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ZOOM Amazon Moves into the 32B Marketplace POM MKT Amazon Business (www.amazon.com/business) is Amazon's e-commerce website that caters to the wholesale and distribution business-to-business (82B) sector. Amazon Business does for com- mercial customers what Amazon.com does for individuals (B2C). Amazon's 82B efforts began with AmazonSuppIy,:which de- buted in 2012 with half a million products on offer. By 2014, the inventory had expanded to more than 2.25 million items, includ- ing tools, renovation supplies, cleaning supplies, steel pipes, and a host of other products. 'n 2015, Amazon created Amazon Business and merged Ama- zonSupply into it. Amazon Business uses a hybrid business model, selling both products directly from its own warehouses, as well as those from third-party vendors. The outside vendors, which stilt have to compete with Amazon products, receive a commission of between 6 and 15 percent for their items sold, depending on the type of product and how big the order is. Amazon Business customers, who are eligible to buy and sell if they have a tax ID number, can access hundreds of millions of business-only products, obtain bulk discounts, set up a corpo- rate credit line, and receive free two-day shipping on orders over $49. Clients can also talk with manufacturer representatives about product specifications. This process is required for sales of complex technical products. Amazon Business offers several benefits for vendors. For exampte: The site lists products, along with any accompanying quality certifications such as ISO 9000. Amazon Business account holders can qualify for special of- fers not available to individuals on the Amazon.com site. This helps vendors meet requirements not to sell products that are forbidden to be sold directly to consumers, such as high-tech healthcare equipment. Customerscan search for items by both manufacturer and dis- tributor part numbers. The site can demonstrate products in web videos and host downloadable computer-aided design (CAD) drawings. Amazon Business also offers benefits for buyers. For example: Multiple buyers within an organization can create business ac- counts and share payment methods and shipping addresses. Promotions from multiple sellers are displayed on one prod- uct page, making it easier to compare pricing and vendor rat- ings from Amazon. Buyers can view other buyers' product reviews. Amazon Business is connected with buyers' procurement systems, allowing them to put Amazon on their procurement software's list of authorized sellers. Wholesalers are taking Amazon's threat seriously. The whole- sale industry in the United States is almost twice the size of the retail indUstry. In 2014, wholesale sales totaled $7.2 trillion, com- pared with more than $4 trillion for retail sales. White the whole- sale industry is larger than retail, the companies themselves tend Page to be smaller. Most of America's 35,000 distributors are regional, family-run businesses. Typical yearly sales are under $50 million and only 160 of these businesses report annual sales exceeding $1 billion. In contrast, Amazon reported more than $89 billion in revenues in 2014, selling goods in both the B2C and B2B market- places. The average wholesaler offers approximately 50,000 prod- uc!s online, compared to Amazon Business's hundreds of millions of products. Amazon Business is competitive even in niche markets. Take scientific equipment as an example. Items such as centrifuges and Bunsen burners are usually only offered by specialty dis- tributors. But you can get one with the click of a mouse through Amazon Business. Few specialty distributors can compete with Amazon's huge product list, its easy-to-use website, two-day de- livery, physical infrastructure (fulfillment centers in the United States), and information technology infrastructure (e.g., Amazon Web Services). To acquire and maintain competitive advantage, Amazon Business keeps items that may not sell quickly, in order to avoid stockouts that plague other distributors of specialty items. IndUs- try analysts estimate that Amazon has on hand more than half the inventory that it offers on the website at any point. B2B has very small margins, typically 2 to 4 percent. Amazon's size allows it to make money through high volumes. It achieves these high volumes throughwhat else?beating competitors' prices by about 25 percent on common products, according to a Boston Consulting Group (www.bcg.com) report. Despite its success, Amazon Business does have competition. Consider W.W. Grainger (www.grainger.com), in business since 1927, which captures about 6 percent Of the entire U.S. 02B mar- ket. The company, which sells tools for maintenance and repair, now operates more than 700 regional sales locations and 33 ware- houses. The company recorded $10 billion in revenue in 2014, most of which it still generated offline. Nevertheless, in 2014, it had more than $3 billion in online sales. One area that Amazon Business may not be able to penetrate is the close partnerships that some distributors have with-insti- tutional clients. For example, medical supplier Cardinal Health (www.cardinatheatth.com) has taken control of the entire supply chain at the Nebraska Medical Center. Cardinal handles everything from truck to patient. It orders products from suppliers, tracks product distribution, handles loading dockworkers, and deals with supplier invoicing. The challenge confronting the nation's 35,000 wholesalers and distributors is how to compete With Amazon Business. Industry analysts identify two possibilities: 1. 2. Provide value-added, personalized services to customers. For example, Valin Corporation (www.valinonline.com) has specialized in the oil and gas sector, dispatching engineers to oilfields to help deploy the company's products that manage output at surface oil wells. Go into areas Amazon may fear to tread. Amazon may not be interested in trying to get up to speed in specialized business environments. For example, will Amazon want to sell oxygen tanks or soda pumps? Furthermore, Amazon might not want to manage products that are dangerous or exotic, such as dentists' chairs, or that require specialists.