Distribution is everything.
Walmart is determined to give Amazon a run for its money. Thus Walmart, since last summer, has begun spending a lot of money itself. (See list of acquisitions at the end of the article) Going against Amazon with its unique Prime bundle and successful Marketplace begs the question though how exactly to make a dent in the Seattle giant’s armor.
I predict Walmart will attempt to either partner with Instagram, or to invest in (and partner with) Pinterest. Or both. […]
Both have consumer demand — Pinterest in particular is a quiet giant in the online commerce conversion funnel. And neither have the appetite to use their cash and/or investor patience to make a direct assault on Amazon’s stronghold. But a partnership with the Avis of e-commerce? That makes some kind of sense to me, and I predict it will to them as well.
This makes sense.
But why would an Instagram or a Pinterest limit itself to partnering only with Walmart? Amazon’s overall reach, breadth as a Marketplace and brand recognition as a shopping destination in general is, especially in the US, large enough to be a far more enticing potential partner. Even too large to ignore or exclude explicitly. (If anything, Amazon would have the negotiation power to create exclusive partnerships with those two.)
What makes sense for Pinterest and Instagram themselves regarding partnerships:
- Partner with online retailers. Period. Build an API-based way to allow connections for easy integration of e-commerce. Pinterest and Instagram are already doing this.
- Make sure to get the elephants on board: Walmart/Jet.com, eBay, and, important of all, Amazon.
- Amazon is where the real money is: With around 70 million, some estimate up to 85 million, US households being Prime subscribers, if given the choice, thos households will go with Prime. A “buy with Prime” button next to an photo on Instagram or Pinterest sure would better convert to a sale than a Walmart/Jet.com button. Hence it makes little sense from the perspective of Pinterest and Instagram to choose a Walmart partnership exclusively over Amazon. These social networks are actively looking to build a business beyond advertising. (And, on an abstract level, an integrated online retail channel, is a deeper integrated solution than ads but little different. In theory, a win-win-win situation, with customers gaining a smoother way to find and buy certain products.)
So, I see little to no chance for Walmart successfully convincing Instagram or Pinterest to an exclusive partnership in the likes Battelle suggested above.
What can Walmart do, then?
Well. Walmart could buy a social network. Instagram is off the table. That leaves Pinterest.
This is not inexpensive. Pinterest has raised in total $1.47 billion in venture capital. The latest round ($150 million from existing investors) saw Pinterest valued at $12 billion in June of this year.
That is a lot of money, even for Walmart. (Jet.com went for $3.3 billion to Walmart.)
Here is what Walmart would get. Bloomberg:
By raising money, Pinterest is choosing to delay a potential initial public offering as its business model matures. The company generates revenue by selling ads that look like posts on its site. Each month, 175 million people use Pinterest to collect and post images related to fashion, travel, cooking and other interests. The San Francisco-based company is targeting revenue of more than $500 million this year, people familiar with the matter have said.
The harsh truth is that neither Walmart on its own, nor Jet.com under Walmart, nor the mildly successful direct-to-consumer companies Walmart is buying in a frenzy right now, nor all of this combined will truly make a dent.
Walmart needs something
- Amazon does not have,
- Amazon can not build itself easily,
- that is part of the larger online commerce ecosystem,
- and does a job there that is not covered by Amazon as well.
Pinterest checks all those boxes.
It would be equally an offensive as defensive move.
If you internalize just one macro aspect from Amazon’s playbook these days, then let that be that you have to think beyond core retail issues to win in online retail. For example: You have to build and own general interest platforms / networks you can integrate into your business if you want to compete from a certain level upwards.
It is this ‘general interest’ angle that makes an acquisition of Pinterest by Walmart far more potent than an acquisition of eBay by Walmart.
The latter is the only possible step by Walmart that would move the needle as well. But eBay is a shopping destination just as Walmart and Amazon are. And Amazon is winning as a shopping destination online in the US. You need to get to customers through other means. You need to be there for them when they are still in discovery mode and don’t even know yet they’ll be shopping soon.
Benedict Evans, analyst at VC firm a16z, keeps saying, rightly so, that Amazon is the Google for ecommerce. And then, he asks who the Facebook of ecommerce will be.
Why, do you think, Amazon keeps trying out social shopping experiments? Amazon knows about this conundrum as well. Amazon is good when you know what you are searching for but not so good at everything else. It was not Microsoft’s Bing that eventually posed a threat to Google but Facebook.
Building a second, “better” Amazon at Walmart/Jet.com is building the Bing of ecommerce. Don’t be the Bing of ecommerce.
Walmart-Pinterest would be hitting Amazon where it hurts them.
Pinterest would allow Walmart to go deeper into a B2B marketplace play. (Distribution matters and owning this distinct way to customers would be very valuable to Walmart. Imagine Walmart building out a services business for online retailers selling through Pinterest.)
Distribution is everything.
Amazon kept buying social networks out of defense over years. See Goodreads for example. It is those social networks that can become a danger to Amazon’s US dominance. A successful social network is not easily replicable. (In most cases it is not replicable at all.)
As Pinterest is a.) a stand-alone company (that can theoretically be bought) and b.) close to commerce with its social objects (contrary to, say, Twitter), Pinterest represents the single biggest threat to Amazon in the US today.
The question is wether Marc Lore, Walmart’s online boss, is seeing this opportunity for what it is.
I’m pretty sure Amazon does..
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