Assignment: Amazon's B2B Marketplace
Amazon Business (www.business.amazon.com) is Amazon's e-commerce website that caters to the wholesale and distribution business-to-business (B2B) sector. Amazon Business does for commercial customers what Amazon.com does for individuals (B2C).
Amazon's B2B efforts began with Amazon-Supply, which debuted in 2012 with half a million products on offer. By 2014, the inventory had expanded to more than 2.25 million items, including tools, renovation supplies, cleaning supplies, steel pipes, and a host of other products.
In 2015, Amazon created Amazon Business and merged Amazon-Supply into it. Amazon Business uses a hybrid business model, selling both products directly from its own warehouses, as well as those from third-party vendors. The outside vendors, which still must compete with Amazon products, receive a commission of between 6 and 15 percent for their items sold, depending on the type of product and the size of the order.
Over 1 million Amazon Business customers, who are eligible to buy and sell if they have a tax ID number, can access hundreds of millions of business-only products from 85,000 sellers, obtain bulk discounts, set up a corporate credit line, and receive free two-day shipping on orders over $49. Clients can also talk with manufacturer representatives about product specifications. This process is required for sales of complex technical products.
Amazon Business emphasizes corporate tail spend, which is the 20 percent of business supply spend that is not related to core corporate functions and is not ordered from the same set of suppliers on a regular basis. Tail spends typically involves general office needs such as printer paper, bottled water, paper towels, break room supplies, IT cables, and many other products. In one rather unique example of tail spend, a large industrial company needed a small fleet of yellow tricycles so that personnel could more easily move around the plant.
Amazon Business offers many benefits for vendors and customers. For example:
1) The site lists products, along with any accompanying quality certifications such as ISO 9000.
2) Amazon Business account holders can qualify for special offers not available to individuals on the Amazon.com site. This helps vendors meet requirements not to sell products that are forbidden to be sold directly to consumers, such as high-tech health care equipment.
3) Customers can search for items by both manufacturer and distributor part numbers.
4) The site can demonstrate products in web videos and host downloadable computer-aided design (CAD) drawings.
Amazon Business also offers benefits for buyers. For example:
1) Multiple buyers within an organization can create business accounts and share payment methods and shipping addresses.
2) Promotions from multiple sellers are displayed on one product page, making it easier to compare pricing and vendor ratings from Amazon.
3) Buyers can view other buyers' product reviews.
4) Amazon Business integrates with buyers' procurement systems, allowing them to put Amazon on their procurement software's list of authorized sellers. Amazon Business provides an analytics dashboard because customers wanted more visibility into their spending. The dashboard provides businesses the ability to view purchasing activity at the individual, purchasing group, or type of spend level. These insights also allow customers to adhere to compliance policies.
5) Amazon Business has a seller credential program that allows third-party sellers to feature and display one or more of 18 nationally recognized diversity, ownership, and quality credentials. These credentials include small, minority-owned, women-owned, or veteran-owned businesses, which gives customers additional information on which to base their purchasing decisions.
Wholesalers are taking Amazon's threat seriously. The wholesale industry in the United States is almost twice the size of the retail industry. In 2017, wholesale sales totalled almost $10 trillion, compared with more than $5 trillion for retail sales. While the wholesale industry is larger than retail, the companies themselves tend to be smaller. Most of America's 35,000 distributors are regional, family-run businesses. Typical yearly sales are under $50 million and only 160 of these businesses report annual sales exceeding $1 billion. In contrast, Amazon reported some $178 billion in revenue in 2017, selling goods in both the B2C and B2B marketplaces. The average wholesaler offers approximately 50,000 products online, compared to Amazon Business's hundreds of millions of products.
Amazon Business is competitive even in niche markets. Take scientific equipment as an example. Items such as centrifuges and Bunsen burners are usually only offered by specialty distributors. However, customers can get one with the click of a mouse through Amazon Business. Few specialty distributors can compete with Amazon's huge product list, its easy-to-use website, two-day delivery, physical infrastructure (fulfillment centres in the United States), and information technology infrastructure (e.g., Amazon Web Services).
To acquire and maintain competitive advantage, Amazon Business keeps items that may not sell quickly, to avoid stockouts that plague other distributors of specialty items. Industry analysts estimate that Amazon has on hand more than half the inventory that it offers on the website at any point.
B2B has very small margins, typically 2 to 4 percent. Amazon's size allows it to make money through high volumes. It achieves these high volumes through-what else?-beating competitors' prices by about 25 percent on common products, according to a Boston Consulting Group report.
Despite its success, Amazon Business does have competition. Consider W.W. Grainger (www.grainger.com), in business since 1927, which captures about 6 percent of the entire U.S. B2B market. The company, which sells tools for maintenance and repair, now operates about 600 regional sales locations and 33 warehouses. The company recorded $10.4 billion in total revenue in 2017. Grainger realized $5.84 billion, or 56 percent of its 2017 total revenue, via its e-commerce channels.
One area that Amazon Business may not be able to penetrate is the close partnerships that some distributors have with institutional clients. For example, medical supplier Cardinal Health (www.cardinalhealth.com) has taken control of the entire supply chain at the Nebraska Medical Center. Cardinal handles everything from truck to patient. It orders products from suppliers, tracks product distribution, handles loading dockworkers, and deals with supplier invoicing.
The challenge confronting the 35,000 wholesalers and distributors in the United States is to compete with Amazon Business. Industry analysts identify two possibilities:
• Provide value-added, personalized services to customers. For example, Valin Corporation has specialized in the oil and gas sector, dispatching engineers to oilfields to help deploy the company's products that manage output at surface oil wells.
• Go into areas Amazon may not be interested in, such as specialized business environments. For example, will Amazon want to sell oxygen tanks or soda pumps? Furthermore, Amazon might not want to manage products that are dangerous or exotic, such as dentists' chairs, or that require specialists".
Task
Suppose that Algonquin College, is using Amazon Business to order classroom furniture, office supplies, and other goods instead of having employees buy them from local retailers or specialty sellers. Suppose that the daily needs of the college's 20,000 students translate into about $20,000 of orders per month.
A. What could be the impact of Amazon Business on local wholesalers and retailers?
B. How could local Ottawa businesses compete with Amazon Business in the challenging times of COVID-19?
C. Provide other methods for small businesses to compete with Amazon Business.