Amazon’s Acquisitions – The Amazon Project

THE AMAZON SUITE

Whole Foods

Amazon’s acquisition of Whole Foods was highly talked about– and not just because of the price tag that came with the transaction. Amazon acquired 100% of the Whole Foods stock on August 28th, 2017 for $13.7 billion ($42 per share) in cash. The buyout came as a surprise to many because the two companies seemed to have very different interests on the surface. Before the acquisition went through, Whole Foods was commonly referred to as “Whole Paycheck” because of its steep prices. Contradictorily, Amazon was known for championing low prices.

The lack of alignment in the companies’ price models did not deter Amazon from pursuing the grocery company, however. Amazon aggressively pursued Whole Foods because the e-commerce company wanted to learn more about the grocery industry. Before the August buyout, Amazon had previously experimented with grocery stores and related fixtures; notably, they started “Amazon Go” and “Amazon Fresh,” brick and mortar grocery stores in which customers are able to shop without checking out, and a grocery delivery service, respectively. Owning a grocery store giant like Whole Foods provided a plethora of knowledge that Amazon wanted to use to become more competitive players in the grocery industry.

Bezos’ company has been successful in this endeavor, and as of December of 2021, Amazon Fresh stores have expanded to California, Washington state, Illinois, Maryland, Pennsylvania, Virginia and D.C. These grocery stores prioritize low-prices and same day delivery, which match the model of the company’s online platform. Additionally, these stores offer organic produce that is priced significantly lower than the counterparts sold at Whole Foods and products from its own “Amazon Kitchen” brand which is similar to Whole Foods’ “Whole Foods 365” brand.

Another unique aspect of Amazon Fresh stores is that they run on Amazon “Dash Carts” which require no checkout. “Computer vision algorithms and sensor fusion” technology detects and charges customers’ Amazon accounts based on what customers put in their cart. The carts also have a special Alexa feature which answers questions about where things are located in the store and food and drink pairings.
The impact of the acquisition is apparent not only in Amazon’s affairs, but Whole Foods as well. After the acquisition, Amazon immediately began selling Amazon Echo products in the produce section. Some were surprised by this because concerns had been raised before about how Whole Foods association to Amazon may deter some customers from shopping there. Today, Amazon’s presence is less visible in Whole Foods stores, however the acquisition is still felt by customers. One of the most obvious impacts of the acquisition was the drop in prices, which started very soon after Whole Foods was purchased. Additionally, many stores handle Amazon returns. Now, the biggest visible give away that the two companies are related are the bright yellow sale tags that offer an extra sale discount for Prime members.

These tags hint at one way through which Whole Foods provides a new avenue that Amazon uses to learn more about its customers. Those with Amazon Prime memberships are enticed to scan their Amazon Prime code (which can be brought up on one’s Amazon App) in exchange for a special Prime Members extra 10% off of sale items. Although the company markets it as a perk for being a Prime Member, critics have cited it as just another way for Amazon to know the habits and preferences of their members. Amazon now has access to important information that gives insight to how people eat, something they had limited access to on their online platform prior to the acquisition. Some argue that this data is what Amazon was primarily after– they care less about the actual profit they generate from the brick and mortar stores and just want to be able to better understand and target their customer base.

The effect of the acquisition reverberates widely throughout the grocery world. Many food vendors have started to redesign their packaging to make it more attractive to online buyers, which Amazon is pushing more. Amazon’s entrance into the Whole Foods’ food delivery world has also put pressure on other grocery brands to offer similar programs to customers. Many of these grocery stores have accelerated their planned investments into online shopping and delivery by a couple years to stay competitive with Amazon. So although Amazon still remains a rather smaller player in the grocery industry, they have still managed to make a big splash and continue to push the boundary on what grocery shopping entails.

Zappos

People often forget that Amazon owns Zappos, and that’s how both companies want it to be. Amazon first attempted to acquire Zappos, an online shoe and clothing retail company, in 2005, however they were unsuccessful. Zappos CEO Tony Hsieh declined the offer out of fear that Zappos would be absorbed and lost among the mass of Amazon. This, he worried, would mean the end of Zappos’ culture.

