Hacker News Reader

Comment by ThePhysicist | Hacker News Reader

Amazon basically uses third-party sellers to outsource product discovery risk. By pressuring / enticing sellers to use Amazon's fulfillment platform they know where those sellers get their products from, and if a given product becomes very popular they can just contact the manufacturer and sell the product themselves, cutting out the third-party seller. It's understandable that sellers love the high reach they can get on Amazon, but by selling on the platform they provide Amazon all the information they need to eventually kill their business (except if they're producing the good they sell, in which case Amazon might have more difficulty cutting them out). In my opinion this is a gross misalignment of incentives, as the platform operator has a direct incentive to put you out of business as soon as you become successful.

View on HN

“Might have more difficulty cutting them out..”

Pretty sure this is why amazon created amazon basics. To go that last mile on cutting out the high margin products they can’t source themself.

Walmart helped to innovate the space. They did it mostly as a form of leverage, so they could apply pressure to brands that constantly seek to raise prices. Walmart will add or pull various Great Value products depending on if they want to punch a brand downward on price. So if Kraft insists on $2.50 for a box of Velveeta Shells, Walmart introduces a generic version of the same product at $1.10 and puts it right next to the Kraft product. They do the same thing throughout their store, not primarily targeting high margin products (of which they have few in their entire store), rather using it as a lid on pricing power for brands. Walmart makes very little on the Great Value brand products, however it helps them counter the exclusivity leverage that huge brands like Coke, Pepsi, Kraft, Mondelez, et al. have over them.

Amazon does seem to be using their basics system in a very different manner, from observing what products they're pushing and the prices they're charging.

Walmart does exert massive price pressure on their suppliers, but it's mostly by virtue of the leverage they gain by being so huge that their suppliers need Walmart a lot more than Walmart needs them.

Walmart didn't create or innovate store brands (aka private label) for food; they didn't even start selling food until 1988 or launch Great Value until 1992. Private labels date back to the mid-1800s. [1]

[1] https://plma.com/PRIVATELABELSSTOREBRANDSANDGENERICPRODUCTSC...

I never said Walmart invented the space. They did innovate in the space however and have used it at a scale that had not remotely been seen before.

I entirely disagree with your premise that Walmart's primary leverage against the large brands is their scale. The reason I was so specific on pressure on brands, is because that's where Walmart has the weakest position versus the core brands in cases of segment dominance. Kraft for example is an extraordinarily large and powerful supplier at what they do. Without the very cheap, near zero margin version of their Great Value competing products, Walmart has few good options for applying pressure to a supplier the size of Kraft that dominates so many spaces. There are no replacement products that can blanket fill up their thousands of stores coast to coast and always meet demand as the sole supplier. You can't get that kind of supply & guarantee from small mom & pop labels that are heavily regional.

Kraft-Heinz scale ($18B sales) is impressive, but it's still not much compared to Wal-Mart scale ($514B). That scale is what underlies the negotiation, just as Kraft-Heinz's scale typically let's them attempt to dominate their other customers. "Weakest position" for Wal-Mart, even if true, is relative and the absolute value is still quite strong.

Every regional grocery store chain has private labels from which they get roughly the same stuff; store brands are a mid-1850s innovation for exactly the same leverage over suppliers as Walmart want to get. Walmart making a decision to vertically integrate an element of their supply chain as opposed to regionally contract also isn't an innovation: it's simply an obvious and logical step at scale. Finally, dismissing regional contracting as a possibility is silly: Florida and Washington state having their generic mac-n-cheese rolling out of different factories is not a deal breaker.

Walmart historically is brutal on price and terms, but pays very quickly.

When they sourced some products locally in the 90s, they would pay the farmer I worked for immediately for his products, like within 2-3 days of receipt. The local chains were on net-30 terms and were always late.

Usually, it was better to have $0.95 for pumpkins on Halloween than $1.00 at Christmas.

It’s not just basics, Amazon has a ton of other brands.

This has always been going on.

Eli Whitney patented his cotton gin, but never managed to collect much in royalties because carpenters everywhere just made them.

The Wright Bros. invented and patented the airplane, and spent the next decade more or less fruitlessly suing copiers.

Third-party sellers also use Amazon to outsource marketing, advertisement, and in some cases shipping. It's a lot easier to set up as a third-party seller on Amazon than to operate a complete e-commerce business. Some of the third-party Amazon sellers are just one person.

> It's understandable that sellers love the high reach they can get on Amazon, but by selling on the platform they provide Amazon all the information they need to eventually kill their business

Has that ever happened?

Presumably, a company evolves its product so that amazon can't simply call them and say 'hey, sell to us, not Bobby'.

If your company is merely selling cupcakes or the like - I find it very difficult to be sympathetic - those kinds of companies only exist by the virtue of selling people useless junk they'd be better off without, or even worse, being a middle-man in between a manufacturer and the consumer that needn't be there at all.

sharecropping strikes again, its basically a guarantee that if you make significant amounts of money off a platform, the platform is going to try to muscle you out.

When has Amazon ever done this to a third-party seller?

If Amazon really wanted to muscle in on the third-party sellers, how can you explain the huge amount of third-party sellers who sell shoes, clothing, electronics, toiletries, and other stuff in direct competition with Amazon's own store, and who joined Amazon after Amazon has been selling those same things for years?

"The Time Jeff Bezos Went Thermonuclear on Diapers.com"

https://slate.com/technology/2013/10/amazon-book-how-jeff-be...

Diapers.com was not an Amazon seller. It was a completely independent business.

The mechanism is otherwise largely the same. Examples of third-party Amazon sellers also exist, though somewhat less prominently.

Reply on news.ycombinator.com