Deep Dive
Shownotes Transcript
Hey, it's Jason Del Rey. I wanted to let you know that season two of Land of the Giants is in the works right now. It'll be coming out spring 2020. Next season, we're going to explore the tech company known as Google. You may have heard of it.
Right now, though, we're going to talk a little more about Amazon. You're about to hear an episode of Reset, the new tech podcast from Vox.com and Recode. It's a news show about how technology and tech companies are impacting our world every day, and it's hosted by Ariel Zoum-Ross. In this episode, you're going to hear about a small Montana town that has a surprising role in the Amazon marketplace. And later in the episode, I talk to Ariel about how the marketplace has changed the way we shop.
While you're listening, go subscribe to Reset on Stitcher, Apple Podcasts, or your favorite podcast app. There's also a link in the episode notes to help you subscribe. This is Reset. I'm Arielle Dimros. And this, this is Reggie. Reggie is my six-pound chihuahua mix puppy. Good girl. She's a tiny dog, but she actually weirdly needs a lot of stuff.
Here's just some of the stuff I bought for her recently. A new winter coat. Cans of wet food that she likes. I got her some winter booties that look like balloons. A wax that protects her feet on the cold sidewalk. And some puzzle toys that keep her busy and out of my hair. And most of the time, I'm buying this stuff from probably the same place that you're buying a lot of your stuff. From Amazon. But have you ever thought about how all of these things actually get to you?
Turns out, the stuff you buy on Amazon goes on a pretty crazy journey before it gets to your door. And the journey might very well involve having that product make a pit stop in a small town called Roundup, Montana. You can have a seller who could be anywhere in the world buy, let's say, 100 dog beds from Target online. And so those dog beds shrink.
ship from a Target warehouse, let's say in San Bernardino, and then go to the prep center in Roundup where they're unboxed, reboxed. Maybe Amazon says send 20 to Illinois, 20 to Kentucky, the rest of them to Utah. And then from there, they would go out to customers. Huh. Stick with us. We'll explain. ♪
Roundup is a town of 1,800 people in southern Montana. The closest city is Billings, and it's just about an hour away. That small town attracted the attention of Verge editor Josh Jezza. Josh was looking into a story about third-party sellers on Amazon, basically people who use Amazon as a platform to sell their stuff. This started when I was talking to an Amazon seller for another story, and he mentioned that
He never really handled his goods. He bought them online from other retailers and had them shipped to a building somewhere where they were unboxed, reboxed, and sent to Amazon. Unbelievable.
Unboxed and reboxed. Why do they have to be reboxed? Right. That's what I was surprised about too. Amazon has fairly strict requirements for how goods arrive at their fulfillment centers. Work in the fulfillment centers is partly automated and partly just intense physical labor. And to streamline the process, there's requirements for how things arrive. Like you can't have multiple barcodes because someone might scan the wrong barcode.
can't have packing peanuts because they get everywhere. So if you buy something from some other retailer, you have to unbox it, make sure it's not broken, re-box it according to Amazon specifications, send it to Amazon. This process of unboxing and re-boxing to Amazon specifications is called prepping.
And Roundup is an unlikely hub for exactly that. At last count, there was nine prep centers, I think, and more people training. Nine prep centers now? At last count. So nine and growing. So all this unboxing and reboxing, this cottage industry of preppers. How did this even come about? Josh went to Montana in September to find out. Prepping got started in Roundup because this woman named Crystal Graham
Crystal's brother died and left a bunch of books behind. And so she, to sell them off, started selling on Amazon and then realized that you can sell pretty much anything on Amazon. And so she started buying other things to sell. You know, she started with razors, KY jelly, first aid kits. It soon came about that she had so many products that she couldn't prep them all to send to Amazon.
And so she started looking around for services that would take that on. That would prepare the packages for her. Exactly. And, you know, she went on the directory for seller services and saw that there were 15 such services at the time, but none in Montana. And so sensing an opportunity, decided to set up that kind of service herself. So Crystal hired someone named Linda to help.
We met at the Busy Bee Cafe, which is a sort of diner when you get to Roundup. Our job is just to make sure not only does it get to Amazon warehouse, but make sure it gets to the customer too. Because Amazon's pretty rough. When they get items, they throw it in the bin. And so Crystal had hired Linda, and then they had a falling out. And Linda left and went into business for herself. And that was sort of where...
the prepping explosion in Roundup happened. Everything we get, we have to make sure. Plus, Amazon has guidelines and specifications, too, on things happening. But as an individual, I like to look at it and go, how would I like to receive that?
Okay, so now we're at two prep centers in Roundup, Montana. Now there's two. Then Jill hears about this from Linda's neighbor. Jill had just been laid off from her state job and started trying to get Linda to show her the ropes. And I asked her, I said, why would you help me? Because I hadn't met her yet. I didn't know her. And she goes, Jill, there's no competition. There are so many sellers out there.
