By Luke Powers, Founder and CEO, Gearflow.com

AmazonThis is the second of two articles on the rise of Amazon and the impact of its dominance on the equipment manufacturing industry and the markets it serves. Read the first article here

How does Amazon host so much traffic and data streaming on their various business systems?

Their servers, in fact, are not a cost center, but rather a profit center. Amazon Web Services was founded on Jan. 1, 2012, as a pay-per-unit-of-storage cloud computing service. This was a revolutionary idea for the internet. Instead of companies having to host their own servers to run their daily operations and website, they could now plug into Amazon’s database network and only pay for what they use. It’s the same concept as the retail sales side: Amazon takes the huge investment and maintenance costs of mega servers, and companies get to use whatever fraction they need. Seems like a win-win.

Unfortunately, Google, Amazon, IBM, Oracle, and everyone else was caught flat-footed on this concept. According to Bezos, Amazon had a “seven-year head start” and now hosts roughly half the internet:

Remember from Bezos’ “virtuous” cycle, all energy is ultimately meant to feed the top priority: customer experience. The more benefits they add to the Prime membership through other business units only reinforces the ease of doing business with Amazon, and, in turn, their dominance over the markets. All the energy of Amazon’s 840,400 employees and all third-party sellers on the platform feeds this machine.

Voice-Activated Artificial Intelligence: Alexa’s New Frontier

This was science fiction until Amazon released the Amazon Echo in 2014 with their famous “Alexa” voice command. “Alexa” is the term that activates the artificial intelligence (AI) on-demand voice assistant in the Echo device. It enables you to ask about the weather, your favorite sports team, your commute, your emails, your texts, and over 100,000 other skills to date.

Amazon jumped out to an early, dominant lead over Google and Apple, making it very difficult to catch up, especially with the heavily subsidized price points of $30-150 of an Echo device. Why would Amazon heavily subsidize the cost of the device? For the same reason Google makes it free for us to search. It’s the data that these search queries expose about our lifestyles and habits that is so valuable to these companies and their advertisers.

As with their other inventions, Amazon imagined a different future and built it. Instead of opening up our laptops and phones, it is much easier to just ask an AI device for help. Amazon did not play by Google’s rules to beat them at their own game — many general questions and search queries are now spoken instead of typed.

All of these questions and “conversations” with Alexa have given Amazon a tremendous amount of information about us and our daily lives. The Echo devices placed throughout homes are constantly listening — they just are activated to respond on the command “Alexa.” Google, however, only knows what we type into the search bar. Amazon knows us intimately.

Recent reports show that 60 million, or 47%, of U.S. households own a smart device. With Amazon’s 68% market share, that’s approximately 40.8 million, or 32% of U.S. households that own at least one Echo device.

The amount of information about us that Amazon dissects is truly unimaginable in any previous era. In the future, it’s logical to assume we will likely be able to control all our devices with Alexa: starting our car, controlling our oven, or making our coffee.

Amazon in 2020: We Cannot See the Forest for the Trees

Given Amazon’s brute dominance over product searches, cloud computing, and AI devices, we need a reminder that Amazon has over 80 private-label brands, with over 10,000 products, competing with their marketplace sellers.

As a comparison to Amazon’s current position, Walmart was under constant monopoly scrutiny in the 1980s and 1990s with their cut-throat prices and scale of their stores. However, customers still had to get in their cars and make the decision to drive to Walmart instead of the other local retailers.

Walmart did not (and still does not) have the ability to collect dinner-table conversations via an AI device of 32% of households, have two-thirds of product searches start in their stores, or host 41.5% of digital traffic. Amazon does.

Taking in the full breadth of Amazon’s power is similar to standing at the base of the Willis Tower in downtown Chicago and slowly looking up all the way up to the top floor 1,451 feet in the air. It’s breathtaking. There are many articles written about a particular component of Amazon’s company, but few that reflect how they all work together.

