Amazon Takes Stage with Oracle, Enters B2B Market – So What?

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Amazon.com, Inc. is the largest business-to-consumer electronic marketplace in the US. And its parent company, and more specifically its business-to-business unit, just landed its first real beachhead into the e-procurement enabled B2B market.

Yes, Amazon, eBay, Alibaba and other B2C e-marketplaces do their fair share of B2B business, especially Amazon when it launched its AmazonSupply.com B2B site (basically a re-skinned version of Amazon.com) that we wrote about almost 3 years ago here. (You can see all our previous analyses in the related links section below.) But this is different. This is about Amazon entering the real B2B market, and as we predicted (without any inside information), the e-marketplace gorilla is now officially loose.

Last week, at the Oracle Value Chain Summit, a customer conference in San Jose, an executive from Amazon’s B2B division (the group that runs AmazonSupply.com) co-presented a session with Oracle and an Oracle mid-market customer that demonstrated a business scenario whereby the customer is using Oracle’s cloud-based e-procurement product to connect to Amazon.com to buy products not available on the corporate catalog of preferred items and suppliers.

The customer is live on the solution now, and basically “punches out” from the Oracle e-procurement application to buy the product on Amazon. Then after clicking on a “Submit for Approval” button that pops up, the product details from the shopping cart are returned back to the e-procurement application for subsequent management approval (if needed) workflow before an automated order is generated and financial settlement occurs.

So, what we have here is the second-largest ERP vendor integrating its e-procurement product to an independent e-marketplace catalog in the same manner that it would integrate to an individual supplier. For items that are “fulfilled by Amazon” (i.e., a model like eBay and Alibaba), Amazon serves as a true marketplace. For items that are “sold by Amazon,” Amazon serves as an online retailer as the seller of record. In the latter example, Amazon buys low and sells lower. In the former example, it charges the supplier (“the merchant”) about 10% of the value of the purchase for the right to sell on the marketplace and integrate to Amazon’s set of value added services.

So What?

Ok, so what’s the big deal here? Isn’t this a story that could’ve been written 15 years ago? Ariba (now part of SAP) had an e-procurement product that similarly punched out to its own B2B marketplace called the Ariba Network (and it still does – except now are both owned by SAP). Commerce One had a similar model before SAP bought the e-procurement application as the foundation for its SRM product and before the marketplace software got sold off to Perfect Commerce (and its Open Supplier Network service). As an interesting side note, Amazon is currently using the cXML standard (for shopping cart integration) developed by Ariba and the OAGIS standard developed originally by Oracle (in this case for PO integration) to facilitate the integration between Oracle’s e-procurement application and the Amazon marketplace.

Such standards are key to allowing buying organizations to have a choice in loosely coupling their e-procurement on-ramps to e-marketplaces that can be used for “spot buying” (or managing “tail spend more broadly) and to cloud-based integration providers/sites of various flavors. As another side note, a “supplier network” is really just an umbrella term for a “network” (broadly defined) that provide such supplier/product discovery, commerce automation (i.e., B2B integration that includes information exchange and monetary exchange), and higher-value collaboration support.

Pragmatically, this means that Amazon is open for B2B business by allowing any e-procurement provider to hook into it for such ad-hoc buying of products. We wrote about a small e-procurement vendor in the UK that was already looking to do so a year ago even though Amazon wasn’t quite ready itself (because Amazon has to accommodate any provider globally – and this is a non-trivial task especially when you consider things like security/privacy requirements, sales tax management, customer services and numerous other operational considerations).

Connecting to Amazon

If an e-procurement provider can punch out to a supplier site, it can now punch out to Amazon. This is very similar to SAP’s announcement for ad-hoc purchases of business supplies. We did a fairly deep analysis on this partnership here and won’t reinvent the wheel as such, but we’re somewhat pessimistic on it because it’s hard for large bears to dance nicely together and because eBay will be charging merchants roughly 10% on the value of the goods.

This is the same issue that Amazon will face given its same model, but Amazon has the advantage of not having a channel conflict of selling business applications (“the on-ramps”) and the network to connect to those applications. It’s also why Oracle is staying out of the “business network” business.

Ironically, there’s no technical reason why SAP customers can’t also access Amazon in this way, especially since Ariba pioneered the “punch-out” model and developed cXML! Amazon has much richer catalog capabilities and a more robust backend fulfillment network. SAP won’t tout that though because with the Ariba Network, its like a “sticky” tight coupling of e-procurement applications, and are also taking a cut of the of transaction, although far less than eBay and Amazon (i.e., roughly 15 basis points versus 1,000 basis points). Yet, it doesn’t matter because there is a rich ecosystem of catalog and connectivity providers that can be used to “wrap” an SAP on-premise (i.e., non-cloud) system to provide such a virtual and “free” (to the buyer) supplier network. We began to write about this years ago.

Still, it’s very early days for Amazon, and it’s not yet near the level of sophistication that the Ariba Network possesses for supporting complex B2B processes with preferred suppliers (or any suppliers for that matter). Moreover, its supplier discovery mechanisms are also limited (e.g., like ThomasNet or even MFG.com, which ironically was partially funded by Jeff Bezos), as is deeper downstream integration and enablement for suppliers paying on terms (i.e., support for eInvoicing integration).

