Innovation

Amazon's acquisition of Whole Foods highlights the business value of offline data

Amazon knows online data better than most, but it's still a neophyte with offline data. Here's how Whole Foods can help.

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Image: iStockphoto/krblokhin

For those still scratching their heads over Amazon's decision to buy Whole Foods, Stratechery analyst Ben Thompson has some sage advice: "Amazon and Jeff Bezos have their sights on being the most dominant company of all time. Start there, and this purchase makes all kinds of sense." He's right, but perhaps not for the reasons he states.

In Thompson's view, the Whole Foods purchase makes sense because, though "to the outside it may seem that Amazon is buying a retailer," he continues, "Amazon is [actually] buying a customer—the first-and-best customer that will instantly bring its grocery efforts to scale." While perhaps true so far as it goes, it doesn't go nearly far enough.

What Amazon is buying, more than anything else, is not a customer but rather a place: The physical world, and all the data that goes with it.

It's the data, stupid

Writing in The Wall Street Journal, Laura Stevens and Heather Haddon approach this truth, arguing that the "big prize" in the Whole Foods deal is "data." While few can crunch mountains of online customer data more effectively than Amazon, they reason, "Amazon...doesn't know how those customers shop in stores—a gaping hole in data about its more than 300 million shoppers." Buy a physical retailer and boom! Data on physical shopping is available to complement Amazon's online data.

SEE: How Amazon's Whole Foods purchase could solve its grocery supply chain puzzle (ZDNet)

This doesn't really explain why Whole Foods instead of, say, Target or some other retailer, but it may have much to do with the primary reason I so dislike Whole Foods: The perceived affluence of its customers. As Stevens and Haddon wrote, "Bringing together online and offline data can help Amazon learn how to entice customers to make more impulse purchases online," and the affluent are more likely to walk in for a $5 pint of cream and come out with $150 worth of organic gummy bears, line-caught tofu, and more.

Additionally, there's hefty overlap between Amazon's Prime members and Whole Foods shoppers—62% of Whole Foods shoppers also use Amazon Prime, according to a Morgan Stanley survey.

Blending online and offline data

Having offline data and actually marrying it to online data are two very different things. In my conversations with Fortune 500 financial services companies, retailers, and more, this remains a dream more than a reality. Indeed, the majority (64%) of enterprises surveyed by Forrester don't even use the same analytics tool to measure desktop web and mobile web behavior, thereby making it hard to get a holistic view of their customer online. Now add in completely siloed offline data and you get a sense for why personalization remains such an elusive goal.

SEE: Can $3B acquisition of Jet.com make Wal-Mart the next Amazon? Probably not (TechRepublic)

By buying Whole Foods, Amazon gives itself a fighting chance to bring together deep analytics online and offline. This, in turn, not only should lead to more effective cross-selling, but also to a rich understanding of their users.

Hence, 451 Research analyst Brenon Daly is undoubtedly correct to point out that, "Conventional corporate strategy would typically encourage a company to allocate resources to the business with the highest return (AWS), rather than spending billions of dollars to buy its way into a low-growth, low-margin adjacent market." However, rather than being "one of the few CEOs who could possibly get away with spending billions of dollars of shareholder money to effectively take his company backward in time," Amazon CEO Jeff Bezos is arguably launching his company into the future by buying the foundation for a blended offline/online data play that, if successful, would make Amazon far more formidable than it is today.

If you're an Amazon customer, this is great news. If you compete with Amazon, this is a tolling of the bells. The only way to survive is to get smart—fast—on how to make physical location, and all the data that comes with it, pay.

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About Matt Asay

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.

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