Amazon Buys Rival. What’s Next?

Discussion
Nov 09, 2010
George Anderson

By George Anderson

Amazon.com’s acquisition of Quidsi, owner of Diapers.com,
Soap.com and BeautyBar.com, for $500 million in cash plus $45 million in assumed
debt raises a boatload of questions. 


  1. Does Amazon intend to change the way consumers buy everyday staples and
    go head-to-head with all the other retailers selling disposable diapers,
    laundry detergent, etc.?
  2. What company will Amazon acquire next? It has a history of buying up e-tailers
    (Zappos) even if they are in the same business as one of Amazon’s properties
    (Endless.com)?
  3. Will Amazon move to integrate its acquisitions or continue to have them
    operate independently?

According to a Bloomberg report, Quidsi is looking for sales to increase
by 67 percent this year, reaching around $300 million. The company expects to
grow the business further with CEO Marc Lore projecting revenues of $1.3 billion
in 2012.

Quidsi has been rapidly expanding into other businesses from its Diapers.com
start. Next year, according to a VentureBeat, the company plans to launch
Yoyo.com, an online toy site, which may represent somewhat of a departure.

The Quidsi model works, according to Josh
Goldman, a partner at Norwest Venture Partners, because it sells products that
consumers need to continue ordering. The company’s sites make ordering convenient
by shipping free overnight to roughly 70 percent of the U.S. with orders of
$25 or higher.

“When you can get into a replenishment model, it’s very powerful,” Mr.
Goldman told Bloomberg. “Amazon hasn’t done much of that
on their own. The Diapers.com guys have done a really good job of getting you
to come back for replenishment items.”

Another piece on the DailyFinance site
looks at likely targets for Amazon to acquire next. Alice.com and Drugstore.com
are cited as two prospects.

Alice.com, which primarily sells grocery non-foods,
is a good fit because its model is similar in many ways to Amazon’s while different
in others, according to the DailyFinance analysis. Alice.com offers
free shipping on minimum orders and sells goods at prices set by manufacturers.
It also puts out coupons on an on-going basis to encourage incremental purchases
and reorders.

Drugstore.com is appealing, according to the DailyFinance piece,
because it has “a very strong female following and provides a robust product
selection in high-margin areas like natural health and beauty products.”

The
final question is whether Amazon will start to move to integrate its acquisitions
with the rest of its business. 

With all its acquisitions, according to VentureBeat,
the company is becoming an owner of brands and not a single power brand. Very
few, the piece points out, are able to be accessed by consumers through their
Amazon accounts or are part of services such as Amazon Prime.

Quidsi co-founder
Vinnie Bharara told VentureBeat that Amazon’s hands-off
approach to Zappos.com was a key in the decision to sell and for himself and
co-founder Marc Lore to stay on.

Discussion Questions: What do you make of Amazon.com’s purchase of Quidsi?
What questions does the purchase raise for you about Amazon’s future direction?

Please practice The RetailWire Golden Rule when submitting your comments.

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13 Comments on "Amazon Buys Rival. What’s Next?"


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Max Goldberg
Guest
9 years 11 months ago

Rather than trying to compete, Amazon chose to buy a successful competitor. It’s a smart move. Amazon is the dominant player in e-commerce. They are wise enough to know that you cannot internally invent every successful e-commerce model. So when they find one that is working well, they buy it and let the management team continue to make it successful, rather than completely integrating it into Amazon’s unique style. I expect that this trend will continue.

Carol Spieckerman
Guest
9 years 11 months ago
The guys from Quidsi started their business using Amazon as a platform–that is, until the fees began to kill their business! They went on to more or less perfect the specialization with scale model, poking sticks at Amazon all along the way (“A price bot is the sincerest form of flattery” said Mr. Rohan as he watched Amazon ping the soap.com site then adjust its prices within two hours of each sale price posting on the site). Jeff Bezos could either keep watching and reacting to the nextniche.com pile up or nip it in the bud. He chose the latter and, by continuing to acquire niche players, he’s doing more than just swatting the fly swarm. Through these acquisitions, Amazon is in effect building a portfolio of proprietary brands much like terrestrial retail and wholesale has been doing for many years. The model there changed from strictly buy-and-absorb to buy-and-leave-intact a while back and Amazon is smart to follow the latter model. As retailers such as Walmart and Sears build their online marketplaces (so far)… Read more »
Gene Hoffman
Guest
Gene Hoffman
9 years 11 months ago

Amazon’s purchase of Quidsi, and promising to let Quidsi to continue to self-operate, will further cement Amazon’s leadership in e-commence. Do I sense a monopoly arising?

David Dorf
Guest
9 years 11 months ago

Amazon tried and failed to make a business of selling diapers. Diapers.com, on the other hand, figured out that you can’t actually make money selling diapers online, but you can garner loyalty. Once that loyalty is established, you can begin to sell other items alongside the diapers, and make the business work. Amazon just bought a bunch of loyal customers.

Anne Howe
Guest
9 years 11 months ago

While I respect the business point of view of an acquisition strategy that allows founders of specialty e-commerce platforms to stay in place and run their business independently, I’d like to address this from a shopper point-of-view.

