Amazon Seller Fees: Report Claims 34% Revenue Take

Amazon Marketplace Fees Surpass AWS Revenue, New Study Suggests

A recently published study proposes that Amazon derives a greater portion of its income from fees levied on its Marketplace platform than from its traditionally dominant Amazon Web Services (AWS). The analysis indicates that the charges for participation within Amazon’s store have escalated to a level where sellers remit approximately 34% of their revenue to the company – a figure that has recently become Amazon’s principal source of income. Amazon, however, has contested the study’s conclusions.

Key Findings of the “Amazon’s Toll Road” Report

The report, titled “Amazon’s Toll Road” and authored by the Institute for Local Self-Reliance (ILSR), centers around two core assertions. Firstly, ILSR researchers estimate that Amazon will collect roughly $121 billion from sellers in 2021 through fees and advertising expenditures, representing 34% of the total revenue generated by those sellers.

This represents a doubling of the $60 billion collected in 2019, which constituted 31% of seller revenue at that time, as detailed in the report.

Jeff Bezos’ Perspective on Seller Costs

During testimony before Congress, Amazon’s founder, Jeff Bezos, posited that the increasing financial outflow from sellers to Amazon is, in part, an illusion. He attributed this to a growing number of sellers opting to utilize supplementary services, such as enhanced placement in keyword searches and Amazon’s fulfillment and warehousing solutions.

Amazon’s Response to the ILSR Report

In a statement provided to TechCrunch, Amazon characterized the ILSR report as “inaccurate,” asserting that it “combines Amazon’s selling fees with our optional add-on services.” The company maintains that its core selling fees remain competitive with those of other online retailers – a point the report acknowledges by including those additional costs in its calculations.

The Shift from Optional to Essential Services

However, as author Stacy Mitchell highlights, these add-on services have transitioned from being optional to becoming virtually essential, as Amazon consistently provides advantages to sellers who employ them. Recent data demonstrates a substantial increase in the volume of advertisements and sponsored listings appearing in typical product searches.

Furthermore, Amazon assigns a scoring benefit to sellers utilizing the “Fulfilled By Amazon” (FBA) service, significantly influencing product visibility and placement within search results. This occurs alongside concerns regarding the replication of successful products by Amazon itself.

Advertising Spend and Fulfillment Advantages

Amazon did not directly address the claim that sellers are currently spending four to five times more on advertising and product placement compared to 2016, contributing to the substantial rise in revenue. The company simply stated that a variety of advertising options are available and that these represent “a great way for sellers to help increase the visibility of their products.”

It also denied prioritizing FBA users in search rankings, although evidence suggests this occurs through indirect mechanisms.

Accounting Practices and Marketplace Profitability

The report also alleges that Amazon employs accounting strategies to obscure the substantial revenues generated by seller fees. Specifically, it claims that the significant profits from the Marketplace division are combined with the considerable losses incurred in developing its shipping infrastructure.

While acknowledging the connection between these two areas, the report argues that presenting an aggregate figure is misleading and does not accurately reflect the business’s performance. This is not a novel accusation, but Mitchell provides specific figures for 2020, lending greater weight to the claim.

Image Credits: ILSR

Marketplace Profits May Exceed AWS

“We conclude that seller fees likely generate more profit than AWS. This contradicts conventional wisdom about the company; news stories commonly describe AWS as the source of most of Amazon’s earnings,” Mitchell writes in the report’s summary. “Drawing on analysts’ estimates of the margins Amazon likely earns on seller advertising and other seller fees, we find that Marketplace may have generated operating profits of $24 billion in 2020 — significantly more than the $13.5 billion in profit that Amazon reported for AWS.”

The report suggests that AWS, long considered Amazon’s primary revenue driver, may be rivaled by the Marketplace as a significant source of profit.

Amazon’s Response and Future Scrutiny

Amazon stated that it “cannot speculate” on 2021 revenue figures but declined to comment on the accuracy of the ILSR report’s historical data.

These practices are currently under review by governmental bodies, including the Federal Trade Commission (FTC), led by Lina Khan, a prominent critic of Amazon’s business practices. While Amazon may dismiss the ILSR report, the ongoing scrutiny from the FTC suggests the company may face increasing pressure regarding these issues.