Jim Friedland of Cowen and Company issued a comprehensive report on Amazon.com and, of special interest to online sellers, covers Amazon's Fulfillment service and its geographic expansion. Cowen believes Amazon's selection is a major driver of its growth, stating that Amazon has augmented its selection by around 50% by allowing third party retailers to sell products on its website.

First, Friedland said he expects Amazon's revenues to grow from $33.4 billion in 2010 to $76.7 billion in 2015 with the following factors driving growth:

• entry into new categories and expansion of existing verticals;
• low prices;
• fast shipping and easy returns;
• vast product selection augmented by a ramp of third party sellers;
• significant investment in site content and functionality;
• adoption of the Kindle platform;
• geographic expansion;
• and cloud computing infrastructure services (Amazon Web Services).

Friedland said FBA significantly enhances conversion rates for third party sellers, and Amazon has put strong incentives in place in the toys and games category for the 2010 holiday season that encourage third party sellers to use FBA (see AuctionBytes' coverage here). Amazon's plan to materially increase fulfillment capacity in 2010 was driven in part by increasing FBA adoption, he said.

"Further," he writes, "we think FBA adoption is a key driver in eBay's poor recent performance in the U.S. (eBay.s Q2:10 non-vehicle U.S. GMV increased 2%, compared to 37% estimated organic GMV growth for Amazon in North America)."

AuctionBytes reported this week that eBay surveyed sellers recently about their interest in using a fulfillment service. eBay confirmed that it had surveyed several thousand sellers asking about their interest in a fulfillment service that could potentially be integrated with eBay.com. "At this time, we are merely surveying sellers about the benefits of a fulfillment service and their desire to have access to one."

While some Wall Street analysts believe eBay must go down that road, Friedland writes, "eBay does not have a logistics capability and we do not think it is feasible for the company to launch an FBA-like competitor."

However, so strong a success Amazon's FBA has been that Friedland said it stunted efforts by Walmart.com to build out a compelling third-party selling platform. "We have also found that larger retailers that had previously stopped selling on Amazon for competitive reasons have returned via FBA due to strong customer demand on the platform."

Friedland estimates that Amazon is increasing the square footage of its global fulfillment network by more than 50% in 2010 and expects the ramp to support the following:

• strong volume growth in all markets;
• an expansion of same day shipping in the U.S., Europe, and Asia;
• continued fast growth in Fulfillment by Amazon adoption;
• an increase in distribution in China;
• and owned and operated distribution in Canada, which should support the launch of new categories in the market from the current level of three. Amazon is ramping investments on projects that directly drive revenue growth. It is also important to highlight that ROIC is rising despite increased spending.

International Growth
Amazon's international segment accounted for 45% of total sales in the second quarter and operates localized websites and fulfillment centers in 6 of the 10 largest global economies, including the U.S., U.K., Germany, France, Japan, China, and Canada. Friedland expects Amazon's international revenues to grow at a faster rate than the North America business.

"Amazon entered China through the acquisition of Joyo.com in 2004, which was primarily an online media and consumer electronics retailer. The site added a number of additional categories in 2006 and was rebranded as Amazon.cn in 2008. We think Amazon China has 4-5 million active customers and estimate that the site will generate $300-400 million in sales in 2010."

Friedland believes that while Amazon's focus over the next few years will be on existing markets, particularly China, Amazon will to enter new geographies over time.