‘The Amazon Effect’ Is Coming to the Channel

Automated digital sales – selling through marketplaces like Amazon, for example – will soon become a major source of indirect revenue for technology vendors. Now is the time for vendors to start preparing for this inevitable shift in selling.

By Larry Walsh

Everywhere I go, channel leaders ask about “the Amazon Effect,” or how Amazon and other online marketplaces are disrupting B2C and, increasingly, B2B sales channels. Vendors want to know two things: How do I compete with Amazon? And, if that’s not an option, how do I work with Amazon?

The Amazon Effect is real, and Amazon isn’t the exclusive source. The market is shifting largely to online buying out of convenience, expediency, and cost-efficiency. Buyers – increasingly millennials – want to buy for their businesses with the same motions and benefits as they do in their personal lives. And this inspired The 2112 Group to publish its new report, “Strategies for Engaging Automated Digital Sales Channels.

Whether talking about marketplaces such as Amazon and Alibaba, e-commerce mechanisms, or sales driven by chatbots and artificial intelligence tools, these channels all share common attributes: They’re self-service, the products are sold out of controlled inventory, and the products are delivered expeditiously. For those reasons, 2112 describes these selling mechanisms as automated digital sales (ADS) channels.

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Automated digital sales pose a threat to the channel as it stands today because they’re suited for most of the commoditized products sold through two-tier channels. By 2112’s estimates, ADS could displace 40 to 60 percent of the existing transactional channel.

According to 2112’s Channel Chief Outlook report, 11 percent of channel executives expect the majority of their revenue to come through ADS by 2023. For many vendors, ADS will be the second- and third-highest source of indirect revenue.

Of course, this disruption presumes that vendors embrace ADS as a future channel.

Vendors harbor concerns about embracing ADS, and rightfully so. While ADS channels could potentially expand vendors’ market reach and decrease their go-to-market costs, the benefits come at a price. ADS – particularly through outlets such as Amazon – means surrendering control to powerful outsiders. Vendors worry that they could find themselves not just dependent on ADS partners but also beholden to them if they control the pace and volume of sales.

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While 2112 agrees the concerns are real, we don’t believe avoiding ADS channels is practical. Vendors will need to make choices about how and when to engage ADS channels, and they’ll also need to measure and accept the costs that come with them.

How should vendors engage ADS channels? The following is a rudimentary decision-making matrix.

  • If the cost of automated digital sales is lower than it is for existing routes to market and the product and sales process is relatively simple, shift more products and services to automated digital sales
  • If the cost associated with automated digital sales is (more or less) equal to that of traditional sales channels and the product and sales process is moderately complicated, establish marketplaces and e-commerce as an alternative channel to existing routes to market.
  • If the cost of automated digital sales is higher than the cost of traditional routes to market and the product is complex, stay with existing value-add channel models.

A large part of the channel’s future is rooted in automated digital sales. Vendors need to start evaluating their options and planning their execution of ADS. The 2112 Group defines ADS and the process for evaluating and engaging digital sales in its new complimentary report, “Strategies for Engaging Automated Digital Sales Channels.” 2112 is also offering complimentary briefings on ADS evolution to interested vendors. For more information about 2112’s ADS services, contact info@the2112group.com.

Larry Walsh, The 2112 Group

Larry Walsh is the founder, CEO and chief analyst of The 2112 Group. Follow him on social media channels: Twitter, Facebook, LinkedIn.