Amazon Dominate
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Amazon Dominate
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Amazon Marketplace accounts for 25% of online sales.
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In further proof of just how massive a footprint Amazon ( AMZN ) has in online transactions, a new report shows that Amazon Marketplace accounts for about 25% of all online spending in America, according to Marketplace Pulse .
In other words, a quarter out of every dollar spent online goes to the marketplace, a dominance no other company, not even Amazon’s traditional retail platform, can claim. Though that retail platform still does better than anyone else.
Launched in 2000, Amazon Marketplace allows for third-party transactions between buyers and sellers, so if you’ve bought or sold a used DVD through the service, you’ve taken part in the Amazon Marketplace. The platform is so popular that in the third quarter of 2021, 56% paid units on Amazon were sold by third-party sellers, according to Statista .
But since it’s introduction, Amazon Marketplace has grown from what was initially viewed by some as the service’s answer to similar buyer-to-seller websites such as eBay and Craigslist, which it far exceeds because of the built-in name value and customer base of Amazon, to its own entire online ecosystem.
To put it in perspective, if it were a completely separate company, Amazon Marketplace would still count as the largest online retailer in the country.
More than 300 million people and small-to-medium businesses sell through Amazon Marketplace, or the businesses will sell through the marketplace in addition to selling directly through their website platform.
But there’s a tight correlation between the two branches of Amazon. When Amazon the company changes its various fees, the marketplace is affected, and when Amazon introduced advertising for its third-party sellers, Marketplace Pulse notes that “over time it became a requirement because as some sellers opted-in, others had no choice but to follow.”
Amazon Marketplace accounts for 25% of all online sales. Even if you took it out of the equation completely, the regular Amazon store would still dominate the online marketplace, accounting for 17% of all sales. Its next nearest competitor would be Walmart, which is less than half of the size of Amazon.
Amazon is so dominant that Marketplace Pulse reports that it would take combining the next five mass-market retailers, Walmart, eBay, Apple, The Home Depot and Target, to equal its size.
The Marketplace Pulse list doesn’t account for stores than run on Shopify , an online service that helps people create and maintain an online business.
But if all Shopify merchants counted as one retailer, it would constitute a roughly 10% market share , making it the third-largest in the U.S. That’s not enough to challenge Amazon’s dominance, and many of the stores with an online platform also use the Amazon Marketplace, but for anyone who complains that Amazon has too much control over online sales, it’s at least a small alternative.
Michael Tedder is a breaking news writer for TheStreet.
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Amazon ( AMZN 2.66% ) will take a whopping 40% of online retail sales in the U.S. this year, but it's punching above its massive weight in another aspect of e-commerce. Advertising on Amazon's U.S. marketplace will generate over $18 billion this year, representing about 80% of marketers' spend on U.S. e-commerce sites, according to an estimate from eMarketer .
Amazon's dominant position in e-commerce channel advertising is bad news for Walmart ( WMT 0.30% ) , Target ( TGT 1.02% ) , and other brick-and-mortar stores who rely on in-store promotions and advertising revenue as more shopping shifts online.
Amazon has seen its retail sales growth accelerate since the start of the pandemic last year, which forced many shoppers to buy more online instead of in stores. After 40% growth in online store revenue for 2020, the company grew sales another 44% in the first quarter.
Walmart and Target grew online sales even faster. Walmart's net sales attributable to e-commerce grew 78% year over year in fiscal 2021. Target's sales through digital channels increased 145% last year.
While Walmart and Target's online sales grew extremely quickly, their digital advertising sales didn't quite keep pace. eMarketer estimates Walmart grew its online ad sales 73.4% last year, and Target's ad sales grew slower than that despite nearly twice the sales growth.
Amazon, despite its already dominant position in e-commerce channel advertising, grew its overall ad business about 52% in 2020 -- faster than its online sales growth. In the first quarter, Amazon's Other sales, which mostly encompasses advertising, grew a whopping 77%.
Digital advertising sales have substantial profit margin compared to online retail sales. Analyst Benedict Evans suggested Amazon's ad business may have contributed as much operating profit as the rest of Amazon's retail business in 2020. So, advertising revenue growth is just as valuable, if not more so, as online retail sales growth. And that goes for Walmart and Target as well.
Amazon's advertising sales growth isn't necessarily coming at the expense of other digital advertisers. More likely, much of the incremental ad spend on Amazon is the result of advertisers following shoppers from physical stores to online.
Marketers spent an estimated $178 billion on in-store promotions in the U.S. in 2019. That number likely fell precipitously in 2020 amid the pandemic, leading to strong growth in e-commerce channel advertising.
While Walmart or Target might be growing their digital ad sales quickly, they're cannibalizing their in-store promotions. Meanwhile, Amazon's ad sales are practically entirely incremental, as it has a relatively small physical retail presence.
As Amazon's ad sales growth accelerates in 2021, investors should keep in mind that it's not just a great source of profit growth for the e-commerce giant. It's also likely impacting the bottom lines of its competitors with the majority of their sales coming from physical stores.
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