The B2B Marketplace Threat Is Coming from All Sides: What Distributors Need to Do Next

B2B customers are increasingly turning to marketplaces as a one-stop shop for their buying needs. And companies at every step of the supply chain are rushing to fill the need. It’s about more than just defending against Amazon. Tech startups, VC firms, national distributors, manufacturers and even software providers are investing in platform models to reach the consumer directly.  

So, where do distributors fit into the picture? How can they differentiate today amid stiffening competition from B2B marketplaces? 

Alex Moazed is the founder and CEO of Applico and co-author of the best-selling book “Modern Monopolies.” He has worked alongside major distributors, technology startups, venture capital firms and manufacturers as they formulated their marketplace strategies. Moazed spoke with our Wholesale Change Show host Ian Heller about the latest trends in B2B marketplaces and what distributors can do to compete.  

Distribution Strategy Group: Can you tell us about your career and how you learned what you needed to write such a breakthrough book on platform business models? 

Alex Moazed: When I was a junior in college, I decided to max out my credit cards and build some apps. Some of those became bestsellers on the app store, and soon I had people asking if I could make an app for them, too. I couldn’t code, but I was able to surround myself with good people. Eventually, we grew the business hand over foot – doubling or tripling revenue year-over-year. We had around a hundred full-time employees at our peak. We became one of the biggest app developers in the country and worked with Google and tech startups.  

On the other side of the business, we were working with large traditional, what I call today, linear companies like GM and Intel. So we were inside these companies building their technology, and it was clear that we needed a completely different business rationale for building products and tech. So, we had to do the strategy and help our clients figure these things out.  

The roots of the platform business model have been around for thousands of years. You could argue that it’s one of the oldest business models. The bazaar auction model is one of the oldest examples of the platform business model – it connects merchants on one side and consumers on the other; only now, in the 21st-century economy, it’s been supercharged with different technologies and data. Some academics have talked about this idea, but no one had written a pragmatic business book about it, so we set out to do that.  

DSG: A bazaar is a great example because it’s just an early version of a third-party marketplace. You have many sellers, buyers and an intermediary connecting them. For that intermediary, the value comes from their connections – they don’t need to own any assets. eBay is like that today – it doesn’t own inventory or distribution centers; it just brings buyers and sellers together and makes billions of dollars.  

Moazed: Absolutely. And now we’re seeing modern monopolies like Amazon, Facebook, Microsoft, Google and Apple. The best monopolies are hybrid; they have a linear business and a platform business. Some of them have multiple platform businesses stacked on top of each other.  

DSG: Your podcast is called “Winner Take All,” which is indicative that if you have a powerful platform, you become a monopoly. What are your thoughts on modern monopolies? 

Moazed: It’s the craziest thing in the world. Amazon is growing like a weed. Once you get to that monopolistic scale, how do you make a more competitive playing field? How do you de-throne Amazon? I think it’s been challenging for us as a society, an economy and a regulatory or governmental body to try and figure out how to grapple with that.  

DSG: What’s been your experience in terms of having to educate companies about the dynamics of platform models? Are they open to learning and understanding that this is a new type of competitor they haven’t wrangled with before? 

Moazed: It’s interesting. I’ve been in and around the B2B distribution world for at least five years. My company Applico helps large traditional enterprises – like billion-dollar distributors – figure out how to work, collaborate and partner with new digital disruptors and digital enablers.  

Do large distributors recognize the threat from large retailers or tech monopolies aggressively coming into B2B distribution? I think they recognize that. But to me, the surprising thing is that disruption isn’t just coming from tech monopolies and retail giants – manufacturers are also posing a threat. 

In many verticals, the manufacturers aren’t just enabling these new disruptors and marketplace models – they’re investing in them. Some manufacturers have bought tech marketplaces or platform companies outright. It’s becoming more normalized. Over time, it becomes harder for distributors to push back.  

DSG: How serious are manufacturers about investing in these marketplaces and digital disruptors? 

Moazed: To give you some context, we looked at 15 manufacturers who have done deals recently. Over the past five years, they did more tech M&A than all B2B distribution combined. They’re not even the biggest manufacturers; these 15 all did sub-$1 billion in sales. I deliberately slimmed it down. I could have easily picked multiple billion-dollar tech acquisitions, but I excluded those because it wouldn’t have been fair. So you’re not just seeing manufacturers enable product marketplaces; you’re seeing them buy platforms.  

So for example, Schneider, the prominent electrical-product manufacturer, invested in a marketplace called RenoRun. RenoRun is basically the Instacart for same-day construction goods. Customers can say, “I’m on the job site, and I need a bunch of construction products,” so RenoRun employees will go to Home Depot, pick up orders and deliver them to job sites. CEX Ventures is also investing in a bunch of companies. So, we see a lot of that across different verticals, not just in construction.  

