The answer: Amazon wants to buy its own grocery service.

background

  • Amazon buys Whole Foods = Apple’s iPhone beats Palm

    • Don’t confuse Goals, strategies and tactics. Apple’s strategy:
      • It’s not about making phones, it’s about making PCS
      • It’s not about adding functionality to the phone, it’s about condensing the functionality of a traditional phone into an app
      • Not to replicate what the operators do, but to leverage their connections with their customers
    • IPhone is the most successful product of all time = Amazon is the most dominant company of all time

  • Amazon’s goals

    1. At first,Amazon.comIts goal is to become a premier retailer of information-based products and services, starting with books.
    2. Then Amazon announced that “our vision is to be the most customer-focused company on earth, enabling everyone to find everything they want to buy on our online site.”
    3. Amazon’s goal is to get a piece of all economic activity.

  • Amazon’s strategy

    • For the enterprise: AWS. Assume that all business transactions will soon be done using the Internet
    • For customers: Prime. Assume that high costs and diverse choices are unsustainable. With Prime customers, there are no alternatives.
      • However,
        • Groceries are the largest retail category
        • The grocery industry is best positioned to constantly remind consumers that there are alternatives to Amazon

  • Amazon’s game plan: Grocery service

Why didn’t Amazon come up with the right tactics?

books General cargo
High stock units = good selection Low stock units (30K-50K)
standardized The good and the bad are mixed
Does not decay Easy to corrupt,

Amazon fresh’s cost disadvantage

  1. Once the scale is insufficient, the cost of spoilage is high
  2. And the size depends on the specifics of each city

Why buying Whole Foods, and not others, solves the business scale problem?

Business infrastructure model + two basic points: 1) high fixed costs and 2) high returns

  • Deconstructing infrastructure into Minimum Saleable Units (MSUs)
  • These businesses are themselves the first and best customers for the smallest units available
  • Resell the smallest available unit

The three-tier architecture of AWS

service Basic components S3, EC2, RDS, SNS…
platform AWS High fixed costs + returns to scale
infrastructure Modular module Data centers, servers, storage, switches, bandwidth
  • MSUs belong to S3, EC2, RDS, SNS, etc
  • The first and best customer isamazon.com
  • Resell MSUs to non-Amazon developers

Amazon.com’s three-tier architecture

service The parcel The FDA, Amazon Pay,…
platform Logistics center High fixed costs + returns to scale
infrastructure Modular supplier Manufacturers, third party suppliers, etc
  • MSUs belongs to FDA, Amazon Pay, etc
  • The first and best customer is Amazon first Party e-commerce
  • Resell the MSUs to a third party vendor

The insight here is that there is no first and best supplier of Amazon’s existing groceries.

The perfect customer

By putting Whole Foods on the map, we see Amazon buying not just a retailer, but a customer of its own business.

Amazon.com’s three-tier architecture + customers

The customer All categories of food, express, restaurant
service General cargo Meat, fruits, vegetables, dry food, etc
platform Logistics center High fixed costs + returns to scale
infrastructure Modular supplier Store brands, name brands, local suppliers, regional suppliers, etc

Today, Amazon Grocery can serve Amazon Fresh and Whole Foods, and in the future, the basic platform can serve restaurants and other places that need food.

This article was originally published by Silicon Valley’s IO. If this article has been helpful, please Follow me on Github 🙂