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Walmart is Coming for Amazon – And Winning

Walmart is fast becoming a platform company, and Amazon should be scared. Marc Lore is ready for revenge and Walmart CEO Doug McMillon has learned his lesson.

With a projected annual growth rate for e-commerce of 40%, Walmart is growing faster than Amazon, which is around 22% – though admittedly Walmart is moving from a much lower base.

After only a year, it’s clear that Walmart’s new marketplace initiative will be a strong competitor to Amazon.

Round 2 for Lore and Amazon

Jeff Bezos created the animal that is Marc Lore when Jeff went thermonuclear on Marc’s former company, Diapers.com, by forcing it to sell to Amazon at a below-market price. The roughly $500 million Amazon invested in Diapers.com could be the worst investment Amazon has ever made. Not only did Amazon shut down the site a year ago, but Jeff’s ruthless business tactics also motivated Marc Lore to pair up with the resources of Walmart for Round 2 of their battle.

Marc, Doug and the rest of the Walmart team are doing a great job so far. If they continue to execute, Amazon’s growth will be more expensive, as it will cost more to acquire new and retain existing customers. So, let’s review some key data points from Walmart’s investor conference on Tuesday, October 10th.

The marketplace business model of Jet.com has helped Walmart.com go from 15 million products to 60 million in under a year. For a company that has struggled to build its marketplace for nearly a decade, this rapid expansion is incredible.

Jet.com will focus on attracting higher-end brands by targeting more affluent, urban millennial customers. High-end brands and luxury products have been a big problem for Amazon, as described in this WSJ article from Monday.

Remember those 60 million products? Here is Walmart’s strategy to embrace the long tail. For the top million products they have a dedicated team of 2,000 specialists to ensure all the products are “perfect.” The other 59 million (and growing) products are handled by the marketplace model.

According to Walmart, they can ship to 99% of country via ground delivery within two days. And, 87% of country via ground, overnight. It wasn’t clear if these figures apply to the top one million products or all 60 million. I assume it’s somewhere in the middle; however, Walmart touches 90% of all Americans within 10 miles of a store. It has the demand to justify third-party sellers on its marketplace to ship products to ‘forward deployed’ warehouses (read: “stores”).

Surprisingly, Marc Lore didn’t release any information on third-party seller growth on Jet.com or Walmart.com. However, with a 40% growth rate and 4x the number of products available online, a material increase in third-party sellers should be assumed. Another indication of Walmart’s success are reports of Amazon playing defense with their third-party sellers.

What’s Special about Walmart’s Direction

Walmart is the first large, linear enterprise to successfully engage in Platform Innovation. It tried building its own marketplace in 2009, which failed. Then, Doug McMillon, who only became CEO in 2014, bought Jet.com last year for $3.4bn.

Doug and Marc are merging Walmart’s existing linear business model with the new, marketplace business model. When these two models work together, they are a potent combination.

Will they be powerful enough to dethrone Amazon as the top e-commerce marketplace? Probably not anytime soon. But, they should be able to be make Walmart a strong second option. And, in platform wars, when there often are only 2 winners, accomplishing this would be a huge win for Walmart.

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