Are Amazon.com zShops Good for Merchants?
Web Commerce Today, Issue 27, October 15, 1999
Each of the major portal sites is developing their own online stores to attract merchants. I'm particularly interested with Amazon.com's zShops (http://amazon.com/zshops/), because I think they offer businesses an inexpensive, but potentially visible sales channel.
zShops is substantially different that other online stores in several ways:
- Cost
- Payment simplicity
- Searchability
- Similarity to Auctions
Cost
Since zShops is new, Amazon's prices are introductory and may change. But their beginning prices are very reasonable, even for the smallest merchants. Amazon has two main kinds of fees: listing fees and completion fees.
Listing fees
Until December 31, 1999, listing fees are 10 cents for a 14-day product listing. Prices are expected to rise to between 25 cents and $2 per listing in the new year. Items must be relisted every two weeks to remain visible.
Optional enhancements to a listing for the two-week period of the listing include boldface ($2 per listing), featured listing in the product category area ($14.95 per listing), and rotating a featured link through the zShops home page ($99.95 per listing).
Amazon offers a special $9.99 per month Pro Merchant Subscription that includes up to 3,000 product listings, and automatically relists them until they sell. At the regular 10 cents/two week listing, 3,000 products would cost $600 per month, so this is a real bargain. Amazon has a special Bulk Loader that quickly uploads items from an Microsoft Excel 95 or 97 spreadsheet. So long as you have your products in this format, populating your zShop is pretty easy.
Impressive is the low cost of entry. There is no one-time set-up fee to list products. Even the Pro Merchant Subscription's set-up fee is only $10 (slated to rise to $50 after the end of 1999).
Completion Fees
Amazon isn't making a lot in listing fees (yet). Their real strategy is to get a small piece of every transaction. That is: 5% of the first $25, 2.5% of the next $1000, and 1.25% (plus $25.63) of any amount over $1000.
The completion fee is incurred by the merchant when the shopper presses the "Buy" button, and Amazon e-mails both the merchant and the shopper so they can contact each other. If the shopper subsequently does not complete the purchase and the transaction does not occur, the merchant may apply to have the completion fee credited to his account.
I think these prices are quite reasonable. For me to sell a subscription to Web Commerce Today newsletter, for example, at $49.95, would cost me $1.87 in completion fees, and a negligible amount for a single listing. Those fees would be debited from my credit card account by Amazon.
Payment Simplicity and Trust
For many merchants, the best news is that for a small fee, Amazon.com will handle the entire credit card transaction, so the merchant doesn't even need to have his own Merchant Credit Card account.
This is how it works. The merchant applies for Amazon's 1-Click payment system. When shoppers purchase through the Amazon Payment System, Amazon deducts 4.75% of the transaction amount and a 60 cent transaction charge, and deposits the remainder in your checking account. Since the typical discount rate for a "card not present" sale is 2.5% to 3.5% and per transaction charges are 25 to 50 cents, Amazon.com's 4.75% rate seems pretty reasonable.
If I were to allow Amazon.com Payments for my Web Commerce Today newsletter (I don't think I will at the moment), the total sales cost per subscription would be:
|
Listing Fees |
negligible |
|
Completion Fees |
$1.87 |
|
Amazon.com Payment fees (4.75%) |
$2.37 |
|
Amazon.com Payment fees (transaction charge) |
$0.60 |
|
Total Fees |
$4.84 |
Thus the total cost of the transaction would be slightly less than 10% of the product price. Lower-priced items would feel a more substantial bite.
Amazon.com Payment makes it easier for non-US residents to do business in the US. While the payment system requires both a credit card issued to a U.S. address and a U.S. checking account, it does not require either a US corporate presence nor a business checking account as does a Merchant Credit Card account. One could imagine that a businessperson in India might get a relative in the US to receive payments to their own checking account (and incur US tax liability for the sales), and then remit payments to the businessperson monthly.
Since Amazon.com's A-to-Z Guarantee covers all transactions made via Amazon.com Payments, the buyer trust level will be much higher than if shopping in a no-name online storefront, and therefore sales may be better.
