Amazon has announced their biggest acquisition yet, by offering to pay $13.7 billion for the Whole Foods grocery chain. This sent the whole retail industry into a shock, eroding billions in market capitalization. Yet most of it was out of fear of the unknown, since it is not immediately obvious why Amazon would go that route. Whatever the end result is going to be, we think ultimately this acquisition will lead to a platform.
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Marketplaces are not created equal, and one of the biggest differences is how they treat sellers on the platform. While technically all marketplaces consist of a list of sellers, different marketplaces approach them differently.
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In 11 months since July 2016 Amazon India marketplace has grown from 100,000 to 200,000 sellers, doubling in size. In the most recent earnings report Jeff Bezos, CEO of Amazon, said "It’s still Day 1 for e-commerce in India". The growth of the marketplace is proving to match Amazon's multi-billion investment into the country.
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Since the last time we looked at Fulfillment by Amazon (FBA) usage among marketplace sellers in January, it has grown in all countries. World wide the growth of Prime memberships is resulting in FBA usage growth. Based on our research we didn't see much growth among top sellers in the US. However all European markets have grown considerably.
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Amazon has reported that since Amazon Lending launch they have issued more than $3 billion in loans to 20,000 marketplace sellers in the US, UK, and Japan. In the last 12 months alone, Amazon has loaned more than $1 billion. We expect the lending volume to continue to rise, because Alibaba has been doing similar work since 2004 and has reached scale way beyond Amazon Lending - $100 billion in loans already.
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In the Toys & Games category on Amazon.com 8 out of the Top 10 products are currently fidget spinners. Many have dismissed the fidget spinner as a fad, including the top toy makers. But they missed the point of what made this toy so successful. It was successful exactly because it was a fad. The fidget spinner as a product is showcasing what the modern retail is going to look like. It is important to not think about this as trends catching, but as a challenge to set up companies to be agile in product making.
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Despite the popularity of private labeling as a topic in the marketplaces market, few companies have been able to scale it to the $100 million a year level and beyond. For the last couple of years the leading marketplace sellers were using software to scale retail arbitrage. We think the most interesting sellers right now are the ones investing heavily into artificial intelligence.
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The U.S. Chamber of Commerce Global estimates the global counterfeit market at $461 billion. Every year over $50 billion worth of products are sold on Amazon marketplaces by third-party sellers, yet none of those billions of products are controlled by Amazon. The problem of counterfeit is much bigger than Amazon, but the marketplace model and the number of visitors of Amazon makes it one of the most lucrative places to move products through.
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Just 10 years ago e-commerce penetration in China was less than 1 percent, but since then has taken off - it overtook US in 2013, and is expected that by the end of 2018 it will reach 18 percent market penetration.
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On Wednesday KPCB partner Mary Meeker released annual Internet Trends 2017 report. Her findings were that Amazon sells more batteries than brands like Duracell and Energizer, owning more than 30 percent of the US market. Duracell, a company incorporated 93 years ago in 1924, found themselves outsold by unrecognizable Amazon Basics. The conversation of Amazon destroying brands is missing one key area, though. It is missing the impact of marketplace sellers.
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