As a shopper, I like the easy and fast way I can browse, save, purchase and ship on Amazon Prime. My perception of the brand is derived from the benefits I get from these features. If Amazon buys other e-commerce platforms, but doesn’t integrate the benefits that make a brand valuable in my mind, why would I remember the offshoots are part of the brand I like? And why would I remember to use them? Where is the attachment to brand value?

If I know the benefits of my relationship with Amazon transfer to the new sites in a seamless manner, I’m more willing to take advantage of products offered because of the synergy with the perceived brand value I’m already very happy with.

Doug Fleener
Guest
9 years 11 months ago

When you have deep pockets full of cash, it’s easier to buy these companies than compete against them. I can see drugstore.com as a natural next buy.

One wonders how long Amazon will let these companies they buy self-operate. Then again, getting bought out for $500+ million (Diapers.com) and $880+ million (Zappos) the new executives probably don’t care.

Jonathan Marek
Guest
9 years 11 months ago

This tells me:
1) Amazon has a ton of cash on the balance sheet. Still does, so expect more acquisitions.
2) The folks at Diapers.com must be fantastic. When I first heard about Diapers.com, I thought it was a joke (remember all the jokes about bankrupt marginal pure play ecommerce sites circa 2002?). Kudos to them for creating a business worth half a billion dollars to Amazon.

Ed Rosenbaum
Guest
9 years 11 months ago

No one should be surprised by this move by Amazon.com. It was known months ago during the Zappos acquisition that there were more moves to come. It makes good sense when you look at the new model of Amazon. They continue to purchase businesses and allow the existing management to stay on board.

When reading the trend Amazon is showing, I could not help but think of companies like Amway that does a large online business. Wouldn’t that be an interesting business model for them to acquire? Many of the product lines are similar to what Amazon is now buying and predicted to buy in the near future.

Charles P. Walsh
Guest
Charles P. Walsh
9 years 11 months ago

I like it and it isn’t all that surprising. Amazon will seek to gain market share in the growing but consolidating world of successful e-commerce and these are just the types of business that can help them grow that market share. The other bit of good news is that they aren’t seeking to cookie cutter the business, and therefore their identity, but allow them to continue to do what made them successful.

What may make sense–and they already be doing it–is to leverage their infrastructure (systems and logistics) to reduce cost and redundancy. Those things wouldn’t be apparent to the shopper who happily visits a plethora of sites during their online shopping, blissfully unaware that they are all under the Amazon umbrella.

There is no concern either that there appears to be a duplication of businesses such as the example of Zappos and Endless.com…my wife usually has three or four online shoe sites open at a time when shopping for the season’s best prices and availability in winter shoes.

Herb Sorensen
Guest
9 years 11 months ago
It’s my old song, but I’ll sing it again. Walmart is the premier logistics retailer in the world, and Amazon is the premier SELLING retailer in the world. It’s a lot easier for a SELLER to learn logistics than for those logistically superior to learn how to sell. BTW, just because you have an online site does NOT make you a shrewd seller. Many of the bricks-and-mortar crowd have created online sites that are as brain dead to shoppers as what they are doing in their stores. Look for the best SELLING organizations to dominate world retailing, just as fast as they can get to it. This calls for a side note on the trillions of capital that bricks-and-mortar retailers have deployed. Over the past half century I have noted how deployed capital can become an albatross for the front runner. This is because the market moves, and may not love your capital deployment as much as you do. The more successful you have been with it, the bigger the target on your back, for… Read more »
James Tenser
Guest
9 years 11 months ago

Mr. Bezos declared very early on that he chose the name “Amazon” because it represented his vision of a mighty retail torrent assembled from many tributaries. Books represented a category of convenience chosen as a way to start the flow.

He’s done exactly what he said he would do–adding product categories through organic expansion and acquisition. The more categories and brands share the Amazon operational platform, the more it can leverage efficiencies and market power.

Quidsi and its Diapers.com, Soap.com, and BeautyBar.com brands are logical additions to Amazon’s portfolio. If they overlap somewhat with present product offerings, that’s not really a problem. Bezos and his team at Amazon clearly continue to think digitally about business–which is precisely why it continues to outpace and absorb its competition.

Mark Johnson
Guest
Mark Johnson
9 years 11 months ago

Good idea. Many of these Fortune 100 companies have sooo much cash on their balance sheets they have to do something with it. Amazon has the IT infrastructure that many do not, so I think this is a good move. They have he logistics, IT, marketing bandwidth that will make this a success, now they will have more actionable data as well to make more detailed, informed and timely decisions.

Fabien Tiburce
Guest
Fabien Tiburce
9 years 11 months ago

It’s not about the diapers! Diaper buyers are young parents. Young parents have been shown to be large consumers of other goods including cars, insurance, real estate, clothing, family vacations, etc…The “life value” of a young parent is enormous which makes young parents a gold mine for marketers. A company like Amazon with an eye towards growth would undoubtedly want to identify a promising demographic and drive repeat purchases across several lines of business.

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