Let’s pretend we can take a helicopter above all of Amazon’s business units to see how the interconnectivity of their systems create a massive ecommerce monopoly. I have deemed this diagram, “An Aerial View of Amazon’s eCommerce Dominance:”

Amazon’s Ecommerce Monopoly

Given the mind-blowing amount of data Amazon ingests from our behaviors, queries, purchases, and lifestyles, there is a contrarian version of their cycle. Coming from the equipment rental industry, I see the world from a supplier’s point of view. The writing on the wall is that Amazon’s ecommerce presence has become a monopoly in all but formality. Hence, I have deemed it the Amazon Seller’s “Unvirtuous” Cycle.


As you can see from the self-serving cycle, Amazon clearly generates unmatched customer loyalty online when they convert one-time customers to Prime members. Their other business units serve this purpose — keeping online shopping done on Amazon and collecting individual consumer tastes and interests. Examples:

These ancillary businesses have cemented Amazon as a lifestyle brand. 

We now subconsciously expect Amazon to be looking out for our best interests in their never-ending quest to lower prices and add services into the Prime membership. 

That trust has enabled Amazon to launch over 80 private-label brands that compete with the third party sellers on their platform. Of course, Amazon gives preferential placement of their own brands in product searches while they charge third parties for the same. There are now over 10,000 Amazon-branded products for sale on the Amazon brands landing page

AmazonCommercial: The First Amazon Business Brand of Many

In the beginning of 2019, Amazon quietly launched its first brand targeted at the B2B segment called AmazonCommercial with nine consumable product lines to start. As we know, nine out of every 10 households in America have a Prime membership. 

In the B2B world of ecommerce, Amazon sees that they already have 90% of the market as current customers. 

All they need to do is apply many of the same principles that make them dominant in retail to the B2B procurement process. Amazon sees no reason that we should not do all our purchasing through their platform. Whether at home, waiting in line, at work, on vacation, or anywhere. 

When Amazon evaluates a market opportunity, they do not do so through the lens of the industry stakeholders. They work backwards from the end customer. They look past the incumbents’ market strategy orthodoxy to see the procurement pain points buyers are experiencing, then work to remove them at a furious pace. As we’ve seen on the retail side, they love attacking legacy markets that change slowly with highly prudent management teams. Amazon sees this as a ripe opportunity to outpace and out-innovate the incumbents in the matter of a couple years.

Of course, Amazon also has the sales data from the incumbents to guide them to make the most-calculated entry points in capturing more market share through their private-label brands. 

A Case Study: Grainger vs. Amazon Business

W.W. Grainger is a titan of maintenance, repair, and operations (MRO) supplies to offices, warehouses, and distribution centers worldwide. William W. Grainger founded the company in Chicago in 1927, and its IPO on the NYSE was in 1980. Over the life of the stock performance, investors have enjoyed an 80-times increase in the share value from the year 1980 to today. However, if we look at the last five years, it's a more modest increase of 62%

The last five years is significant because it’s when Amazon launched its Amazon Business platform to directly compete with Grainger and other MRO distributors. Amazon has its own landing page dedicated to MRO supplies. Of course, Amazon sells much more than this segment of products, but it's a worthy consideration.

Seeing how Prime membership has driven 90% of households to check Amazon first 74% of the time, imagine if a business can find everything it needs on Amazon Business and has useful procurement tools for reporting purposes. Instead of the figure being 74% of product searches starting on Amazon for B2B, it will likely be 100% for Prime business members.

Amazon understands this is a massive opportunity, and one it is already executing on:

Amazon’s B2B marketplace increased 2019’s gross sales by 60% over 2018, tripling Amazon’s overall growth rate of 20.5% for the same period, according to figures from RBC Capital Markets.

Let’s see why B2B buyers are turning to Amazon Business over Grainger and others. Applico found a main reason, which goes back to No. 6 in Amazon’s “virtuous cycle” as mentioned earlier:

Amazon Business to the Construction Equipment Industry: Here We Come

MRO supplies are the first entry point of Amazon coming into the industrial markets. In the future, Amazon wants all procurement to be done on its platform regardless of the industry. Private-label brands in the construction equipment industry is the logical next step after adding MRO to their selection.

“Your margin is my opportunity.”

