--:-- Sean Rameswaram: Hello, I'm Sean Ramos from This is Today Explained, but we are actually taking today off.
--:-- Noel King: [in the background] Thanksgiving in the United States falls on a Thursday, and then there's this awkward Friday that's not really a holiday, but no one really wants to work, and a lot of people shop.
--:-- Sean Rameswaram: Maybe you've heard of Black Friday. The Today Explained team and I are taking it easy today, but if you're out there hitting the shops at the malls or online, you're going to find this episode of our sort of sister podcast, Reset, fascinating.
--:-- Arielle Dermross: It's all about Amazon's preppers, not people who are getting ready for the apocalypse. These preppers are people who don't work for Amazon, but are essential to its business. They're the ones who make the company the biggest retailer in the world.
--:-- Reggie: [in the background] Good girl.
--:-- Arielle Dermross: 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.
--:-- [Sound effects: Dog barking]
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: And the journey might very well involve having that product make a pit stop in a small town called Roundup, Montana.
--:-- Arielle Dermross: You can have a seller who could be anywhere in the world buy, let's say, 100 dog beds from Target online.
--:-- Arielle Dermross: And so those dog beds 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.
--:-- Arielle Dermross: Maybe Amazon says send 20 to Illinois, 20 to Kentucky, the rest of them to Utah.
--:-- Arielle Dermross: OK. And then from there, they would go out to customers.
--:-- Arielle Dermross: Roundup is a town of 1,800 people in southern Montana. The closest city is Billings, and it's just about an hour away.
--:-- Arielle Dermross: That small town attracted the attention of Verge editor Josh Jezza.
--:-- Arielle Dermross: Josh was looking into a story about third-party sellers on Amazon, basically people who use Amazon as a platform to sell their stuff.
--:-- Arielle Dermross: This started when I was talking to an Amazon seller for another story, and he mentioned that he never really handled his goods.
--:-- Arielle Dermross: He bought them online from other retailers and had them shipped to a building somewhere where they were unboxed, reboxed, and sent to Amazon.
--:-- Arielle Dermross: Unboxed and reboxed. Why do they have to be reboxed?
--:-- Arielle Dermross: Right. That's what I was surprised about, too.
--:-- Arielle Dermross: Amazon has fairly strict requirements for how goods arrive at their fulfillment centers.
--:-- Arielle Dermross: Work in the fulfillment centers is partly automated and partly just intense physical labor.
--:-- Arielle Dermross: And to streamline the process, there's requirements for how things arrive.
--:-- Arielle Dermross: Like you can't have multiple barcodes because someone might scan the wrong barcode.
--:-- Arielle Dermross: Can't have packing peanuts because they get everywhere.
--:-- Arielle Dermross: So if you buy something from some other retailer, you have to unbox it, make sure it's not broken, rebox it according to Amazon specifications, send it to Amazon.
--:-- Arielle Dermross: This process of unboxing and reboxing to Amazon specifications is called prepping.
--:-- Arielle Dermross: And Roundup is an unlikely hub for exactly that.
--:-- Arielle Dermross: At last count, there was nine prep centers, I think, and more people training.
--:-- Arielle Dermross: So nine and growing.
--:-- Arielle Dermross: So all this unboxing and reboxing, this cottage industry of preppers.
--:-- Arielle Dermross: How did this even come about?
--:-- Arielle Dermross: Josh went to Montana in September to find out.
--:-- Arielle Dermross: Prepping got started in Roundup because this woman named Crystal Graham, Crystal's brother, died and left a bunch of books behind.
--:-- Arielle Dermross: And so she, to sell them off, started selling on Amazon and then realized that you can sell pretty much anything on Amazon.
--:-- Arielle Dermross: And so she started buying other things to sell.
--:-- Arielle Dermross: You know, she started with razors, KY Jelly, first aid kits.
--:-- Arielle Dermross: It soon came about that she had so many products that she couldn't prep them all to send to Amazon.
--:-- Arielle Dermross: And so she started looking around for services that would take that on.
