Commonsense says that, if you want to get your hands on a capability that your competitor has, you should either build it or acquire it—but common sense is not very common, and many companies choose to ignore this until it is too late. Walmart, which was founded in 1962, was part of such an old guard. They ignored Amazon, which was founded in 1994, until now. Like many of the old guard, they were too comfortable in their ivory tower until the enemy started demolishing it with cannons.
Now, in a knee jerk reaction, they have suddenly decided to buy Amazon rival Jet.com for $3 billion. The surprising thing—to borrow from Sherlock Holmes and the reference to the dog that did nothing in the nighttime in Silver Blaze—is not that they are buying Jet.com for $3 billion; it is the fact that they ignored the threat from Amazon for a full 22 years. True, ecommerce is only just now beginning to pick up, but what was the management of Walmart doing until now? Planting tulips?
Evidently, they were. Having done some financial reporting in the not too distant past, I decided to look at the revenue figures of both companies. I will spare you the boring EBITDA figures and the percentages—let’s instead look only at revenues and the growth that Amazon and Walmart have seen:
True, in terms of revenues Walmart is bigger than Amazon, but the fact that revenues are falling is a clear indicator for the company that it’s time is up.
True, in terms of revenues Walmart is bigger than Amazon, but the fact that revenues are falling is a clear indicator for the company that it’s time is up. This writing has been on the wall for the past 22 years, but Old Money is always slow when it comes to change.While Amazon has been growing fast, Walmart, which grew at a slower clip, has seen some loss of revenue growth in the latest year. This loss has come as a punch in the gut for Walmart and probably forced it to buy Jet.com.
Will buying Jet.com help Walmart? It is hard to say because Jet.com is a recent company, which was founded in 2014, after its founder Marc Lore sold Diapers.com to Amazon in November 2010. Jet.com has an interesting business model—Wikipedia says that the site will only charge a $50 annual membership fee and sell products at break-even prices. The prices of products will also vary based on various factors—waiver of right to return items, payment by debit card, location of products (it is cheaper to buy several products based in the same distribution center), etc.
But the Walmart-Jet combo faces two challenges—firstly, what they are doing is primarily at the level of software algorithms and this can be easily replicated by Amazon. Secondly, Walmart, a 54-year-old company, has to integrate with a two-year-old startup and this will not be easy. Amazon, on the other hand, is a dyed-in-the-wool ecommerce company that has been there and done that for 22 years.
But this doesn’t mean that the Walmart-Jet deal is a failure. If I said that, I would be no different from the pundits who claimed that Nokia and BlackBerry would last forever.