Forget the delivery drones and TV deals. Jeff Bezos's stealthy foray into the unsexy world of B2B distribution is likely his most disruptive move yet—and it has an $8 trillion swath of the economy running scared
In recent months, global internet retail behemoth Amazon.com has green-lit six new original TV shows, announced an online streaming deal with HBO and tested same-day grocery delivery on the West Coast. Up next? Possibly a smartphone. And, if billionaire CEO Jeff Bezos has his way, packages dropped off by unmanned drones.
But there’s one thing Bezos hasn’t been talking about: AmazonSupply, an ecommerce site targeting the unsexy but hugely lucrative wholesale and distribution market. His silence is especially surprising as the site has the potential to turn into the most important development in the company’s history since it started selling books. Yet Bezos has uttered only 28 words in public—ever—about AmazonSupply, describing it in passing as “an incredible category” during the company’s 2012 annual meeting.
“You can get industrial motors, flanges, valves, fasteners, materials, janitorial supplies,” he said. And that was it, before moving on to proudly tell shareholders that the world’s largest gummy bear, a 72-ounce sugary beast, was for sale on Amazon.com. Whether the lack of hype is a deliberate part of a stealthy rollout or Bezos just thinks selling rubber gloves to dentists lacks PR value, wholesalers are taking the threat seriously, and it’s easy to see why. While US retailers took in more than $4 trillion in revenues according to the most recent US Census, wholesalers brought in $7.2 trillion selling everything from Bunsen burners to toner cartridges.
Amazon, meanwhile, booked more than $74 billion in revenues last year, selling everything from beds to server time with a virus-like strategy that values opportunity and disruption above short-term profitability. Almost identical to the company’s flagship website, Amazon-Supply.com launched quietly in April 2012 with 500,000 items for sale. Two years later, with the site still officially in beta, that list of products has grown to more than 2.2 million—covering 17 product categories from tools and home improvement to janitorial supplies. If 2.2 million products doesn’t sound like a staggering figure on its own, consider that the average wholesaler sells closer to 50,000 products online.
“The question is not whether AmazonSupply will be a threat,” says Richard Balaban, who has studied the site for management consulting firm Oliver Wyman. “Rather it is which customers, purchase occasions and categories will be attacked first.”
AmazonSupply’s genesis was in 2005, with Amazon’s acquisition of SmallParts.com, an online emporium that billed itself as “the hardware store for research & development”. The purchase price was never disclosed. “It was an opportunity for us to learn more about our business customers,” says Prentis Wilson, vice president of B2B and AmazonSupply. “As we evolved our selection, we launched AmazonSupply.”
He won’t say what Amazon is spending—and likely losing—on the venture, but overall the company, despite all those billions in revenue, estimates an operating loss of up to $455 million next quarter. This aversion to profits may be starting to turn off investors (the stock is down 9 percent since the announcement in April, though the market capitalisation remains a staggering $142 billion), but it’s helped build a 125,000-employee logistics and data powerhouse that was able to process orders on 36.8 million items during peak Cyber Monday shopping last Christmas season—a staggering 426 items per second to 185 countries. “We are comfortable planting seeds and waiting for them to grow into trees,” Bezos told Forbes for a 2012 cover story. “We don’t focus on the optics of the next quarter; we focus on what is going to be good for customers.”
The development of Amazon Web Services, which Bezos launched in 2006, says a lot about Amazon’s likely ambitions for AmazonSupply. Having developed the computer infrastructure needed to run Amazon.com, Bezos set up a B2B division that allowed other companies to use Amazon’s excess computing power. Web Services now dominates the cloud computing industry, hosting customers from Nasa to Pfizer and ringing up an estimated $3.2 billion in revenue last year, thanks to an even faster growth rate than Amazon’s main storefront.
“If you think about where they’re making their money right now, it’s not in shipping you and me Crest toothpaste,” says Bruce Cohen, a senior partner at management consultancy Kurt Salmon. “It’s in cloud computing. It’s these vast servers. They’re not making money on the sexy part of the business—streaming video or delivering us boxes of cool stuff.”
Wilson is Bezos’s wholesale czar. The chiselled, dark-haired 43-year-old joined Amazon in 2011 from Cisco Systems. Now based in Seattle, he oversees industrial and scientific supplies across the whole of Amazon, as well as this new business. He wouldn’t disclose how many Amazon employees are currently working solely for AmazonSupply, but scan the division’s recruiting website and you’ll see how lofty the etailer’s ambitions are for its wholesale business. Under the heading “Our goal is to supply everything needed to rebuild civilisation”, some 40 jobs are listed, including software-development engineers and “brand specialists” who’ll be expected to become experts on the tools of the trade.
But just a couple of years into the game, AmazonSupply has already beaten Grainger in sheer volume of online inventory, with its 2.2 million products for sale dwarfing the latter’s 1.2 million. AmazonSupply may cut into Grainger’s high-volume, low-margin business if it hasn’t already. It’ll sell truckloads of beakers, for example, or copy paper. These are what the industry calls “replenishment items”, and they’re the lowest hanging fruit for Amazon.
(This story appears in the 13 June, 2014 issue of Forbes India. To visit our Archives, click here.)