Members Can’t Beat Amazon; Groups Can (Part 1 of 3)
Independent member-distributors will not be able to beat Amazon in B2B eCommerce. Sure, they may be able to compete short term against Amazon, Wal-Mart, Wish, Houzz, or any of the other giant marketplaces vying to dominate the playing field, but they can’t win this battle alone in the long run.
B2B eCommerce On The Rise
According to research data from Forrester, eCommerce will make up about $780 billion in B2B sales – about 9% of all B2B sales – in 2019. They are predicted to reach $3 trillion globally by 2024. This trend is as much of a threat as it is an opportunity for your member-distributors.
The most disruptive trends in the B2B environment of the last three years have all been related to the rise of B2B eCommerce:
- Digital Shift. Competitors and customers have moved online, and customer expectations have evolved
- Amazon and other Marketplaces. These marketplaces want your data and your customers
- Manufacturers and customers are increasingly trying to remove the middleman
In general, member-distributors have responded with two strategies – digital innovation and mergers and acquisitions. Unfortunately, neither of these strategies can work without a true understanding of Amazon’s B2B marketplace and its threat to the independent.
Amazon’s History With B2B Distribution
Amazon’s original foray into B2B distribution did not look like it does today. In 2012, their first attempt to enter this market took the form of Amazon Supply. Amazon Supply followed a traditional linear business model where Amazon owned all the inventory it sold. This approach ultimately failed because it could not compete on price.
Learning from their mistakes, in 2015 Amazon launched Amazon Business, a true B2B marketplace. Disruption since then has been swift, and distributors have struggled to respond.
Why Haven’t Independents Been Able To Respond?
Member-distributors all too often answer this question with their own fatalistic question: “How can we compete against someone as big and as technologically sophisticated as Amazon?”
This question, as well as the strategies of digital innovation and acquisitions, are blind to the biggest reason for Amazon Business’s success. Many distributors have built web and app-based B2B portals rivaling Amazon in sophistication which have nevertheless been unable to compete with Amazon.
Amazon isn’t winning the B2B war because of their size or their technology. They are winning because of their platform business model.
Amazon B2B Marketplace
Amazon Business is a B2B marketplace, or platform, that connects buyers and sellers, taking a commission on every sale. This model has allowed Amazon to grow exponentially since each new producer and consumer increases the value of the marketplace for other users.
Distributors who simply migrate their existing linear business model to the web or who acquire a new location fail to understand the crux of Amazon’s threat.
Written by Steve Seguin
LBMX offers a business-to-business marketplace platform, helping independent businesses, their buying groups, and suppliers buy better and sell more. Its Private Group Marketplace for Groups has transformed billing and ordering, rebate management, real-time analytics, e-commerce and product information management across the building materials, HVAC, plumbing, sporting goods, industrial supply, manufacturing, and agricultural industries. Its LBMX Supply Cloud platform allows suppliers to look at their industrial distribution customers through one lens, offering full EDI, PIM, Analytics and Payments.