--:-- Arielle Dermross: That would prepare the packages for her.
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: And so, sensing an opportunity, decided to set up that kind of service herself.
--:-- Arielle Dermross: So, Crystal hired someone named Linda to help.
--:-- Arielle Dermross: We met at the Busy Bee Cafe, which is a sort of diner when you get to Roundup
--:-- Arielle Dermross: Our job is just to make sure not only does it get to Amazon Warehouse but make sure it gets to the customer too
--:-- Arielle Dermross: Because Amazon pretty rough
--:-- Arielle Dermross: When they get items they throw it in a bin
--:-- Arielle Dermross: And so Crystal had hired Linda and then they had a falling out and Linda left and went into business for herself.
--:-- Arielle Dermross: And that was sort of where the prepping explosion and Roundup happened.
--:-- Arielle Dermross: Everything we get, we have to make sure.
--:-- Arielle Dermross: Plus, Amazon has guidelines and specifications too on things that are.
--:-- Arielle Dermross: But as an individual, I like to look at it and go, how would I like to receive that?
--:-- Arielle Dermross: Okay, so now we're at two prep centers in Roundup, Montana.
--:-- Arielle Dermross: Now there's two.
--:-- Arielle Dermross: Then Jill hears about this from Linda's neighbor.
--:-- Arielle Dermross: Jill had just been laid off from her state job and started trying to get Linda to show her the ropes.
--:-- Arielle Dermross: And I asked her, I said, why would you help me?
--:-- Arielle Dermross: Because I hadn't met her yet.
--:-- Arielle Dermross: I didn't know her.
--:-- Arielle Dermross: And she goes, Jill, there's no competition.
--:-- Arielle Dermross: There are so many sellers out there.
--:-- Arielle Dermross: And I was like, oh, okay.
--:-- Arielle Dermross: Jill started interning with Linda, essentially.
--:-- Arielle Dermross: They became friends.
--:-- Arielle Dermross: And then Jill chose a name and started prepping from her property.
--:-- Arielle Dermross: So now there are three.
--:-- Arielle Dermross: And then Jill, who is the one who moved around up to ranch, it came time for her to bring cattle down out of the mountains.
--:-- Arielle Dermross: And so she reached out to Sandy.
--:-- Arielle Dermross: See, and Sandy, she has sat for me.
--:-- Arielle Dermross: Sandy starts getting all these packages for Jill.
--:-- Arielle Dermross: Right.
--:-- Arielle Dermross: Is curious about what the deal is.
--:-- Arielle Dermross: Because she doesn't know what's going on.
--:-- Arielle Dermross: Right.
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: She said to expect packages.
--:-- Arielle Dermross: I had no idea.
--:-- Arielle Dermross: Jill comes back out of the mountains and explains what's happening.
--:-- Arielle Dermross: And Sandy thinks this sounds like a great, flexible job.
--:-- Arielle Dermross: She goes, I'd really like to learn.
--:-- Arielle Dermross: I was like, well, you can.
--:-- Arielle Dermross: And she had just lost her father.
--:-- Arielle Dermross: Her mother is ill.
--:-- Arielle Dermross: And she's their caretaker, you know.
--:-- Arielle Dermross: So in Roundup, there's not a whole lot of job opportunities.
--:-- Arielle Dermross: So this is spreading through Roundup.
--:-- Arielle Dermross: It's sort of spreading through word of mouth.
--:-- Arielle Dermross: And they're just sort of training each other.
--:-- Arielle Dermross: We have a group text if anybody has questions.
--:-- Arielle Dermross: Okay.
--:-- Arielle Dermross: I mean, they were somewhat confused about why I was interested in this industry.
--:-- Arielle Dermross: You know, their sense is that it was sort of a small, quirky thing they do.
--:-- Arielle Dermross: I don't think we're the story.
--:-- Arielle Dermross: You know, we have our niche in the stream of things.
--:-- Arielle Dermross: But yeah, they were quite warm, quite nice.
--:-- Arielle Dermross: They were eager to talk about the business.
