The topic of Amazon Associates program, wherein ad banners generate commission for website owners through purchases from click-through, came up during class last week. Depending on what Amazon's cost structure is, I wondered how big of a cushion is left and added to the bottom line after deducting commission from its average gross margin. Of course, the argument for such a program is that it increases reach and impulse sales opportunities. However, the argument for increased reach gets weaker when you consider Amazon is already the biggest retailer on the internet.
Amazon also has another program called Amazon Marketplace. It operates like EBay's Half.com and fixed price, "Buy-It-Now" listings on Ebay. An Amazon user can register to become a seller on the website and lists their own products on sale on Amazon. Someone browsing that particular product has the option to purchase it from either Amazon or Marketplace sellers from the page. The limitation for sellers is that they can only list products Amazon currently sells, whereas one could list virtually any product on EBay within guidelines. However, the difference is that while EBay charges a listing fee (Half.com does not), Amazon does not. On average, Amazon has had a much stiffer commission structure after a successful sale. Also, the concept and reality of Marketplace almost always lead to third-party seller undercutting Amazon's prices before and often, after factoring in shipping costs (Amazon offers free shipping on orders of most items over $25). In this way, it would be interesting to see how much Marketplace is cannibalizing Amazon's own sales. While a commission is almost 100% pure profits added to the bottom line, lost sales opportunities could be significant. Also, Amazon has little influence over protecting its brand when transactions are done over Marketplace.
Here is a blog entry that talks about some of the Amazon-seller-buyer dynamic on Amazon Marketplace: http://www.venturecompany.com/opinions/files/amazon_marketplace.html
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