B2B Payments

Amazon B2B Seeks Dominance — But Grainger Isn’t Rolling Over

Amazon’s B2B business is growing up fast, as trade conflicts build and inject risks and threats into the larger industry landscape. Meanwhile, B2B eCommerce stands on the cusp of other changes that go beyond Amazon’s increasing prowess — changes that promise to bring the supply chain and corporate procurement, long known as a paper-based beast, further into the digital economy.

For those who haven’t seen the news earlier this week, here’s what happened: Amazon reported that its online B2B operation, which launched in 2015 and is officially called Amazon Business, has achieved more than $10 billion in annualized sales — with more than half of those sales coming from third-party sellers using the company’s platform. In its first year, Amazon Business had $1 billion in sales.

By comparison, Amazon’s consumer retail unit took seven years to reach $10 billion in sales. Amazon Web Services (AWS), its B2B cloud service unit, took 10 years to reach that milestone.

Another point of comparison (though not exactly apples-to-apples, noted analysts): U.S.-based industrial supplier W.W. Grainger reported 2017 full-year sales of $10.4 billion, and anticipates sales in 2018 of $11.3 billion.

Overall, the B2B online commerce market could reach $9 trillion this year in the United States alone, according to a recent estimate from Forrester Research. That estimate takes a broad view of what constitutes B2B eCommerce — not only transactions that involve business networks and digital procurement technology, but also those conducted by employees on supplier sites. Another, narrower estimate puts the value of B2B eCommerce in the United States at more than $1.9 trillion by 2020.

B2B Disruption

No matter the figure, the market is obviously lucrative, and presents ample opportunity for disruption.

Amazon, for instance, continues to boast about expanding its B2B commerce to countries outside the United States. Also in its sights? More presence in the healthcare supply chain, as Amazon also expands into retail healthcare.

Earlier this year, The Wall Street Journal reported that Amazon, in a bid to win more medical supply business, had “dispatched employees to a large Midwestern hospital system, where officials are testing whether they can use Amazon Business to order health supplies for the system’s roughly 150 outpatient facilities.”

The eCommerce operator wants to put its own spin on that business. “Amazon said it is building technology to serve healthcare customers, and seeking to sell hospitals on a ‘marketplace concept’ that differs from typical hospital purchasing, which is conducted through contracts with distributors and manufacturers,” the report said.

Indeed, Amazon Business pitches its efforts around what is known as corporate tail spend, the 20 percent of business supply spend that is not related to core corporate functions and is not ordered from the same set of suppliers on a regular basis. In a PYMNTS interview, Martin Rohde, head of commercial customers for Amazon Business, explained how and why the company targeted that spend, which includes such products as printer paper, bottled water, paper towels, breakroom supplies and IT cables.

Those purchases can also include what might be described as “requests from out of left field,” Rohde said, describing the case of a large, Texas-based industrial firm that needed a small fleet of yellow tricycles so personnel could more easily move around the plant.

Amazon Business now also offers pay by invoice, similar to how Grainger operates payments. That effectively means buyers no longer have to make payment for goods they buy on Amazon Business at the time of purchase. Instead, they are sent an invoice, with sellers receiving a credited balance to their Selling on Amazon account as soon as a buyer’s payment is processed.

Grainger and China

Amazon’s B2B plans come as the industry faces economic uncertainty, including new tariffs and trade wars. Indeed, the risks of currency declines and other trends is being felt in all types of commerce and payments, according to sustained PYMNTS coverage.

Grainger, the major old-school player in supply chain commerce, offered an example of those risks during its second-quarter earnings conference call. “The vast majority of our source items come from China — up to two thirds or even more than that at this point,” D.G. Macpherson, chairman and CEO, told analysts and investors. “There’s two things — one is our private brand products that come from China; the other is branded products that come from China. Both have the potential to be impacted here.”

Investors have not given up on Grainger as Amazon grows in B2B online commerce, but that faith comes at a cost. “Grainger is one of the best-performing stocks on the S&P 500 Industrial Index this year amid booming volume growth that’s due in part to draconian price cuts it implemented to stay competitive in the age of Amazon,” according to Bloomberg.

New Tech

It’s not just Amazon that is bringing change to B2B commerce. The same technological forces playing bigger roles in retail payments and commerce are also disrupting the supply chain.

One example is blockchain.

In a PYMNTS interview, Eric Piscini, CEO of Citizens Reserve, a startup deploying technologies like blockchain to offer supply-chain-as-a-service via its SUKU platform, explained how different technologies are changing B2B commerce.

The company’s platform, which launched earlier in September, may be based on blockchain infrastructure, but it’s not the only technology Citizens Reserve has deployed to address supply chain management issues. The tools offered by the company tackle several supply chain points of friction, including eInvoice adoption, procurement, electronic payments and transparency of supply chains.

Meanwhile, legacy procurement software is being retired, and the next five years will bring more use of “the integration of virtual assistants and chatbots into online procure-to-pay marketplaces,” according to a Gartner report. “As more procurement officers leave outdated software behind and switch over to more streamlined and efficient options, the result will be tighter competition for other software providers, cloud services, retailers and third-party sellers.” That, of course, could also serve to benefit Amazon, given its web services operation.

Machine learning and artificial intelligence will also play a role in such developments.

“The most common application of automation and AI is on the manufacturing floor, driving the orchestration of activities, such as part replenishment,” reads a recent analysis of that trend. “Through connected and automated equipment, a supplier will be alerted when a part needs to be replenished. With this fully automated system, no purchase orders are created and there is no communication needed with the manufacturing team.”

Amazon has certainly not won the B2B battle yet, though its growth signals that its competition is becoming fiercer. But the spread of new technology also presents opportunity for disruption and new business, and Amazon’s competitors are certainly not ready to call it a day.


New PYMNTS Study: Subscription Commerce Conversion Index – July 2020 

Staying home 24/7 has consumers turning to subscription services for both entertainment and their day-to-day needs. While that’s a great opportunity for providers, it also presents a challenge — 27.4 million consumers are looking to cancel their subscriptions because of friction and cost concerns. In the latest Subscription Commerce Conversion Index, PYMNTS reveals the five key features that can help companies keep subscribers loyal despite today’s challenging economic times.