--:-- Arielle Dermross: A lot of Amazon sellers come and go, but some of their customers have been around for a long time.
--:-- Arielle Dermross: and they have personal connections with these people who are all around the world and most of whom they've never met.
--:-- Arielle Dermross: The majority of my sellers are international.
--:-- Arielle Dermross: Really?
--:-- Arielle Dermross: I have them from Malaysia, Australia, Europe, Canada.
--:-- Arielle Dermross: And a lot of them are first starting out the newbies.
--:-- Arielle Dermross: Sometimes they need a little kickstart when they get home and they're kind of like children when they first start as newbies.
--:-- Arielle Dermross: You have to play a mom.
--:-- Arielle Dermross: I told them that it's like a lot of hand-holding.
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: Why is that?
--:-- Arielle Dermross: That is true.
--:-- Arielle Dermross: And that was something I asked them about.
--:-- Arielle Dermross: And they weren't really sure why that was the case either.
--:-- Arielle Dermross: One of them said, you know, possibly it's because a lot of them were working from home, taking care of family.
--:-- Arielle Dermross: Some of them had husbands who worked in mines nearby.
--:-- Arielle Dermross: But you know what?
--:-- Arielle Dermross: Were women that have our own businesses.
--:-- Arielle Dermross: I said, look at this, what we've gotten.
--:-- Arielle Dermross: All these women that are usually single.
--:-- Arielle Dermross: I mean, I have a boyfriend.
--:-- Arielle Dermross: She's got a husband, but he's working in Billings and stuff.
--:-- Arielle Dermross: But not too many people, women, get this opportunity.
--:-- Arielle Dermross: They weren't really sure.
--:-- Arielle Dermross: But it was particularly striking to me because talking to Amazon sellers, it can be sort of male-dominated.
--:-- Arielle Dermross: And so it was interesting to me that this subculture was, at least in Roundup, that it did tend to be women.
--:-- Arielle Dermross: Or it was entirely women in Roundup.
--:-- Arielle Dermross: And are people making money from this?
--:-- Arielle Dermross: This almost sounds like a multi-level marketing scheme.
--:-- Arielle Dermross: They are.
--:-- Arielle Dermross: It is not super lucrative.
--:-- Arielle Dermross: They make a dollar per package that they prep.
--:-- Arielle Dermross: And so it can fluctuate.
--:-- Arielle Dermross: Sandy, for example, had a good day when she had hundreds of miniature animal toys to prep.
--:-- Arielle Dermross: At a dollar each, you can prep them quite quickly.
--:-- Arielle Dermross: Right.
--:-- Arielle Dermross: I was just going to say, I feel like if it's a dollar per package, then you really want very small things.
--:-- Arielle Dermross: Exactly.
--:-- Arielle Dermross: And so if you get stuck with a bunch of televisions or strollers or something, your hourly rate really plummets.
--:-- Arielle Dermross: So, you know, they make good money.
--:-- Arielle Dermross: They said it was better than they could get in other lines of work.
--:-- Arielle Dermross: Sandy did give me a rate for her miniature animal spree, which was $49.55 per hour for those.
--:-- Arielle Dermross: So quite good.
--:-- Arielle Dermross: But, you know, another day it could be a bunch of TVs.
--:-- Arielle Dermross: You don't know.
--:-- Arielle Dermross: It's not the most efficient system, is it?
--:-- Arielle Dermross: No.
--:-- Arielle Dermross: One of the things about Amazon is that it is extremely efficient about the things that it focuses on optimizing.
--:-- Arielle Dermross: But because it's so big, it can create sort of weird inefficiencies like this.
--:-- Arielle Dermross: You know, of people trying really hard to capitalize on a scale.
--:-- Arielle Dermross: It 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
--:-- Arielle Dermross: Kind of feels like it got like this special kind of power
--:-- Arielle Dermross: Yeah.
--:-- Arielle Dermross: I mean, Amazon is this gigantic platform now that has made buying things extremely convenient and easy.
--:-- Arielle Dermross: 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.
