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Displacement is the New Disintermediation

If you sell on the Amazon Marketplace or are thinking about it, consider the possibility that you are empowering a company that could become your fiercest competitor.

As I outline in Amazon Business: The Burning E-Platform, Amazon Business is not just a distributor -- it is one of the world’s leading software and artificial intelligence companies and is likely to use these tools to improve its margins by “going direct” over time.

The company is already wielding these strengths to position itself as a great eProcurement supplier. It has developed the capability to be the primary supplier to major purchasing organizations with the third-party marketplace as its greatest asset.

In the early days of the internet, I worked in marketing at Grainger and was invited to speak to second-year MBA students at Northwestern University about how e-commerce was changing the competitive landscape. A hot topic at the time was “disintermediation” – the concept that manufacturers would no longer need distributors and would sell to their customers directly.

Students often asked me, “When is the internet going to put Grainger out of business?” I pointed out that an online ordering mechanism was a small part of what it took to sell to end customers. Distributors add value in many ways. They support customers with a much wider assortment than any single manufacturer, open account terms, fast delivery, demand generation and much more.

In my view, disintermediation was never a real threat – it’s always made sense for there to be an intermediary between manufacturers and end customers. The strategic case for distributors remains as valid as the logic for the existence of retailers.

What no one saw coming at the time was the emergence of a mega-supplier such as Amazon. Much of Amazon’s power is derived from its “third-party” marketplace, an offering available to both consumers and business customers. This breakthrough is the new enabling model for what is a superior value proposition to an increasing set of customers. Even the world’s largest retailers and distributors offer a tiny fraction of what Amazon “carries.”

Distributors and retailers who sell through Amazon’s third-party marketplace are enabling a ferocious new competitor and may be participating in their own demise.

Read much more about this topic in Amazon Business: The Burning E-Platform. Also be sure to check out my first article in the series, Amazon’s Prime Target: Your Business, which details how Amazon is coming at distribution "determined to win," and Part 2, Amazon Gets Down to Business, which looks at the origins and evolution of Amazon Business.

© 2019 Gale Media, Inc.

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