Amazon's large investment in B2B Ecommerce is a loud call to manufacturers & brands to take advantage of this fast growing channel, or get left behind by those that do.
One of the top takeaways from Jim Collin's seminal business book, 'Good to Great', is the observation that 'Great' companies - or those that well exceed their peers over time in terms of enterprise value - 'confront the brutal reality' of their markets and situations. Management of these companies gather the facts, understand trends, and do something about them. They aren't afraid to test new approaches in the face of changing market conditions, and will risk failure rather than suffer mediocrity or death by inaction. They confront what is happening, and take action. As Jeff Bezos, Amazon's CEO, puts it in a recent letter to shareholders, great companies work hard to stay 'Day 1' companies - constantly iterating and testing to improve. Process is secondary and always subservient to customers' needs.
"When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident" - Jim Collins
In today's digital centric world, the brutal reality is that one company is successfully disrupting the way products are sold in industry after industry. That company is called Amazon - Mr. Bezos' baby that has grown to a giant by staying a 'Day 1' company.
At its core, Amazon is a disruptive juggernaut that is dis-intermediating traditional sales and distribution channels. As an example from the retail sector, just take a look at Circuit City and Borders Books, both of which have been forced to shutter their doors, due, in significant part, to Amazon. Further, with Amazon emerging as the largest apparel retailer in the United States, there is a growing list of apparel retailers that are falling off the map, including The Limited, American Apparel, Wet Seal, and numerous others. Sports equipment retailers, consumer electronics giants, department stores, and many more categories are being impacted.
What does this mean for brands, manufacturers, and distributors operating in traditional B2B selling markets? In my opinion, it is only a matter of time before Amazon disrupts the B2B marketplace in similar fashion. The brutal reality is that Amazon has the expertise, deep pockets, data, and incredible execution capabilities that will change how and where business buyers are transacting. Make no mistake - this is already happening.
Amazon is investing heavily in enabling business buyers to purchase using the same tools and user experiences these same buyers have become accustomed to as consumers in shopping for their personal purchases on Amazon.com. The company calls this Amazon Business, and they are executing right now to digitally support traditional B2B workflows and customers' purchasing expectations.
Amazon's efforts include:
Combine these investments with the fact that Amazon is probably ten years ahead of most other companies in terms of how they use data to personalize digital experiences, and clear evidence that many business buyers are already buying on Amazon, and you have a brutal reality to confront. Dis-intermediation has started.
...if you confront the brutal reality!
I recently made the case that companies that make products that stand on their own merits and benefits are in a great position to take advantage of this major shift. Traditional channels are going to change, and Amazon will likely impact a large number of distributors.
We already see this occurring. The B2B Ecommerce ground-breaker and distribution behemoth Grainger recently announced that its sales growth is slowing. Grainger missed its Q1 2017 earnings projections, which the company attributed to price reductions and online sales pressures. Its earnings per share came in at a 9% decline compared to Q1 2016. Industry pundits expect increasing margin pressure on the company and other distribution leaders such as Fastenal, specifically coming from Amazon Business. This is writing on the wall.
Amazon Business' impact to traditional distributors is an opportunity for manufacturers and brands. If you are one of these two types of businesses, by launching on Amazon Business you have immediate opportunity to:
Consider the fact that 55% of all product searches are now originating on Amazon. We can expect that number to keep increasing. Ignore Amazon's B2B efforts now, and you will be playing catch up later. If yours is a truly differentiated product, one that can't easily be replaced by a substitute , I strongly believe you should see this shift as an evolution of distribution channels, not a threat to your company.
Amazon's efforts in the B2B sector are accelerating. As mentioned above, the number of business buyers beginning their product searches on Amazon is growing, and is quickly overtaking traditional distributors. Forrester Research recently reported that the number of business-product related searches starting on Amazon has now grown to equal the number of searches that begin on distributors' sites. Amazon is also slowly taking search origination share from Google and Bing, according to the same report.
An increasing number of business buyers are finishing their shopping journeys on Amazon as well. More from our friends at Forrester: as of Q1 2017, almost 40% of B2B buyers are finishing their purchases on Amazon. In 2015, the percentage of B2B buyers that said they finished their purchases on distributor sites was 30%. In 2017, just two years later, that number has plummeted to 16%. Buyers are flocking to sites that are easy to use, fast, with broad selection, limited login requirements, and built-in trust. Amazon does these things better than anyone, and taking share from traditional channels in the process.
By 2020, it's expected that B2B buyers will make over half of their purchases online - a trend that is only beginning, but accelerating quickly. What is important to note are the drivers for this shift: convenience, speed, and price. And we all know Amazon does well in all three buckets.
Amazon is quickly becoming a major distribution channel that manufacturers and brands can leverage to drive sales. Your customers are driving this. It is where your customers are searching for products, and it is where they are buying them, too.
If you have a product or brand that you manufacturer or own , and it is unique, stands on its own, and is in-demand, it is time to strongly consider getting yourself on Amazon.
Sure, you may say that Amazon may leverage what they learn about your industry category by selling your products and then enter your business by sourcing directly. Perhaps there are some categories where this is truly a threat (e.g. Amazon Basics). However, I'm convinced that the highly complex nature of the products in many B2B industry categories, combined with the continued importance of product and application knowledge (often delivered by human beings, not computers), makes this a much lower threat for most industries. Also - if you are truly an innovator in your field with fantastic product - and your product is your core competency - do you really have much to worry about?
Note that Amazon Business also brings real time-to-market benefits for your own Ecommerce presence, particularly if you are new to online commerce. A typical manufacturer or brand can be up and running on the Amazon platform in 1 to 2 months, normally at a nominal cost. Compare this to development and deployment of an in-house ecommerce web site, which can consume 9 to 18 months with associated capital costs ranging from $250,000 to multiple millions or more (that said, I do believe strongly that brands and manufacturers should have both an Ecommerce site as well as a presence on Amazon). Amazon's programs such as Fulfilled by Amazon also make it easier for you to ship quickly to business customers, and meet Amazon's fulfillment and service requirements.
Amazon is currently aggressively recruiting sellers for Amazon Business. They are hungry for you right now. But this will change over time as product categories get filled.
Confront the reality. Business buyers are rapidly shifting to Amazon. If you are not there, you are going to lose to someone else. It's that simple. The early bird catches the worm. You don't want to be caught sleeping in with so much at stake.