--:-- Arielle Dermross: And, you know, before they get there, they pass through a place like a prep center.
--:-- Arielle Dermross: After the break, how the power of Amazon's marketplace impacts its sellers, its competitors, and the rest of us.
--:-- Arielle Dermross: So just a reminder that you can subscribe to Reset wherever you're subscribed to Today Explained.
--:-- Arielle Dermross: They get to talk about all sorts of interesting technology stories we never really get to talk about on our show like this one.
--:-- Arielle Dermross: Let's get back to it.
--:-- Arielle Dermross: I wanted to know just how important the third-party marketplace was to Amazon's business.
--:-- Arielle Dermross: So I spoke to an expert.
--:-- Arielle Dermross: 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 Del Rey: So people call Amazon the everything store.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: That third-party merchants handle all of that for them.
--:-- Jason Del Rey: And that immense selection leads to price competition, which is the reason why Amazon often has some of the best prices on the web.
--:-- Jason Del Rey: When did third parties start to sell products on Amazon?
--:-- Jason Del Rey: Sure.
--:-- Jason Del Rey: So third parties started selling on Amazon all the way back in the year 2000.
--:-- Jason Del Rey: But back then, it actually started with big retailers who were the third parties.
--:-- Jason Del Rey: So Toys R Us was one of the biggest third-party sellers back in the day.
--:-- Jason Del Rey: But over time, retailers like Toys R Us have learned, why are we doing business with Amazon?
--:-- Jason Del Rey: And so now it is sellers big and small, merchants big and small, one-person shops up to really big operations.
--:-- Jason Del Rey: And third-party sellers today account for nearly 60% of total sales on Amazon.
--:-- Jason Del Rey: So this is actually a really important part of how Amazon does business.
--:-- Jason Del Rey: Without third-party sellers, Amazon would be much more like a traditional retailer having to stock all the inventory themselves.
--:-- Jason Del Rey: And what this allows Amazon to do is have what might be the biggest online selection in the world.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: How does that work?
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: And then they can have that product sent directly from that facility to a customer's door, literally never touching it.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: A prep center.
--:-- Jason Del Rey: A prep center and then selling that to customer door.
--:-- Jason Del Rey: I've had friends who've had situations where they get an Amazon order delivered in another retailer's box.
--:-- Jason Del Rey: So there are these situations.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: So this is a wild, wild world.
--:-- Jason Del Rey: And the main thing Amazon cares about is having this immense selection.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: Because the whole point of these prep centers is let's put these products that we obtained elsewhere in a box that Amazon can handle so that everything goes really well with Prime shipping, right?
--:-- Jason Del Rey: Correct.
--:-- Jason Del Rey: Prime is, you can call it the heart, the engine of the Amazon retail machine.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: They see that Prime checkmark.
--:-- Jason Del Rey: That means a couple of things, I think, without even realizing it.
--:-- Jason Del Rey: It means I trust this.
--:-- Jason Del Rey: It means I know I'm going to get it very, very quickly.
--:-- Jason Del Rey: And it also leads to many customers not even price comparing across other websites because they value and can afford I suppose the convenience of Prime and the trust of Prime over saving an extra buck or two somewhere else.
--:-- Jason Del Rey: Does Amazon make a lot of money off of these third-party sellers?
--:-- Jason Del Rey: Indeed.
--:-- Jason Del Rey: In a recent three-month quarter, Amazon generated $11 billion of revenue just from these third-party services.
--:-- Jason Del Rey: So they charge third-party sellers a fee.
--:-- Jason Del Rey: I think it's called a listing fee, which is essentially just to list a product on our site.
--:-- Jason Del Rey: We're going to take somewhere between typically 8% and 15%.
--:-- Jason Del Rey: On top of that, they charge fees to store goods in Amazon warehouses, which most of the time you have to do to qualify your products for Prime.
--:-- Jason Del Rey: They also handle customer service, shipping.
--:-- Jason Del Rey: And then increasingly, to get discovered on Amazon, you need to advertise your products.
