Amazon Business just hit its first year anniversary since officially launching under its current name (formerly Amazon Supply), and my, how baby has grown!
We caught up with Amazon Business Vice President and General Manager Prentis Wilson a few days ago, and he briefed us on his team’s progress, which has been nothing short of remarkable. But perhaps this should not be surprising for those who’ve added Amazon Business as a supplier and, in certain cases, a strategic tail spend supplier.
Amazon Business booked roughly $1 billion in sales last year, experiencing 20% month-on-month growth. Yes, that’s a CMGR that equates basically a 9X CAGR — not too shabby. Amazon reports revenue as a retailer of sorts, even though it understandably prefers to refer to itself as an “online marketplace.” The gross margin of roughly $100 million on this represents a pretty darn good official start in the B2B market. (We’re assuming Amazon charges the sellers on average 10% of customer sale pricem which varies depending on many factors such as whether it resells the items versus storing and fulfilling them where it makes additional revenues.)
Comparing Amazon Volume and Margin to Ariba and SAP
This volume also means that SAP Ariba's business network needs to look in its rearview mirror. Right now, SAP Ariba does approximately $700 billion of annual commerce on its network, so if we assume a minor amount of “double-counting” of commerce (i.e., some e-invoices also having e-POs), then the, say, $500 billion in commerce would yield roughly $500 million in network-based revenues (assuming 10 basis points charged to suppliers). So, it’s still 5X larger than Amazon Business, but if the latter grows 5X this year rather than 9X, and SAP Ariba holds steady (which it won’t since it’s growing, to, although clearly much slower), then the tables suddenly will have turned.
Of course, neither firm splits out its exact numbers here, but this analysis should be directionally accurate. What’s interesting is that it has taken over 15 years for the Ariba Network to get to this volume, and it has been anchored by large enterprise buyers from the top down. Amazon Business, on the flip side, has been a bottoms-up market player and has 300,000 business accounts (i.e., $3,300 of sales per account on average).
Amazon Business — By Corporates, For Corporates
Amazon Business's market is currently dominated mostly by small and medium-sized enterprise (SME) businesses, with some enterprise accounts moving their tail spend into Amazon. But, this isn’t just changing the “skin” on the Amazon.com B2C site. Over 50% of business went to Amazon third-party sellers. Additionally, Amazon Business added 9 million more SKUs that are specifically relevant to B2B, and the firm has been rolling out frequent enhancements to the site.
For example, diversity reporting is expanding (Amazon uses the U.S. Small Business Administration for its diversity reporting) and so is the roster of e-procurement solution partners punching out to its site. Thirty-one e-procurement providers are integrating into the network, with Coupa mentioned as the one most prevalent one, even though Oracle and SAP (including Ariba) are still clearly the two market movers in the enterprise space.
Amazon Business and the E-Procurement Ecosystem
Amazon Business is a perfect example of a platform-based business model that can serve as either a hub or spoke for companies’ purchasing activities, depending on need. From a functional e-procurement perspective, Amazon Business is not yet a tool for larger companies, but then again, it’s much more than a punch-out site/catalog for this group, too.
More important, for SMEs, it’s getting there.
Granted, they are certainly some functionality gaps still to close though before Amazon Business gets to an enterprise-class B2B solution that includes strong controls for role-based item filtering (and other controls to ensure guided buying rather than guided selling), support for e-invoicing (rather than just credit card settlement), services procurement and specific buyer-supplier pricing for Fulfillment by Amazon (FBA) items. But some of these are being piloted right now and we expect gaps to get closed here in the not too distant future. We’ll be staying on top of this.
Once Amazon fills these gaps, it will be curious to watch the overlap in the lower-end of the procure-to-pay (P2P) market and whether “free” displaces or serves in place of SaaS offerings. It may be that the ease of use of the system, combined with value-added services, will be enough to convince smaller buying organizations to use e-procurement functionality that is captive to a marketplace (rather than a true e-procurement application that is independent and agnostic to the supply channel).
This is a nuance that we’ll be revisiting overtime — and is important for a variety of reasons.
Go West and East, Baby
Finally, globalization was cited as a key area that the firm was looking into. Amazon runs multiple regional marketplaces, but based on the level of hiring in the Amazon Exports & Expansion team, it seems that Amazon is ramping up its global e-commerce expansion to accompany its global logistics expansion that's been the fascination of the mainstream media recently. If you search for jobs with this team, you’ll get a sense where they’re going, but obviously B2B is a global opportunity for Amazon Business to address beyond its current U.S. focus.
So, what does this mean?
For enterprise procurement and supply chain organizations, it should be pretty clear by now that Amazon Business is not just an experiment — it’s here for the long haul. The advantages Amazon brings across the supply chain aspects of fulfillment — down to the last mile (see the current Prime same day delivery map) — should be causing industrial distribution and MRO suppliers to think twice about the importance of Amazon as the competition of the future.
Perhaps more important in the near-term, larger procurement organizations should look at Amazon as a potential strategic lever they can currently pull in North America — and likely in some regions globally, soon — to consolidate tail spend across hundreds or thousands of suppliers not only to reduce costs and risks through supplier rationalization but also to unify payment terms (with Amazon as the consolidated vendor/marketplace). Amazon presents a lower-risk, lower-investments means of maintaining greater control of tail spend than BPO and other options.
We’re guessing that the year two anniversary for Amazon Business is going to present a B2B toddler running at full speed and accelerating through the quarter mile. There’s no crawling for this baby.
Spend Matters PRO will be providing a more detailed analysis and set of recommendations for our subscribers (practitioners, suppliers and technology providers) on Amazon business later in May. In the meantime, we encourage PRO members to reach out with any questions they might have about how best to engage with Amazon Business.