Thank you Julie Creswell and the NYT! All excerpts, annotations and bolds are care of Alpine.AI. June 23, 2018
It started with a simple battery.
Around 2009, Amazon quietly entered the private label business by offering a handful of items under a new brand called AmazonBasics. Early offerings were the kinds of unglamorous products that consumers typically bought at their local hardware store: power cords and cables for electronics and, in particular, batteries — with prices roughly 30 percent lower than that of national brands like Energizer and Duracell.
The results were stunning. In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.
Inside Amazon’s Seattle headquarters, that success raised a tantalizing possibility. If, with very little effort, Amazon could become a huge player in the battery market, what else might be possible for the company?
Anyone who spends much time on the Amazon site can see the answer to that question. The company now has roughly 100 private label brands for sale on its huge online marketplace, of which more than five dozen have been introduced in the past year alone. But few of those are sold under the Amazon brand. Instead, they have been given a variety of anodyne, disposable names like Spotted Zebra (kids clothes), Good Brief (men’s underwear), Wag (dog food) and Rivet (home furnishings). Want to buy a stylish but affordable cap-sleeve dress? A flared version from Lark & Ro ($39), maybe in millennial pink, might be just what you’re looking for.
Analysts predict that nearly half of all online shopping in the United States will be conducted on Amazon’s platform in the next couple of years.
That creates a massive opportunity for Amazon to more than double revenue from its in-house brands to $25 billion in the next four years, according to analysts at SunTrust Robinson Humphrey.
A Tilted Playing Field?
For instance, consumers asking Amazon’s Alexa to “buy batteries” get only one option: AmazonBasics.
They look at what is selling online and figure out if they can manufacture it cheaper.
In other cases, particularly apparel, Amazon may use private-label goods to fill a gap if clothing manufacturers or high-end designers are unwilling to sell on their platform.
‘Data That No One Else Has’
Amazon’s advantage over traditional retailers is its knowledge and access to data from its platform.
“Amazon has access to data that nobody else has,” said James Thomson, a former Amazon executive who now works at Buy Box Experts.
But, perhaps more important, Amazon has utilized a reviewing program called Amazon Vine for many of its private-label goods.
Amazon Vine, or Vine Voices, are very active reviewers on the Amazon marketplace who are then invited by the company to participate in its Vine program, which identifies them as influential reviewers. In exchange for free products, which they disclose receiving, the reviewers agree to write evaluations on Amazon’s site.
Amazon has actively used Vine Voices to help introduce its private label brands. An analysis of more than 1,600 products across ten of Amazon’s private-label brands, including AmazonBasics, Amazon Essentials, Mama Bear, Pinzon, Goodthreads, and others, showed that about half had Vine reviews.
Of those 835 products, more than half of the first 30 reviews were from the Vine program, according to ReviewMeta.com, an online tool that helps customers identify inauthentic reviews.
“What’s happening on Amazon is different than you see in brick-and-mortar stores,” said Kevin Grundy, an analyst at investment bank Jefferies. “There, private label brands might take slightly more than 10 percent market share. Amazon’s private label brands are taking more than 25 percent of the online market.”
Voice Shopping Competitive Advantage
The next frontier? Alexa. Competitors and industry analysts are closely watching Amazon’s voice-operated platform, wondering whether Amazon will use that rapidly growing arena to further steer consumers to its own brands.
In a voice test by researchers at Bain & Co., the researchers found “the online retailer [Amazon] clearly positions its own private labels favorably in voice shopping.”
An Unfair Advantage?
Early last year, the Yale Law Journal published a note that was simply titled “Amazon’s Antitrust Paradox.”
“If Amazon is not making its competitors available on voice and Alexa, well, that sounds like possible exclusionary conduct to me,” said Mr. Sagers. “If a federal court could be convinced that there is a market for in-home, voice retail distribution and that Amazon controls it, then I think Amazon could be looking at a monopsony case.”