Why Amazon Keeps Winning: A Third-Party Marketplace Analysis

For any business, the ultimate goal is to intertwine profit, growth and customer satisfaction. However, growth and customer satisfaction often come at the expense of profit. For many years, this tradeoff was the norm at Amazon.com — the company achieved amazing growth, but spent what would be profits on business experiments (e.g., fulfillment centers). Recently though, Amazon has strung together several quarters of profitability, much to the joy of investors.

Much of the media coverage attributes Amazon’s success and profitability to Amazon Web Services (AWS), the company's cloud computing division. However, that assertion doesn't take into consideration that most competitors of Amazon are not going to get into the computing infrastructure game — they're going to need to find other sources of growth and profit. Because as we’ve seen recently, Amazon has been an underlying cause of several retailers changing their courses of action: consider Macy’s announcement of 100 store closings or Wal-Mart's recent acquisition of Jet.com.

The media narrative also neglects a crucial profitable component of Amazon: its third-party marketplace. Since Amazon doesn't release revenue data for its marketplace, how do we know if it's even profitable? We can start at the ChannelAdvisor blog. Executive Chairman Scot Wingo has been tracking and analyzing the performance of Amazon’s own products vs. those sold by third parties for several years. Here's a snapshot of his review of this year's second quarter.