Amazon, far from its creation story as a book seller, is the closest thing we have to a Google for Shopping. Because of its own success with online retail, and superior provision of all elements of selling and fulfillment, it empowers entrepreneurs to use the Amazon platform for sales in competition with Amazon itself. Amazon makes money from the sales, without taking the risk of the profitability of sales, so for some investors, this is going to be the better business model. For consumers, Amazon is a one-stop shop to see products being sold by many retailers in competition with each other and Amazon. This FT article has a good overview of the model.
But there is a further ingenious benefit as the other retailers act as a “farm system” for items that Amazon does not sell yet. If Amazon sees that a retailer on its platform finds a blockbuster, Amazon can start selling the product directly, using its scale to presumably get better terms than nearly anyone else. It’s sort of like a Triple A team which scores with an unexpected slugger, and as a reward, the affiliated major league team snatches the slugger up. Fast copying is the nature of retail, but what an arrangement!
It’s somewhat analogous to what happens generally with platform industries as platforms and their customers clash as platforms inevitably expand their scope as they see successful business models built on them.
The interesting question is understanding what contractual restrictions and Chinese walls protect the businesses where it’s not the retail sale platform, but instead AWS. For example, how much does Amazon learn about the video streaming business or the music subscription business from hosting Netflix and Spotify that it can use up to build up its own directly or adjacent competing businesses?
