|01 February, 2018

Amazon's growth risks irritating users

Chinese firms account for one-third of sellers on Amazon’s marketplace.

The Amazon TV button on a remote control is shown in this photo illustration. Picture taken November 10, 2017. Image for illustrative purpose.

The Amazon TV button on a remote control is shown in this photo illustration. Picture taken November 10, 2017. Image for illustrative purpose.

REUTERS/Mike Blake
NEW YORK- is going gangbusters. But some of the nearly $700 billion internet retailer’s fastest-expanding – and most profitable – businesses could be ones that irritate users. Over time, that could sully the company’s image. Founder and boss Jeff Bezos has steadily plowed retained cash flow into growth. Once established, he uses Amazon’s infrastructure to invade other areas. He found, for example, that the company could rent out software and spare space on its servers to other businesses. What’s now Amazon Web Services saw revenue increase 45 percent in the fourth quarter of 2017 from a year earlier to $5.1 billion – just over 8 percent of the company’s top line. AWS provided $1.4 billion, or more than 60 percent of operating profit in the period.

The company’s other fastest-growing businesses tend to follow a similar pattern. Amazon built its website, warehouses and logistics system for itself. But the expertise and infrastructure can be sold to other merchants. Commissions, fulfillment and shipping for third-party sellers now account for 17 percent of revenue, and at 41 percent year-on-year the category is growing about twice as fast as Amazon’s own online sales.

Amazon’s “other” segment is growing fast, too. That’s a catch-all, but advertising probably makes up most of it. Morgan Stanley estimates this other revenue will hit $9 billion in 2020, or three times what it was in 2016. Another area the company increasingly prioritizes is private-label goods like Amazon-branded batteries, to which it can steer users when they search for products online.

Too much expansion of these businesses could alienate shoppers, however. Chinese firms now account for an estimated one-third of sellers on Amazon’s marketplace, according to e-commerce intelligence firm Marketplace Pulse. Cheap goods can be cheerful, but low quality can disappoint shoppers – and knockoffs risk scaring away branded merchants. Search results replete with ads and own-brand Amazon products may mean people find the site less useful.

For the most part, Bezos doesn’t have much to worry about, other than keeping it all going and ensuring investors continue to believe meaningful profit will come in the long term. But the Amazon founder says he likes to “delight” his customers, and the rapid growth of these particular business lines might work the other way.



- Amazon said on Feb. 1 that fourth-quarter revenue was $60.5 billion. That is an increase of 38 percent from the same period last year. The internet retailer earned $1.9 billion, or $3.75 per share.

(Editing by John Foley and Martin Langfield)

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