commission’s antitrust case against Amazon, which is expected to be filed soon. The reason that third-party sellers don’t just leave the platform, given this abuse, is that Amazon has grabbed so much control of online commerce that these sellers can’t just bypass it. “Amazon’s dominance of online retail means that businesses that make or sell products have little choice but to rely on its site to reach customers,” ILSR writes.
Most third-party businesses on Amazon don’t survive, in fact, at least not ones based in the U.S. Of the top 10,000 sellers on the site, more than half are based in China, according to data from Marketplace Pulse.
Amazon fees on third-party sellers fall into three main buckets: referral fees, advertising fees, and fulfillment fees. The referral fee is a straight off-the-top commission for the privilege of selling on Amazon, and that totals 15 percent for most products. Advertising and fulfillment have been the growth areas for Amazon.
Advertising fees do not come from what most laymen would think of as traditional advertising. Much of it comes in the form of businesses paying to list products in Amazon’s search results under labels like “highly rated” (which often have nothing to do with the rating of the products). As with Google, those who get the visible space at the top of search listings are paying for it; those who do not are pushed to the bottom of search, typically unseen by customers. Because Amazon’s organic search “favors products with more sales,” ILSR writes, paying for search ads that boost sales increases a business’s listing in organic search as well. Referral and search ad fees combined have increased by almost 50 percent since 2017.
Amazon has grabbed so much control of online commerce that third-party sellers can’t just bypass it.
Amazon has also pushed more and more of its sellers into using its shipping and logistics network, Fulfillment by Amazon (FBA). As the Prospect has written, Amazon has increasingly tied access to Amazon’s marketplace to its “voluntary” logistics program. It has increased fees and tightened rules on its “Seller Fulfilled Prime” program, where businesses handle the shipping themselves and get the Prime status that ensures better product placement and sales. The only way to get into Prime is to use FBA or Seller Fulfilled Prime. But, as Amazon has made Seller Fulfilled Prime prohibitively expensive, it’s become all but impossible for sellers to maintain their eligibility, compelling them to turn to FBA for shipping and logistics.
UPDATE: On Thursday, Amazon backed off of an additional fee for Seller Fulfilled Prime, after feedback from sellers.
Today, roughly 90 percent of the top 10,000 sellers on Amazon use FBA. Sellers who use FBA have the option of using it for non-Amazon orders as well, and most take that offer, because having two separate logistics operations would be too expensive.
Amazon exploits sellers who offer products on multiple platforms in a couple of ways. First, it prohibits any seller from pricing a product at a lower rate on sites other than Amazon. This inflates prices at other sites and makes it difficult for those sites to gain market share. Second, ILSR found that Amazon actually charges more to fulfill orders on sites other than its own. A 13-ounce item that costs $3.77 to ship on Amazon costs $8.25 for shipping on a non-Amazon site, for example. Delivery times for non-Amazon sales are often slower as well. This also makes it impossible for competitors to Amazon to gain market share; the higher shipping costs are often passed on, and the slower delivery times make Amazon look like a better deal.
This is part of Amazon’s ambition to control the essential infrastructure for e-commerce. The company recently made a deal with Shopify, one of its biggest competitors, allowing its sellers to use Amazon for logistics. Amazon’s third-party seller fees and its cloud infrastructure, Amazon Web Services, now make up 49 percent of Amazon’s revenue, up from less than 20 percent in 2014. ILSR sees these as tolls on outside businesses.
Many of these issues are likely to factor into the FTC’s antitrust suit against Amazon. The company’s monopoly footprint in e-commerce has exploited sellers and made prices higher, particularly on other sites across the internet. Tying marketplace access to FBA could be seen as illegal under antitrust law, especially if sellers are disfavored on Amazon if they go it alone on shipping. The fees further the maintenance of the monopoly, much as Google’s payments to become the default search engine on browsers and devices maintain its monopoly. The FTC could also argue that Amazon’s practices restrict innovation on e-commerce platforms.
“The key thing for a court is not only that Amazon has monopoly power, but that it uses a set of calculated tactics to thwart competition and maintain that dominance,” Mitchell told the Prospect. “It’s a pretty clear-cut violation of the law to leverage your market power to block competition. These huge fees are one way to quantify the harm.”
The ILSR report offers illuminating evidence of Amazon’s real goal as a business: to become the global gatekeeper, quietly taking a cut of as many transactions in the economy as possible. It’s a heck of a lot cheaper and easier to let somebody else manufacture, market, and sell products, and just skim off the top of that labor. The government and the courts will decide whether or not it’s legal.
