How Amazon Reacts to Wal-Mart Buyout of Jet.com

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Amazon.com Inc. (NASDAQ: AMZN) did not increase discounts on products or drop the price of free shipping. It did not discount membership to Prime. Any of these might be a reaction to the $3.3 billion buyout of Jet.com by Wal-Mart Stores Inc. (NYSE: WMT). Nor will it. Amazon is so far ahead of Wal-Mart in the e-commerce business that the Jet.com deal will not affect it at all.

Consider how small a company Wal-Mart bought for $3.3 billion, which was more a sign of desperation than a wise strategic move. Wal-Mart says Jet.com has:

  • Demonstrated ability to scale with speed, reaching $1 billion in run-rate Gross Merchandise Value (GMV) and offering 12 million SKUs in its first year.
    A growing customer base of urban and millennial customers with more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders.
  • Best-in-class technology that rewards customers in real time with savings on items that are bought and shipped together, thereby reducing the supply-chain and logistics costs often buried in the price of goods.
  • A select group of more than 2,400 retailer and brand partners tailored to create an attractive and distinctive assortment for consumers.

There is absolutely no evidence that Amazon does not dominate the millennial market, just as it does every other demographic measure of e-commerce dominance. There is no evidence that Amazon’s technology is anything short of “best in class.” Amazon’s revenue “run rate” is well over $100 billion a year (though a few billion comes from Amazon Web Services). Its “retail and brand partners” run into hundreds of thousands, via Marketplace:

Marketplace’s early days were not easy. First, we launched Amazon Auctions. Not many customers came. Auctions transformed into zShops, which was basically a fixed price version of Auctions. Again, no customers. But then we morphed zShops into Marketplace. Internally, Marketplace was known as SDP for Single Detail Page. The idea was to take our most valuable retail real estate—our product detail pages—and let third-party sellers compete against our own retail category managers. It was more convenient for customers, and within a year, it accounted for 5% of units. Today, more than 40% of our units are sold by third-party sellers worldwide. Customers ordered more than two billion units from sellers in 2014.

Amazon has a set of branded consumer electronics, most of which help tether e-commerce customers to Amazon.  Primary among these are the Kindle e-reader, Fire TV, Fire Tablet and Echo.

The most important tether is Prime, a sophisticated blend of free shipping, streaming video, music, personal photo storage and barrage of special offers on Amazon products.

Nothing will help Wal-Mart gain on Amazon by more than the most modest amount. So Amazon’s reaction to Jet.com will be nothing.

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