What Stops Walmart From Beating Amazon in Online Shopping?

Written by: Guest Post on April 24, 2018

It’s amazing how this highly upvoted answer (Ron Rule’s answer to What stops Walmart from beating Amazon in online shopping?) is basically proving, without the author realizing it, why Disruption Theory works. The answer takes an exceedingly narrow view of the entire retail industry and labels the pursuit of leadership in an emerging market/channel (ecommerce), which is clearly where the world is heading over the next few decades, as mere “bragging rights”.

“Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition).”

(Source: Disruptive innovation – Wikipedia)

The real answer is, Amazon has already won in online shopping. It is not due to a lack of effort from competitors, which is probably too little too late.

ecommerceIQ

This quote, attributed to Jeff Bezos, sums up why:

Your margin is my opportunity.

Even with Walmart’s massive revenues and profits (compared to Amazon), it cannot compete with the juggernaut that is built by Bezos. Amazon is “not profitable” by choice. All the earnings are put back into the business, either into more capital investments or to sell loss-leading products that lock in customers or drive competitors out of business, vertical by vertical, and market by market.

The investments that Amazon has made over the first two and a half decades of its existence give it momentum such that it is tough if not impossible for any other company to catch up over the coming decades: the technology stack, the deeply integrated logistics/supply chain (they are now getting into competition with FedEx/UPS), the effective third-party seller marketplace, the customer loyalty (through Prime).

Every exponential curve runs below the linear curve in it’s infancy, that is until it suddenly crosses over, goes through the roof and hits the sky. Even though in absolute numbers Walmart is still bigger than Amazon, only one of the lines below is going up and to the right:

ecommerceIQ

On top of all this, in the last couple of years, Amazon is also getting into physical retail, with acquisition of Whole Foods and pilot of Amazon Go. Here’s a great analysis of this: Amazon’s New Customer (I highly recommend Stratechery for tech+strategy topics in general).

At this point it is more likely that Amazon will eventually beat Walmart at physical retail, than Walmart will beat Amazon at online shopping. If Walmart wants to survive till the end of this century and not go the way of Sears, Walmart must come up with a strategy that creates value in a digital, super-connected future where everyone is hooked on to the convenience and choice furnished by online shopping, but in a manner that converts their massive current investments in physical retail from liabilities to assets.

The last thing Walmart should do is to build an Amazon clone. As then, they are playing by Amazon’s rules. And nobody beats Amazon at their own game.

 

Read the original on Quora by Pararth Shah, Software Engineer at Google

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