Amazon to Cause Distribution Disruption?
Rumours swirl that global shipping giant Amazon might be poised to disrupt the current channel distribution model
At UC Today we hear a lot of industry rumours. Often outlandish and unsubstantiated there is little scope to expand on anything coming out of the rumour mill. However there has been one reoccurring idea that seems to have some legs. That’s Amazon disrupting the channel!
Amazon now dominate the global consumer e-commerce market with some research estimating that they control over 25% of the entire marketplace. Considering their success in the consumer world, the commercial industry must fear similar disruption that is currently affecting domestic high-street stores and traditional sales models throughout the world. In the UK, Amazon account for a whopping third of online consumer spending.
Since 2012 Amazon have actively been targeting the business market. The launch of Amazon Supply was their first foray into the business market specifically targeting specialist industrial business equipment. Amazon Supply was then replaced three years later by a bespoke business only marketplace, Amazon Business. This offering now provides various features, either as standard or as part of a paid for Prime service, that businesses would expect from a distributor looking to cater for their procurement needs. Bulk discounts, sales support, discounted delivery options, extended payment terms and also spend analytics features could all attract the cost conscious organisation to rethink their procurement strategies.
For decades the channel model of authorised distributors, resellers and service providers has catered for business needs by offering enhanced support and product knowledge and this will need to continue as one area that they certainly won’t be able to compete on is price. Amazon’s huge buying power and already established logistics networks will allow them offer discounts that smaller organisations won’t be able to match.
Some of Amazon Business’ features are effectively old news, as the channel have been offering next day delivery and most of the other services for years. The pace of growth, however, within Amazon Business should serve as a warning to all those who are potentially impacted. In 2018 global sales totalled around £8 billion, growing more than ten times from the total in 2015. Amazon Business is now growing faster than their cloud or retail consumer business sectors.
Undoubtedly the current channel model offers end user organisations various benefits that have proved invaluable and have seen off any previous threat of e-commerce disruption. Product knowledge and certification from certain vendors has ensured that products within specific industries, such as IT and communications, have only been available to buy through authorised partner and distribution networks. This could be the crucial aspect that changes the game. If the dominant market vendors look to authorise Amazon as a verified partner and move their existing models to utilise their services you might expect to see more dramatic and accelerated competition from the global giant. You can see potentially why a vendor might be interested in a new model, cutting out some of the supply chain layers. Although it’s unlikely they would make any more money supplying through Amazon as its likely their power would demand even greater discounts. Despite this over the last few months there have been more and more background discussions about UC and IT vendors replacing their traditional distributors with Amazon and 2019 could be the year where concrete news hits the headlines.
Obviously Amazon’s advantage won’t be there in every sale. For the more complex, solution focused, opportunities the current channel model would still have the edge, but a huge proportion of sales are still hardware based. If the customer knows what SKU or product code they need and doesn’t require additional support, why not by from Amazon to save an extra 1%? Organisations could immediately look at purchasing certain products from Amazon Business. IP Phones, conference phones, routers and networking hardware are often components that are purchased purely on the basis of their specifications. Channel providers could potentially lose out on a large proportion of a solution sale if all of the peripheral products are purchased on Amazon instead of through the solution provider. Resellers and service providers regularly use multiple distributors and chop and change depending on where they receive the best combination of pricing and service. Many have already added Amazon to their supply chains and why not? Their customer and product knowledge allied with Amazon’s pricing and logistics could be a powerful combination. So maybe the distributors are the stage of the channel model most at risk?
We have already seen a shift within the distribution model, box shifting is becoming more and more redundant. We now see a greater focused placed on supplementary support, product knowledge and services. These options may now be more important than ever to ward of the threat of similar disruption that other industries have seen as a result of Amazon’s behemoth status.