On June 16th, Amazon announced they would acquire Whole Foods in what to me seems like the most exciting M&A event of the past couple of years. As a long time customer of Amazon Prime and Amazon Fresh, I couldn’t be more excited at the possibilities.
Of course, every other retailer is terrified. There are some ways the retailers can react to competition. One way would be to innovate and improve customer experience. Another would be to take their frustration out on AWS by bullying their technology vendors:
Wal-Mart is telling Amazon game on.
The big-box retailer is reportedly warning some tech companies that if they want Wal-Mart’s business, they can’t run applications on Amazon’s cloud platform, Amazon Web Services, some tech companies told The Wall Street Journal.
The official excuse is that Amazon might gain access to Walmart’s sensitive data:
Wal-Mart spokesman Toporek told CNBC in an email: “Our vendors have the choice of using any cloud provider that meets their needs and their customers’ needs. It shouldn’t be a big surprise that there are cases in which we’d prefer our most sensitive data isn’t sitting on a competitor’s platform.”
That line of reasoning is misguided. Amazon-the-retailer has no easy way of accessing private data belonging to their AWS customers. They even offer mechanisms to encrypt data stored in AWS. I suppose a malicious and determined Amazon employee could find ways to gain access to sensitive data, but that would be a breach of contract AWS has with their customers.
Data security breaches can happen regardless of where the customer stores data or which cloud vendor they are using. Just ask the NSA or the DNC. So that only leaves traditional retailers with one reasonable argument against AWS – they do not want to contribute to AWS profits that Amazon may turn into investments in their retail business. That is an emotional argument that is misdirecting the competitive energy. There is no such thing as a neutral top-tier cloud vendor.
Customers flock to Amazon Prime for one simple reason: customer experience. From the moment Amazon began its operations, they continue to look for ways to make it easier to connect people with products they need to buy. Amazon will even recommend products you don’t need but might want one day.
More often than not one can order something on Amazon Prime and have it on the doorstep same day. Amazon Fresh lets consumers shop for groceries without wasting hours at the grocery store. One can even place orders by asking Alexa. I look forward to the day Amazon starts offering prescription drugs, so I can stop dealing with the miserable customer service at the big pharmacy chains.
It was not Walmart that in the 1990s pioneered e-commerce and made people comfortable with entering their credit card number on a website. It was not Walmart that capitalized their own IT by letting other enterprises use it as a cloud. It was certainly not Walmart that created an AI that can answer questions, sing songs, play music, and help place grocery orders.
Instead, Walmart employees cost taxpayers billions of dollars in public assistance. In April of this year Walmart announced that they would let go of 18000 employees. Walmart tops the list of most hated retailers in America. Meanwhile, Amazon is creating 100000 jobs in the next 18 months.
Rather than bullying small technology vendors Walmart and traditional retailers should focus on innovating and improving customer experience. The sad reality is that Walmart’s decline and Amazon’s rise will continue regardless of whether Walmart and their vendors use AWS. The only way to outcompete Amazon is by innovating.
Walmart, of course, doesn’t have to listen to my advice. They can pick whichever cloud vendor they see appropriate, and there is nothing wrong with that. The least they can do, however, is to use well reasoned technical arguments on the merits of specific platforms rather than spreading fear, uncertainty, and doubt among the retailers that Amazon may somehow access their sensitive data.