5 Acquisitions That Will Fuel Amazon’s Next Growth Phase
23 Apr 2018
- In 2017 Amazon acquired a record ten startups including Harvest.ai, Thinkbox Software, Do.com, Souq.com, GameSparks, Graphiq, Wing.ae, Body Labs, Goo Technologies and Blink Home, the majority of which were acquired to support Amazon Web Services (AWS) growth.
- Morgan Stanley predicts Amazon will continue growing at a 16% CAGR through 2025, with acquisitions being the fastest growth catalyst.
- CEO Jeff Bezos says Amazon rests on the three pillars of Amazon Prime, Amazon Web Services, and Marketplace, and the company’s acquisition strategy is designed to support each.
- Nearly 40 of Amazon’s 2017 patents were focused on developing its cloud computing systems, while the company also filed over 30 patents focused on improving its logistics network.
- Acquiring Whole Foods for $13.7B last year shows acquisitions are evaluated on the potential Amazon has to scale up transactions and scale down prices drastically.
- Amazon accounts for about 4% of all retail and about 44% of all e-commerce spending in the U.S.
These and many other fascinating insights are from CB Insight’sAmazon Strategy Teardown: Amazon’s Barreling Into Physical Retail, Financial Services, Healthcare, And AI-Led Computing (PDF, 64 pp., opt-in). This report is an excellent read and provides insights into how and where Amazon is finding their greatest growth opportunities. CB Insight’s report also shows that Amazon’s approach to acquisitions is completely different than many other tech companies, especially those competing in enterprise software.
Amazon’s largest acquisitions include Whole Foods for $13.7B in 2017, online shoe retailer Zappos for $1.2B in 2009, and smart doorbell & security camera manufacturer Ring for approximately $1B earlier this year. In 2014 Amazon acquired e-sports streaming site Twitch for $970M, and warehouse robotics maker Kiva Systems for $775M in 2012. As of today, Amazon has more than 45,000 robots in its warehouses. The following graphic from the CB Insights reportillustrates a more aggressive M&A strategy that has been the case in the past:
Unlike software companies’ merger & acquisition strategies being focused on building product portfolios or buying customers, Amazon is on the hunt for underserved market areas with high transaction volumes and undifferentiated channels that deliver margin growth. Many enterprise software acquisitions are consolidation-driven while Amazon’s are focused on building and extending new business models. Taking this business model-based approach to evaluating Amazon’s potential acquisitions, the following companies deserve to be on their shopping list for 2018.
Who Needs To Be On Amazon’s Shopping List In 2018 And Why
Expanding outside of traditional retail and consumer markets is where Amazon will find the greatest opportunities for rapid growth in the next several years. Amazon Prime, Amazon Web Services, and Marketplace is the framework acquisitions are being evaluated against today. Expect to see Amazon add to this framework, as Jeff Bezos has alluded to the company’s plans to expand beyond these three core businesses in recent interviews.
Look for Amazon to make an acquisition in medical supply chains and industrial MRO in the next few years as companies in these industries are developing deep expertise in API and cloud integration, which is a perfect fit for fueling Amazon Web Services (AWS) future business growth.
Here are who needs to be on Amazon’s Shopping List for 2018:
- Best Buy – Earlier this week Amazon (NASDAQ: AMZN) and Best Buy (NYSE: BBY) announced an exclusive multi-year partnership that covers the launch of more than ten 4K and HD Fire TV Edition models from Insignia and Toshiba, beginning this summer. 60% of the products sold by Amazon are electronics; please see the graphic below for specifics. Best Buy’s buyer demographics are perfectly aligned with Amazon Prime customers’ income levels. The partnership announced this week looks like a beta test of a much broader strategy aimed at removing the biggest roadblocks to generating more electronics product revenue. First, acquiring Best Buy gives Amazon an immediate way to capture 100% of every sale that begins with showrooming, or where customers browse items in a store and then buy them online. Second, combining online and in-store promotions to launch new high-end electronics products will increase transaction velocity and open up lucrative opportunities for upselling, and cross-selling customers while they are still in the store. Third, Amazon’s proven ability to drive down vendor prices will have an immediate positive effect on Best Buy’s gross margins and profitability.
- H. Robinson – Acquiring C.H. Robinson (NASDAQ: CHRW) would provide Amazon with the advantages of scaling up their 3rd party logistics services business by entering new markets. C.H. Robinson is known for their expertise in fresh produce sourcing, further supporting the Whole Foods supply chain and future fresh produce retail businesses Amazon hasn’t launched yet. C.H. Robinson has also proven their ability to scale by serving 120,000 customers annually for their Managed Services business. Current 73,000 active contract carriers are working for C.H. Robinson today. Most important of all, C.H. Robinson is very advanced in their use of cloud-based technologies and analytics and have deep expertise in Transportation Management System (TMS) Application Programming Interfaces (API) making the system integration with Amazon’s internal systems less problematic.
- Expeditors – Based in Seattle, Expeditors (NASDAQ: EXPD) are known for their data integration and visibility expertise, an average 48 million API calls on their platform in any given month. They also have one of the most advanced data science practices in freight brokerage, specializing in advanced data analysis, modeling and simulation, visibility, reporting, and analytics. The company has 16,500 employees working across six continents, specializing in a wide variety of industries including aerospace, automotive, fashion, healthcare, manufacturing, oil & energy, retail, and
- Grainger – Grainger (NYSE: GWW) is a market leader in the industrial distribution and maintenance, repair and overhaul (MRO) market, valued at $377B globally. It’s a very large, fragmented market that supports high gross contribution margins and relies on standardized products for the majority of sales. Factors that make Grainger an attractive acquisition include the company’s deep expertise and success with e-commerce in industrial distribution & MRO, and their unique high-touch multichannel model and the endless assortment, or single channel, model. In 2016, more than 65% of Grainger orders originated via a digital channel (including Grainger.com, inventory management systems, and eProcurement) and more than 85% of orders were shipped directly to the customer or made immediately available through onsite services. In 2016, Grainger was named the 11th largest eCommerce retailer in North America by Internet Retailer. Grainger competes with two models, the high-touch multichannel model and the endless assortment or single channel model shown below.
- Performance Health – $63.7 billion will be spent on non-durable medical products this year, and web-based technologies will push the healthcare supply chain management market past $2.2B by 2021. Of the many distribution companies operating in this market, acquiring Performance Health gains Amazon a broad medical supplies catalog where there’s the opportunity to increase transaction size, lifetime customer value and reduce prices. The ideal acquisition for Amazon in healthcare would have been ExpressScripts, which would have opened up the massive $328.6B prescription drug market. Cigna acquired ExpressScripts in $67B deal announced last month. ExpressScripts is known for having strong expertise in internal agile-based application development and is developing new applications for serving patients using machine learning. Combining ExpressScripts and AWS could have accelerated Amazon’s growth in the global prescription drug market quickly.
Louis Columbus is an enterprise software strategist with expertise in analytics, cloud computing, CPQ, Customer Relationship Management (CRM), e-commerce and Enterprise Resource Planning (ERP).