Zappos is famous for its unique and appealing culture in the online business world. Most notably, pre-Amazon acquisition, they were known for valuing the well-being of their employees. They paid for all employees’ health care premiums, invested heavily in the personal development of their workers, gave customer service representatives more freedom and flexibility than those at a typical call center, had libraries for employee learning, and offered monthly feedback forums, among other things. Zappos’ employees were known for being extremely happy with their work life that Zappos’ leadership carefully constructed. Higher ups in the company believed that these perks and incentives would contribute to happier workers, which would translate into producing a happier customer base. While the company took on higher initial costs running programs and incentives to boost worker happiness, they believed that it would prove to be worth it in the end, as the happier customers are, the more likely they are to return (meaning less money had to be allocated towards marketing), and the higher the potential for future sales and growth were.

The positive company culture was just one of the many reasons that Bezos was attracted to Zappos. When his company ultimately acquired Zappos in July of 2009, Bezos cited his intrigue in the unique company culture. He also described Zappos’ strong leadership, growth potential, and customer obsession (which he felt aligned with the goals of Amazon) as other reasons for the acquisition.

Beyond a similar obsession with customers, the two companies shared other similarities. Both Amazon and Zappos offered free shipping and personalized service, which was attractive to many customers. Zappos also had a no-questions asked return policy, similar to Amazon. These are very surface level similarities however, and it’s important to acknowledge ways in which they differed. Although both aimed to ensure customer happiness, they approached the matter in different ways. Zappos relied on good service and relations while Amazon focused more on low prices. Amazon was also notorious for poor working conditions, which directly went against Zappos’ focus on worker happiness. Unfortunately for Zappos workers, after the acquisition, many found that the Zappos working conditions declined significantly. Some viewed their new work life as so undesirable that they actually left their job at the company they once loved working for.

Hsieh was well aware of the differences between the two companies and the implications it would have on his company. For this reason, he required a unique acquisition deal. Instead of allowing Amazon to buy Zappos with money, Hsieh requested that Amazon acquire all the shares, options, and warrants of Zappos in exchange for 10 million shares of Amazon stock– which equated to about $807 million at the time of sale. This was Amazon’s largest acquisition to date. They also asked that Zappos’ employees be provided with $40 million in cash and stock options. Hsieh was adamant about the stipulations of the transaction because he didn’t want it to feel like Zappos would be lost in the jungle of Amazon.

Zappos still operates as a separate entity with its own website, fulfillment centers, payment system, inventory management, meaning that Hsieh was successful in asking that Zappos not be lost among the web of Amazon purchases. Amazon also benefited from the purchase, as it further solidified their space in the shoe and retail market– something they were still relatively new to at the time– and helped grow their online empire.

MGM

The e-commerce giant acquired MGM, the 97-year-old film and television studio, for $8.45 billion — or about 40 percent more than other prospective buyers, including Apple and Comcast. This acquisition was a key move for Amazon to bolster its crucial Prime membership. With Disney+ gaining traction and HBO Max, Apple TV+, and Paramount+ vying for attention, the original streaming disruptors — Netflix and Amazon Prime Video — are focusing more on films with broad appeal in order to maintain their growth, particularly in international markets.

The Amazon deal could be a watershed event in the merging of technology and entertainment. Until now, digital companies in Hollywood have expanded on their own steam rather than absorbing old-line studios. Furthermore, with $71 billion in cash and a market capitalization of $1.64 trillion. The $8.45B made sense for the firm given streaming hours are up more than 70% year over year.

MGM owns 4,000 older movies and 17,000-episode television library, including “Rocky,” “RoboCop,” “The Pink Panther,” “Legally Blonde” and the James Bond catalog. Other titles include “Legally Blonde,” “Moonstruck,” and “Handmaid’s Tale.” In addition, MGM has several movies in its pipeline that could be Oscar contenders, including “Respect,” an Aretha Franklin biopic starring Jennifer Hudson; Ridley Scott’s “House of Gucci,” starring Lady Gaga and Adam Driver; and Paul Thomas Anderson’s latest project, which stars Bradley Cooper in his first film since “A Star Is Born.”

Audible

Amazon announced their acquisition of Audible in January of 2018 for $300 million in cash. The company was founded in 1997 and operates services in the United states, United Kingdom, German, and France. At the time of acquisition, they sold more than 80,000 audio versions of books, magazines, newspapers and television and radio content.

Amazon’s senior vice president described the company as, “Audible.com offers the best customer experience, the widest content selection, and the broadest device compatibility in the industry” and “working together, we can introduce more innovations and bring this format to an even wider audience”. This was a strategic move by Amazon as they have become more and more interested in digital content as evidenced through Kindle e-book reader and Amazon MP3. While not explicitly documented, it can be assumed this move was also meant to eliminate certain competitors such as Barnes and Noble.

