Alibaba.com Taxis Toward The B2B e-Commerce Runway

Huge and potentially very profitable. Hardly digitized. Complex and underserved, at least until now. That describes the state of the global business-to-business (B2B) e-commerce market. Not many providers have been able to master the beast. Still fewer focus their energies on small to midsize businesses (SMB) trying to make their way in the digital B2B space.

That's the sweet spot for Alibaba.com, the B2B e-commerce unit of China's Alibaba Group Holdings Ltd. BABA. The parent was founded in 1999 as a B2B e-commerce provider. It eventually developed into the world's largest wholesale e-marketplace, though it remained China-centric. Alibaba has stuck to its knitting for the past two decades, though it did develop a sizable business-to-consumer (B2C) offering within China.

In July 2019, Alibaba.com opened its platform to U.S.-based B2B sellers for the first time, with a focus on digitizing the operations of SMBs in the segment. In June, the unit added three offerings to its U.S. customer base. Most notable was a tie-up with international e-freight marketplace Freightos.com to provide the unit's customers with freight booking and management of air and ocean shipments. The other two were cash flow facilitation solutions and virtual trade show capabilities brining together companies no longer able to meet in person due to the coronavirus pandemic.

The U.S. remains the main market, but the unit is eyeing overseas points as well, said Jamin Dick (pictured above), who runs Alibaba.com's North American Supply Chain. "We see this as an anywhere-to-anywhere type business," Dick said in a phone interview in late August.

The unit's objective is helping smaller firms profitably expand through digitization solutions that were never available to them, Dick said. The unit controls no physical assets, nor does it want to. Instead, it relies on Freightos and a large network of providers to help customers plan and execute the physical distribution, typically of large freight. Alibaba does not offer procurement services except for a new foray into personal protective equipment (PPE). Alibaba.com recently launched what Dick described as a "concierge" service, Alibaba.com Select, for large buyers in and out of health care needing to obtain large PPE volumes.

The model served Alibaba.com well during the April-June period — the company's fiscal first quarter — a time when B2B activity ground to a halt as businesses shut their doors due to the pandemic. In June, it announced that overall transactions by U.S. businesses increased by more than 100%, albeit off a very small base as the North American operation was less than a year old. The number of U.S. sellers grew at the fastest rate of any part of the Alibaba network, while the number of U.S. buyers increased by 70% year-on-year. (The company declined to provide specific numbers because they were skewed by the fledgling nature of the North American enterprise.) Global "gross merchandise value" — the dollar value of each B2B transaction — soared by 85% in the quarter, Alibaba said.

Long runway, appealing profile

The digital B2B market is massive. According to a 2017 report by the U.S. International Trade Commission, the global addressable market for B2B e-commerce stood at $23.9 trillion, about six times the size of the global B2C market. In 2019, about $1.8 trillion in global B2B e-commerce was transacted, an 18.2% year-over-year increase, according to a January 2020 report by Digital Commerce 360, a research firm.

For carriers, the B2B e-commerce market has the same attractive package-handling  characteristics as traditional B2B. Shipments tend to be heavier than the typical B2C consignment, which allows carriers to charge more for delivery services. B2B deliveries often involve multiple shipments bound for one destination, creating favorable unit costs and bottom-line benefits. Unlike consumers who might abandon shopping carts if they don't get free shipping, business buyers working with corporate budgets are not as demanding in their spending needs, especially when deliveries can be critical to keeping a supply chain or assembly line operating.

Yet B2B has been mostly left behind amid the insane rush to penetrate the generally less profitable B2C space. While it seems irrational, the phenomenon is grounded in rational actions. While it is an enormous market, B2B sourcing and trade is also complex and unstructured. Smaller players have been locked out of the market, leaving the playing field open for large trading houses. With fewer participants, the market had little vibrancy and demand would ebb. 

In short, everything that made B2C viable and humming was not prevalent in B2B. "A dearth of international B2B procurement platforms that fully facilitated the entire sourcing and procurement operation was part of the cycle keeping freight offline," said Eytan Buchman, chief marketing officer for Freightos.

The inherent differences between consumer and business behavior also made B2C the path of least resistance for the e-commerce ecosystem, according to Dick. "Consumers are often able to modify behavior relatively quickly because they're the sole decision-maker for their own purchases," he said in the interview. "Businesses are more complex and often require more internal change to adopt digitized services. So it can take longer for businesses to digitize even when the desire for change is there."

The change agent has been COVID-19, which has triggered large-scale business changes almost overnight. SMBs suddenly taken out of their normal operating world realized that digitization had become a necessity, not a luxury. "We've seen companies undergo 20 years of transformation over the past few months, and we were well positioned to help them digitize their business and go global," Dick said. The gains in Alibaba's quarter were partly attributed to businesses gravitating to its model because they knew they needed something better, according to an Alibaba insider.

Jim Tompkins, founder and chairman of supply chain management consultancy Tompkins International, said COVID-19 accelerated global B2B e-commerce trends by three years. The gains in traction are part of what Tompkins, one of the lions of the trade, having formed his firm in 1973, sees as a natural coalescing of B2B and B2C commerce into a strategy that serves a common customer. "Sure, there are differences in credit, logistics and support, but in reality, B2C and B2B are merging into what I call `B2Me,'" Tompkins said in an email.

Buchman said the pathways making B2B e-commerce feasible for all businesses began to converge before the pandemic. "The barriers to integrated sourcing, shipping, sales and last-mile delivery had started to drop, and fast," he said. Platforms like Alibaba enabled global sourcing, Freightos allowed for easily accessible global freight booking and management, and Amazon.com Inc. AMZN became the conduit for online sales to reach over half of U.S. households, Buchman said. 

"Anyone, anywhere, could now, from the comfort of their basement, agilely create a global supply chain," Buchman said. "While big-box retailers were struggling to keep up with toy crazes like fidget spinners, small businesses had already sourced them and were selling them online."

As demand increased due to ease of use, big business began to digitize. This created a virtuous cycle, according to Buchman. "As importers demanded faster digital solutions, logistics providers, carriers and platforms all began to adopt digital trade capabilities," he said. The company's air cargo electronic bookings on its WebCargo freight forwarder-airline platform increased in July by 1,000% over 2019 levels, he said.

B2B from A to Z?

Of course, Alibaba.com isn't the only dog in the B2B e-commerce hunt. There is Amazon, which after spending nearly 20 years trying to crack the market, broke through in 2013-2014 by going after distributors and wholesalers in the industrial supply space. Dean Maciuba, director of consulting services at Logistics Trends & Insights, a consultancy, estimated that Amazon's B2B business is in the general vicinity of $15 billion a year in sales. The company keeps a low profile with B2B because it doesn't want to rankle regulators already concerned about its dominance in its core B2C business.

Amazon, Alibaba and other digital purveyors have a common goal: to disintermediate traditional wholesalers and distributors from the B2B chain. Traditional intermediaries have outdated systems, processes and technology, and have not done a stellar job in migrating to the digital world, Maciuba said. That segment of the B2B market is ripe for the digital picking, he said.

Dick of Alibaba said his company respects Amazon's B2B efforts but doesn't fear them. "Anything that Amazon gets involved in you have to take seriously," he said. "But we feel like we've been built from day one for our B2B customers, and we understand the segment better than anybody."