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Another $1 Billion Business? How Amazon's B2B Marketplace Is Redefining the Way Businesses Buy

By Andrew Tonner - May 12, 2016 at 10:01AM

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Yet another example of why Amazon's best days are ahead.

Few companies can create a billion-dollar business seemingly overnight and not have it become front-page news. But that's business as usual at Amazon.com (AMZN -2.65%).

Last year, the company launched its own business-to-business (B2B) e-commerce platform to little fanfare. Fast-forward to today, and Amazon's B2B platform has already surpassed a staggering $1 billion in sales, and it's just getting started.

Amazon's booming B2B business
According to Bloomberg, Amazon's B2B e-commerce unit has surpassed the $1 billion revenue threshold -- not too shabby for a business that only launched in April 2015. Bloomberg doesn't make the time frame clear for when Amazon crossed the $1 billion threshold, but it's still a major milestone for Amazon in its efforts to disrupt one of the lower-profile areas of the retail world. What's more, its B2B platform is reportedly growing sales at a staggering pace of 20% month over month.

Operating under the name Amazon Business, the company's B2B e-commerce unit sells a broad spectrum of goods, ranging from latex gloves to tractor equipment and seemingly everything in between. The unit serves as a direct challenger to Staples, Costco, and a host of smaller retailers that collectively cater to the estimated $8.6 trillion B2B sales market. Amazon's timing appears impeccable.

Source: Amazon.com.

Research firm eMarketer estimates that roughly 9.9% of all B2B retail spending, roughly $855 billion, will take place online this year, a number likely to considerably increase in the coming years. As a sign of the e-commerce giant's appeal among businesses, 300,000 businesses have reportedly created accounts with Amazon Business. In nearly every sense, Amazon Business appears to be off to an impressive start, and this is just the beginning.

$3 trillion company?
Recently, high-profile venture capitalist Chamath Palihapitiya made waves in the tech community when he argued that Amazon could be valued as highly as $3 trillion. How he arrived at this astronomical valuation lies outside the discussion here, but the thing Palihapitiya correctly notes is that Amazon's growth runway remains absolutely staggering. I've said a lot on this subject, largely because it seems so lacking as part of the broader discussion for Amazon.

We tend to think of Amazon as a mature company, and it is in some superficial senses, namely age. But if you judge maturity in terms of market share, a more useful benchmark in my view, Amazon's share of its potential markets -- e-commerce and cloud computing -- enjoys ample room for growth in the coming decades. For example, researcher eMarketer estimated that global retail sales would exceed $22 trillion in 2014. Estimates vary, but the global cloud-computing market figures to produce hundred of billions in annual sales as well. The key implication here is that Amazon should still experience considerable growth for years to come. The inherent sales potential in disrupting retail and computing is just that staggering.

Amazon's leadership in technology and distribution efficiency should become more and more powerful advantages for the company as a greater percentage of retail sales transition online. Large B2B sellers such as Costco indeed enjoy their own massive distribution networks, which should have their businesses competitive alongside Amazon. However, like past areas of retail the Internet has killed, there will surely be plenty of carnage among smaller, less powerful players in the space as sales shift online. So although Amazon's $1 billion in B2B sales is indeed impressive, it remains a veritable drop in the bucket when compared with the company's long-term potential.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$106.03 (-2.65%) $-2.89
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$478.52 (1.85%) $8.68
Staples, Inc. Stock Quote
Staples, Inc.
SPLS

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