First-Party, Third-Party, and Fulfillment by Amazon
Amazon offers businesses first-party (1P) and third-party (3P) selling models across its platform. Usually, a first-party seller is a wholesale vendor that sells its inventory to Amazon, and Amazon itself acts as the owner of the sold product, managing pricing as well as shipping and returns processes. Amazon, as an online retailer, operates on this basis. Third-party selling on the Amazon platforms is enabled by Fulfillment by Amazon (FBA). Third-party seller brands participating in FBA are eligible for Prime, still act as the retailer, own the product, and control the pricing of their products. Shipping, storing, and returns of goods, on the other hand, are managed by Amazon. In return, Amazon charges commissions, shipping, and related service fees. This is how Amazon becomes an ‘online marketplace'. Through these services, Amazon earned nearly 120 billion U.S. dollars in 2022.
Marketplace sellers are a lucrative business for Amazon, and not just for the catalog of products they bring along to the platform. After-sales generated through its online stores, third-party seller fees, and commissions constitute the second-highest revenue stream for Amazon. This explains why Amazon closed the first-party distributor accounts in Europe at the beginning of 2023. In an attempt to reduce the margins of intermediaries, Amazon started sourcing products directly from brands, so existing 1P suppliers were more motivated to switch to third-party selling. The company’s decision probably accelerated an existing trend. In the United States, it is not unusual for businesses to adopt a hybrid model and sell both as first-party vendors and use the Amazon marketplace as a third-party seller.
The rollercoaster of selling on Amazon
Since 2020, sellers are being charged gradually increasing fulfillment fees, a worrying aspect for seven in ten sellers in the United States. More generally, fulfillment expenses are Amazon’s biggest operating cost, consistently witnessing double-digit growth over the years. Given these conditions, many sellers applied for the Seller-Fulfilled Prime (SFP program. Sellers can obtain the Amazon Prime badge and still fulfill their orders without additional FBA services. This represents an opportunity for sellers already having efficient logistics facilities.
Amazon is the main platform for small and medium enterprises exporting their products. This includes Chinese sellers with cross-border activities. By 2026, the gross merchandise value Chinese sellers will sell on Amazon might be worth 340 billion U.S. dollars, a figure dwarfing eBay or Aliexpress equivalent business and representing roughly half of the entire Amazon’s gross merchandise value.
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