And I was like, oh, okay. Jill started interning with Linda, essentially. They became friends. And then Jill chose a name and started prepping from her property. So now there are three. And then Jill, who is the one who moved to Roundup to ranch, it came time for her to bring cattle down out of the mountains. And so she reached out to Sandy, who
Sandy starts getting all these packages for Jill. Right. Is curious about what the deal is. Because she doesn't know what's going on. Right. She understood it to be some sort of mysterious online business, but is curious what exactly is going on as the porch fills up with boxes. Yeah.
Jill comes back out of the mountains and explains what's happening. And Sandy thinks this sounds like a great, flexible job. She goes, I'd really like to learn. I was like, well, you can. And she had just lost her father. Her mother is ill. And she's their caretaker.
So in Roundup, there's not a whole lot of job opportunities. So this is spreading through Roundup. It's sort of spreading through word of mouth, and they're just sort of training each other. We have a group text if anybody has questions. Okay.
I mean, they were somewhat confused about why I was interested in this industry. You know, their sense is that it's sort of a small, quirky thing they do. I don't think we're the story. You know, we have our niche in the stream of things. But yeah, they were quite warm, quite nice. They were, you know, eager to talk about the business.
A lot of Amazon sellers come and go, but some of their customers have been around for a long time and they have personal connections with these people who are all around the world and most of whom they've never met. The majority of my sellers are international. Really? I have them from Malaysia, Australia, Europe, Canada, all kinds. And a lot of them are first starting out the newbies. Really?
Sometimes they need a little kickstart when they get home. And they're kind of like children when they first start as newbies. You have to play mom. I told them that it's like a lot of hand-holding. I can't help but notice that every person that you've mentioned in Roundup that does this prepping work, they all seem to be women. Why is that? That is true. And that was something I asked them about. And they weren't really sure why that was the case either. One of them said, you know, possibly it's because a lot of them
were working from home, taking care of family. Some of them had husbands who worked in mines nearby. But you know what? We're women that have our own businesses. I said, look at this, what we've gotten. All these women that are usually single. I mean, I have a boyfriend. She's got a husband, but he's working in buildings and stuff. But not too many people, women, get this opportunity. They weren't really sure. But it was particularly striking to me because...
Talking to Amazon sellers, it can be sort of male-dominated. And so it was interesting to me that this subculture was, at least in Roundup, that it did tend to be women. Or it was entirely women in Roundup. And are people making money from this? This almost sounds like a multi-level marketing scheme. They are. It is...
Right.
At a dollar each, you can prep them quite quickly. Right. I was just going to say, I feel like if it's a dollar per package, then you really want very small things. Exactly. And so if you get stuck with a bunch of televisions or strollers or something, your hourly rate really plummets. So, you know, they make...
Good money. They said it was better than they could get in other lines of work. Sandy did give me a rate for her miniature animal spree, which was $49.55 per hour for those sprees.
So quite good, but, you know, another day it could be a bunch of TVs. You don't know. It's not the most efficient system, is it? No. One of the things about Amazon is that it is extremely efficient about the things that it focuses on optimizing, but because it's so big, it can create sort of weird inefficiencies like this, you know, of people trying really hard to capitalize on a scale. It's interesting to hear you talk about
Sort of how Amazon just like sucks in all these goods from various stores and companies across the country. Kind of feels like it's got like this special kind of power. Yeah, I mean, Amazon is this gigantic platform now that has made buying things extremely convenient and easy. And when you have a store like that,
It can create this sort of gravitational pull on consumer goods from all over the country of just things flowing into Amazon fulfillment centers to be sold. And, you know, before they get there, they pass through a place like a prep center. After the break, how the power of Amazon's marketplace impacts its sellers, its competitors and the rest of us.
I wanted to know just how important the third-party marketplace was to Amazon's business. So I spoke to an expert. I'm Jason Del Rey, senior correspondent for commerce at Recode, which basically means I spend way too much time thinking, writing, and talking about Amazon. Jason has spent the last six years figuring out how the marketplace works.
So people call Amazon the everything store. The reason they're able to be that is because they don't have to buy all this inventory and stock it themselves in their own warehouses. The third-party merchants handle all of that for them. And that immense selection leads to price competition, which is the reason why Amazon often has some of the best prices on the web. When did third parties start to sell products on Amazon? Sure.
Sure. So third parties started selling on Amazon all the way back in the year 2000. But back then, it actually started with big retailers who were the third parties. Okay. So Toys R Us was one of the biggest third party sellers back in the day. But over time, retailers like Toys R Us have learned why are we doing business with Amazon and...
So now it is sellers big and small, merchants big and small, one-person shops up to really big operations. And third-party sellers today account for nearly 60% of total sales on Amazon.
So this is actually a really important part of how Amazon does business. Correct. Without third-party sellers, Amazon would be much more like a traditional retailer, having to stock all the inventory themselves. And what this allows Amazon to do is have what might be the biggest online selection in the world.
One of the things that I was particularly struck by was the idea that a lot of these third-party sellers never actually handle their own products. How does that work?
