This $8 Trillion Industry Is About to Get Disrupted – Valutrics

Having long operated in the last century, the massive market for business goods is finally experiencing disruption and being innovated into a more modern version of itself.

Leading the way is Amazon’s e-commerce platform, but there is also a wave of marketplace startups making headway in transforming B2B distribution. The landscape is wide and there are many points of attack, so it certainly looks like the most lucrative space to build a startup.

A Bubbling Opportunity

Companies like Grainger and Reliance Steel have long fulfilled the market need for the distribution of business goods, such as industrial parts, medical supplies, metals, and tools. These distributors buy their inventory from the manufacturers and resell the merchandise to the end customers, along with some well-developed value-added services (VAS).

For years, established distributors operated their businesses, some rising to become multibillion-dollar market leaders with others continuing as mom-and-pop stores that serve their local geographies. All of this has left the majority of these verticals with high levels of fragmentation.

Also laying the groundwork for imminent disruption was the kind of products these companies sold – they’re all commoditized. A nail from from Peter is as good as a nail from Paul and the cheapest one is typically the one that gets bought, as long as the quality holds constant.

This commoditization and fragmentation of the distribution world has left it incredibly vulnerable to disruption, particularly due to the lack of serious innovation By contrast, the US market is quite sparse, with only a couple companies operating in each of the major verticals, if at all.

The largest players are Amazon and Alibaba, of course, which have operated in the B2B space for less than a decade. Decades-old incumbents are not conspicuously absent because they all lack marketplace strategies, either to ignorance of the sea changes coming their way or a stubborn refusal to adapt to the shifting landscape.

These attitudes are already delivering poor outcomes for a number of top distributors. Exemplifying the stodginess and resultant suffering, Grainger missed its quarterly expectations twice and its stock has plummeted more than a quarter since that first bad report.

A Swell of Innovation

The question isn’t when or if B2B distribution will get disrupted. It’s happening and it’s happening right now.

The question is who will take the lead in the sweeping changes? Will it be the emergent startups, established market leaders, or massive tech companies moving into a vulnerable market?

European and Asian startups are vastly outpacing American ones in the race to disrupt and define the future of B2B disruption. In the US, Amazon is increasingly the leader for introducing efficiency, convenience, and savings to the end customers, which is driving more and more players to join its marketplace for business goods.

If Amazon is left to dominate the market uncontested, numerous firms will experience heavy losses, forcing layoffs and shutdowns over the next five to ten years. New innovations typically borne out of a batch of startups competing for customers and market share won’t occur and take hold.

How did this situation come to pass?

Perhaps there’s some residual shell shock from the dotcom era, in which established distributors made investments in a number of B2B marketplaces that mostly went belly-up.

However, good counsel would show the circumstances are incredibly different than they were 20 years ago. Internet speed and access has vastly improved, buying habits are increasingly shifting online, and purchasing managers demand more transparency and convenience when making purchases.

Many of these changes were driven by Amazon itself, who is now reaping what it sowed.

To anyone looking to make gains in a largely greenfield opportunity, building a marketplace for buying and selling business goods looks to be one of the ripest chances out there.