Walmart Marketplace first came online in 2009, two years after the iPhone launched and 15 years after Amazon was founded. The Marketplace allowed third-party sellers to list their products alongside Walmart’s products on its e-commerce website, but sellers were selected based on “reputation, sales projections and alignment with Walmart’s values.”
This hefty restriction for sellers was merely the first of many red flags that would eventually lead to Walmart spending over $3B to acquire a startup called Jet.com, all in pursuit of being second to Amazon in consumer e-commerce.
While Jet.com has a lot of potential, it isn’t a great bet to spend $3B for the best case scenario of still losing to your biggest rival.
Despite Walmart’s e-commerce presence for more a decade, only 3% of its sales came from its website in 2016. 3% of $482B is still a sizable number and certainly more than some Fortune 500 companies have in total revenue, Walmart was capable of so much more.
To put that amount in perspective, third-party sellers on Amazon grossed an estimated $2.4B in sales over only a few days during 2016’s Black Friday and Cyber Monday weekend. To put that in comparison, Amazon accounted for 31% of all online sales during this period. In comparison, on Walmart’s Marketplace there are only about 1,000 third-party sellers in their network as of this writing.
So, why did Walmart need to buy Jet.com?
The simple truth is that building a platform is hard. But, when successful, they can become winner-take-all modern monopolies. This dynamic means there will only be one or two dominant B2C product marketplaces in the United States. And, with Jet’s recent growth rates, Walmart was feeling the heat, especially with Amazon sitting high and mighty as the number one platform leader.
Brick-and-mortar retail is under siege from the platform business model, as we’ve seen with big box retailers like Circuit City, Borders, Best Buy, and now clothing retailers like Macy’s. Industry consolidation only extends the disruption that platforms bring to an industry.
This was the key motivation behind Marriott’s acquisition of Starwood – to slow down Airbnb and the online travel agents’ inevitable commoditization of the hotel industry.
Walmart Marketplace – A Success?
Of course, Walmart Marketplace never even came close to rivaling Amazon’s marketplace. Almost 4 years ago, in early 2013, Amazon was touting two million sellers as compared to Walmart’s 1,000 in 2016.
Alas, Walmart’s Marketplace wasn’t a complete loss. While the Marketplace failed to give Walmart a credible competitor to Amazon, it did succeed in training the company’s executives on what it takes to build a successful platform.
How do you get successful, accomplished executives at one of the largest companies in the world to recognize that their current business model will inevitably be disrupted by a new business model?
Well, that’s the trillion-dollar question.
And Walmart Marketplace helped bring about that realization in the form of the $3.4bn Jet.com acquisition.
Hindsight is 20/20
Looking back on things that Walmart should’ve done differently is easy, but here are a few highlights:
When is my Jet.com moment?
Saying it’s difficult for an executive management team at a successful, multi-billion dollar legacy enterprise to decide to disrupt their own business is an understatement. Fortunately, there is more precedent now, in 2016, than there was ten years ago when Walmart should’ve taken the Amazon threat much more seriously.
Building a platform as a new business separate from the brand of the existing company is paramount in order to provide the new initiative enough breathing room to thrive.
If you’re in the crosshairs of a platform like Amazon, the clock is already ticking. The exact timing of when your growth and revenue start to decline may be off by a few years, but don’t use this as an excuse to write off the threat entirely. If the platform threat is there, then the eventual commoditization of your core business is inevitable and your company’s demise is not far behind.
Platform InnovationRead more