Last week, the retail world was abuzz over speculation that Walmart might take a shine to Family Dollar, on the heels of Credit Suisse analyst Michael Exstein’s recommendation to that effect. His argument followed the traditional eat-to-grow logic that has long dominated the conversation in retail, as well as much of the action. Getting hot and bothered by the possibility of a bricks-based buy, however, seems downright regressive at a time when the two platforms that are influencing retailers the most, Amazon and Facebook, are bent on defanging potential digital competitors.
Facebook’s acquisition of mobile messaging start-up WhatsApp for the astronomical sum of $16 billion understandably inspired much skepticism, as well as a spate of highly-entertaining other-stuff-you-could-get-for-that-crazy-amount articles. Through the acquisition, Facebook will be able to grab business intelligence on WhatsApp’s 450 million active monthly users, including what types of phones they are using to access the service, troves of keyword insights, and data on popular features. This is good stuff for sure, but doesn’t seem to justify the cost over the short term, at least using traditional metrics -- revenues, operating margins and risk. Facebook’s real bang for the buck comes from keeping WhatsApp’s global texting treasure out of Google’s grasping paws and adding another people-connecting competitor to its platform before it gets too big for its britches, as it did through its acquisition of Instagram last year for the comparatively-palatable sum of $1 billion.
Amazon’s purchase of reader review site Goodreads last year marked a similar preemptive move, as it kept a potential competitor out of the clutches of rivals like Apple and Barnes & Noble. It was Amazon’s acquisition of Quidsi in 2010 that first got the blocking ball rolling. Quidsi’s proliferating stable of category-killing spin-offs including soap.com and diapers.com, as well as its Amazon-in-a-bottle algorithms grew to become flies that were easier for Amazon to catch than swat.
Up to this point, digital acquisitions by traditional retailers such as Kroger, Walmart, Tesco, and others have focused exclusively on scale-building and adding complementary solutions. At the same time, future competitors are lurking in the cracks and crevices, and other digital platforms are prying them open before they become threats. Will traditional retailers soon have the confidence and foresight to do the same?
photo credit: Cathy Keifer