In B2B e-commerce Alibaba has solved the one problem Amazon cant

In B2B e-commerce, Alibaba has solved the one problem Amazon cant

Worlds Most Admired Companies

In B2B e-commerce, Alibaba has solved the one problem Amazon cant

Founder Jack Ma will soon take Alibaba public.

Photo: PETER PARKS/AFPGetty Images

In 2000, analysts predicted a massive chunk of the worlds business-to-business commerce market would come online, resulting in trillions of dollars in B2B e-commerce. Gartner, the market research firm,predicted$7.3 trillion by 2004. Goldman Sachspredicted$4.5 trillion by 2005.

That promise has remained largely unfulfilled.

B2B e-commerce startup Chemdex flamed out spectacularly in the fallout of the dot-com bubble, and was blamed for taking the entire sector down with it. In 2013, B2B ecommerce hit $559 billion,according to Oracle estimates, a far cry from the trillions once predicted.

Incredibly, many businesses today still buy and sell supplies and materials with paper invoices, faxes, and checks. Its a huge opportunity on which the two largest e-commerce companies in the U.S., eBay and Amazon, have not focused. Both companies run marketplaces, but they specialize in consumer-facing goods, not wholesale items and business supplies. Amazon has been runningAmazonSupply, a wholesale site, in beta for two years, as CEO Jeff Bezos promotes increasingly flashier schemes around drone delivery, TV shows, mobile phones, and publishing.

In recent years, a number of U.S. startups have sprung up to fill the gap.JoorandNuOrderdo it for the fashion industry.HandshakeandTradeshiftdo it for a variety of businesses.

But there is one true giant in the category: Alibaba, the Chinese retail darlingthat last week revealed plansfor a $21.12 billion initial public offering, which has dominated in B2B e-commerce. I was reminded of this over the weekend while listening toPlanet Moneysentertaining explainerof the Alibaba wholesale market. Through and m, the company provides to people everywhere access to the Chinese supply chain. This means tinkerers, builders, entrepreneurs, and small businesses can order custom motors and parts from Chinese factories without having to travel there, find a scout, and forge a relationship with a manufacturer before doing business. It opens up the world of international suppliers to people who wouldnt normally have access to it. They can buy in bulk through Alibaba, which acts as a trusted third party, vouching for the transaction.

Alibaba has an advantage here, because of its proximity to so many of the worlds manufacturing assets. The reason Amazon hasnt focused on it? Because it doesnt have access to those sellers. Much of it is representative of the differences in their markets, and where Chinese products have typically fallen in the supply chain, says Mark Mahaney, an e-commerce analyst with RBC Capital Markets. Amazonand eBaysimply have access to different wholesale and B2B products than Alibaba does.

The majority of Alibabas revenue comes from its consumer-facing sites, such as AliExpress, Tmall, Taobao, and Juhusu. Wholesale represented 11.8% of Alibabas overall revenue in fiscal 2014, and most of that is from buyers outside of China. It is a small piece of Alibabas portfolio, relatively speaking, but thats only because the company is such a behemoth. Alibabas wholesale revenue in fiscal 2014 was $1 billion, versus $8 billion from its retail operations. The company processed a total of $296 billion worth of sales on its platform in its last full fiscal year.

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Worlds Most Admired Companies

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