What Diapers.com/Quidsi’s Fate Tells Us About Amazon’s Future M&A Activities

Diapers.com

So, Quidsi / Diapers.com gets shut down because it’s making not enough progress towards profitability or free cash flow? We can be rather certain by now that whatever the true reasons are for Amazon shutting down Quidsi, this official explanation is bullshit.

Recode has some background on what was going on at Quidsi:

that narrative [of Quidsi not becoming profitable] doesn’t exactly mesh with what was said at an all-hands meeting just a few months ago, when Amazon and Quidsi executives told employees that they were confident that Quidsi would indeed be profitable in 2017, several sources in attendance told Recode.

At the meeting in late 2016, executives said Quidsi would also generate significant free cash flow in 2017, which is notable because Amazon CEO Jeff Bezos has long said that he cares more about free cash flow than he does profit margins or profitability metrics such as operating income and net income. […]

Quidsi has, however, strung together profitable months over the last two years, sources familiar with the matter told Recode. As far back as 2015, in fact, the company had a party when it turned a monthly profit for the first time.

​Now, I don’t believe that Amazon is trying to show Lore -Walmart’s new e-commerce boss and the former founder of Quidsi, now fierce Amazon enemy- how mean they can be or, one other theory, to show Wall Street that Lore can’t even build the foundation for a sustainable business. No one involved here is a Bond villain and these are Bond villain “strategies”.

​Among the four aspects that didn’t help Quidsi structurally at Amazon of which I wrote about last week, the following may be the most important one:

Amazon’s organization is based on a common platform (Amazon.com) with microservices that are used by departments independently from each other like startups. Also: this opens up opportunities to build new (startup like) businesses like Prime Now or the Treasure Truck tied into larger systems like Amazon Prime, giving them a way to kickstart their products. Where does a seperately run Diapers.com or Soap.com fit into this? Zappos under Amazon is not a runaway success either.

​Recode reiterates that theory from the product standpoint:

One popular theory is that Amazon doesn’t want to admit that a business it paid $545 million to acquire in 2011 was never really a strategic fit, since it meant sending customers to sites other than Amazon.com for popular consumer packaged goods items. This key category is the current battleground for a pricing war between Amazon and Walmart that is terrifying big-name brands.

Quidsi just doesn’t mesh with Amazon’s overall modus operandi.

What does this mean going forward?

For starters, while Walmart has become a great exit strategy for e-commerce startups and mid-range online retailers in the US, Amazon is becoming less and less likely to be a potential acquirer of those kinds of companies.

Quidsi at Amazon has always been about eliminating a competitor before the new entrant becomes to big to buy. After the very public disaster this is becoming, it is hard to imagine another up-and-coming e-commerce player –like say, for example, Wish– to go willingly to Amazon. No founder wants to see their life’s work to get sweeped away like this, no matter how large the payday.

Or, in other words, for Amazon to pull another Quidsi, the premium on the price they’d have to pay just got considerably higher over these last few days.

​Most likely, management at Amazon doesn’t care. They probably think they’ll never need to buy another online retailer in the US or any other of their mature markets ever again. (And they might be right. But, even if you’re not a Bond villain or Bond himself, ‘never say never’.)

Amazon most likely will only buy other online retailers ​for international expansion purposes, going forward. See Souq in the Middle East, for example.

Let’s give the last words on this to Quidsi employees, via Recode:

Add to all of this the positive comments from execs at the late 2016 all-hands meeting, and you can understand why Quidsi employees are confused by Amazon’s explanation for the decision.

“You don’t just shut down a business of this size that’s going to be profitable and moving in the right reaction,” said another.

Said another: “It’s just baffling.”

That’s scorched earth you’re looking at.

​More on this topic:

​* Being Marc Lore: Walmart Wanted to Buy Diapers.com as Well, Now Amazon Kills It
​* The Headscratcher That Is Marc Lore’s Online Strategy for Walmart
​* How Wish Grew to 2 Million Orders Per Day
​* It’s Official: Amazon Acquires SOUQ.com

5 comments

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  5. […] What Diapers.com/Quidsi’s Fate Tells Us About Amazon’s Future M&A Activities […]

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