Deep and Wide

9 11 2010

There’s an old adage in business. If you can’t beat ’em, don’t join ’em. No, buy ’em.

And that is exactly what Amazon.com did yesterday by purchasing Quidsi, owner of the ever-popular (and growing) Diapers.com, along with companion sites Soap.com and BeautyBar.com. Purchase price: $500 million cash on the barrel head.

It was only a month ago that I wrote about how Diapers.com was steadily eating into Amazon territory, first with subscription diapers services, and then with all manner of kids stuff. It was a gorgeous strategy, not a whole different from boiling a frog. Quidsi was hoping to slowly turn up the heat so Amazon wouldn’t notice until it was too late.

But the frog did notice, crawled out, and changed places with the chef.

Amazon has always had the luxury of being flush with cash (even when its income statement was awash in red ink). It has used this cash to snuff out competitors by snapping them up completely, or buying controlling interest. For example, it is a majority owner of Webvan.com, the online grocery delivery service. And last year Amazon paid $850 million for Zappos.com, the online shoe retailer.

It all makes sense when you consider that Amazon wants to be to e-commerce what Walmart is to brick-and-mortar retailing. Nothing is allowed to get in the way. Would-be competitors are not challenged; they are purchased. Toppled. Snuffed out. Obliterated.

It’s up to you to decide if this strategy has any socially redeeming value.

Critics fear that consolidation such as this will lead to only one thing: higher prices. While this has yet to occur in the case of Walmart (who grew not so much through acquisition as it did sheer muscle), it remains to be seen whether Amazon will put the screws to families with diapered infants. Other companies that have grown through acquisition (Google comes to mind) don’t charge for anything at all, so perhaps the argument has no merit.

If anything, Amazon’s behavior signals a great opportunity for wannabe e-tailers. Launch a start-up, compete relentlessly until Amazon takes note, and then sell. I’m sure the founders of Quidsi are doing cartwheels in the company parking lot, knowing they will never have to work another day of their lives.

What Quidsi did was find a category in which Amazon was vulnerable. Let’s face it: Amazon is dominant in books, music and movies. And with all three of those either already gone digital, or about to go, that means just about everything else is fair game. Squeeze a few more cents out of the margin, and customers will click a path to your door. Squeeze long enough and hard enough, and you may just find a suitor ringing your doorbell.

Diapers.com was sheer genius, just as I said a month ago. And it is also sheer genius to sell to Amazon. Quidsi wins. Amazon wins.

And we’ll find out soon enough whether this is a poopy diaper.

Dr “Engulf and Devour” Gerlich

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