Amazon is eating the world, so Walmart just bought a Bezos whisperer

Amazon is eating the world, so Walmart just bought a Bezos whisperer

Google’s mission is to organize the world’s information and make it universally accessible and useful. Amazon’s mission seems to be organizing the world’s products and making them universally accessible. It’s Google, but for the physical world.

Jeff Bezos famously said, “Your margin is my opportunity.” And it appears the established retailers and packaged goods companies are, finally, starting to take him seriously. Digital disruption has already claimed Blockbuster, Radio Shack, Borders, Circuit City, and Sports Authority. Best Buy, Sears, JC Penny, and Aeropostale are circling the drain. No retail CEO wants to join that list.

That’s part of the reason Walmart spent $3B, that’s 43% of its cash on hand, to purchase a two-year old startup called Jet and Unilever spent a billion to buy Dollar Shave Club.

Walmart Just Bought a Bezos Whisperer

The question is: are these transactions asset grabs or talent acquisitions? Some have balked at the notion of Walmart paying $3B for a company that hasn’t seen its third birthday and is reportedly burning tens of millions of dollars a month. Look at it another way, the Bentonville behemoth just paid $3B to retain the services of Jet/Quidsi CEO Marc Lore, who helped build Amazon’s strength in the diapers, toys, soap, cosmetics, pet care, and home furnishings. Lore spent five years competing with and three years working with Bezos. How many other executives could bring Walmart that depth of understanding about their chief rival and the entrepreneurial skills to grow a nine-figure business? $3B starts to look like a bargain. It turns out that buying an expert in Marc Lore who understands the next gen of retail is worth a lot to Walmart.  

Amazon Is The Retailer, And Increasingly The Supplier Too

The world was traditionally broken down into two camps - the CPG company that produces the product and the retailer (like Walmart). In the new world, Amazon is increasingly looking like both. Amazon focuses less on their suppliers and if they think you charge too much for a product, they’ll just find the factory and make a near exact replica, at half the price, cutting you out of the process. This is extremely threatening to the big CPG companies like Unilever.

This creates an opportunity for upstarts and Dollar Shave Club showed us the playbook—find a margin rich product category dominated by a slow moving conglomerate, develop a cut rate clone, build a digitally native relationship with customers, and attack atypical distribution channels.

Digital Isn’t A Channel, It’s Your Entire Business

50% of American households are Amazon Prime subscribers. And It’s not just the speedy shipping and discounted products that keep people hooked, you also get a suite of services like a Netflix alternative, a Spotify stand-in, a Siri clone, and so on. If forced to choose between Google, Apple, or Amazon, many of us would choose Amazon. After all, changing your search engine or smartphone is simple, signing out of Amazon means spending a Saturday at Babies R Us buying diapers.

For Amazon, vertical integration isn’t just private labeling products, it extends to creating the programming they advertise those products on and building drones to deliver them. There isn’t a step in the buying process they’re willing to share—unless it involves listing your products on their site. Big box retailers destroyed local chains and mom and pop shops by offering bigger selections and discounted prices. Amazon is building the biggest box in history.

Find Your Allies and Circle the Wagons

Amazon is vulnerable. Staples carved out a niche in the B2B market. Wayfair built a $4B business by mastering dropshipping. Differentiated inventory and powerful brands, like Warby Parker, can help. But competing in the world Amazon is building requires big box retailers, CPG companies, and startups to think differently.

It’s not just the retail establishment that should fear Amazon, startups aren’t necessarily in a particularly strong position either. Here’s the constellation of services that Amazon chooses to highlight on its homepage:

A dozen of these are products and services built by Amazon. The rest of these sub-brands were bought—mostly on the cheap. The companies on this list represent ~$2.5B worth of acquisitions over 22 years of operation. The bulk of that $2.5B figure is represented by just seven companies. None of these companies were purchased after 2010.

Database developer Junglee for $280M in stock and search engine Alexa for $250M in stock were purchased before the first dot com bust. Amazon bought out bookselling competitors Abe Books for $120M and Audible for $300M. Shoe retailer Zappos cost $1.2B, Quidsi cost $550M and flash sale startup Woot! was had for $110M.

Print and video on demand services BookSurge & CustomFlix, Camera comparison blog DPReview.com, book community GoodReads, education services provider Tenmarks Education, comic book delivery platform Comixology, fashion brand Shopbop, sewing supplier Fabric.com were all acquired for sums so low that Amazon wasn’t required to disclose them.

The Enemy of my Ecommerce Enemy is my Friend

Amazon will open its checkbook for companies that give it a strategic advantage over its rivals. They paid Kiva $775M to have exclusive access to the best warehouse robots money could buy. They paid $970M to pick up Twitch and purchase the loyalty of a generation of video gamers.

But in the end, it may be that your enemy’s enemy is your best friend. In that case, position your company as an alternative to Amazon and you might find yourself in a valuable position like Mr. Lore at Jet.




Shaina Rosenbloom

Gallery Manager at Made in Earth

7y

This is really well written!

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Vijendra Singh

GCC site leader (Pune) at TransUnion

7y

They are growing so fast in India that it is now Amazon vs rest .....buying at Amazon is becoming like breathing air :)

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As long as Amazon can survive the Chinese mockup of the company model they will be fine, However Amazon is poorly expanding, very good solidifying themselves in North America, but is time for better world lines

well .. well.. reminds of the beastly quote by a business magnate : we don't meet competition .. we crush them.. and this is no candy crush world in real business..

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