Would a radical partnership help Walmart thwart Amazon?

Discussion
Sep 25, 2017
Ken Lonyai

Amazon.com, especially after the Whole Foods acquisition, is viewed by pundits and analysts of every stripe, as unstoppable and unconquerable. The premise is not new, yet many behemoth companies have been in a similar position only to be unseated from their dominance. Two examples are General Motors and Sears. So why would Amazon be the exception that can never be toppled from on high?

Amazon subsidizes the cost of its e-commerce business with its commercial cloud computing platform Amazon Web Services (AWS) and revenues from its Amazon Media Group (AMG) advertising division. Without the $12 billion+ AWS cash cow, the company might not be able to carry out commerce operations in the manner that it does — essentially unprofitably.

AWS is so crucial that, like Achilles’ heel, if its revenue stream was wounded significantly, Amazon would likely have to adjust merchandising to a more conventional profit and loss model, damaging sales considerably.

Walmart has an increasingly gladiatorial relationship with Amazon, even though each largely serves different consumers. The retail giant could decide to take on AWS by undercutting it, especially now that Amazon has announced a new AWS pricing structure that might soften the service’s profitability. Walmart wouldn’t build its own cloud service, rather it would back an existing competitive offering, lowering the cost to a threshold that users find far too reasonable to resist. Maybe half the cost? Walmart’s recent demand that its vendors give up AWS signals that management recognizes the importance of the service and that attacking it (symbolically, so far) is fair game.

It begs the question, “Who would be partner to such an idea?”

Fifty-five percent of product searches start on Amazon. That’s a significant hit to Google’s core business: ad supported search. On its own, the tech giant has reason to counter its revenue depletion by slashing Google Cloud Platform fees to impact AWS. If Walmart backed Google’s cloud, it would force Amazon to raise prices or reduce services to run its e-tail business more profitably.

While this “partnership” seems far-fetched, each company has a stake in turning back Amazon. The two are already working together to enable customers to place orders from Walmart via Google Home. If they could form a federation of sorts, it just might open an opportunity to impede adoption of Amazon’s Alexa tech.

Untold billions of dollars in physical and digital commerce are at stake. Radical partnership? Not at all.

DISCUSSION QUESTIONS: Would a Google/Walmart alliance as described in the article help the two companies compete more effectively with Amazon? Are there other corporate alliances or mergers that you think would accomplish a similar result?

Braintrust
"The 'Amazon is unstoppable' story is very similar to the 'Walmart is unstoppable' story of the early 2000s."
"Amazon is not invincible — market forces will determine the winners and losers in the future."
"Google and Walmart strike me as unlikely bedfellows. Their cultures are just too different to hope for much out of an alliance."

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25 Comments on "Would a radical partnership help Walmart thwart Amazon?"

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Paula Rosenblum
BrainTrust

The “Amazon is unstoppable” story is very similar to the “Walmart is unstoppable” story of the early 2000s. For some reason pundits, the Street and analysts of “most” stripes (my stripes are NOT included) have decided the same about Amazon.

The thing all these folks forget time and time again is that no market is infinite. There simply is no such thing. A Google/Walmart alliance is one competitive solution, as is the consumer’s desire to buy local, from smaller retailers, or just from someone else. I would prefer to see a more diverse market than the “big two,” quite frankly, and I don’t think I’m alone with that.

So … 1.) No market is infinite, 2.) Amazon is not unstoppable, 3.) Walmart is doing some creative things already to expand its target market and make money at the same time! and 4.) creativity, disruption and better customer experiences will shift the tides in another direction sooner or later.

It almost feels like an immature response to say things like “Amazon is unstoppable.” It’s naive.

Neil Saunders
BrainTrust

Paula sums this up perfectly; and I add my name to the non-stripes list!

Cynthia Holcomb
BrainTrust

I agree Paula. Good summation.

Kenneth Leung
BrainTrust

Good summary. 10 years ago, everyone is afraid of Walmart, and now everyone is afraid of Amazon. Walmart partnering with Google helps with the technology, but retailing isn’t just about the technology, it is about the implementation of customer experience from online to store to vending machines to shipping, supply chain and logistics.

Max Goldberg
BrainTrust

No company is invincible. Amazon is no exception. While it is possible that a Google/Walmart alliance could put a serious dent in Amazon, it’s more likely that Amazon, if it were to fail, would do so by chance in management, overreaching with its business model, or by having a major investment fail. It could even be rocked by a serious data breach. Pundits love to make bold predictions. That’s what makes them newsworthy. Don’t believe everything they have to say.

Art Suriano
BrainTrust

Walmart and Google have been working together and it makes sense for them. The more partnering they do, the better it is for them as Amazon continues to pursue other interests. This is the new competitive war today, no different than in the 1800s with such entrepreneurs like Vanderbilt, J. P. Morgan and Rockefeller. They were ruthless and often undercut their competitors at a loss just to knock them out. But they survived and eventually built their empires. Walmart and Amazon are already vast empires and neither will go away quietly. I see Walmart and Google working together as smart, and I don’t expect it to end anytime soon especially if the companies see success.

Charles Dimov
BrainTrust

Yes, partnering with Google would make sense for Walmart. Aside from the attention-grabbing headline, they could further solidify voice commerce efforts, bring Google Voice orders in-store (like the Kohl’s Amazon experiment) and add Google vendors to the Walmart marketplace — all as examples of how to start making counter waves.

Another logical alternative on the cloud technology would be Microsoft, with Azure. It would require more work, but would be an equal foray.

To truly shake things up, Walmart might also consider partnering with Alibaba as that e-tailer attempts to penetrate other markets like the U.S.

Jon Polin
BrainTrust

Perhaps the greatest genius of Jeff Bezos is his unique ability to convince public markets for 20 years that profitability minimally matters. While Amazon is an impressive innovator and operator separate from their P&L, there is no question that altering their ability to operate with such low regard for profitability would hurt their e-commerce growth. The proposed Walmart-Google partnership path is a novel approach to get there.

Dick Seesel
BrainTrust

When the majority of product searches start at Amazon, that’s a huge advantage — it combines the predictive intelligence of an SEO company with the execution skill of a best-in-class e-tailer. But is Amazon invulnerable? Of course not, and that’s part of the reason why the company is filling in its portfolio with brick-and-mortar acquisitions (Whole Foods) or alliances (Kohl’s).

So an expanded partnership between Walmart and Google has potential: It provides Walmart with more robust search capacity and web traffic, and it offers Google a stronger e-commerce platform. But unless Walmart adds more second-party retailers (and their goods) to its site, it’s not going to catch up to Amazon’s head start for awhile.

Ryan Mathews
BrainTrust

Google and Walmart strike me as unlikely bedfellows. Their cultures are just too different to hope for much out of an alliance. True, if the scenario played out exactly as outlined in the article it has a possibility of success. By the same token, if I were 6’11” I might have played in the NBA. But I’m not, so I didn’t. My view is that Amazon has a strategy of radical customer engagement and that its continuous efforts to establish new customer engagement points — Prime, Dash buttons, subscriptions, Echo in all its incarnations, etc. — represent a greater challenge to its competitors than AWS.

I understand the argument that if you attack the heart of the profitability, the wound could be fatal. But this is a battle for the soul, not the body. And that’s why I think a pure technology marriage of convenience won’t be as effective as a consumer-centric strategy that leverages technology in order to create a new, and better, value proposition for customers.

Cynthia Holcomb
BrainTrust

Bring it on! Retail today reminds me of the dot-com era. So much talk, so many impressed by unreasonable business models in the hope of a big home run lathered into a froth by PR and media commentary. If one follows retail news as we all do here on RetailWire, not a day goes by without a new take on the future of retail. Three-thousand square foot Nordstrom hangouts, Whole Foods turning its back on local products in favor of large centralized warehouses, to a giant that has taken over retail on the wings of AWS. Believe me, a shakeout is ahead.

Kiri Masters
BrainTrust

I agree that Walmart and Google have the most to gain right now from joining forces and taking Amazon down a peg or two. As consumer brand advertising dollars shift from Google and Facebook to Amazon, those two incumbents will start feeling more pain. To that end, where does Facebook sit in this picture?

The Google/Walmart partnership is in its infancy but I wouldn’t be surprised to see this relationship strengthen. Google has the early beginnings of a marketplace, Google Express, but it seems to lack focus or strategy. Walmart could be a quick ticket to achieving broader selection and a reliable fulfillment partner — two big keys to consumer adoption.
The other giant competitive threat to AWS is Alibaba Cloud. I definitely see Alibaba as the dark horse coming from behind in this three-man race. Alibaba is big enough and ambitious enough to give all players in this category a serious run for their money.

Doug Garnett
BrainTrust

Walmart continues to do, and hint at doing, things that are strategically poor ideas. The key to good strategy is to play on your own field, to define the battle in your terms and to define the battle you can win.

Unfortunately, Walmart’s strategic vision sometimes appears to be merely to copy Amazon (dressed up cleverly — but it’s still merely copying). And that won’t win. Amazon knows the game better than Walmart.

So team with Google? Perhaps. But what’s unique about it? What leverages Walmart’s unique strengths? Why does this make a difference to consumers?

Cathy Hotka
BrainTrust

It’s not Amazon that customers love — it’s convenience and reliability and product availability. Whether a partnership or not, if a rival can muster the ability to improve on the Amazon experience, that rival can win. Amazon won’t be resting on its reputation in this environment.

Mohamed Amer
BrainTrust

Amazon is not invincible, but the company has been more in touch with what consumers want and expect from a shopping experience — and it’s not a singular path.

Over the past two-or-so years, we’ve seen Walmart make a significant pivot to a more e-commerce-centered model through acquisitions and new delivery options. From my first-hand experience, the Walmart store employee is more friendly, helpful and down right chatty!

While the fast change of consumer demands continues unabated, it does place pressure on companies to make new investments in technology and people. These moves do require creative alignments and arrangements with technology providers and others. However, the north star for all players ought to be their customer with a focus on defining, communicating and executing on that value better than any other competitor. Organizational focus and resources are a zero-sum game; if you choose to emphasize the competition, you will unduly neglect an opportunity to delight your customers.

Lee Peterson
BrainTrust
Right now at least, Amazon is a Wall Street darling because of two things: growth and innovation. The growth is real, the innovation is part perceived, part real. They are being rewarded for those two factors and those two factors alone. While others are measured by profitability, that has not been the case for the 800-pound gorilla. An exception to an ancient rule, which is actually pretty great. Hence you see Walmart doing their best to show that they too are innovative; best BOPIS at retail, full-cart check out, delivery to home, FAA app for drones, etc. All that is good, but even with Google as a partner it’s hard to say that Walmart will ever grow at anywhere near the pace Amazon is/has been. The fact that there are over 20 million Echo units in households now and two-thirds of those owners are buying goods two to three times a week through them tells you that Amazon is just beginning to hit their stride. Conversely, Walmart is catching up on that front and at… Read more »
Martin Mehalchin
BrainTrust

An “anti-Amazon alliance” centered on Walmart and Google could make a lot of sense for both parties. More than just attacking Amazon, the partners will need to find ways to deliver value and utility for consumers and for brands/advertisers. With coordination issues between two large companies and significantly different cultures, the “alliance” will have difficulty matching Amazon’s agility and speed to market.

Shep Hyken
BrainTrust

To think that any company is immune from competition is ridiculous. Amazon may have arrived first in many areas. Other companies have grown in a number of these areas. Amazon is still the king, and one of the reasons they are more likely to stay on top is that they are constantly innovating — and almost all of that innovation is focused on benefits to their customers. This doesn’t mean they will always rule every area they are in, but it is a way to keep their position very competitive (if not on top) with loyal customers that appreciate the way Amazon does business with them.

Harley Feldman
BrainTrust

A Google/Walmart partnership would be a counter weight to Amazon’s AWS/e-commerce strategy. It has already begun with the support for Google Assistant ordering from walmart.com. With my company hosting our web service offering on AWS, we continue to be pressed by our retail prospects to move hosting services away from AWS. Amazon is not invincible — market forces will determine the winners and losers in the future. While Amazon is not going away, any overwhelming successful player in any industry attracts competition and Google/Walmart is likely to be one of these.

There will be other corporate alliances in the future. I can see IBM and/or Microsoft, large players in cloud computing, teaming up with retailers to form alliances and competing with Amazon.

Michael La Kier
BrainTrust

The history of American commerce is littered with companies once thought “Too Big to Fail.” There have always been companies with an advantage based on a multi-platform business model — McDonald’s reliance on real estate to allow rapid expansion is one such example — but Amazon is certainly on a roll. Assuming Walmart and Google could get along, their partnership would certainly have value.

Camille P. Schuster, PhD.
BrainTrust

While as outsiders we can find some areas of synergy that might make a Walmart/Google partnership competitive, there is also an argument for a major cultural difference between the two. A partnership between the could possibly work if there is a clear strategic synergy as a goal and appropriate attention is given to ways to address the cultural differences. If the reason for a partnership is to compete more effectively with or to hamper the competitiveness of Amazon without due consideration for joint working relationships, that is a recipe for disaster.

Vahe Katros
Guest

This was an interesting piece, thanks Ken. I want to blurt out some thoughts to just get them out!

In the next war, the ammunition is AI — The objective is transformative customer experience at all parts of the experience (physical and virtual).

The not so obvious/obvious enabler is talent. A’s hire A’s, B’s hire C’s — Steve Job’s got that right

In this future, The Google/retail federation is a good bet from the talent point-of-view. Google has the A’s Geoffrey Hinton and Jeff Dean. Hinton and GPU’s changed the game in 2012, and Dean is a god of everything and brought us tensorflow. (And so many more).

If you believe that the GPU is the next strategic platform, then you are into the NVIDIA ecosystem.

I Googled and found the the following: “Walmart is building a “GPU farm” that will be about a tenth of the size of rival Amazon Web Services “GPU” cloud.”

Generals always want to fight the last war, perhaps Linda Dilman’s attempt to push RFID ended the last war. (Entire sidebar — I couldn’t resist).

James Tenser
BrainTrust

Amazon is intimidating at present, but not invincible. Paula’s comparison to the Walmart mythology of two decades ago is quite apt. But so is Ryan’s observation that Google and Walmart are not natural partners. Scale matters in this equation, but there are many aspects of financial, operational, and cultural fitness to consider also.

Seems to me a more likely scenario would be a straight-up merger that would allow a deeper integration of search and merchandising. If Walmart is disinterested (or hubris gets in the way), Alphabet (Google’s corporate parent) could acquire Target, then add a few selected specialty chains to its portfolio. Done right, it could leapfrog Amazon in terms of physical store presence and footprint.

gordon arnold
Guest

This is nothing to be surprised or in suspense about. What we are seeing is the evolution of internet media. Just as television and radio combined to offer information and entertainment coast to coast, we are seeing the same conglomerate collection of companies for providing service and now product(s). This I about survival and expansion to become the world wide supplier of everything. Google, Home Depot, Walmart and most likely other very large service and product suppliers with an existing global market presence will eagerly join in.

If Amazon wishes to compete, they must enroll the support and participation of small and medium business with competitively priced high quality goods and service. Amazon needs to be more aware of who can compete directly against them with little or no investment like maybe COMCAST and VERIZON. The ability to create a new buy and sell retail business and bring it to the scale of Home Depot or Walmart may require a whole new and radically different methodology.

Javier Cazares
Guest

Fair topic, but I still do not understand why we keep emphasizing on the “let’s wait to see Amazon fail or being caught up” angle rather than the “what are others doing on their own to really be different and solve the customer experience demands. I think the best for consumers is to have an Amazon and a Walmart both working hard to bring the best innovation to elevate the customer shopping experience, no?

wpDiscuz
Braintrust
"The 'Amazon is unstoppable' story is very similar to the 'Walmart is unstoppable' story of the early 2000s."
"Amazon is not invincible — market forces will determine the winners and losers in the future."
"Google and Walmart strike me as unlikely bedfellows. Their cultures are just too different to hope for much out of an alliance."

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