How B2B Distributors Can Dominate with a Marketplace

There are multiple ways to capitalize on this marketplace model, as we will discuss further in this white paper.

However, only through business model innovation will the largest distributors combat the inevitable disruption spearheaded by Amazon Business, while also gaining market share in their industries.

And, swift action must be taken.

Looking at the numbers, Amazon Business’s rapid growth over the last year belies any assertions that it can’t get traction in B2B industries.

In 2016, Amazon Business’s marketplace surpassed $1 billion in sales1, and its marketplace has been growing at 20% month over month.

It also has more than 9 million product listings, up from less than 4 million a year ago. If the business unit keeps up its pace, it could surpass $8 billion in sales and 15 million listings in 2017.

Amazon’s Price Competitiveness
In our previous whitepaper, “Disruption at the Gates: Monitoring The Threat of Amazon Business,” we examined Amazon’s pricing and product availability compared to top electrical distributors.

We found that Amazon already had much greater catalog depth as well as cheaper prices compared to top electrical distributors.

For B2B Distributors, the time to take action is now. With major threats like Amazon Business on the horizon or, depending on your industry, already here, the window of opportunity for incumbents to get ahead of the danger is relatively short.

The financial projections we’ve run for Grainger and other B2B distributors show a significant financial impact within just three to five years.

However, while the threat is significant, so is the potential opportunity. Here too the impetus to act now is strong. Given the winner-takeall dynamics of platform markets, there is a significant advantage in getting your network to critical mass first.

Laggards in platform innovation will be forced to spend large amounts of capital to catch up. And like Walmart with Jet.com, they will be at best buying a chance to be second place.

For distributors, transitioning to a platform business model will not be easy, but if offers them the chance to gain significant market share while improving their valuation multiples.

Amazon Business has the potential to take a bite out of nearly all B2B distribution industries, and doubling down via acquisitions and industry consolidation will not stem the threat.

However, there is significant opportunity in most B2B distribution industries for vertical-specific marketplaces to succeed.

The strongest of these marketplaces will become modern monopolies that are able to expand to other industries and potentially take on Amazon Business there as well.