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Third-party (3P) selling on Amazon - statistics & facts

Since its founding in the mid-90s, Amazon has grown to be one of the top tech companies and cemented itself in the industry as the leading online retailer and go-to marketplace for businesses looking to sell their products. Today, nearly 60 percent of the paid units of Amazon are attributed to its third-party selling – a scheme that has become pivotal in the e-commerce giant’s business and is forecast to grow tremendously in the upcoming years.

First-Party, Third-Party, and Fulfillment by Amazon

Amazon offers businesses first-party (1P) and third-party (3P) selling models across its platform. Usually, a first-party seller is a wholesale vendor that sells its inventory to Amazon, and Amazon itself acts as the owner of the sold product, managing pricing as well as shipping and returns processes. Amazon as an 'online retailer' operates on this basis. Third-party selling on the Amazon platforms is enabled by Fulfillment by Amazon (FBA). Third-party seller brands participating in FBA are eligible for Prime, still act as the retailer, own the product, and control the pricing of their products. Shipping, storing, and returns of goods, on the other hand, are managed by Amazon. In return, Amazon charges commissions, shipping, and related service fees. This is how Amazon becomes an 'online marketplace'. Through these services, Amazon earned over 103 billion U.S. dollars in 2021. In the most recently reported quarter, the year-on-year growth in sales generated through third-party seller services was at its highest, at 60 percent.

Marketplace sellers are a lucrative business for Amazon, and not just for the catalog of products they bring along to the platform. After-sales generated through its online stores, which roughly totaled 222 billion U.S. dollars in 2021, third-party seller fees and commissions constitute the second-highest revenue stream for Amazon. In comparison, Amazon Web Services (AWS) earned the company 62 billion U.S. dollars in revenue, while subscription services e.g. Prime generated 32 billion U.S. dollars in 2021.

The rollercoaster of selling on Amazon

There are over two million estimated sellers on Amazon marketplace in the United States. It is not unusual for businesses to adopt a hybrid model and sell both as first-party vendors and use the Amazon marketplace as a third-party seller. According to a 2021 survey conducted among U.S. brands, 53 percent of businesses selling on Amazon adopted both 1P and 3P approaches, although down from 2020. Interest in exclusive third-party selling is declining due to several factors. Since 2020, sellers are being charged gradually increasing fulfillment fees, and the trend is not expected to change by 2023. More generally, fulfillment expenses are Amazon’s biggest operating cost, consistently witnessing double-digit growth over the years.

More importantly, the Inventory Performance Index (IPI) score assigned by Amazon to assess the efficiency of sellers’ inventory has worried third-party businesses a lot. A good IPI rating is essential to ensure flexible FBA capacity and avoid overcharges for exceeding storage and restock limits imposed by Amazon – particularly in 2021. Unsurprisingly, half of Amazon third-party sellers in Canada indicated that Amazon policies and restrictions were their biggest challenge in 2021, followed only by online reviews, a crucial purchase driver in online shopping.

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