Amazon.com Inc.’s plan to purchase of Whole Foods Market Inc. was met with investor giddiness on Friday. But often this early rush of excitement yields over time to a different kind of story: the one where the acquisition that looked good on paper just didn’t work out in the real world.
though, is better positioned than most to pull this off because of its Amazon Web Services (AWS) platform and the unique culture that put it in place. Amazon is ready to integrate Whole Foods in a way that few other — perhaps no other — acquirers can match.
The not-so-hidden secret superpower behind Amazon is that it isn’t a retailer. It isn’t an e-commerce company. It’s a platform.
Since 2002, Amazon has used a pioneering approach that makes its technology infrastructure not simply a powerful back-end, but perhaps the most impressive computing platform in the industry today. This is because developers inside Amazon build every bit of software as a service — one that can be used by other developers at Amazon to build something new. And since 2006, Amazon has been systematically making these services available to developers outside of Amazon through AWS.
Amazon’s work has been, essentially, a kind of business-wide user testing: Amazon gets firsthand, immediate feedback on how their software works in the broader marketplace. Who is using it? How? That gives Amazon the ability to sense and respond — to market test, benchmark, and improve — all of its internal services to make them extremely flexible, responsive to new needs and able to withstand competitive pressures.
Amazon’s back-end systems are like no other systems in the retail world. They’re not closed, proprietary systems, but open, widely supported and well-suited to the integration work that’s coming.
The bottom line is that today, Amazon’s systems are the dominant commercial platform powering huge swaths of the modern online economy.
Another reason this deal has better odds of success is that Amazon’s customer-centric culture means that it’s already blurred the boundaries between “us” and “them.” That makes the collaboration that all unions of this sort require is a well-established part of Amazon’s culture.
The acquisition of Whole Foods
will give Amazon an instant physical presence in cities across the nation, add a fantastic brand to their portfolio, and give them access to a forward-thinking customer base that is likely to embrace Amazon’s experiment-driven approach to innovation.
But this points to a risk: Can Whole Foods itself embrace Amazon’s approach to innovation?
Whole Foods was once an innovator itself, leading the push to bring health-oriented and organic foods to mainstream American shoppers. But as other grocers, including Wal-Mart Stores Inc.
and Costco Wholesale Corp.
, catch up in these categories, Whole Foods finds itself feeling pressure from investors.
This puts them in the position of looking for new sources of differentiation, and the partnership that Amazon offers is promising. At Whole Foods, Amazon could use its experience with AmazonFresh and AmazonGo to radically change the experience of shopping for groceries: soon customers could simply fill their carts and walk out of the store — all without stopping at a checkout counter.
But Whole Foods will have to embrace Amazon’s experiment-driven approach, and it’s unclear how open its culture is to risk-taking and learning from failure. And experimentation in the bricks-and-mortar world is different from the digital world. It’s slower, more expensive, and requires a workforce that is willing to embrace change. So a key question is can Whole Foods reimagine itself as a platform for retail experimentation?
If it can, the disruption is unlikely to stop with a transformed Whole Foods. Look for Amazon to experiment and respond to customer needs until it gets the formula right, then take what it has learned to dominate the rest of the market, just as it has done countless times in the rest of the retail segment. And watch to see how Whole Foods responds, and if they can keep pace with Amazon’s relentless drive forward.
Joshua Seiden is the co-author, with Jeff Gothelf, of “Sense & Respond: How Successful Organizations Listen to Customers and Create New Products Continuously” (Harvard Business Review Press, 2017).