The e-retailer spends at least 50% of its monthly display ad budget on the highly targeted, data-driven—and often cheap—ad placements using programmatic platforms.
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Terms can vary widely, however, based on the type of products sold and the volume of sales. For smaller sellers who list goods through Amazon Marketplace, Amazon typically collects 99 cents per item sold, plus a percentage of the selling price: 6% for computers, 8% for electronics, cameras and other photographic equipment, and 15% for all other items. Amazon waives the 99-cent fee and offers additional listing services for high-volume sellers, or Pro Merchants.
For marketing deals offering sales leads from Amazon.com to other web sites, Amazon has also cut its fees to about $1 per 1,000 clicks from about $10, Rashtchy says.
These cuts serve to reduce Amazon’s margins and, in effect, place downward pressure on its stock price, he says. “Margins are the single biggest metric for Amazon, that’s what everyone in the investment community looks at,” Rashtchy says. “That’s why its stock price has been under pressure.”
The push into technology
Nonetheless, Amazon can be expected to continue investing in competitive pricing and customer service, analysts say. And its stock price, trading recently in the mid 40s, down from a 52-week high of 61 but 65% above where it was a year ago, should remain fairly stable because of its expected ability to keep producing net profits. “We expect them to stay profitable,” Rashtchy says.
Amazon isn’t only relying on its critical mass of consumer traffic and a focus on customer service to keep expanding its market. True to the vision started by Bezos to leverage the unique properties of the Internet, Amazon is aggressively moving into web services technology to make it easier for alliance partners not only to link to Amazon.com but also to gather and analyze product and pricing information from its databases. Web services use open Internet-based standards like XML to build software tools that can automatically retrieve and transfer data among software programs and databases, even disparate ones.
“Before web services, if associates wanted to link to Amazon products, they had to go through laborious product searches, construct a URL to link back to our site and download data,” says Jeff Barr, Amazon’s technical program manager for web services. “Now they can use web services to automatically query Amazon.com to find relevant products for particular categories they want linked to their sites. And they get richer information, like product descriptions and prices set by all sellers of that product on Amazon.”
Better customer experience
Barr notes that thousands of programmers have downloaded Amazon’s free web services developer’s kit for building such tools. Development firm Monsoon LLC for instance, is helping retailers who sell products on Amazon’s international sites to automatically gather data that show how well products sell at different prices in different markets, says Kanth Gopalpur, president of Monsoon. “Many companies are afraid to provide access to their back-end data, but Amazon sees not potential harm but the benefit of bringing data to customers,” he says. “It can make the customer experience a lot better.”
Customers in this case are both the retailers who use web services to link to Amazon and the consumers who eventually purchase products, because both benefit from accessing and viewing more information about products being sold on Amazon, Barr says. Web services are a continuation of Amazon’s strategy of leveraging the Internet to serve consumers as well as other retailers, he adds. “Providing more product information to sellers and giving consumers more information to make better purchasing decisions help to reach an optimal situation to conduct a sale,” Barr says. That, in fact, could be a summary of the Amazon approach.
Swinging for distance: Why Golfballs.com sells on Amazon
Tom Cox doesn’t have the same ambition for his web site as Jeff Bezos has for his. Cox’s Golfballs.com had $4.5 million in sales last year, equal to about 8 hours of selling at Amazon.com. But that doesn’t mean they can’t do business together. In fact, Golfballs.com was one of the first sporting goods retailers to sign up to sell in Amazon’s Sporting Goods store. “Buyers associate Amazon with great service and trust, so it’s like having an association with the Better Business Bureau in terms of credibility with Internet buyers,” says Cox, Golfballs.com’s CEO.
Golfballs.com started in 1996 selling used golf balls. But as the Internet matured so did online shoppers and Golfballs.com expanded its inventory. Today, Cox refers to Golfballs.com as a virtual pro shop, offering everything from golf balls (only new ones now) to golf shoes. He operates with 20 employees. 2003 sales were up 25% from 2002.
He attributes a good part of his success to his relationship with Amazon. While some retailers would characterize that relationship as a marketing one, Cox says it goes beyond marketing, especially when compared to shopping portals and comparison sites where Golfballs has a presence. “It’s tough to characterize our relationship with Amazon as part of our Internet marketing strategy, because it’s more than that,” he says. “It’s a relationship with the biggest online retailer in the world and it greatly increases our reach into the online golf-buying market.”
In spite of its size and market power, Amazon did not wait for Golfballs to come to it. A member of Amazon’s business development team, who had been a customer of Golfballs.com, approached Cox and convinced him that Amazon and Golfballs would make good partners. “He said we’d make a good fit for their new golf store because of our extensive brand selection of new and personalized golf products,” Cox recalls. “He made a lot of sense and it seemed like a win-win situation for both parties.” Cox says the arrangement has been a win on Golfballs’ side, but declines to identify how much of his sales are initiated on Amazon. “It’s a good part of our business,” he says.