Searchability
The chief reason a merchant would want to set up a zShop, I suppose, would be for the visibility to Amazon.com's millions of monthly visitors.
I set up a zShop under the buyer name of Wilson-Internet (http://s1.amazon.com/exec/varzea/ts/user-glance/A3UZVZFWOG8DIV/) in order to list a single product "Web Commerce Today E-Commerce Newsletter". When I searched under "Web Commerce" at Amazon.com's home page, my listing came up. It also shows up under cross-listings for 9 different books for sale in Amazon.com's book section.
The visibility could be enhanced further by paying extra to get boldface, or visibility at a zShops topic page, or at the zShops home page.
Blending Auctions with Fixed Price Sales
I find it fascinating that Amazon.com has inserted zShops in nearly the same space as their Amazon.com Auction. You fill out the same application form to sell in either the Auction (bids) or zShops (fixed price), and can use either, depending upon the nature of the products you are selling. The same search system that looks for products on the Auction also finds products in zShops. I wouldn't be surprised to see eBay follow suit (though they don't have the same kind of e-commerce experience as Amazon.com).
Using zShops in Conjunction with Your Website
Agile merchants will probably use zShops in conjunction with as well as parallel to their own websites and webstores.
Nearly every sale incurs some kind of marketing cost: advertising, affiliate program, search engine positioning, etc. zShops' completion fee is a relatively low (2.5% to 5%) marketing cost if it creates a new sales channel. Since the same Excel spreadsheet might be used to upload products to your own webstore as to zShops, the increased work to manage two storefronts wouldn't be very large.
Though zShops allows up to 4000 characters (400+ words) of text in each product description, you might want to create a number of links to further information on your own website where maintenance is convenient. Some shoppers will probably follow the links to your site and make the purchase transaction on your site instead of pressing the "Buy" button in zShops; if that were to happen it would save in completion fees.
Many small merchants now won't need to set up an e-commerce function at all. They can delegate all these functions to Amazon.com for 10% or so of the purchase price. Links on this merchant's informational (as opposed to e-commerce) site would all lead to the product descriptions at zShops, where the actual purchase would be made.
Watch Out For...
Though I am quite impressed with what zShops offer, I think the wise will watch out for:
- Price increases . Amazon.com is trying to build critical mass at the present with low listing prices. But those rates are sure to climb. The "regular price" for Pro Merchant Subscription is up from the $9.99 introductory price to $29.99 for up to 500 products, $49.99 to 1000 products, $79.99 to 2,000 products, and $99.99 to 3,000 products. When you put completion fees on top of this, the cost of doing business will add up. In any case, Amazon will earn a tidy listing fee income, even if nothing sells.
- zShop Search Spamming . Some product areas like "e-commerce," a keyword I'm especially interested in, seemed jammed with listings of the same product offered by the same merchant. We probably won't have to wait long until the gurus will figure out the particular algorithms zShops uses to rank products on its search engine. Then we'll know how to use search engine positioning inside of zShops. Clue: zShops member "buydomains" was able to get dozens of top listings for the keyword e-commerce by giving the domain name for sale as the product name, and a single word, "e-commerce" in the product description field. Unless Amazon begins to control listings like this, their search will be as frustrating as many Web search engines.
Pros and Cons
If you know HTML, you can design your zShops listings with multiple graphics, colored text, and plenty of external links designed to draw the visitor to your own website for more information -- and to make a sale.
Even though zShops may work for some merchants, it isn't an adequate substitute for one's own online store. zShops controls the look, feel, and identity of all the listings; only the zShops member's name is included with the listing, so there is little branding, little loyalty built to individual merchants. Nor does zShops provide e-mail service for its zMerchants.
In the final analysis I think that merchants need to view zShops as a space they've rented at a flea market or bazaar in the marketplace. It's hardly home -- but then again, you can make a tidy profit from a temporary stand if you get enough walk-by traffic and offer the right product at the right price.
My recommendation in October 1999 is to try it out, see if it can't become another channel to help your sell your goods and services. It's a no-brainer. It costs literally pennies to set up a zShop, and you only have to pay completion fees if your product actually sells. Who knows? It may work for you.
