Amazon Direct from China Just Means Amazon Can Do Math

It's no accident in the last Amazon earnings call, Andy Jassy was speaking about "cost to serve", which was mentioned 11 times. Broadcasting what was coming in the Chinese seller meeting that has been widely reported this week.

In short, Amazon cannot afford to offer ultra-cheap low-cost selection in its current setup. In Supply Chain, math dictates what items are stored where to optimize turn, service, and profit.

Some items you want around the corner. Some items you want in the region. Some items are too heavy to be in the region and you prefer in the middle of the country. And some items you don't want to move until they are ordered.

Finally, some items are not created until demand is generated: custom, hyper-personalized, or build-to-order.

Many still do not realize that Direct from China is a new model which serves a unique set of inventory, but this alone is not the model. It is also a learning model designed to test and predict demand iteratively.

The world's consumers and influencers on social media are quite literally co-creating with thousands of manufacturers in real-time -- mostly without their knowledge, and, yes, often ripped-off designs ;-)

There is no optimization of Amazon's current supply chain setup which can out-compete thousands of cheap items - that consumers crave (the key) - created in small batches each week. It's an order of magnitude problem.

I have seen notes that Amazon is giving up on fast shipping with this new announcement.

Instead, Amazon is doing something different -- not giving up on all the Earth's selection with this announcement. And is working to cut off another rapidly scaled competitor before Amazon gets disrupted in a segment that might be long-term important to its divinely discontent consumers.

Amazon's marketplace journey is complex.

V1: Amazon copied eBay by launching Amazon Auctions in March 1999, seeing third-party sellers as interesting and disruptive to retail.

V2: Amazon launched zShops to allow fixed price items to be sold on its site in September 1999.

Amazon struggled to get traffic to these items when not on its own PDPs. Another lesson.

V3: Amazon launched a 3P marketplace in Books, DVDs in allowing sellers to put products on its own product page.

Marketplace would never have scaled without the next innovation.

V4: Fulfilled by Amazon was announced in 2006 to allow sellers to participate in Prime. Amazon can control 3P service levels.

V5: Seller Fulfilled Prime (SFP) was introduced in 2015, as Amazon realized everything wasn't a fit for FBA.

Amazon struggled with SFP, paused it, and reintroduced it again last year.

I would argue this is V6: Direct from China Marketplace.

The principle is simple: don't move the inventory until you create demand. But not just China. Remember, this is only Day 1.

First China ... next the World Direct to Consumer. All on Amazon. Manufacture anywhere, sell anywhere.