My colleague Bolaji Ojo eloquently outlined the impact Amazon.com is having on the world of electronics. I agree with Bolaji’s analysis 100 percent. But much of the coverage of Amazon in the electronics trade press – including EPSNews – implies that Amazon.com is intentionally targeting the electronics distribution industry. That’s simply not true. Amazon is targeting any market that can be more efficiently and cost-effectively served through the Amazon business model. And that includes electronics.
Amazon.com is only now implementing features that electronics distributors have offered for years. Amazon is now honoring contract prices, for example, and providing point-of-sale (POS) information. At the recent ERA Executive Conference in Austin, Amazon unveiled the following list of new businesses services:
- Business/contract pricing: AmazonBusiness provides visibility to, and will honor, customer negotiated pricing
- Processing requests for quantity pricing
- Providing and processing large — pallet-sized — orders through its Amazon fulfillment centers
- Allowing for tax exemptions where appropriate
- Enabling invoicing
- Pursuing credential programs
- Enabling procurement integration: AmazonBusiness can be integrated into ERP/MRP/procurement platforms
- Providing delivery flexibility: processing large orders
- Providing analytics: certain POS information, such as customer name, location and contact information
- Spending controls: buyers can set pre-approved spend levels
- Supplier management: customers can download their AVLs
- Providing enhanced content, such as data sheets for electronics components and designs
- Credentials programs
- Profile editor
If these look familiar, it means you have a passing acquaintance with electronics distribution. How did Amazon.com determine it should offer these services? It polled thousands of Amazon customers. Just about anything a customer asked for Amazon examined and if possible, tried to implement.
Still, there’s a perception that electronics distribution is playing catch-up with Amazon. Also, not true. Then why is Amazon considered such a threat? One word: Commoditization. Suppliers play a role in Amazon’s ascent.
DRAM was the first component that the non-electronics market eyed as a commodity. Before its fall from grace, ENRON was considering establishing a DRAM commodities exchange. (There are companies that provide that service.) To avoid commoditization (in part), broad-based component makers, such as Motorola Semiconductor, began spinning off specialty units. These specialty companies could invest in their respective technologies and become “the best of the best.”
Then suppliers began developing “building blocks” for products and systems. Individual components became part of embedded system that could be bought off-the-shelf. Arduino, Raspberry Pi and the Beagle board stormed the market. Applications toolkits and reference designs became widely available; and for proprietary products, software could be downloaded from the web. Engineers had less and less reason to reach out to suppliers and distributors. True, this was in response to customers who wanted someone else to do non-value-added tasks. But by doing so, suppliers and distributors distanced themselves from their customers.
It shouldn’t have come as a surprise that pricing became a battlefield. Suppliers have been reducing prices -- and distributor margins -- for years, arguing that suppliers themselves weren’t making enough money on their products. Distributors figured that simply delivering components was no longer enough and moved toward design services as an opportunity for revenue. Now, it’s entirely possible that suppliers will back away from rewarding distributors for design efforts and provide those services themselves.
The irony in all this is suppliers and distributors have been trying to protect themselves from an all-out price war for years. There are discount limits on components; ship-from-stock-and-debit programs; design-registration "protection" and regional franchises. The electronics supply chain has also -- for the most part -- been able to avoid global pricing.
Customers have also become accustomed to the do-it-yourself customer service model. The last thing they want is a call from someone that is trying to sell them something.
It does not appear that Amazon.com has captured a significant amount of electronics market share and maybe it never will. But it looms like a specter over every market that can be improved by the Amazon business model. That includes electronics.
Amazon isn't "out to get" anyone; it's just Amazon being Amazon.