There’s a business growing within Amazon that could one day be worth more than retail or cloud
There’s a business growing within Amazon that could one
day be worth more than retail or cloud
Michael Sheetz MAR 19 2019 • 4:46 PM EDT
KEY POINTS
·
Amazon Business represents Jeff Bezos’ company
expanding into the market of business-to-business (B2B) e-commerce.
·
“Amazon is driving steady adoption” of its B2B
offerings, Bank of America analyst Justin Post said.
·
Bank of America projects there is a total
addressable market for e-commerce B2B of $1.4 trillion by 2021, which is nearly
double the firm’s estimated $761 billion market for consumer e-commerce.
Amazon’s hunt for another business to drive growth even
higher may have its answer in Amazon Business, a note from Bank of America on
Tuesday said.
Amazon Business represents Jeff Bezos’ company expanding
into the market of business-to-business (B2B) e-commerce. The Amazon unit was
re-branded from “Amazon Supply” seven years ago. Amazon Business “combines
positive attributes of Amazon’s consumer marketplace,” such as broad selection
and delivery convenience with the products and benefits that are “tailored for
businesses, government organizations and the education sector,” Bank of America
analyst Justin Post said.
“B2B has many more hurdles to adoption given the complex
(and often offline) procurement processes, but Amazon is driving steady
adoption,” Post said
While Amazon Business is just beginning to establish
itself, Bank of America projects there is a total addressable market for
e-commerce B2B of $1.4 trillion by 2021, which is nearly double the firm’s
estimated $761 billion market for consumer e-commerce. Essentially, the market
potential for Amazon Business is about twice the potential for its core retail
business.
Amazon Business may have a long way to go to catch the
retail unit but it’s growing fast. Post said it now has “millions of business
customers.” He pointed to growth of the run rate of gross merchandise volume
for Amazon Business (its estimated gross sales extrapolated out on an annual
basis). In the past two years, that run rate has increased by 10 times: From $1
billion in 2016 to $10 billion in 2018, Bank of America said. And by 2023, the
firm estimates Amazon Business can scale that gross merchandise volume run rate
to $33.7 billion, with $16.1 billion in revenue.
Bank of America also believes that it’s realistic to
expect that by 2021 Amazon Business will capture 10 percent of the B2B market
in the U.S. and 5 percent of the international B2B market. At that market
reach, Bank of America said the unit would generate between $125 billion and
$245 billion of added value for Amazon as a whole.
“The company is solving procurement bottlenecks with new
features, and we think Amazon is well positioned in the category with an active
marketplace and same-day fulfilment capabilities. Long-term, B2B will be an
important driver of retail sales growth,” Post said.
“Recently introduced Business Prime increases the value
of the offering with features like faster delivery, account management, spend
analytics, and integration with existing procurement applications,” Post added.
Amazon closed trading Tuesday up 1.1 percent at $1,761.85
a share. The stock has risen more than 17 percent this year.
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