Failures that moulded Amazon's online marketplace into a successful model

The idea behind zShops, was the same idea that had led Amazon to build an auction platform that emulated eBay - to bring all sorts of sellers online

In September 1999, Amazon launched zShops (zee shops) through which an individual to mega-conglomerate to small manufacturer could set up a shop to sell products online, just as Amazon had been doing for a few years then. The project failed so miserably that Jeff Bezos, founder and chief executive officer of Amazon, joked that only his parents and him had ever visited a zShop.

The idea behind zShops was the same that had led Amazon to build an auction platform that emulated eBay — to bring all sorts of sellers online. Both the ideas failed, but Amazon kept at it and eventually hit upon the marketplace model, where sellers wouldn’t auction or have their own online storefront, they’d sell products on Amazon, alongside Amazon.

“We had the insight early on that we had all these customers and all this traffic and why not think of a way to allow other people who have things to sell come on and take advantage of this,” said Doug Herrington, senior vice-president for Amazon’s North American Consumer Business, at the AmazeWIT event in Bengaluru on Tuesday. He narrated one of the most successful failures of the US online retail giant. It was a version of the marketplace model that Amazon built from the failures of its auction platform and zShops in the US that eventually made its way to India. Given that local laws forbid online platforms from selling directly to consumers, when Amazon launched its service in India in 2013, it did so by acting as an intermediary between sellers and buyers, and continues to do so even today.

But it wasn’t just the India business model that was molded by failure.

Amit Agarwal, senior vice-president and country manager for India at Amazon, has had a history intertwined with these failures and then successes. His first job at the US online retailer as a software developer saw him working on the auctions platform, followed by development of the zShops and finally after a few iterations, his team delivered what would be the marketplace model.

“It’s funny to think how life has gone full circle. My first job at Amazon was as an engineer in the marketplace team. My first launch at Amazon was auctions, my second launch at Amazon was zShops and there were a bunch of things in the middle that also failed. Then marketplace happened, and who knew back then that Amazon India would be launched entirely as a marketplace model,” said Agarwal, at a fireside chat with Herrington at the Amazon event in Bengaluru. 

Agarwal has led Amazon’s India business since its inception in 2013, which has grown massively in that time and has challenged local e-commerce major Flipkart for the leadership spot here. The two are still locked in an intense battle, and Amazon’s aggression in growing here led to rival Flipkart selling a majority stake to US retail giant Walmart for $16 billion.

According to a Barclays report, Amazon and Flipkart are neck and neck in terms of sales in India. If accurate, Amazon has been far more capital-efficient in building its India business, having burned close to $5 billion in the country over the past five years, while Flipkart has absorbed over $8 billion from investors over its 10-year history.

The failures that moulded Amazon’s marketplace model in the US almost 20 years ago is paying dividends today. The marketplace model like in India, or hybrid marketplace model that is followed in other global markets, is a mainstay at the online retail giant today. It is even considered an innovation that ranks up there along with Amazon Web Services (AWS) and Amazon Prime in how disruptive and instrumental it has been for the company.