Is it time Distributors consider partnering with Amazon? A Platform Business Model is a web service that facilitates exchanges between a self-sustaining mass of users (e.g., Facebook) or buyers and sellers (e.g., Uber). Platform winners typically become monopolies with increasing value and cost economies of scale. Don’t underestimate the power of Partnering with Amazon and their five, and soon to be six plus, compounding platforms in distribution.
The first challenge is how to get the most, and the best, customers and sellers to your marketplace platform. With Prime, Amazon bootstrapped itself to a critical mass of loyal, repeat, big spending customers that other potential co-sellers want to reach. Prime membership started in 2005 and has snowballed to its present 60 million+ members in North America (85 million+ worldwide).
Amazon Marketplace (B2C)
In 2006, Amazon Marketplace officially launched. In 2016, Marketplace had over 2 million resellers globally, accounting for over 40% of Amazon’s sales. These resellers both compete with and complement Amazon’s own stock sales. It has been estimated that Marketplace has over 450 million unique SKUs available.
In April 2015, Amazon Supply was rebranded as Amazon Business. Amazon switched from selling just their own stuff to welcoming other B2B vendors. By April 2017, more than 45,000 vendors were selling more than 9 million SKUs to over 400,000 accounts, generating about 50% of Amazon Business orders. So, accounts are growing at 100,000 per quarter and sales are growing at 20% per month. In a recent B2B study, Amazon had 30 times more listings for “wiring devices” then a Big Four electrical wholesaler had in their own inventory. These numbers may point to the idea that distributors consider partnering with Amazon.
Amazon Web Services (AWS)
AWS was relaunched in 2006 with an API platform that has attracted over 150,000 software developers. Today, many software firms help Marketplace sellers using the same tools that Amazon’s own stock people use to get into the buyer’s inbox.
Fulfillment by Amazon (FBA)
Eighty percent of resellers are using FBA, which launched in 2006 and has the best branded fulfillment capability. Starting in 2010, FBA value zoomed with the roll out of Prime Now warehouses located in or near over 40 top metroplexes.
Last-Mile Delivery Cost and Response Times
Cost per delivery drops with more packages-per-hour going to an ever-smaller delivery zone. With FBA orders streaming out of each heavily-automated, scalable Prime warehouse, plus many delivery experiments, Amazon will achieve the quickest deliveries at the lowest cost.
Alexa and Marketplace API Developers
Alexa will be in Prime customers’ phones by 2019. Instant price and delivery comparisons (with an automated order placement option) will allow B2B buyers to give Marketplace sellers even more business.
Amazon’s stock buyers don’t like sellers sharing all these increasing platform advantages and assessed costs. But, with 3PL fees, Amazon wins regardless of who makes the sale, and customers get more value. Amazon had to work hard to get to critical mass customer activity and keep competition and innovation intense. But, why not let the resellers take it from here in different B2B verticals? Furthermore, Amazon prefers scaling through digital and robotic technology.
Here are some things to think about:
Lastly, does Walmart’s marketplace stand a chance? Can wholesalers match this platform power on their own with just their SKUs (e.g., Grainger’s Gamut)? Is it time to take a deeper look at Marketplace scenarios? Perhaps with joint venture partner(s)?
Your questions, thoughts and reactions? Let me know if you think it’s time distributors consider partnering with Amazon. Email me at Bruce@Merrifield.com