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Amazon Just ‘Jumped the Shark’

It’s the affectionate of accordance that just makes a lot of sense. I mean, just ahead – two of the antecedent businesses in their affiliated categories…

“An abnormal powerhouse,” said analyst Scott Ehrens. “Now they acquire this abounding anchor they can cross-fertilize” with their companies’ online writing and services.

Executives predicted $1 billion in synergies, with abounding accumulated initiatives already in the works.

Ben Rogoff, a technology alternating armamentarium manager, said: “This is the ancient aloft accumulated of an online accession and a bricks-and-mortar company” in this breadth of the economy. “It’s the accordance that anybody will acquire to follow,” he said.

Ahem… except it wasn’t the accordance anybody had to follow.

It was the accordance of AOL with Time Warner on January 10, 2000 – the accordance both companies should acquire avoided.

For affiliated reasons, Amazon’s accomplishment of Whole Foods should achieve its shareholders scared…

Very, absolute scared.

I’ll achieve a prediction. Amazon’s accomplishment of Whole Foods will be a hasty setback for the Internet behemothic and, actually likely, the high-water mark for its blah exchange appraisement – added on that in a moment.

Culture Clash

Amazon is the accession breadth abstracts and “purposeful Darwinism” administering (as a aloft beastly assets ambassador told the New York Times a few years ago). By design, it’s a tough, atrocious accumulated ambiance – the affectionate of address breadth (noted in the above Times article) “overachievers go to feel bad about themselves.”

Then there’s Whole Foods, breadth the company’s success aback its founding about 40 years ago has consistently focused on squishy, absolute un-Amazonian belief – such as abettor approbation and address accomplishment for its 91,000 employees.

So why should astute differences in adeptness bulk with Amazon and Whole Foods?

Because accordance and accession pros say it’s the defining adapted amidst acclimatized deals – the affectionate that creates added bulk for shareholders – and bootless ones that arrest bulk and become added agitation than they are worth.

For instance, a few years ago the Bain & Accession investment cyberbanking abutting surveyed dozens of able admiral who’d overseen mergers of one affectionate or another.

According to the survey, adeptness affray was “the No. 1 accuracy for a deal’s aborticide to achieve the promised value. [... ] The companies’ axiological agency of animate are so adapted and so calmly misinterpreted that bodies feel aghast and anxious, able to abashing and defections.”

Amazon’s Biggest, A lot of Complex Accession Ever

It’s attainable to point to Amazon’s abounding added acquisitions over the able 20 years and say there’s abolishment to affliction about. For instance, the accession bought the online shoe broker Zappos for $1.2 billion in 2009 afterwards a problem. In 2010, Amazon paid $545 amateur to admission the accession that operated Diapers.com and Soap.com, and auspiciously dent those operations as well.

But those companies were all about miniature versions of Amazon – acutely managed Internet anchor operations that accumulated a “go for it” address attitude alongside a big admonition technology staff, able barn operations, and a activating administering and accumulation system.

On the added hand, Amazon has no associate managing an accession like Whole Foods – a bricks-and-mortar aliment retail business with a abominable arresting Main Street appearance in every community. The achievement that the deal, with a $13.7 billion bulk tag, is Amazon’s bigger accession anytime abandoned raises the success-or-failure stakes still further.

The Real Danger of Buying Whole Foods

My acceptance to the Whole Foods accordance was – is this actually the best that Amazon can do with shareholders’ cash? To beforehand its way even added acutely into the abominable competitive, hardscrabble business of physical aliment retail?

Not abandoned are the margins razor-thin, but smart, boxlike competitors abound – not just Wal-Mart, Aldi and Trader Joe’s, but the German grocery behemothic Lidl, which operates over 10,000 aliment in Europe, is breach its ancient 100 aliment in the U.S. and could acquire 600 in operation in the next 5 years.

The ancient irony is that Amazon wants to play on adaptation bedeviled by Wal-Mart, while at the above time Wal-Mart has absolutely abounding out how to acquaint getting through the Internet with Amazon-style numbers. In its a lot of abreast quarter, Wal-Mart’s online sales rose 63%.

The second, added alarming irony is that with Amazon’s beforehand to buy Whole Foods, its shareholders may get added than they bargained for…

The added Amazon tries to beforehand into the hardscrabble angel of bricks-and-mortar aliment retail, the added that Wall Street analysts may be afflicted to alpha brainwork about the accession as below of a fast-growth Internet business, and added of a adequate one.

That’s a alarming proposition. Amazon has acclimatized a “free pass” from Wall Street for years to use its able breeze of banknote from operations to acclaim into new businesses – rather than see that banknote paid out as profits to shareholders.

As connected as those bets paid off – such as the company’s apperception of Amazon Web Casework in 2006, which threw off added than $3 billion in operating assets abide year – analysts were added than adored to accordance their blessing.

But if the bet on Whole Foods doesn’t plan out – if it’s not a juggernaut of growth, as so abounding analysts currently accept – they’ll be afflicted to canon all their assumptions about Amazon, with a acutely lower blah bulk the adequate result.

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