Alibaba – Ringing the Bell to Sell or Starting the Year of eCommerce for Distributors?

As I sit writing this post on the eve of one of the largest IPOs ever, Alibaba, I’ve been debating if this post should be about the beginning of the end of distribution to many market segments and hence the beginning of a mad rush to sell while there is still value in a distributor’s business or the call to arms with 2015 becoming “The Year of eCommerce Investment”.

I am being somewhat facetious about the need to sell “quickly”, but, if you’re not willing to invest into your business, then alternative, focused, strategies to retain and grow your business need to be examined.

So, where is the business liable to go? If you look at Amazon Supply and Alibaba, the answer is that it (or at least a percentage) could migrate to manufacturers who decide that they need to solicit business directly and use these two entities as order processors. Why would a manufacturer proactively do this? Because they would be concerned that if they don’t, their competitor will.

Here’s some food for thought:

• Amazon, the company that wants to offer all things to everyone everywhere, and let’s others market for them through the media, benefited from this article about Amazon Supply’s entry into India, which is considered a $300B B2B market.  According to the article, the “US is the only country in the world where Amazon is currently offering B2B platform for wholesalers and merchants. Their B2B portal: Amazon Supply, which was launched in 2012 and has become quite popular among wholesale dealers in the US.” And that Amazon Supply “Amazon is already in talks with various merchants and wholesalers in India who can join them initially.” (or, in other words, Amazon Supply gets distributors to identify the customers’ desired products, buys from them, then identifies what sells and approaches manufacturers directly so that the manufacturers sell them direct, SKU-specific!
• Alibaba is a very diversified eCommerce company. One core expertise, in China, has been enabling manufacturers to sell direct to end-users (and at least in one case has a financial interest in a delivery company).  According to this article in the Wall Street Journal, Alibaba has entered the Brazilian market, which is the 5th largest Internet market in terms of unique users, Alibaba ranked sixth among retail sites. Consumer goods are reportedly very expensive in Brazil for a number of reasons. Consumers are going to Alibaba to order items directly from manufacturers … in China … and are willing to wait for their shipment due to cost savings.  While US consumers won’t wait, nor will businesses, when Alibaba makes US-based relationships with manufacturers, could electrical manufacturers sell direct? Especially for items that are higher value? Perhaps DIY-oriented or perhaps projects? Could it be a vehicle for manufacturers to process projects? Consider home automation, lighting control systems, different types of LED fixtures, high-end LED bulbs, and other products that where manufacturers could deploy configurators?  The time may be coming in the near future.
• Not to be outdone in India, Alibaba is in talks to begin doing business on the retail side in this country and then plans on expanding into the “business to consumer” market.

And, over the past few days, we’ve talked to a number of distributors, with one as small as about $10M, that are all either in the process of launching, are evaluating, are budgeting or figuring out how to accelerate their eCommerce initiatives … with most commenting about the investment expense (and uncertain return) and primarily considering this for a defensive play.  Additionally, who is to say that a distributor’s eCommerce enterprise should be limited to their own offering from their website…

The distributors of tomorrow need to be visionaries and entrepreneurial.  They need vision to know that their company needs to adapt, evolve and consider “a diverse range of customer interactions” and entrepreneurial enough to take risks while finding ways to reinvent their current business so that they can afford the investments needed to drive tomorrow’s business today.  Doing business “same old same old” will leave companies with diminishing sales and eventually a diminished value.

Manufacturers, on the other hand, could see different opportunities and will need to decide how to “play” with eCommerce / eBusiness / eMarketing while at the same time taking share from more traditional channels.

So, is Alibaba’s IPO and Amazon Supply the beginning of a “new age” and the bell that rings the rush to the exits or will 2015 be the year of eCommerce investment for the electrical channel?