I recently spoke at the inaugural “ISA 360” speaker series at the Industrial Supply Association Annual Convention in Denver. While there, I spoke to attendees about the dynamic nature of ecommerce and what companies can do to stay competitive in a time when disruptors like Staples and Amazon Business are entering the industry. During the post-program Q&A session, there was an interesting question: “What keeps you up at night?” My response was a one-word answer: “Inertia”. And while I briefly explained why at the time, I wanted to go deeper and share a thought experiment that highlights why distribution needs to overcome that inertia, take a strategic approach to ecommerce, and do it quickly.
B2B Commerce Trends
I’ve been in the B2B space for almost 20 years – meaning I’ve seen both sides of the disruption story. I started during a time when the main tension was between traditional distributors and the “catalog houses” like Grainger, MSC, and McMaster-Carr. But those firms weren’t considered “disruptors” because the catalog business model had been around for decades. In general, while the industry was competitive, change happened slowly and companies could take time to deliberate on all options before setting and implementing a strategy.
Since the turn of the millennium, decisions have to be made at “internet speed”. Not because it’s a “good idea”, but because disruptors entering the space already think that way. If my presentation made people think about maybe putting together a strategic project team to consider exploring the potential of ecommerce between now and year end – I suggest that will already be too late.
Amazon Business Trends
In May of 2016 Amazon announced that their Amazon Business platform had crossed $1 billion in revenue after being open for only one year. But what I found compelling was not the dollar amount but the growth rate. The article mentioned that Amazon Business was “growing at a clip of 20% each month”. That is a much more shocking figure than the revenue figure and simple math can explain why.
- For the sake of simplicity, let’s make a couple assumptions:
1) The month-over-month growth rate will drop at an average rate of 0.33% each month, reflecting the growth due to increasingly large revenue base; this puts the monthly growth rate on pace to drop to 10% by December of 2018
2) That “degradation rate” stays at a straight-line drop each month. That’s unrealistic, as Amazon’s business in general typically gets a big boost in the 4th quarter, but assuming a straight-line average is a conservative approach
3) Amazon’s monthly revenue figures as of May 2016 were ~$83.3 Million per month ($1 billion divided by 12 months)
For a number of reasons, these assumptions are likely to be completely erroneous. But they exist because they provide a conservative baseline for the results. The objective here is not to give a forward-looking estimate for Amazon Business revenue, but rather to help show what is possible given some simple (and very conservative) estimates.
Given those assumptions, let’s look at where Amazon Business could trend:
In this graph, each column represents monthly revenue and the blue line represents the month-over-month. It simply extends the figures from May 2016 forward. With the assumptions in place, Amazon Business would already possibly be a $6 billion per year distributor, and we haven’t even hit the “tipping point” yet, which would happen in Q4 of this year.
One also must consider that this assumes Amazon Business stays static – a dangerous assumption. Amazon Business will probably launch new services, add more selection, and create more innovative user experience tools to offer in conjunction with the site. Those possibilities aren’t accounted for in this chart, but neither would any of those slow growth more than what is described here – they would only push the numbers higher.
Move Now, Move Quickly
The takeaway for businesses already in B2B? Whatever plans you may be making, you need to make them faster. Remember Jeff Bezos’ quote: “…most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow”. Amazon’s innovation engine is firing on all cylinders – is yours?