One of the top takeaways from Jim Collin’s seminal business book, “Good to Great,” is the observation that “Great” companies—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 founder, has put it: Great companies work hard to stay “Day 1” companies – constantly iterating and testing to improve. The 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 Amazon.
At its core, Amazon is a disruptive juggernaut that is disintermediating 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, such as 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? Amazon is similarly disrupting traditional B2B industries. 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. This is already happening. For example, Amazon became the largest MRO distributor in 2019, earning approximately $5 billion in revenue more than its nearest competitor, Grainger.
The Writing Is on the Wall
Amazon is investing heavily in enabling business buyers to purchase using the same tools and user experiences these buyers have become accustomed to as consumers making 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:
Hiring Key People: Amazon is a metric-driven execution machine that hires smart, capable people with deep industry expertise. Over the years, Amazon has poached people from industries they want to enter as a way of gaining a foothold in those industries.
Acquiring Business Buyers in Key Sectors: In recent years, Amazon has secured major public sector contracts, enabling buyers at public agencies and nonprofit organizations to procure the items they need through Amazon. For example, one contract was worth as much as $5.5 billion. They have a growing sales team that is out in the field adding both business buyers and sellers (like you and your competitors) to build out its B2B marketplace ecosystem. Putting salespeople in the field is new for Amazon and a sign that the company now understands what it will take to build out Amazon Business (vs. their earlier efforts in B2B).
Integrating with Procurement Systems: Amazon has integrated with the top 100 procurement software platforms used by corporate and institutional buyers. This enables business buyers to use their ERP systems to buy directly through Amazon without having to even go to the Amazon website. In other words, procurement folks can now buy things through Amazon the same way they buy something from another vendor through their ERP today.
Creating B2B Workflows and Functionalities: Amazon has heavily invested in adding key functionalities that are required by business buyers and sellers, such as support for tiered pricing and purchase approval processes. They are even extending business credit terms to buyers.
Combine these investments with the fact that Amazon is already many years ahead of most other companies in terms of how they use data to personalize digital experiences. It’s clear that many business buyers are already buying on Amazon, meaning manufacturers and brands have a brutal reality to confront. Disintermediation has started.
This Is Good News for Brands and Manufacturers
…if you confront the brutal reality!
Our managing partner, Brian Beck, makes 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 changing, and Amazon is making its impact felt by a large number of distributors.
Amazon's Business impact on 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 an immediate opportunity to:
Drive incremental revenue and capture new customers
Stay relevant to existing customers, many of whom are die-hard Amazon loyalists, and already buying on Amazon for their businesses
Position yourself ahead of your competitors. There is an opportunity right now (and it will not last) to capitalize on Amazon’s efforts to build out its assortment through marketplace partnerships. You have some leverage at this moment in time that you are unlikely to have later. And you can get there before your competitors do.
Take control of how your brand is positioned on this rapidly growing channel. As a fun and disturbing exercise, try searching for one of your products right now on Amazon. We do this with CEOs all the time, and it immediately and invariably causes instant anxiety when the CEO sees how their brand shows up on Amazon. Most of the time, it isn’t pretty. By leveraging a Seller Central account, you can also control the pricing of your product on Amazon.
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—we strongly believe you should see this shift as an evolution of distribution channels, not a threat to your company.
Some Final Thoughts
If you have a product or brand that you manufacture 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 could 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. However, we’re 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 a fantastic product and your product is your core competency, do you have much to worry about?
Note that Amazon Business also brings real time-to-market benefits for your 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 the development and deployment of an in-house Ecommerce website, which can consume 9 to 18 months and significant human resources, not to mention associated capital costs ranging from $250,000 to multiple millions or more. (That said, we 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.