it benefitted from increasing scale
economies and positive feedback loops
associated with digital platforms and
network effects (see “The Evolution of
Platform Thinking,” Communications,
January 2010). That is, the more goods
and services Amazon sells, the more
customers it has, and the more likely
it becomes that more buyers and sellers will use Amazon, especially if competitors vanish or falter. With weak or
no competitors, Amazon is also free to
Bezos’ goal does not seem to be
profit, at least not in the short term.
Rather, he seems intent on expanding Amazon’s reach. As noted in the
title of a 2013 book on the company,
Bezos wants Amazon to be “The Everything Store.”
10 Whole Foods fits this
strategy of retail expansion. It also fits
Bezos’ apparent belief that, to expand
its reach, Amazon needs to increase its
physical presence. Why physical?
Follow the money. Nearly 44% of U.S. consumers go first to Amazon when they
want to make a purchase.
the vast majority of purchases we make
(about 92%) still occur in brick-and-mortar stores, not over the Internet.
The value of this acquisition will be in
how effectively and broadly Amazon
is able to utilize the new physical platform it is buying.
1. Abrams, R. and Creswell, J. Amazon deal for Whole
Foods starts a supermarket war. The Wall Street
Journal (June 16, 2017).
2. Amazon.com, Inc. Form 10-K Annual Report.
3. Bray, H. Whole Foods deal fits into Amazon’s plan to
offer one-stop shopping. Boston Globe (June 16, 2017).
4. Elgan, M. This is why Amazon will open physical
bookstores. Computer world (Feb. 8, 2016).
5. Gustafson, K. Amazon hints at one of its best kept
secrets: How many prime members it has. CNBC.com
(Feb. 17, 2017).
6. Khan, L. Amazon’s antitrust paradox. Yale Law Journal
(Jan. 2017), 751–752.
7. Russell, K. and Seshagiri, A. Amazon is trying to do (and
sell) everything. The New York Times (June 16, 2017).
8. Sorkin, A. Conglomerates didn’t die. They look like
Amazon. The New York Times (June 19, 2017).
9. Stevens, L. and Haddon, H. Big prize in Amazon-Whole
Foods deal: Data. The Wall Street Journal (June 20, 2017).
10. Stone, B. The Everything Store: Jeff Bezos and the Age
of Amazon. Little, Brown, NY, 2013.
11. Wingfield, N. and de la Merced, M. Amazon to buy
Whole Foods for 13. 4 billion. The New York Times
(June 16, 2017).
Michael A. Cusumano ( email@example.com) is a
professor at the MIT Sloan School of Management and
founding director of the Tokyo Entrepreneurship and
Innovation Center at Tokyo University of Science.
The author thanks Annabelle Gawer, Xiaohua Yang, and
David Yoffie for their very helpful comments on earlier
versions of this column.
Copyright held by author.
of Whole Foods customers who are not
yet Prime members. Perhaps Amazon can expand the reach of Whole
Foods through its Web presence and
online delivery services. Perhaps the
Whole Foods network of stores and
warehouses can help Amazon in
storing products or handling returns
from Web purchases, or showcasing
products for sale.
Are there significant synergies between selling books and selling lettuce,
or between warehousing groceries and
other items? Maybe, but maybe not.
Synergies on paper are always difficult
to realize in acquisitions. That is why,
in many studies, at least two-thirds of
acquisitions fail. In this case, Amazon
will find that economies of scale and
scope in the grocery business are not
like the digital world. There may even
be some economic penalties with expansion or automation if Amazon cannot maintain the quality and service
that are hallmarks of Whole Foods.
Another argument against the
acquisition is that the more sectors
into which Amazon diversifies or
integrates vertically, the more it resembles a conglomerate with no particular specialization or competitive
8 Perhaps Amazon should
use the $13.7 billion to expand AWS.
This is Amazon’s most profitable business, but it is subject to intense competition from Microsoft, Google, IBM,
and other companies.
Although the Federal Trade Commission approved the takeover in
August, lawyers and analysts have
raised long-term anti-trust concerns.
Amazon disrupted the competition by
pricing physical books, e-books, electronics, diapers, digital media, and
other goods low—and sometimes below cost—to gain market share. Then
does not seem
to be profit,
at least not in
the short term.
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