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The encyclopedia · Strategy & Leadership · Strategic decision · 2006–2010

Amazon rented its own warehouse network to third-party sellers.

Amazon opened its order-fulfilment network to outside sellers, turning a cost centre into a product.

Amazon

the move

Third-party sellers on Amazon's marketplace often shipped slowly and from their own stock, which put them a step behind Amazon's two-day offer and made them look worse to buyers.

On 19 September 2006 Amazon launched Fulfillment by Amazon: a seller stores goods in Amazon's fulfilment centres and Amazon handles storage, picking, packing, shipping, returns and customer service on its behalf. Sellers who joined got the Prime badge and free-shipping eligibility for their listings.

The move converted a network Amazon had built for its own catalogue into an external service, so each new seller added paid volume to facilities Amazon already needed, and the marketplace got a reason for more sellers to join and for more shoppers to come.

why it works

  • Turning idle warehouse capacity into a paid service raises utilisation of an already fixed cost
  • Sellers who use FBA gain Prime eligibility, which lifts their sales and feeds the marketplace
  • More eligible inventory means faster shipping on a broad catalogue, drawing more customers back
  • Amazon captures the fulfilment margin on sellers' orders, not just a listing fee
the payoffSell your fulfilment capacity, not just goodsclever

what transfers

A warehouse is also a product: when you already own a capability that others would pay for, rent it out before you sit on the cost.

what came after

FBA became the default way for sellers to reach Amazon's Prime shoppers, and it fuelled the growth of third-party sales to most of Amazon's units. It also drew the scrutiny of regulators and antitrust cases over whether Amazon ties marketplace placement to its own fulfilment service.

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