Explain It in 30 Seconds
Traditional retail works like this:
manufacturer
↓
retailer buys product
↓
retailer owns inventory
↓
customer buys from retailerMarketplace commerce works differently:
independent seller
↓
lists product on Amazon
↓
Amazon brings traffic + transaction infrastructure
↓
customer buys seller's product
↓
Amazon earns service feesAmazon generally does not act as the seller of record for these third-party transactions. [S1]
That accounting distinction means Amazon usually records its commission and related services as revenue rather than the full merchandise selling price.
Where It Sits in Amazon
Marketplace sits at the center of Amazon's commerce system.
THIRD-PARTY SELLER OFFER
The marketplace connects to several other businesses:
├── Amazon Ads
├── Prime eligibility / shipping experience
├── seller software
└── Amazon Business
That makes the Marketplace more than a listing directory.
It is a distribution layer through which Amazon can sell multiple services to merchants.
The Problem It Solved
A retailer faces an inventory constraint.
For every product it wants to sell, it must decide:
- whether to buy it;
- how many units to buy;
- where to store it;
- how quickly it will sell;
- what happens if demand is wrong.
That limits selection.
Marketplace reduces that constraint.
The seller can own the inventory while Amazon supplies access to demand.
products Amazon is willing to source and own
Amazon selection ceiling
after marketplace:
Amazon inventory + independent seller inventory
How It Works — Simple Version
1. A merchant creates an Amazon seller relationship. 2. The merchant lists products. 3. Amazon exposes those offers to shoppers. 4. The customer chooses an offer. 5. Payment and order information move through Amazon's systems. 6. The order is fulfilled either by the seller or through Amazon services such as FBA. 7. Amazon earns commissions and, where applicable, additional service fees.
The details vary by geography, product type and seller arrangement.
The durable business logic does not.
First-Party vs. Third-Party
This distinction is fundamental to understanding Amazon.
First-party
Amazon owns product
↓
Amazon is merchant
↓
Amazon records merchandise sale grossThird-party
seller owns product
↓
Amazon provides marketplace services
↓
Amazon generally recognizes its service revenueAmazon's FY2025 10-K says third-party seller-services revenue includes commissions and related fulfillment and shipping fees and other seller services. [S1]
It also says Amazon is not the seller of record in these third-party arrangements. [S1]
Why the Accounting Matters
Suppose two customers each buy a $100 product.
Product A — sold by Amazon
Amazon may report close to the full $100 product sale as revenue, subject to normal accounting treatment.
Product B — sold by an independent marketplace seller
Amazon may only report the Amazon fee and related services as revenue.
So this statement is wrong:
Amazon's $172.162B of FY2025 third-party seller-services revenue means sellers sold $172.162B of merchandise.
That number is Amazon's reported service revenue, not seller GMV. [S1]
Why Sellers Join
Sellers can gain access to:
- Amazon traffic;
- purchase-intent shoppers;
- checkout infrastructure;
- payments;
- product discovery;
- reviews;
- FBA;
- advertising;
- business customers.
The marketplace can therefore reduce the amount of infrastructure a merchant must build independently.
Why Amazon Wants Sellers
Third-party sellers improve Amazon in several ways.
Selection
Sellers add products Amazon might never source directly.
Inventory risk
The seller can carry inventory risk for third-party offers.
Service revenue
Amazon can earn commissions and fulfillment-related fees.
Advertising demand
More competing sellers create more demand for product visibility.
Fulfillment volume
FBA sellers add volume to Amazon's physical network.
Marketplace + FBA
Marketplace expanded selection.
But third-party fulfillment could be inconsistent.
A customer might see:
fast Amazon-owned offer
beside
slow seller-fulfilled offerFBA helps close that gap.
The seller sends inventory into Amazon's network.
Amazon can then perform storage, picking, packing, shipping and customer-service functions.
FBA was launched in 2006 partly so third-party offers could participate in Amazon shipping benefits including Prime. [S12]
Marketplace + Prime
Prime increases the value of fast, predictable fulfillment.
Marketplace increases selection.
FBA links the two.
seller inventory
↓
FBA
↓
Prime-compatible experience
↓
Prime member sees broader fast-delivery selectionThis is why seller fulfillment is not only a seller product.
It also improves the consumer membership proposition.
Marketplace + Amazon Ads
A marketplace with millions of competing offers creates an attention problem.
The seller asks:
How do I appear in front of the right shopper?
Amazon can sell advertising against that problem.
more sellers
↓
more listing competition
↓
more demand for visibility
↓
Amazon AdsMarketplace and advertising are therefore structurally connected.
Marketplace + Amazon Business
Amazon Business uses much of the same broad commerce infrastructure but serves organizational buyers.
Independent sellers can access business customers through that environment as well.
This extends the seller opportunity from:
household shoppinginto:
organizational procurementScale
Amazon says independent sellers account for more than 60% of sales in its store. [S10]
FY2025 third-party seller-services revenue was:
$172.162BThat was Amazon's second-largest product/service revenue group after Online Stores.
What It Depends On
Shopper traffic
Without buyers, sellers have little reason to list products.
Seller economics
Fees, advertising and fulfillment costs must still leave a workable seller business model.
Trust
Amazon must control fraud, unsafe products, counterfeits and misleading listings.
Search and discovery
Huge selection becomes less valuable if customers cannot find relevant products.
Fulfillment quality
Delivery quality influences customer trust in marketplace offers.
What Depends on Amazon Marketplace
- FBA demand;
- much of Amazon Ads' seller demand;
- broad selection;
- parts of Amazon Business;
- seller-service revenue;
- parts of Prime's fast-delivery assortment.
Why It Matters to Amazon
Marketplace lets Amazon scale selection without scaling owned inventory at the same rate.
It also lets Amazon monetize one seller relationship several ways.
seller joins marketplace
↓
commission
↓
possible FBA
↓
possible advertising
↓
possible business-customer salesThis is one of Amazon's most important economic architectures.
Before / After
Before marketplace
Amazon chooses inventory
Amazon owns inventory
Amazon bears inventory risk
selection limited by Amazon sourcing decisionsAfter marketplace
Amazon inventory
+
independent seller inventory
+
service revenue
+
fulfillment demand
+
advertising demandWhat Most People Misunderstand
“Third-party seller revenue is the value of goods sold.”
No.
It is Amazon's reported service revenue.
“Amazon Marketplace means Amazon owns the seller's product.”
Generally no.
The seller owns the inventory unless a separate commercial arrangement says otherwise.
“Marketplace and FBA are the same.”
No.
Marketplace is distribution and transaction infrastructure.
FBA is fulfillment infrastructure.
“Marketplace replaces Amazon's retail business.”
No.
Amazon operates both models simultaneously.
Key Milestones
2000
Amazon increasingly opened the store to independent sellers.
2005
Prime raised customer expectations for shipping speed.
2006
FBA let independent merchants use Amazon fulfillment. [S12]
2010s
Seller services and sponsored advertising became increasingly important monetization layers.
2020s
Seller tools increasingly use AI for content, advertising and operational tasks.