Amazon also obviously doesn’t behave like information-exchange-centric “open supplier networks” from application-centric, buy-side providers like Hubwoo, Tradeshift, Perfect, Taulia, Vinamaya, Coupa, Basware, Tungsten and literally dozens of others that are generally “free” to the buyer (even though fees are charged to suppliers for value-added features beyond the basic “freemium” support) and don’t financially intermediate themselves itself into the commercial transaction like Amazon does, except in the case of invoice discounting (and that is still a rarity).

Yet, while buyers might wince at the fees that Amazon charges a supplier, the flip side is that for tail-spend purchases, and for mid-market buyers (and smaller), Amazon has a famous (or infamous) price compression effect as it disintermediates middlemen and makes manufacturer prices more transparent. This warms the cockles of a Chief Procurement Officer’s heart (who want to save the firm money for all the right reasons, of course). But the CPO is also rightly wary of any suppliers getting too powerful, which eventually paves the way for prices going up and innovation going down.  And he or she is also worried about the finely tuned up-selling, cross-selling, and impulse-selling techniques that merchants use on Amazon or any supplier site that gets "punched out to" that doesn't have catalog controls built into it (which Amazon doesn't have operational yet).

Alphabet Commerce Soup

As such, this sets the table for a much larger discussion regarding the role of major service providers in a service-based economy with everything as a service (XaaS). Massive players like SAP, Oracle, Amazon, eBay, Google, Apple, IBM, Microsoft, SalesForce, Intuit, Alibaba and others are all vying for different pieces of the B2B pie. In addition, everyone in the supply chain who owns bricks wants to own clicks and to have information-related capabilities to gain competitive advantage (e.g., consider Flextronics’ launch of Elementum in the supply chain space as we wrote about here and here).

In other words, worlds are colliding as a diverse set of players coming from different areas of the market are moving to “industrialize” these XaaS services:

  • SaaS (Software as a Service) – cloud based applications
  • PaaS (Platform as a Service) – development environments, databases, analytic tools. See here for Paas applied to procurement
  • IaaS (Infrastructure as a Service) – computer-related services
  • BPaaS (Business Processes as a Service) – labor-based services in the services chain such as Business Process Outsourcing (BPO), Managed Services Providers (MSPs), etc. Within procurement, Accenture has been the most aggressive here
  • And other services such as hosted integration services, information/intelligence services, application marketplace services and other services

Party Like It’s 1999

If you guessed this feels like the old marketplace rush, you’d be right (see my colleague’s essay from 2000 from the now defunct Industry Standard on why this failed the first time around, below).

commerce

But this time things are different, even if the market is in a serious state of flux. Technology works even if many older marketplaces are transitioning to becoming “private clouds.” Application vendors are creating app marketplaces and PaaS offerings. Manufacturers and service providers want you to use their “apps.” Group purchasing organizations are aggregating buying power to serve up to the installed bases of e-procurement vendors (who are, in turn, trying to turn their installed bases into private marketplaces and communities).

To quote Prince, we’re gonna party like it’s 1999.

In Conclusion…

So, to wrap this way-too-long piece up, the tech giants will want to stake their high ground in this service-based B2B economy. In our next set of Spend Matters PRO analyses on the topic of Amazon and others, we will continue to focus our efforts on the higher value layers of this services stack, namely around the intersection around business networks and platforms.

For procurement organizations looking to industrialize their own services, they need to look at how to tap XaaS supply markets to help them do so. This means they need to educate themselves on the great services industry mash-up and land- grab as well.

Skip to the Good Bit

In coming Spend Matters PRO analysis, look for us to answer the following questions:

  • What does Amazon need to do to support real B2B e-procurement? Its current support is very rudimentary and there are literally dozens of gaps it needs to focus on.
  • How should procurement organizations view Amazon’s foray into B2B? How might it evolve and what should they look for?
  • How will the B2B payments industry co-evolve with other trade finance activities in the value chain?
  • How will other major players evolve? What will Google do beyond a price- shopping engine? Will Oracle provide deeper network services? Will Microsoft ever resurrect its “Business Network”? Will SalesForce figure out a buy-side strategy? Will Alibaba get real outside of China? Will IBM connect the dots with its fragmented capabilities?
  • What will happen in 2015? Actually, we have some predictions on that here, here, here and here.
  • How can practitioners place their bets and also hedge their bets as they size up the various mega-vendors and the smaller innovators?
  • How can smaller players “dance with the bears” and either play in their ecosystems or establish their own niches across the ecosystems?

Thanks to Amazon and others, we’ll stake the value of our next PO that during the coming 12-36 months, we are going to see greater disintermediation and change in B2B commerce than the past few decades combined. Buckle your seatbelt (especially if you’re an incumbent distributor like Grainger or Staples).

Voices (2)

  1. thomas schinkel:

    Who else is doing anything similar to Amazon B2B Business?

  2. Taz:

    What has happened is that Amazon RE-introduced punchout (shopping and cXML PO). They had this capability back in 2008 for sure. But then they had to desupport it probably in 2009 or 2010. Back then, Amazon wasn’t ready to support large buyers. Now it looks like their tune has changed.

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