Amazon’s Second Act
Analysts are still scratching their head over Amazon’s $13.7 billion purchase of Whole Foods, and yet if we read Jeff Bezos own words and apply a little bit of banality to futurism, the plan is obvious.
Amazon has saturated the business of bringing products to people. The next step will be in bringing people to products
Jeff Bezos is less a visionary like Steve Jobs and more of a paranoid opportunist like Gordon Moore (co-founder of Intel). In Bezos’s quirky mind, the fact that Prime subscriptions account for an estimated two-thirds of U.S. households is bad news. It means his addressable market is shrinking, and on some level, that has sent him into a panic. Amazon is, at its core, a delivery exploitation machine, and the opportunities for improving delivery are dwindling. It’s time to go in the opposite direction, begin anew with Whole Foods, and exploit the anti-delivery economy.
There is a whole world of consumption where people voluntarily get into cars, brave traffic, navigate complex stores, and deal with apathetic workers, just to get something they want, right now. In Colombia, there is a courier app that delivers bodega-like food items in minutes. Prime Now and Instacart offer same-day delivery, but that’s not fast enough when you’re hungry right now. Maybe Amazon will bottle up what’s happening in Colombia, or maybe they won’t. But if you’re hedging your bets, and assume you can’t win the delivery game, what’s the next best thing? Bring people to products.
The endgame for Amazon is to have Whole Foods-selection with Trader Joe’s-prices in a shopping experience as seamless as Prime and delivered to you at rickshaw speeds
All Jeff Bezos cares about is growth. It’s right there in his annual letters to shareholders. Every day is “Day 1” as he calls it. Rather than assuming Amazon has something secret in store for Whole Foods, a safer bet is that it will rely on the growth opportunities that have worked for Amazon in the past. Such opportunities have included: instant gratification (1-Click shopping, insanely fast delivery), friction reduction (next-level execution on logistics and e-commerce), and juicy customers (irrational, yet delightful, consumer experiences such as Prime). Applied to Whole Foods, you will check out faster, your food will be cheaper thanks to a radical upgrade on logistics, and yet you will still have the same addictive cornucopia shopping experience that Whole Foods has always delivered.
Whole Foods’s growth was plateauing when Amazon acquired them. And yet, a walk into a Whole Foods isn’t a vision of a plateauing marketplace, but instead one of consumer vanguard. These are the shoppers Bezos wants. Whole Foods shoppers are some of the most profitable. And yet, Whole Foods is still bogged down by 20th-century logistics and shopping experiences. Why aren’t self-driving trucks delivering groceries to Whole Foods? Why aren’t the products on the shelves relocating themselves in real-time with AI-informed analytics? Why does anybody spend any time in a checkout line? While technology was supposed to disrupt shopping with e-commerce, offline shopping remains the same as it was 100 years ago. The goal for Amazon is to turn more of the world into Whole Foods shoppers.
Where is the Whole Foods of Pharmacies? Where is the Whole Foods of Consumer Electronics? Best Buy isn’t it. CVS isn’t it.
While the primary goal for Amazon is to grow Whole Foods, the secondary goal is a broader capture of offline commerce. Whole Foods is a beachhead to invade the next fat cow of retail: pharmacies. When you walk into a CVS or Walgreens, there is hardly anybody there. And yet, the stores make a killing off of the back room where they make pills. It’s almost as if the bodega experience takes up 80% of the real estate of these stores to mop up the spare time that people have when picking up prescriptions. What if people could love picking up pills and other sundries as much as they love picking up supplements at Whole Foods? Likewise, where is the Whole Foods of Consumer Electronics? Best Buy is just a shinier version of Circuit City.
Amazon may lose the arms race against fake reviews
Look closely at the reviews on Amazon for Bluetooth headsets. Most of the reviews are fake. The time it takes me to spot a fake review has gone up year-over-year. The cost-benefits of maintaining quality reviews don’t make sense anymore. TripAdvisor recently came under fire for removing inconvenient reviews, and Rotten Tomatoes is under fire for favoring its own reviews.
Could people “cut the cord” between Prime streaming and Prime delivery?
How weird would it be if Wal-Mart offered free streaming to Wal-Mart members? It only makes sense for Amazon because we’re used to it. Prime is a form of lock-in, but so was the cable subscription at one point. Free delivery could be “unbundled” from streaming, and people would brag about “cutting the Prime cord.”
Not all grocers are idiots
Sure, the industry is in need of a tech transformation, which Amazon is likely to deliver, but evey other grocer could copy Amazon. Also, as mentioned above, Whole Foods’s revenue was plateauing when Amazon picked them up. A visit to any regional chain would show that they have mostly co-opted the Whole Foods and Trader Joe’s experience. Groceries themselves are ultimately a commodity. The stores have to be just good enough to convince a shopper not to drive a few miles down to the next one. And let’s not forget Costco, which makes around the same revenue (not profits) per square foot as Whole Foods. Costco stores already look like the inside of Amazon.
Whole Foods was a competitor to Prime before Amazon scooped them up
If Amazon Prime is the ultimate online consumer subscription, Whole Foods has always been the ultimate offline one. I visit Whole Foods 2–3 times a week to eat at their buffet. When Amazon lowered the price of almond milk to within 50 cents of the almond milk that I get at my local grocery chain (H-E-B), I thought, Why not do my grocery shopping at Whole Foods after eating? It then occurred to me, that I visit Whole Foods as often as I pick up my mail. Why not have Amazon lockers there, as well? It’s possible to see Amazon Whole Foods as a daily nexus for all of your consumption.
Creating a Grocery API or Amazon Grocery Services is a second-tier concern
I disagree that Amazon is trying to create a delivery platform to resell to other grocers. The term Amazon Grocery Services (AGS) is a compelling parallel to Amazon Web Services (AWS), but AWS was an accidental business. It just so happened that the infrastructure Amazon built for its e-commerce site was flexible enough to be commoditized. Theoretically, Amazon could have done the same with Prime Video, commoditizing video-delivery and helping all the networks build a streaming service. Amazon Video Services (AVS), if you will. Instead, Amazon would rather forgo extra side revenue there to create and own the streaming experience. AWS never threatened Amazon.com. By helping other grocers, AGS would threaten Whole Foods.
People don’t understand what Amazon is. It’s not a vertically-integrated company, nor is it a horizontally-integrated one. It’s not one thing. It’s more of a chaotic conglomerate. Some of the departments have synergies, some don’t. To Bezos, corporate structure is only important inasmuch as it drives growth, growth, growth. If it were 1900, he would try to grow the company through railroads and mail-order catalogs. He’s agnostic. It just so happens that tech is the ultimate tool for growth, and so in that regard, Amazon is a tech company. Bezos didn’t have to create a tech company. But if you want to scale the way Amazon does, you have to become one. This is why Amazon will continue to tap the same opportunities for growth it always had. It’s not that Amazon is lazy and can’t think of old ideas, it’s that those areas (instant gratification, frictionless processes, and addictive user experiences) are uniquely exploitable with tech in 2018 as they were in 1998.