If we want to go step by step, essentially, someone sitting in front of a computer can place an order with either a wholesale company or some type of manufacturer, oftentimes outside of the United States. They can have it sent directly to an Amazon facility or maybe to another type of facility run by a different sort of logistics company.
And then they can have that product sent directly from that facility to a customer's door, literally never touching it.
There are other situations where sellers are actually, as we heard earlier, buying from another retailer or buying from eBay and having that sent to a middleman of some sort to repackage. A prep center. A prep center. And then selling that to customer door. You know, I've had friends who've had situations where they get an Amazon order delivered in
another retailer's box. So there are these situations, I don't think it's ideal or maybe even allowed where the prepping in between is not actually happening and it's coming directly in a, I think one of them was a Sam's Club box, for example. So this is a wild, wild world. And the main thing Amazon cares about is having this immense selection and
And also, the more of these products they can run through the Amazon logistics network, the faster they can get to customer doors and qualify for something like Amazon Prime. Because the whole point of these prep centers is let's put these products that we obtained elsewhere.
elsewhere in a box that Amazon can handle so that everything goes really well with Prime shipping, right? Correct. Prime is, you can call it the heart, the engine of the Amazon retail machine. It is the most important factor in sort of the decision-making process for the most valuable Amazon customers, the ones who spend the most. They see that Prime checkmark
that means a couple of things I think without even realizing it it means I trust this it means I know I'm going to get it
Does Amazon make a lot of money off of these third-party sellers? Indeed.
In a recent three-month quarter, Amazon generated $11 billion of revenue just from these third-party services. So they charge third-party sellers $10
Okay. Okay.
And then increasingly, to get discovered on Amazon, you need to advertise your products. Sponsored products at the top of a list, right? Correct. That's sort of the main advertising product. There are some others as well. Some call it
attacks to sell on Amazon that you now need to advertise. And so some sellers say they now forfeit anywhere from, you know, 35 to 50 percent of a product sale to Amazon. That seems like a huge cut. How does that affect prices for customers? There is an argument that
from some sellers that these fees have gotten so high and take up so much of a total product price that it does actually lead to higher prices for consumers. How that works is some sellers say, I'm now giving 50% of my sale, let's say it, to Amazon, essentially, when you factor in all these fees. If I didn't have to do that, if I sold this on my own website...
I could actually lower these prices if I sold these elsewhere. The problem with that is Amazon often penalizes sellers if they sell the same product cheaper on another site. So in the past, they would say, like, you just can't do that. There was a policy that you couldn't do that. So it has to be the same price as on your website. Correct.
There was some regulatory attention put on that in the last year. And so Amazon changed the policy. But now they will sometimes just hide the product if you're doing that. This is like a shadow ban, basically. Yeah, I think they call it suppressing the listing. And their argument is, listen, we want to offer our customers the best prices, best shopping experience. And this is not the best. If it's not the best experience, best price, then...
why should we show it? That's one example of how some sellers say Amazon artificially inflates prices. What is your take on Roundup? This idea that there is sort of this small little network of prep centers in Montana, in a small town in Montana. How did you receive sort of that information? So the details were surprising.
where it was, who the people were. But what wasn't surprising was that there was a sort of business opportunity that seems a bit bizarre that I had never heard of coming out of the Amazon ecosystem. Because there are all these mini ecosystems that have branched out from the Amazon selling experience that...
Just because I've spent six years, you know, trying to untangle sort of this third party experience. So it is this wild west nature of the marketplace that leads to, on one hand, scams, schemes and con artists. On the other hand, you know, legitimate business opportunities there.
that seemed to sprout overnight. So it sounds from what you're saying that these opportunities, like the preppers, actually have been pretty essential to building up Amazon's business. Absolutely. Without them, we would not be talking about the dominant online retailer that we are today. That's it for today's episode of Reset. I'm Arielle Dumros.
If you want to know a whole lot more about Amazon's impact, Jason did an entire podcast series about this. It's called Land of the Giants, The Rise of Amazon. Go check it out.
If you want to follow me on Twitter, you can find me at ADRS. You can also reach the Reset team by emailing reset at Vox.com. Reset comes out three times a week on Tuesdays, Thursdays, and Sundays. If you haven't already, subscribe to the pod. You can find us on Apple Podcasts, Stitcher, or in your favorite podcast app. And if you like what you hear, give us a five-star rating on Apple Podcasts. It really helps us.
Will Reed, Skylar Swenson, and Martha Daniel produced the show. Our engineer is Eric Gomez. Golda Arthur is our executive producer. Liz Kelly Nelson is the editorial director of Vox Podcasts. The mysterious Breakmaster Cylinder composed our theme music. Special thanks this week to Art Chung for helping us out. Reset is produced in association with Stitcher, and we're part of the Vox Media Podcast Network. We'll be back on Tuesday. Later, nerds.
That was an episode of Reset, the new tech podcast from Vox.com and Recode. If you like what you heard, subscribe to Reset on Stitcher, Apple Podcasts, or your favorite podcast app.