– Jeff Bezos

Equipment manufacturers, specialty part suppliers, aftermarket part suppliers, and equipment dealers are used to making healthy margins on parts sales, ranging from 10-50% or higher in many cases. However, the parts procurement process is generally very difficult for customers. It’s fraught with many different sites to research, manufacturing lead times, unavailability, and ordering it at the best value. The reasons for this pain are many touch points in the parts distribution chain, each involving their own logistics, distribution, and markup.

Here is a typical parts distribution supply chain for an equipment manufacturer (OEM):

Reading the OEM supply chain from left to right, we can see that it starts with a factory to make a certain part for a “specialty” parts supplier. This specialty parts supplier sells to an equipment manufacturer to use it in their machine assembly line. The manufacturer has a distribution network of dealers. These dealers have relationships with customers in their communities and act as their source of equipment rentals, equipment sales, service, and parts sales. Equipment rentals and sales are the primary business of most dealers or rental companies, with parts and service usually being the distant third priority. 

Customers purchase from their local equipment dealers at a higher price but are ensured it’s the OEM-branded part that comes in the same box. This is an easy option for customers, assuming the OEM has inventory on their shelves, but it is the most expensive one.

Alternatively, let’s consider the supply chain of a typical aftermarket parts supplier:

Aftermarket suppliers source parts from factories around the world. Part manufacturers are commissioned by suppliers to produce a replica of the OEM-branded part; these are referred to as “aftermarket” parts. And sometimes aftermarket suppliers work directly with the same factory the OEM uses for the same parts; these are referred to as “genuine” parts.

Aftermarket parts typically have the same quality as the OEM part, cost less, and have the same or longer warranty. The difference is that they do not come in an OEM-branded box of course. Most customers do not care about the OEM-branded box if they can get the same quality part at a reduced price. However, the world of aftermarket parts is fraught with thousands of different suppliers, lead times, customer service levels, and warranty variables. All that friction leads them to stick with OEM parts many times.

Now let’s examine the supply chain assuming an “Amazon Parts” brand:

Amazon has the resources to source any given part, the most complex and vast worldwide distribution centers, and by far the most powerful ecommerce platform. For now, Amazon is gathering data on our industry and evaluating how and when to promote their own private-label parts.

Now let’s consider the parts procurement process of the equipment end user (the customer). First and foremost, the customer is looking to repair their equipment as soon as possible. Down equipment is a huge cost. While interviewing a contractor in Chicago, we found that it cost them ~$1,000,000/hour to have a crane down on a job site downtown.

The basic process of equipment repair lifecycle looks like this (view image at right):

The faster they can get through the three-step process, the better it is for their business. A down piece of equipment represents lost revenue for equipment rental companies, as well as lost time and productivity for contractors. Generally speaking, it is more important to equipment owners to be able to source their replacement parts quickly and reliably than it is to find the lowest price on all items.

Amazon has built their reputation around being fast and reliable for all things retail. As we know, they compete with traditional retail brands with their own 80-plus private-label brands. Where Tide, Kleenex, Clorox, and Coca-Cola have some of the most famous brands in the world and come with a certain level of prestige, equipment replacement parts are first and foremost a utilitarian purchase.

In other words, it is far easier for Amazon to compete as an aftermarket parts brand than it is for them to take on the strong retail brands.

And as we can tell from the supply chain comparisons above, an Amazon Parts brand would likely also enjoy a pricing advantage against the incumbents in the industry. So how can we impair this predestined fate of Amazon’s takeover of replacement parts, tools, and equipment in our industry? We need to band together to form a much more compelling platform built by the equipment industry, for the equipment industry.

A Better Way: Amazon Business vs. The Equipment Industry

Imagine a world where the top equipment manufacturers, aftermarket parts suppliers, and equipment rental companies joined forces to offer their parts and equipment for sale through a platform built just for our industry. Wouldn’t this make a much more compelling platform to customers? The combined selection of inventory and outstanding customer support of the top companies in the equipment industry would be, in aggregate, more valuable to equipment owners than any one company (albeit that Amazon is a massive company).

