When Will Haire, CEO and founder of BellaVix, an agency that works with Amazon sellers, toured Amazon’s Las Vegas warehouse facility in March this year, he was impressed by the operation that employed 6,000 workers. In addition to the workers, a packaging machine that was boxing and taping the items that travel on the conveyor belt caught Haire’s attention because it was super fast.
“It’s insane how efficient it is with the robotics, and how they preserve privacy and maintain anti-theft [measures],” he said. “This obviously came with years of making mistakes and learning, but they’re going to be the world’s largest logistics company.”
The technology piece of logistics is possibly what Amazon Founder Jeff Bezos had in mind when he decided to launch Fulfilled by Amazon (FBA), which he described as—a set of web services that turned Amazon’s fulfillment center network into a giant computer device. “Pay us 45 cents per month per cubic foot of fulfillment center space, and you can stow your products in our network,” Bezos wrote in a letter to shareholders in 2006. Amazon’s FBA is a characteristic story of the 21st century because of its technology.
When it launched in 2006, Amazon FBA didn’t create much controversy, but neither were people discussing it as a major development or game-changer. Amazon’s big step into the not-so-glamorous world of logistics started off quietly. Today, Amazon’s wild ride in the business of picking, packing, and shipping items, is a well-oiled machine that brands maintain is essential to grow on the platform. FBA can ship items to customers in more than 100 countries. Experts also say that Amazon’s journey in its logistics business is very much in expansion mode. Amazon is continuing to add more might to expand its logistics business.
Early days: “It was just another tool,” Jason Goldberg, chief commerce strategy officer at Publicis, recalled. FBA launched as a shipping logistics service that allowed third-party sellers to store inventory in Amazon’s warehouses and provided merchants access to Amazon Prime customers. By 2015, Amazon had shipped 1 billion units through FBA.
As Amazon’s third-party marketplace started gaining traction, orders became chaotic to manage, Goldberg said. In the early days when customers ordered multiple items from Amazon they arrived in multiple packages from multiple sellers.
“Frequently the customer would get the first item and they would call customer service and say, ‘Where’s the rest of my order?’ because each item was coming from a different seller,” he said.
“So, originally, FBA was a convenience that made it a little easier for sellers to manage their logistics, and it let Amazon consolidate all the items a customer might order into a single shipment,” Goldberg added.
In an emailed statement, Amazon shared its perspective on FBA. “When we launched Fulfillment by Amazon back in 2006, we had a simple goal: make it easier for small and medium-sized businesses to reach customers without the headaches of shipping logistics,” Sunny Jain, worldwide head of FBA of Amazon, wrote. “Today, nearly two decades later, I’m proud of how far we’ve come.”
“What I’m proudest of is seeing how FBA transforms businesses by handling the complex parts of fulfillment, giving sellers more time to focus on growth while their customers enjoy quick, reliable delivery,” Jain added. “And we’re doing all this at a cost that’s 70% less per unit than comparable premium options offered by other major US carriers.”
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However, as Amazon has monetized its fulfillment centers for efficiency and space optimization, sellers now have to contend with higher fees for slow-moving inventory and out-of-stock items, alongside higher overall FBA costs. According to Haire, FBA fees have increased substantially among his clients, rising from approximately 24% of the sales price to 50% or more. “And that’s including storage fees, fulfillment, pick and pack fees,” he said. “It’s just become more expensive.”
While FBA is a huge competitive advantage, Goldberg agreed, that overall fulfillment by Amazon has gone from being “a nice amenity that vendors like, and that was a good deal to being a necessary evil that most vendors hate, but do it because that's the only way to be successful.”
Sellers take: For Carmel Hagen, founder of baking brand Supernatural, FBA has “been the most essential, well-oiled backend” for serving customers on Amazon and growing its customer base.
Hagen added that occasionally FBA runs into problems with managing inventory—like sometimes Amazon will misplace some stock, and by the time they track it down, it’s already past its expiration date. “These are things that happen at any warehouse. And Amazon is better now at them not happening,” she added.
Despite intense holiday seasons, Amazon’s FBA is a good thing, Haire said. Amazon taking on the hard part of the logistics business did take the pressure off for small businesses that wanted to sell online because that last-mile delivery cost alone can account for upwards of 50% of total shipping cost.
But, ultimately, it was the controversial Amazon Buy Box, which has been the subject of antitrust lawsuits both in the US and overseas, that helped scale FBA into a massive revenue generator for Amazon. The Buy Box, now known as a “featured offer,” is a key feature on Amazon’s product pages that determines which seller’s offer gets recommended to customers. And sellers that have opted in for FBA typically had an advantage in securing the Buy Box, according to Goldberg.
“It became increasingly apparent that the only way to win the Buy Box was to be eligible for Prime, and the only way for a third-party seller to be eligible for Prime was to use FBA. So, it kind of went from this useful service that you could opt into to something that was sort of mandatory to have significant success on the platform almost,” Goldberg said.
Turning point: In 2023, Amazon began transforming its logistics business by shifting from a national model to regional fulfillment hubs. By positioning inventory closer to customers, the company has started to achieve faster deliveries, fewer packages, and reduced costs.
Control and fast delivery are essential priorities for Amazon, and the FBA program effectively checks both boxes for the company. “The unique model that Amazon had that made it extremely difficult for eBay or other big box retailers to compete is this FBA. They created this amazing flywheel that made their marketplace way better and more competitive than anyone else,” Goldberg said.
Ultimately, he said, FBA is one of the primary reasons that Amazon won e-commerce in the US, and then later in the world: “You look at how fast they built this capability, it’s on the scale of the Egyptians building the pyramid.”