Competing in the Age of Digital Marketplaces

Executive Summary

Amazon Business is a top 20 B2B distributor – something it accomplished in just three years’ time after its launch in 2015.

In September 2018, Amazon announced publicly that Amazon Business had reached more than $10 billion in annualized sales. The made it roughly the 16th largest B2B distributor in the U.S., just behind Grainger, its biggest competitor in the industrial distribution market.

Unlike most of its competition, Amazon’s marketplace is spread across a wide variety of different verticals, like industrial equipment and materials, hardware, electronics, healthcare, dental and more. Its impact is also unevenly distributed. Amazon Business has yet to fully enter some industries, like chemicals and metals, leaving room for traditional leaders in those verticals to get ahead of Amazon.

So where is Amazon Business having the biggest impact today, and where are there opportunities to strategically compete with the tech giant? Over the course of 21 months, we tracked the growth of Amazon Business third-party sellers across various product categories. By analyzing the number of sellers in each product category, we gained insights into which categories are gaining more traction than others.

We found that Amazon’s catalog is largest in verticals with many light weight and small products such as industrial supply, automotive, tools, hardware, and lighting. That makes sense, because Amazon’s logistics infrastructure excels at shipping small products.

However, Amazon lags behind in categories that include heavy equipment like trucks and dollies in material handling and strangely shaped and large products such as mesh or plastic sheets in raw materials.

As of March 2019, Bank of America analyst Justin Post projected that by 2021 the market for eCommerce B2B will reach $1.4 trillion. What’s more, he also estimates that by 2021 Amazon Business will capture 10 percent of the B2B market in the U.S.

Unless B2B distributors fight back.
In this report you’ll find unique, in-depth analysis of where Amazon Business is already growing quickly and what markets it’s just beginning to enter. If you want to understand how Amazon Business is going to impact your distribution business and more importantly, how you can fight back – you will want to read on.

AMAZON GOES BIG IN B2B

In September 2018, Amazon announced that it reached $10 billion in annualized sales on its B2B marketplace. We had already predicted that figure four months prior. Amazon Business’s growth rate in key areas like industrial products made it clear to us that Amazon Business had already reached the scale of all but the top 5 B2B distributors. Based on our analysis, we estimated that Amazon Business’s sales, which were not disclosed in financial statements, would reached $10 billion in annual sales in 2018.

Note that Amazon measures its marketplace’s sales through a unit called Gross Merchandise Volume (GMV), which totals the product sales on Amazon Business’s marketplace, the majority of which are from third-party sellers. In short, for a marketplace sales do not equal revenue. So while Amazon’s GMV isn’t a direct comparison to distributors’ annual revenue, the metric does give a sense of Amazon Business’s impact on the B2B distribution market.

And that impact is significant.

Industry Leaders: B2B Distribution Revenue

Since then, Amazon’s B2B marketplace has only continued to grow. What’s less clear is which categories are growing fastest. At the end of 2018, we rebooted our Amazon Marketplace Tracker (see box below) to shed some light on which categories Amazon has focused on.

CHEAT SHEET

Amazon Marketplace Tracker

AMAZON BUSINESS’S GROWTH IN ONE YEAR

Amazon’s total sales doesn’t tell you much about where Amazon Business is focusing and making gains. To that end, we’ve compared our Amazon Marketplace Tracker data from late 2018 and early 2019 to see how the number of sellers on Amazon Business expanded in 2018.

We wanted to see how much Amazon’s B2B marketplace had grown in just one year and which verticals were seeing the biggest growth. Given that B2B is a broad sector, we focused our analysis here on industrials and related categories.

Applico’s Amazon Marketplace Tracker

In March 2017, Applico launched its Marketplace Tracker to comb through Amazon Business’s product catalog and record the number of sellers in each product category. Based on that data and Amazon’s financial reports, we estimated that Amazon Business’s sales would hit $10 billion in 2018, which it did.

The data collected represents the number of sellers, and not sales or product volume. Actual sales growth numbers for Amazon Business are likely to be much higher. Some sellers will sell lots of products while many will sell only a handful. This uneven distribution is common in any marketplace, but, in general, looking at the growth in sellers is a strong proxy for Amazon Business’s growth and an indication of in which industries Amazon is focusing its efforts.

So how did Amazon Business do in 2018?

In total, the number of sellers on the marketplace grew by 19.5%. However, when we looked into each vertical more carefully, we found that growth and volume varied significantly by category. By analyzing the growth and volume of sellers, we discovered where Amazon Business is flourishing, lagging behind, and where it is focusing its growth efforts.

Industrial, Tools and Automotive

To best understand the state of Amazon Business, we looked at the combined growth and volume data. For example, automotive only grew by 7.8%, but this shouldn’t reassure distributors in the automotive vertical too much, as it’s already one of the largest categories for Amazon Business.

In terms of number of sellers, automotive was the third largest category. The following graph isolates the three largest categories by number of sellers: automotive, industrial, and tools, which grew by 7.8%, 30.4%, and 22.3% respectively. In each of these categories, the number of sellers reached a local maximum in August 2017 and then cratered, suggesting that Amazon purged sellers who weren’t meeting marketplace rules and standards (for example, counterfeit sellers). Since then, each category has seen steady upward growth, with the industrial category seeing the most growth.

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Competing in the Age of Digital Marketplaces

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