Equipment owners would have an easy way to manage their fleet on the platform, generate parts reports per machine, and communicate with the suppliers they trust. They would be able to acquire the best value on their parts transactions. Not necessarily the lowest cost, but the best value in terms of availability, shipment speed, quality, warranty, and price. To repair any given machine in their fleet, they could source from as many suppliers as they would like through the platform.

The platform should also increase the productivity of equipment owners. Roofing contractors should be able to discover attachments to help their telehandlers lift more shingles to the roof. Demolition contractors should be able to discover tools and attachments to break up and remove concrete faster. These are examples of the platform freeing up time for contractors to do more of what they are best at, while making jobs more efficient and profitable.

Headwinds to this Future: Old Rivalries Die Hard

Our industry is defined by competitiveness which, overall, has been a very useful instinct. Competitiveness has driven our engineering teams to build previously unimaginable machines. Snorkel manufactures the largest boom lift in the world at 210 feet, Palfinger manufactures the largest boom truck at 336 feet, and Belaz manufactures the largest rock truck at a gross operating weight of 359,000 pounds. Engineering breakthroughs have allowed us to create bigger infrastructure and buildings while being safer and more efficient.

All of this incredible engineering has enabled the sales and business development teams at manufacturers, dealers, and rental companies to produce $55 billion in equipment rental revenue in 2019 and $113 billion in global new construction equipment demand in 2020. These huge volumes of sales are virtually all done offline and through personal relationships. 

The companies in the equipment industry are locked in a battle for customers, talent, financing, and share value. Hundreds of thousands of employees’ sole purpose is to figure out what the “other guys” are doing and try to outdo them incrementally to gain market share. Hence, ecommerce was always a task for “next year.”

In the year 2000 the dot-com bubble burst, and Walmart was by far the world’s largest retailer. The company even launched Walmart.com in January 2000. Given the company’s market dominance, they saw ecommerce as a means to an end — supporting their core business. Hindsight being 20/20, those executives did not appreciate the significance of ecommerce and allowed Amazon to zoom past them. The dot-com craze of 1999 was not wrong  — just 20 years too early on share valuations.

Is the equipment industry in 2020 like the retail industry of 2000? Many executives may think that market share is a birthright, growth is ensured, and the only competition is from known entities and business models. So did Walmart. 

Pandemic Pandemonium: The Brave New Online World

As compared to 2019’s boundless optimism and bustling economy, 2020 has been a year defined by fear, scandals, and anxiety. We have kept to ourselves, observed where others are standing, and obsessed over news coverage. Most of our economy effectively shut down in Q2. 

As “essential businesses,” we in the construction industry still showed up to work every day and have met this pandemic with more healthy skepticism than fear. Nevertheless, we find ourselves in a world where an ecommerce presence is now vital to doing business. The digital transformation has arrived.

In this new ecommerce world, we find that Amazon holds by far the most powerful position. Amazon Prime members get such an abundance of value for their annual membership that it’s a fool’s errand to believe that will go away any time in the next couple of decades. The only way to compete with Amazon online is not as a single entity, but as an aggregate industry platform.

In fact, industry-focused platforms have been making great strides in developing communities where the best suppliers can grow and customers can explore. A few examples:

  • Etsy is the world’s largest marketplace community of homegoods crafters
  • Everest is a marketplace of the shooting and outdoor sports communities
  • Bookshop is a marketplace community for independent book sellers 

Take Action: There’s No Time Like the Present

At Gearflow, we believe that the amazing manufacturers, aftermarket suppliers, and dealers that make up the construction equipment industry is our beating heart. We seek to empower these companies to grow online and foster a better connection between them and their customers. We believe that the hardworking construction industry, all 7.3 million of us, want the best parts, tools, and equipment from the best suppliers. 

It is only by banding together on one industry platform that we can make a more compelling experience to contractors than Amazon. 

Let’s win the future together.

Luke PowersLuke Powers is the founder and CEO of Gearflow.com, an AEM member company and marketplace built for construction equipment professionals to find the parts and equipment they need from vetted suppliers. For more information, visit www.gearflow.com.

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