Platform Innovation // Blog
The World Needs an Anti-Amazon Alliance
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.
The Everything Platform
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 Amazonâs largely secured its place in consumer e-commerce, capturing a majority of all online sales in 2016, itâs 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, Amazonâs 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 wonât be anything less than a tremendous fight thatâll 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 wonât be able to develop in time to overcome the impending disruption.
Letâs 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 Amazonâs looming takeover of the economy. It would greatly behoove large distributors to factor in such cooperative opportunities when evaluating marketplaces â 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.
- 3PL and shipping/logistics companies like Fedex, DHL, or UPS.
Amazon accounts for a growing percentage of UPSâs revenue, which means itâll consistently push to lower the prices it pays for shipping as it grows. Also, Amazon registered as a freight forwarder and launched a trucking platform. These companies ought to invest in any B2B marketplaces and offer low-cost logistics services to subsidize its growth.
- Brands and manufacturers.
Amazon is creating white label products to undercut the likes P&G and Unilever. As well, itâs constantly pricing their products lower than is welcome. These companies should look at investing and partnering on logistics for the consumer-facing marketplaces they should be building.
- Microsoft, Google, Alibaba, et al.
While these tech giants sure have important items on their horizon like autonomous vehicles and winning the war for cloud and voice, itâs doubtless that theyâd entertain a new stream of revenue and make total dominance more difficult for Amazon. These folks could provide investment dollars, technology and consulting, or even access to user data to ramp up the marketplaces even faster.
- Small distributors across all B2B verticals.
These firms will be the lifeblood of any B2B marketplace. Amazon will assuredly depend on and aggressively recruit on them, so itâs important to court them to exclusively join an industry-led platform before Amazon Business offers them deals too lucrative to ignore.
- Every large retailer/distributor not building its own marketplace like Target and Grainger.
Hardly a better ally could be found than in the people facing the very same existential threat â âthe enemy of my enemy is my friendâ and such. Other retailers and distributors can contribute the funds and hard work needed to build and scale a marketplace and also add a stronger sense of legitimacy to the effort. As well, it would help to prevent more Gamut situations.
Onward to the Future of B2B
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 Amazonâs gold will be worth tens of billions of dollars. Preventing Amazon from achieving total domination is still a win, one certainly worth anyoneâs time.
Thus far, only Walmart and Jet.com have been fighting the good fight. Itâs 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.