Wal-Mart recently bought online retailer Jet.com for $3 billion, but that doesn't mean it will be able to immediately compete with Amazon in e-commerce.
On Monday, Wal-Mart announced its plan to acquire e-commerce company Jet.com for approximately $3 billion in cash and $300 million of Walmart shares. The agreement could help bolster Wal-Mart's online presence and make it more competitive in the e-commerce space.
The acquisition is still subject to approval from the boards of directors of both companies, but if it is approved it is expected to close this year. Both Wal-Mart and Jet.com's websites will continue to operate as separate sites. Doug McMillon, CEO of Wal-Mart Stores, called the deal "another jolt of entrepreneurial spirit being injected into Walmart."
When Jet.com was originally launched on July 21, 2015, it garnered headlines as the next potential "Amazon killer." Multiple side-by-side orders were placed to show how Jet stacked up against then-rivals Amazon and Walmart.com. However, a little more than one year after its official launch, questions have been raised about the effectiveness of its strategy and revenue growth.
Still, Jet is growing with new customers and is able to reach certain demographics that Wal-Mart wants to capture.
According to a press release announcing the deal, "The acquisition of Jet will infuse Walmart with fresh ideas and expertise, as well as an attractive brand with proven appeal, especially with Millennials, the first generation of true digital natives."
Wal-Mart is clearly hoping that the acquisition of Jet.com will get it one step closer to its ultimate e-commerce goal: Beating Amazon. Over the past year, Wal-Mart has given the world plenty of evidence to show that this is what it wants.
In 2015, on Amazon's Prime Day, Wal-Mart criticized paid membership models in a blog post and offered its own deal as an alternative. Later, in June 2016, Wal-Mart offered a free trial of ShippingPass, a subscription service meant to compete with Amazon Prime. And, even though McMillon said that his plan to beat Amazon was to "win with stores," it seems that Wal-Mart is trying to buy competitiveness with the Jet acquisition. The question is: Will it work?
Long story short—probably not.
The first problem with Wal-Mart's strategy is that it is going after the wrong business. Amazon's business is not driven by e-commerce, it's driven by cloud. It's standing as an e-commerce giant merely drives its infrastructure business. Amazon Web Services (AWS), the infrastructure arm of Amazon, was responsible for 56% of Amazon's operating profits overall. Even more, AWS remains leaps and bounds above its competitors, according to the latest Gartner Magic Quadrant report.
Sure, in late 2015 Wal-Mart tried its hand at cloud by open sourcing its cloud tech, but it didn't take off. TechRepublic columnist Matt Asay called it "open source in all the wrong ways."
Even if you remove the infrastructure element from Amazon's business, the e-commerce market has been struggling lately. Additionally, Wal-Mart's choice of Jet as an e-commerce linchpin is perplexing, as Jet has struggled to retain customers.
But, even if Wal-Mart and Jet were able to build a competitive customer base, they wouldn't be able to compete with Amazon in terms of scale. Amazon is the king of logistics, and its latest endeavor in leasing a fleet of "Prime Air" planes proves that. Amazon has taught the world to expect online deliveries in two days. Walmart has started to offer similar services, but it's just not there yet.
Amazon's initial foray into online retailing highlighted the need for better infrastructure services, which birthed Amazon's core business, AWS. By targeting Amazon's e-commerce business, Wal-Mart is setting itself up to compete with the Amazon of a few years ago, not the Amazon of the future—which is going to compete with UPS in logistics and Microsoft in cloud infrastructure.
In the immortal words of Wayne Gretzky: "I skate to where the puck is going to be, not where it has been."
The 3 big takeaways for TechRepublic readers
- Wal-Mart recently announced that it would acquire e-commerce company Jet.com for $3 billion in an effort to improve its online business.
- Wal-Mart has made many efforts to disrupt Amazon, but its efforts have come up short and highlighted the current struggles faced by the overall e-commerce market.
- By competing with Amazon on e-commerce, Wal-Mart is competing on the wrong business, as Amazon's profits are built on the back of its cloud infrastructure arm, AWS.
- Amazon CFO said these 3 factors are the reason for AWS revenue explosion (TechRepublic)
- Wal-Mart buys Jet for $3 billion, hopes to turbo charge e-commerce (ZDNet)
- Walmart goes to war with Amazon over open source (TechRepublic)
- Walmart rolls out Walmart Pay across all US stores (ZDNet)
- Amazon's robot worker challenge won by AI-powered suction arm (TechRepublic)