Will Amazon Step Away From B2C Completely?

For many years, Amazon has been a B2B spending machine, focusing less on generating revenue and more on establishing a powerful brand.

In fact, until Q2 of 2015, Amazon saw more losses than gains, with Q3 of 2014 setting a record loss of $437 million. Since then, Amazon seems to have turned the page and as of Q1 of 2017, they experienced their eighth consecutive positive profit quarter in a row.

Until recently Amazon has worked hard to establish themselves as a household name for virtually every B2C product under the sun. Their latest acquisitions and moves, however, come from an entirely different world – B2B.

So why the sudden change in strategy? And will Amazon step away from the B2C business in the future? Here we delve into what the future may hold for the online giant.

B2B: The True Driver Behind Amazon’s Profitability

The main reason for the change in Amazon’s P&L sheet has little to do with their eCommerce capabilities and everything to do with their web services.

Amazon Web Services (AWS), which was launched in 2006, wasn’t always the powerhouse we know it as today.

When Amazon originally launched their cloud web services they did not do so out of a desire to transform it into their main business, but simply as a way to help third-party merchants place their products on Amazon.

Even Amazon didn’t make a big deal about it when they launched AWS. But fast-forward to 2017, and you will see that it is the true powerhouse behind their profit.

By 2016, Amazon Web Services dominated more than 30% of the market, beating out its closest rivals Microsoft, IBM and Google. By 2017, AWS reported $3.66 billion in revenue — a 42.6% increase with a net profit margin of almost 25%.

The fact that AWS revenue accounted for 56% of Amazon’s total operating income in 2016, and 89% in Q1 of 2017 shows that it is the real reason they are so profitable.

How Will AWS Impact the Future of Amazon?

AWS is a pillar of profit for Amazon, but cloud web services still have room to grow, so Amazon’s profit streak may just be getting started.

While this alone is not a reason to speculate a major shift, the fact that their primary profit potential comes from the B2B avenue is.

Since Amazon launched, their primary target audience has been consumers who buy individual products. With the success of AWS and the growth potential cloud services still have to offer, Amazon will likely increase their B2B efforts, shifting their entire strategy.

One of the main things we can expect to see changing is the way Amazon operates. A large factor of Amazon’s success is their ability to offer low prices thanks to low profit margins on individual products, and relatively low operation costs. While this has been a credit to their growth as a brand, it is not a sustainable strategy in the long-run.

In order to ensure long-term success, Amazon will have to turn their attention to B2B ecommerce and follow in the footsteps of Alibaba Group and offer B2B ecommerce – a move that will no doubt position them as a market leader and establish new revenue generation channels for the long run.

Amazon already has a strong foundation in place for this shift thanks to their Amazon Business division which was launched in 2015, and this will likely be the starting point from which the next Amazon revolution comes.

Where Does Whole Foods Come into Play?

It’s almost impossible to talk about Amazon without mentioning their purchase of Whole Foods.

In addition to signaling where they are going in terms of delivery and food fulfillment, the purchase also says something about the B2B intentions.

Since the announcement of the Whole Foods acquisition, Fortune 500 company and B2B ecommerce leader Grainger has seen their stock decline by more than 11%, earning them what Bloomberg calls “a seat at the Victims of Amazon support group.”

While Grainger’s offering is dramatically different than that of Whole Foods, the distribution facilities that Whole Foods instantly gives Amazon is what causes many to believe that Amazon will soon be offering competitive services.

Beyond the ability to offer high volume products quickly thanks to their brick and mortar locations, the presence of a strong and trusted brand in so many places opens up the door for Amazon to supply companies with large quantities of goods – a definite need for any B2B business.

What’s Next for Amazon?

So is the Whole Foods acquisition just another step toward a shift to B2B for Amazon?

Perhaps, but with the success and potential of AWS, the steady growth of Amazon Business and the added benefits the Whole Foods brand brings, it’s definitely a sign that Amazon is looking at the B2B world – and we can’t wait to see what else that will bring!

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