They have struggled mightily with terrible forward looking projections while Amazon has thrived and seen this arm of their empire surge. As last documented, more than 60 percent of audiobooks were downloaded to digital devices and almost all of those came from Audible. This hasn’t only benefitted Amazon, as under the Audible name, they have used Amazon’s clout to establish better deals with publishers. For them, it is hard to pass up an opportunity to work with a company owned by Amazon given their giant footprint and capabilities. While Barnes and Noble and even Apple have struggled in the audio content space, Spotify has emerged as a main competitor in the area. To joust with Amazon they have been in talks to acquire audiobook platform Findaway to directly try and take some market share away from Audible. Regardless, with their acquisition of audible they set the standard for this industry and it will be interesting to see how companies respond to try and match them.

Twitch

Amazon’s acquisition of Twitch took place in August of 2014 for $970 million in cash. Twitch is a streaming website for music, sports, and predominantly gaming. It was a prime target for Amazon given their outstanding numbers and sizeable market share.

At the time of purchase, they had roughly 55 million users for what was described as Youtube for video games. They demonstrated strong growth as in just three years they had already gained a market share of roughly 2% of all internet traffic in the U.S. at peak hours. Only FAANG staples Netflix, Apple, and Google accounted for more internet traffic at peak hours. Comparable companies had also tried to take a stab at acquired twitch. Google had agreed to buy Twitch for $1 billion although that eventually fell through (potentially due to anti-trust issues given Google also owns Youtube). Likewise, Yahoo was also making a move at roughly $970 million but Amazon swooped in and sealed the deal before hand.

Our savior, Jeff Bezos was so fond of this deal he said, “Broadcasting and watching gameplay is a global phenomenon and Twitch has built a platform that brings together tens of millions of people who watch billions of minutes of games each month – from The International, to breaking the world record for Mario, to gaming conferences like E3. And, amazingly, Twitch is only three years old,” said Jeff Bezos, founder and CEO of Amazon.com. “Like Twitch, we obsess over customers and like to think differently, and we look forward to learning from them and helping them move even faster to build new services for the gaming community.” In classic Bezos fashion, he touted how customer focused Amazon is going so far as to say they are obsessed.

While he claims to have good intentions, skeptics can look at this as a play for Amazon to get more involved in the media and gaming space. They already have the Fire TV which has games and a joystick, hinting that Twitch might help them compete with XBOX and PlayStation. Amazon is also the biggest digital distributor of games after Valve’s Steam store, and it believes Twitch could help it to capture even more of that market. From the perspective of Twitch, being acquired by Amazon was also very beneficially. Twitch CEO Emmett Shear said, “Amazon and Twitch optimize for our customers first and are both believers in the future of gaming” and “Being part of Amazon will let us do even more for our community. We will be able to create tools and services faster than we could have independently. This change will mean great things for our community, and will let us bring Twitch to even more people around the world”. Clearly this deal was mutually beneficial, as Twitch was looking for a parent company like Amazon to piggyback on. Specifically, they liked that AWS already had strong stick and global appeal, allowing them to stream gaming, music, and sports globally using Amazon’s already developed infrastructure.

The last bit of the acquisition which stood out to me was Twitch’s decision to choose Amazon over Google. In describing their decision Shear said, “One of the things that really stood out about Amazon was their approach to acquisitions. We will be a wholly owned subsidiary and and I will remain CEO. They have a long term vision about how to create big opportunities in the future by investing today.” Essentially, with Amazon they would have more autonomy to grow and develop on their own as “Twitch” whereas with Google they would have always been in the shadow of Youtube and had far less independence. Fast forward to present day, and this acquisition has been a great success for both sides. Twitch has become one of the biggest names on the internet, hosting 91% of all video game streaming and serving more than 2 million viewers at any given time of any given day. Twitch subscriptions have also witnessed major growth in the past year. Stream Hatchet estimates that Twitch Prime, a sub tier through an Amazon Prime subscription, had over a 36% increase with 41 million subs.

IN CONCLUSION

The string of major acquisitions the company has made to boost its standing in even more areas of people’s lives is a testament to Amazon’s inventive, customer-centric, long-term oriented culture where entrepreneurship thrives. The company’s ability to operate in diverse range of businesses, from retail and entertainment to consumer electronics and technology services, and have thriving, well-established competition in each of these areas is key to the stickiness of Amazon’s consumer-base and thus their market dominance.