Holding inventory is a lot like owning your own servers. You don’t know how much you’ll need until you need it. And if you don’t use it up, you lose money. If you use it up, you buy more. In either case, your forecast was wrong and it costed you.
There are economies of scale benefits to buying your own servers (or in this case, inventory), but this applies to the 1%. Fixed cost barriers to entry favour large incumbents but are bad for them when the market changes. This is what happened when “the cloud” became a thing.
Dropshipping in some ways is a lot like renting server space. Instead of storage, it’s warehousing, product sourcing, and logistics on demand. Since dropshipping scales perfectly with consumer demand, it requires no fixed overhead costs but instead implicates variable costs (and margins as a result). The cost trade-off helps market participants better manage risk — you just need to pay for usage.
We all know what happened to all of the server box companies of the 80s and 90s. They either got eaten up by IBM, HP, Oracle, or Cisco for their IP and customers, or they failed to adapt and ran out of money when the market turned. Then, AWS emerged and forced every company to make the shift to the cloud.
AWS has been the gold standard ever since.
So who will be the AWS of the new B2B commerce model? Wrong question.
What will drive the shift from traditional wholesale to on-demand wholesale? That’s the right question.
History repeats itself, so you have to know how to spot the secrets it leaves behind.
While the cloud story makes sense to think about when looking at the current state of B2B commerce, it’s an imperfect analogy since the units involved in B2B transactions are collected differently. In storage, the unit you’re dealing with is universally the same — a byte of digital information. In B2B commerce, the unit you’re dealing with is orders — but orders happen across mediums (EDI, email, portals, spreadsheets), marketplaces (AliExpress), and platforms (WooCommerce, Shopify, and BigCommerce). This implicates formats, translation, line items, and people.
Bytes generalize. Orders do not. Each unique variable that’s introduced to the equation only compounds complexity and customer headaches. So if you want to scale your B2B commerce operation, you’re almost certain to hit a wall.
This is the fundamental challenge of doing B2B commerce today.
The future of B2B commerce is therefore driven by a utility that somehow makes it all work together. You should be able to do business with a partner irrespective of how you or your partner(s) processes orders. And if the utility is really good, over time, it’ll actually power the shift from bulk orders to dropshipping, therefore growing the market.
Customers tell us that they want it to be easier to do B2B commerce. When we unwind how complicated it really is, we don’t blame them. We’re working hard to clean up the mess so our customers can finally focus on growing their order volume.
That’s why Convictional exists.
Subscribe to Convictional Blog
Get the latest posts delivered right to your inbox