Ever ascendant and only increasing in its growth, Amazon casts a long shadow over a sizable chunk of the modern economy: B2C e-commerce, cloud storage, video streaming. And with talks of drone delivery, airships, automated warehouses, and its pending acquisition of Whole Foods, the platform looks primed to further expand its dominance.
Having largely flown under the radar is the business-facing unit, Amazon Business, which looks to take over all of B2B distribution, from industrial supply to electrical, food, medical, metal, building materials, office supplies, everything. Its growth has been so incredible, we predict that B2B is what will make Amazon the world’s first trillion-dollar company.
It’s essential to understand the not-so-secret ingredients that undergirds Amazon’s unprecedented level of success: its marketplace business model and its relentless drive to become the everything store. The company’s management has shown a rare drive to sacrifice returning profits to investors for years at a time in order to subsidize growth.
Along the way, the e-commerce titan has left behind a trail of disruption in its wake as it pioneered and dominated online consumer retail.
Amazon is a platform, which means it can tap into highly scalable winner-take-all dynamics. In pursuing the entirety of online retail, it has set its sights on a massive target, but one that can grant Amazon an unprecedented modern monopoly. To date, it’s the clear market leader for e-commerce, with many companies floundering to compete with their own linear offerings.
Believe it or not, the company mounting the most successful fight against Amazon is Walmart, along with its recent acquisition Jet.com. It’s far behind Amazon, but still a strong second place, performing much better than other retailers like Target and Macy’s.
Now that Amazon’s largely secured its place in consumer e-commerce, capturing a majority of all online sales in 2016, it’s making big moves to dominate B2B. Many existing distributors, all of them linear businesses, are far behind the curve when it comes to deploying technology, much less operating effective e-commerce.
As the last year passed, Amazon moved for more and more verticals. It started with industrial products and MROs, aggressively grabbing at market share and severely disrupting Grainger, the market leader for MROs.
Since then, Amazon’s reported to be preparing to expand into pharmacy supply and it made a $13.7 billion bid to acquire Whole Foods, the latter of which would not only provide Amazon with brick-and-mortar retail locations, it would also provide small distribution centers located in metropolitan environments all over the country, making swift delivery to end customers an even easier feat.
If linear distributors still want to be doing similar or great volumes of business in the next five to ten years, they need to consider mixing things up with a thorough investigation of marketplaces.
Building and executing a marketplace strategy carries a degree risk, one often unpalatable to publicly traded companies. However, there is a viable tactic for ameliorating the risk and increasing the chances of success: partnerships.
Amazon is a massive company, currently the fourth-largest by market capitalization, which doubled over the last two years. As well, it collected well over $136 billion in revenue for 2016. Competing directly won’t be anything less than a tremendous fight that’ll require endurance and agility to win.
Teaming up with other entities invested in duking it out with Amazon can provide large distributors with a lot of tools they won’t be able to develop in time to overcome the impending disruption.
Let’s examine some key constituencies that can aid them in their approaching fight for survival:
All of these groups bring something to the table that can help stymie Amazon’s looming takeover of the economy. It would greatly behoove large distributors to factor in such cooperative opportunities when evaluating marketplaces – the costs will drop and success looks that much more viable.
Recruiting from any and all of these groups for support is highly advised. Finding irreplicable synergies between them will only add to the value of the venture.
Creating an Anti-Amazon Alliance can deliver returns in spades, but that return diminishes as Amazon grows and, soon enough, such a team-up will necessary to make any headway. Incumbent distributors need to act now lest the eventual pain and losses get worse and the window of opportunity closes.
Leading shareholders in the large B2B firms should put their money where their mouth is, pressuring the CEOs to act and offering them increased financial support to foster some much-needed innovation.
B2B is estimated to be worth two to three times as much as consumer retail, so venture capital and private equity firms should seriously consider making strategic investments in any efforts, be it a startup or enterprise-backed marketplace.
The opportunities are massive: taking a silver medal to Amazon’s gold will be worth tens of billions of dollars. Preventing Amazon from achieving total domination is still a win, one certainly worth anyone’s time.
Thus far, only Walmart and Jet.com have been fighting the good fight. It’s high time B2B firms step up and innovate for their very survival. Forging an Anti-Amazon Alliance will be a very helpful step to achieving that goal.
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