This deal isn’t public yet, but there’s another procurement marketplace startup that just raised money from Procore. They said they would love for a distributor to invest and get involved, but they haven’t been able to find one who’s interested. So Procore put money in and said, “Look, we want to work with distributors. We would even love to give up more governance if a distributor was interested and wanted to come on the board.” But those requests are falling on deaf ears.  

We’re seeing distributors start to lean in and do more tech investing. Ferguson is an excellent example. So we’re seeing some players do it, but as an industry, we’re not seeing them do it enough, especially compared to what tech, retail and manufacturer aggressors are doing.  

DSG: Ford recently announced that it would evaluate selling directly to consumers. What are your thoughts on this? 

Moazed: I’ve covered the Ford story, and I think they’re a great example of a manufacturer going direct to the customer. They’re using electric vehicles (EVs) as an excuse to sell directly to the customer and cram down dealers.  

How do you respond to Ford putting a bunch of protocols in place about what you need to do if you’re going to be an EV-certified dealer? Essentially, dealers need to be on top of their game, digitize and modernize their core business to stay in Ford’s good graces. Otherwise, they will use this as an excuse to deprioritize the laggard dealers.  

DSG: How is this similar to what is happening between manufacturers and distributors? What should distributors do to differentiate? 

Moazed: If you are in a vertical of B2B distribution, generally, there will be a broader set of products your customers would like than what you fulfill today. So one of the core value propositions of any platform business model marketplace is to provide a broader, more holistic array of products.  

To me, product-offering differentiation is an example of disruptive innovation. How can you expand or diversify the kind of products you’re offering? Maybe you start to sell to different customers with a more diversified product need than what you’ve traditionally sold to. Or, maybe there’s a new service you can bolt onto your existing offering. How can you provide more value-added services to the more valuable, larger customers who need and want these things? You’ve got to provide a stickier value proposition to them.  

DSG: There’s a tendency for distributors to try and remove complexity since it’s difficult to do complex things online. So instead, they dumb down their online offering to SKUs and prices. The problem with that strategy is that it puts you in direct competition with online marketplaces that often have more SKUs and lower prices. 

Complexity is your friend because it’s differentiating. It can be difficult to digitize, but there are a lot of startups out there that distributors have no idea exist that can help you deliver complex value propositions that marketplaces aren’t likely to offer anytime soon. So instead of fleeing the complexity and trying to be similar to a pure digital seller, distributors should invest in more complex solutions and add value in ways marketplaces don’t.  

Moazed: That’s 100% correct. I think that is the single thing every distributor should be looking at. The unfortunate news is that while there are a lot of startups out there building exciting things, there’s a lot of fluff too. There’s a lot of smoke and mirrors, so it’s difficult for distributors with a hundred other things to worry about to spend time figuring out what’s real.  

On top of that, you also have to contend with Amazon, which just launched a billion-dollar supply chain VC fund, Home Depot, which did a $150 million VC fund in the past six weeks, and manufacturers, who have their own venture capital arms. So you’ve got both sides of the aisle trying to fund these startups to solve their problems.  

We, as an industry, need to do a better job of engaging in that conversation, evaluating, sharing notes and collaborating with each other.  

DSG: In the past, distributors were the regulators of hard-to-find products, but now, there’s almost nothing you can’t find on a website. Availability, at least online, is becoming commoditized. This may be one of the reasons we see billions of dollars of investment from Home Depot, Amazon and Walmart into distribution centers – they want to compete for last-mile delivery. 

My concern for distributors is that they are not only slow to figure out their marketplace strategies, but they also don’t realize they’re being outflanked by people who will win the last-mile competition. This will be especially true when the competition shifts from finding products online to getting products into customers’ hands. What do you think? 

Moazed: I would say last-mile delivery is one of the last real barriers to entry that distributors have. The Home Depots and Amazons of the world are investing in the last mile, while Schneider and others are investing in that RenoRun company. These are all different ways to solve the problem of getting heavy or perishable stuff to customers in a reliable way.  

Say you’re working on a job site and need something by morning. If it’s not there on time, the crew will end up sitting idly by. That’s a tough challenge to solve, and it’s a little bit different in every vertical. There’s a huge amount of investment going into that.  

If I’m trying to sell heavy or perishable products that can’t be easily drop-shipped, then I need to focus on finding demand and supply that’s very hyper-localized. For example, Instacart and Uber are both hyper-localized. Having that physical infrastructure and trucks with last-mile capability is an obvious differentiator. 

Some startups are trying to do last-mile fulfillment in a way that’s friendly to distributors. So it’s not all bad disruption. I would look at the players trying to solve the last-mile problem as a service offering instead of a product plus service offering. They want to give distributors better technology so they can do their fulfillment better. That’s enabling versus disrupting. 

Alex Moazed is the Founder and CEO of Applico. He founded Applico in 2009 when he was 20 years old and funded the company with his own credit cards. Alex co-authored the best-selling book, Modern Monopolies, which defines the platform business model dominating the 21st century economy. In his role as CEO, he works directly with Fortune 500 C-suites and boards to help them build or buy their own platform businesses. Learn more at: https://www.applicoinc.com/