E-commerce grew 20% for Costco in fiscal 2015—20 times faster than store sales.
Procurement managers expect Amazon-like ease of use from b2b e-commerce sites.
Capitol Scientific Inc., as its name suggests, focuses mostly on selling things like hydrometers, optical coatings and other laboratory equipment and supplies to universities, government research agencies and manufacturers. But nowadays it's also becoming common for the company to get orders from a new breed of business-to-business customers who find its e-commerce site during a web search.
"With our new web site, we reach people we've never targeted before," says Tylee Van Waes, Capitol Scientific's senior e-commerce marketing manager. She adds that optimizing her site for natural search, using paid search marketing and offering promotional information via social media have helped extend Capitol's market reach.
Among the 70,000 product SKUs on its web site, for example, are cotton-tipped wooden applicators that a doctor or scientist might use to gather and test bacteria. But recently an association of model builders placed a large online order for the applicators to give to its members, and has since put a link on its members' web site to CapitolScientific.com. "These people are great customers, but they probably would've never found us if not for our e-commerce site," Van Waes says. "It probably never would have crossed their minds that a scientific supplies provider would be a source for them."
A brave new b2b world
That's an example of how business is changing in the business-to-business world. The spread of user-friendly e-commerce sites that have enveloped the consumer-facing retail world is spilling over into b2b markets, as more companies recognize they must provide web sites where customers can easily research and buy, both to keep existing business and win new clients. It's not all businesses, to be sure, and it's not always easy to connect user-friendly web sites to existing business software and policies. But some companies are finding a way.
Avoiding the web, many b2b experts like Van Waes say, just isn't an option for companies that want to grow instead of fall behind.
"It's a different game now," says Greg Baldwin, director of e-commerce at Noble Supply & Logistics, which sells to government agencies more than 1 million product SKUs ranging from nuts and bolts to power generators costing thousands of dollars. "These customers today require and look for companies that have a strong e-commerce presence, and we see that as an opportunity to stand out among a lot of our competitors who are still focused on catalogs."
But while companies like Noble and Capitol Scientific are making aggressive moves into b2b e-commerce, many others are lagging behind. According to a study released last year by business software provider Oracle Corp., which surveyed 120 business and technology executives, only 25% of b2b companies had an e-commerce site.
And just as retailers must look over their shoulders at Amazon.com Inc. and other innovative merchants, b2b players are threatened by competitors aggressively moving to the web. One of the biggest competitors in the b2b space, W.W. Grainger Inc., a provider of industrial and office supplies, is investing $40 million over the next few years to upgrade its e-commerce technology and operations.
Amazon.com last year launched its own b2b site, AmazonSupply.com, where it sells everything from lab equipment and metal materials to power tools, janitorial products and office supplies. That alone should serve as a wake-up call to b2b sellers still selling only offline, technology research and advisory firm Gartner Inc. says. "Like Amazon's business-to-consumer site, Amazon.com, AmazonSupply provides a complete e-commerce merchant site, including product catalogs, search and merchandising, shopping cart, payment processing and shipping," Gartner e-commerce analysts Chris Fletcher and Gene Alvarez say in the June 2012 report, "Prepare Now for the Impact of AmazonSupply on the B2B E-Commerce Market."
At Capitol Scientific, Van Waes says she's wary of Amazon but also encouraged by its entry into the b2b market as a healthy source of competition. "While having such stiff competition is a threat, it also forces us to step up our game," she says. "To effectively compete with an e-commerce powerhouse such as Amazon, we need to have a solid, user-friendly e-commerce site that truly provides something of value to the customer."
It's not that b2b e-commerce is something completely new. B2b companies have been engaged in electronic transactions for decades through electronic data interchange, or EDI, providing companies with a system of electronically transmitting business documents like purchase orders and invoices and sending payments and confirmations. In a May 2012 E-Stats report, the U.S. Commerce Department noted that U.S. wholesale e-commerce sales, including manufacturers' wholesale sales through branch offices and including EDI, totaled $1.42 trillion in 2010, up about 12% from $1.27 trillion in 2009. (Separate direct b2b e-commerce transactions by manufacturers accounted for another $2.28 billion in 2010, up 21% from $1.89 billion in 2009.)
b2b's big promise
Non-EDI e-commerce sales—those transacted over web sites equipped with online shopping carts for processing payments—accounted for just less than 30% of the total wholesale e-commerce totals, rising to $402.56 billion in 2010, up nearly 14% from $354.74 in 2009, the Commerce Department reported. By comparison, it noted that total retail e-commerce sales in 2010 were $168.97 billion, up 16% from $145.26 billion in 2009. Forrester Research Inc. "conservatively" projects that U.S. b2b e-commerce sales will reach $559 billion this year.
Even with b2b's big sales numbers, however, industry experts say the b2b e-commerce market is still in its infancy. For the sake of comparison, total wholesale sales compiled by the Commerce Department were $5.77 trillion in 2010.
The question isn't whether online b2b sales will keep growing; it's which sellers will reap those sales. The answer, says Forrester analyst Andy Hoar, lies within the ability of b2b companies to follow the lead of retail e-commerce sites to provide customer-friendly shopping experiences.
"B2b e-commerce is now being judged against a largely superior b2c buying experience," Hoar writes in the November 2012 report, "Thrive By Adopting Proven B2C Principles." To succeed, he says, b2b sellers need to build sophisticated and compelling online merchandising techniques along with a strong breadth and depth of available products, while also making it easy to find products and check out.