In 1999, Amazon launched an online auctions business to compete with eBay. At the time, eBay was larger than Amazon and growing fast. It seemed logical for Amazon to enter that market. But the truth is, we couldn’t compete.
eBay had already achieved a powerful network effect. Many buyers and sellers were actively using it. Unless we could deliver an auctions service that was clearly better, faster, or cheaper in some way, we were never going to catch up.
We thought about how we could improve on eBay’s service in terms of Amazon’s three pillars: better selection, cheaper prices, and faster fulfillment. Since selection for an auction business was based on what individuals chose to sell, we couldn’t control it. And, since eBay was already the default option for online auctions, our selection most likely would have been worse.
For price, that was also out of our hands. Individual sellers control their own prices, so we wouldn’t be able to offer cheaper prices on auction items.
Finally, for speed, we wouldn’t be able to ship and deliver the items faster because it is up to the seller to ship off their sold item.
However, there was a part of eBay that we could improve: the shopping experience. In eBay’s model, every seller created a separate listing page, so there would be hundreds or thousands of different pages for the same product. This made it difficult for customers to quickly find what they wanted and trust what they were buying. That was the core problem.
Our auctions weren’t going to be better, cheaper, or faster than eBay auctions, but the insight we had about the shopping experience backed us into our own model of having external sellers on Amazon.
This led to the launch of what became Amazon Marketplace. We built a single standard product catalog where all sellers listed duplicate products under one detail page. This improved trust and made shopping easier and faster. Customers didn’t need to wade through dozens of duplicate listings like on eBay.
Later, we added Fulfillment by Amazon (FBA) to address the delivery speed issues associated with individual sellers. This enabled customers to find what they want, buy it easily, and receive it quickly.
In this case, we were able to create a shopping experience that offers a better selection, more competitive prices, and faster fulfillment. Amazon Marketplace has been massively successful because it effectively solves customer problems.
There are two takeaways. The first is that if you can’t clearly answer why your idea solves a unique customer problem better than your competitor, you are unlikely to succeed. The second is that your first attempt may fail, but if you can identify the root causes and make the right iterative improvements, it is possible to succeed.
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