Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.
This week's topic: Competition, Walmart, Jet, and the Amazon competition scenario.
And now, the Conversation continues...
KC: I've been thinking about something I wrote about a few weeks ago, while attending the GMDC tech conference in Silicon Valley, concerning a comment that Marc Tarpenning, one of the co-founders of Tesla, made about competition.
He said that Tesla’s leadership always was convinced that once they’d identified the technology solution they were seeking, that pretty much everybody would jump in, and that there would be competition from all angles. Instead, he said, there was virtually none to speak of, and that this was the one possibility that they’d never considered. Instead, automobile companies are doubling down, looking for reduced mileage standards instead of embracing a different sort of future. And I guess I’m wondering if there is any sort of similarity to how Amazon looks at the e-commerce landscape in general, and e-grocery in particular … that they may be sort of amazed that it has taken so long for it to be recognized as a legitimate competitor in the space.
Tom Furphy: I don’t think that Amazon is all that surprised that competition has been slow to respond in e-grocery. As you look back across all of the retail categories that they’ve conquered, in each case the incumbent competition has not mounted a formidable counter attack to Amazon’s incursion.
As Amazon made their way from books, to media to electronics and hard lines, they started with easier categories then moved into more complex ones. All the while, incumbent competitors could see Amazon coming, but were always slow to respond despite the visibility. Now that they’re attacking apparel and grocery, they are into categories that are very difficult to get right online. It’s taking Amazon longer to master these categories, but they’ve been afforded the comfort of competitors that simply aren’t able to respond. Be it legacy cultures, systems or processes, or competing priorities, these companies simply cannot keep pace with Amazon’s agility and Day 1 mindset.
Additionally, Amazon doesn’t really think too much about competition. They think about customers. They say that they obsess over customers and how to make their lives better, then they innovate on their behalf. It’s a very empowering philosophy and culture. Unfortunately for incumbents in grocery, competition doesn’t really give Amazon anything to worry about.
KC: Which brings me to Walmart. I think it is interesting the degree to which Walmart seems to have suddenly found religion … or at least, realized that it was better to sign on to Marc Lore’s version of religion rather than doing what it had been doing. It seems to me that there are some significant differences from the Amazon approach.
First, there seems to have been a decision that Amazon has too much of a head start to compete organically, and that acquisition (of both existing businesses and, maybe more importantly, the talent that comes with them) was a far better/faster way to go. While I think there is the possibility/probability of some cultural disconnects, this also adheres to something we discussed in this space weeks ago - that companies have to realize the value of creating outside networks that can make the whole greater than the sum of the parts.
TF: Running at about 10x the size of Walmart’s e-commerce business and growing at more than double the rate, Amazon was pulling away to an insurmountable lead. So Walmart had to do something significant to change their own trajectory. The jury will be out for a long time on whether the Jet acquisition will pay off. But bringing in fresh perspective and a fresh culture was certainly necessary. Frankly, there are many retailers that would benefit from this. They don’t necessarily have to break the bank and make acquisitions. But they do need to be willing to partner deeply enough, and break out of their routines, so that the partnering has the chance to positively impact culture and enable customer-focused agility.
I think spending $3.3 billion on Jet is forcing Walmart to be decisive. They’ve made the bet that Marc and his team can lead them to the e-commerce promised land. They are making major operating changes weekly, along with taking on a number of additional acquisitions. These are the kinds of bold moves that they had to make.
For any retailer, it’s critically important to develop a Day One mindset and willingness to be agile. Otherwise they won’t stand a chance against Amazon. Testing and learning is crucial. And it’s hard to do that on your own. Building a network of partners and developing an ecosystem of services is a great way to get there quickly. But sitting around talking about it won’t get it done. Companies have to start making bets. They have to bring new innovations to their customers or risk losing them.
KC: Great points. I do think that it highlights the core difference between Amazon and Walmart - that Walmart just wants to be able to sell you more stuff, while Amazon has visions of being at the core of an all-encompassing ecosystem. Agreed?
TF: I think you’re right. It’s not yet apparent that Walmart is thinking about building an ecosystem. But they could be. At its core, Jet is a platform to enable others to be successful. And Walmart has dabbled in allowing third parties to sell on their platform. So it’s not out of the question that Walmart starts to add a variety of services to their platform. Will they offer web services like AWS, fulfillment services like FBA or will they start producing award-winning original content? Not sure.
KC: Could you ever see Walmart building its own version of the Echo/Alexa system? Or bidding on NFL streaming rights? And perhaps most importantly, does this matter? I’m not sure it does; I think it just signifies a different vision and approach to business. I’m not sure it makes Walmart any less a compelling e-commerce competitor … I just think they’re playing a different game … and that in the long run, everybody else in the market has to be concerned about becoming collateral damage.
TF: I don’t think Walmart would want to build a competitor to the Echo device or Alexa voice platform. Those are incredibly difficult platforms to build and it’s taken Amazon several years to bring them to market. Walmart would be better served to partner with Google on the Google Home and/or other IoT related companies. Really, any of the capabilities that Amazon is building would be good partnering opportunities for Walmart given their scale and willingness of partners to work with them.
But if I were Walmart, I would be sure to double and triple down on my core strengths. Stores and their locations put Walmart in a good position to be successful in e-commerce. Building a set of e-commerce capabilities that enable shoppers to effectively discover products, buy them and either pick up in store of have them delivered will be key. Walmart should not partner for the core elements of this service, like so many retailers have done with third party services. They can partner for certain elements where they may not have expertise, such as automated replenishment, as many retailers are. But they should own the service. They could be a formidable competitor to Amazon in e-grocery if they get their act together. And if they do, there will be many other retailers that feel the impact as well.
The Conversation will continue...
- KC's View: