Battle for Online Supremacy: Amazon vs. Walmart

Online shopping is a key secular trend that is expected to become increasingly important for all retailers. Last week marked an important stage in the battle for e-commerce market share with Walmart’s $3.3 billion acquisition of Jet.com. Jet.com is a 2-year old start-up founded with the aim of taking on Jeff Bezos’ Amazon, the largest online retailer in the world and currently valued at around $360 billion. 

Jet.com, an unprofitable e-commerce marketplace, was co-founded by Marc Lore, Mike Hanrahan and Nate Faust. Marc Lore, the CEO, previously founded and ran Quidsi, which included Diapers.com, the largest online specialty retailer for baby products, and Soap.com. Amazon acquired Quidsi for $545 million in 2010. Mr Lore is expected to continue running Jet.com whilst simultaneously managing Walmart’s online efforts.

Significantly, the deal marks a turning point for Walmart’s efforts. It is now showing it is willing to take greater risks in its attempt to close the widening gap with Jeff Bezos’ company. Walmart, which also owns Asda, is in fact paying more than double Jet.com’s most recent valuation of $1.5 billion which was set during Jet.com’s last fund raising round in December.

Walmart,  the $225 billion retailer which will report earnings on Thursday, has spent billions of dollars investing in its e-commerce operations and most recently brought in around $14 billion in sales from the segment. Amazon on the other hand made over $100 billion in sales last year.

Amazon has been growing both top (sales) and bottom (profits) lines at an astonishing rate despite its size. In its most recent quarter, it announced sales of $30.4 billion, up 31% from last year. It grew its free cash flow 66% to $12.7 billion in the latest trailing 12 months compared with the trailing twelve months that ended June 30, 2015. The Seattle-based company grew its profits to $857 million in the second quarter versus $92 million in second quarter 2015, an 832% increase.

Prime continues to be an enticing way to keep users shopping on the Amazon platform and utilising the various services the company offers such as next day delivery, video and music streaming in addition to unlimited photo storage.  Amazon’s second annual ‘Prime Day’, a “one-day-only global shopping event exclusively for Prime members” was the biggest day ever for Amazon. It was also a record day for Amazon devices globally. Unsurprisingly, Prime subscription numbers continue to be a closely held secret.

“Compared to Prime Day 2015, worldwide orders grew by more than 60%, orders from third-party sellers with Prime Day deals nearly tripled, and Prime members saved over twice as much on deals.” – Amazon

Amazon’s current foothold in the online retail space continues to gain pace and is causing trouble for many bricks and mortar retailers, including Walmart. While the Jet.com deal alone will not bring Walmart up to speed with Amazon, it adds a critical fresh dosage of online and entrepreneurial thinking to the company’s culture.