--:-- Jason Del Rey: Sponsored products at the top of a list, right?
--:-- Jason Del Rey: Correct.
--:-- Jason Del Rey: That's sort of the main advertising product.
--:-- Jason Del Rey: There are some others as well.
--:-- Jason Del Rey: Some call it a tax to sell on Amazon that you now need to advertise.
--:-- Jason Del Rey: And so some sellers say they now forfeit anywhere from, you know, 35 to 50 percent of a product sale to Amazon.
--:-- Jason Del Rey: That seems like a huge cut.
--:-- Jason Del Rey: How does that affect prices for customers?
--:-- Jason Del Rey: There is an argument 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.
--:-- Jason Del Rey: How that works is some sellers say, I'm now giving 50% of my sale, let's say, to Amazon, essentially, when you factor in all these fees.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: The problem with that is Amazon often penalizes sellers if they sell the same product cheaper on another site.
--:-- Jason Del Rey: So in the past, they would say, like, you just can't do that.
--:-- Jason Del Rey: There was a policy that you couldn't do that.
--:-- Jason Del Rey: So it has to be the same price as on your website.
--:-- Jason Del Rey: Correct.
--:-- Jason Del Rey: There was some regulatory attention put on that in the last year.
--:-- Jason Del Rey: And so Amazon changed the policy.
--:-- Jason Del Rey: But now they will sometimes just hide the product if you're doing that.
--:-- Jason Del Rey: This is like a shadow ban.
--:-- Jason Del Rey: Yeah, I think they call it suppressing the listing.
--:-- Jason Del Rey: And their argument is, listen, we want to offer our customers the best shop, best prices, best shopping experience.
--:-- Jason Del Rey: And this is not the best if it's not the best experience, best price.
--:-- Jason Del Rey: Why should we show it?
--:-- Jason Del Rey: That's one example of how some sellers say Amazon artificially inflates prices.
--:-- Jason Del Rey: What is your take on Roundup?
--:-- Jason Del Rey: This idea that there is sort of this small little network of prep centers in Montana, in a small town in Montana.
--:-- Jason Del Rey: How did you receive sort of that information?
--:-- Jason Del Rey: So the details were surprising where it was, who the people were.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: So it is this wild west nature of the marketplace that leads to, on one hand, scams, schemes and con artists.
--:-- Jason Del Rey: On the other hand, you know, legitimate business opportunities that seem to sprout overnight.
--:-- Jason Del Rey: 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.
--:-- Jason Del Rey: Absolutely.
--:-- Jason Del Rey: Without them, we would not be talking about the dominant online retailer that we are today.
--:-- Arielle Dermross: That's it for today's episode of Reset. I'm Arielle Dermross. 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.
--:-- Arielle Dermross: If you want to follow me on Twitter, you can find me at ADRS.
--:-- Arielle Dermross: You can also reach the Reset team by emailing reset at vox.com.
--:-- Arielle Dermross: Reset comes out three times a week on Tuesdays, Thursdays, and Sundays.
--:-- Arielle Dermross: If you haven't already, subscribe to the pod.
--:-- Arielle Dermross: You can find us on Apple Podcasts, Stitcher, or in your favorite podcast app.
--:-- Arielle Dermross: And if you like what you hear, give us a five-star rating on Apple Podcasts. It really helps us.
--:-- Arielle Dermross: Will Reed, Skylar Swenson, and Martha Daniel produce the show.
--:-- Arielle Dermross: Our engineer is Eric Gomez.
--:-- Arielle Dermross: Golda Arthur is our executive producer.
--:-- Arielle Dermross: Liz Kelly Nelson is the editorial director of Vox Podcasts.
--:-- Arielle Dermross: The mysterious Breakmaster Cylinder composed our theme music.
--:-- Arielle Dermross: Special thanks this week to Art Chung for helping us out.
--:-- Arielle Dermross: Reset is produced in association with Stitcher, and we're part of the Vox Media Podcast Network.
--:-- Arielle Dermross: We'll be back on Tuesday. Later, nerds.
