19 December 2017

Investing in Supply Chains

On the subject of opportunities in supply chain in 2018 I made a few observations I would like to ponder. Starting with a bit of a recap. Ideas that are easy to understand and quick to scale get the early money. It's especially true when the market opportunity seems big. But there is a problem with that. When the opportunity seems big and easy, a plethora of similar businesses is created crowding the same space. What seemed to be quick is being slowed down by competing businesses. This changes things. The dynamics of becoming a dominant player become expensive and messy.

Then there is a question how really big is the market opportunity. Of course it's big at a quick thought for something like a social network platform or an e-commerce marketplace. The top five social network and consumer platform companies pooled in $600 billion in sales so far in 2017. Here is the cumulative revenue of the five companies, based on these rough numbers:

Top five market cap company revenues
CompanyRevenue, appr., calendar 2017Market Cap, mid-December 2017
Apple$229B$906B
Amazon$170B$574B
Google$100B$753B
Microsoft$56B$667B
Facebook$35B$526B
TOTALcall it $600B$3.4 Trillion

 

A study by Frost & Sullivan estimates business-to-consumer e-commerce sales to grow to $3.2 trillion by 2020. The top five Apple, Amazon, Google, Microsoft and Facebook are about e-commerce. These estimates may partially include sales to small businesses and business owners. The same Frost & Sullivan report estimates $6.6 trillion in pure B2B e-commerce sales by that same year. Trillions?! Three times the size of B2C? These are staggering numbers.

The opportunity in business to business commerce is staggering no matter how you look at it and whose report you read. At Encole we are seeing an increased interest among manufacturers in online representation. We are making an investment in a product discovery platform to help our suppliers. This is a hard and non-obvious building block for dominant supply chains of the foreseeable future.