When Walmart said on Monday (Aug. 8) that it was buying Jet.com for over $3 billion, it was widely interpreted as the retail giant getting serious about competing with Amazon. That's hardly what is happening. The technology from Jet is fascinating; that's what is really behind this move.
Walmart.com has been serious about taking on Amazon for years. The problem has been that Walmart's top brass has simply refused to shed its store-centric mentality, thereby forcing Walmart.com to have to have to be subordinate to physical stores at all times. If an effective Walmart.com strategy might rob some sales from its stores — even if it still makes more money overall for the company — that strategy wouldn't be approved. Therefore, the real question is whether this acquisition indicates that Walmart senior brass are now willing to let online do what makes sense for online.
"I would say that the spending of $3.3 billion — and having [Marc Lore, the CEO of Jet] become their head of e-com — shows that they are finally truly ready to embrace e-com," said Joel Citron, director of advertising technologies for the Ai Media Group. Walmart has been "trying, but they did not have the right people with the right mindsets and the right technical stack in place to compete. They kept on trying to copy or keep up with their competitors, and it wasn't working. Buying Jet gives them something fresh and gets them great leadership as well."
Lore is a serial e-commerce entrepreneur whose last venture was sold to Amazon. Beyond his having an excellent grasp of e-commerce nuances, his insider perceptions of Amazon gained in those talks may be one his greatest gifts to Walmart. But unlike Citron, I'm not inclined to assume that Lore will be sticking around one nanosecond beyond what his contract requires. Serial entrepreneurs simply don't do that.
That raises the question of how long Lore's contract requires him to stay put — a crucial detail that somehow wasn't released. But a few media reports — including one from The Wall Street Journal — said that Walmart's current e-commerce chief, Neil Ashe, "is expected to depart" in the wake of this deal. That's the best clue that a change in thinking is happening.
If the duration of Lore's stay is unclear, Walmart still has gained some impressively cool technology.
Jet's systems deliver dynamic pricing that's dynamic in four ways. First, pricing changes are based on the distance the product must be shipped, the timing and the item's margin. Second, if the customer agrees to waive the ability to return a product, the price drops again. Third, the price changes based on how the customer chooses to pay — Jet has been able to get away with charging more for credit than debit and potentially charging more for cards that have higher expenses (such as high-point cards). And fourth — and perhaps most interestingly — the pricing changes as customers add more items to their virtual carts.
Let's drill into that last item. You put into your cart a box of baby wipes and it comes up as $8.14. You then add a high-margin box of cables and, poof! Those baby wipes drop to $7.50. This provides a huge incentive to put as much into your cart as possible — and to use the lowest-cost payment method. In short, Jet gets its customers to do exactly what retailers have always wanted customers to do.
Walmart CEO Doug McMillon talked to reporters on a conference call after the Jet deal was announced and talked a lot about the technology.
"One of the things that we really like is the customer is even more in charge of the price that they pay as they make decisions about building their own basket, about which form of payment they choose, about whether they want a return privilege on an item. There’s really an empowerment there for customers that we like and is, frankly, quite true to the spirit of Walmart and our pricing policies over time," McMillon said. "The other thing to mention is the way those things work together with building a basket. Shipping economics are in your favor when you send two items in a basket instead of one, or five items or ten items in a basket instead of one. And I like the way the front end works with the back end as it relates to that. Walmart’s been a stock-up business, a basket business, for a long, long time. And the decisions that Marc made in the way that he designed Jet are consistent with that kind of thinking and it’s one of the reasons we’re excited about this acquisition."
I love that McMillon said these pricing efforts are true to the spirit of Walmart. It sounds as if he means that he would have loved to bend shoppers to Walmart's will years ago and that he's jealous that Jet has been able to do something that Walmart couldn't.
So, will this ultimately work and turn Walmart into an e-commerce powerhouse? That depends on Walmart and, to get specific, on how one defines "e-commerce powerhouse."
The potential here is vast. To marry Jet's technology to the massive inventory and buying power of Walmart could make for a devastating combo. Score one for Walmart. Amazon might be shaking a bit in its overnight-delivered boots.
But will this be viewed solely on how e-commerce does on its own — as its own P&L center — or how it helps all Walmart divisions to be more profitable and generate more revenue? Will Walmart start using some of these differential pricing elements in its physical stores? I would be stunned if that happened. But if it did, yes, this could make a lot of difference.
Obviously, some of Jet's pricing magic wouldn't apply in-store, such as the location of the shopper and the distance from the shipping point. But imagine if there were a big incentive for filling up your cart? And what if this were all coordinated with the Walmart app so that customers would know the likely pricing impact of a decision?
Consider walking down a Walmart aisle and seeing the app — which scans each item as it's being dropped into the physical cart — flash a message: "You haven't purchased soap in four months, so you're probably running low. If you grab that Dial soap that you're now approaching, I'll slash the price of every cereal box in your cart — you have seven — another 14%."
That requires mobile app integration with store beacons (or triangulating store Wi-Fi) with a current planogram and a lot of integration with the Jet magic, but it's all possible. The question is: Will Walmart be comfortable doing it?
Citron argued that much is on Walmart's head. "Walmart.com is not a great shopping experience. It's 'Buy it online, pick it up in the store.' If I wanted to go to the store, I would. I'm ordering online because I don't have time to get to the store," he said. "On top of that, have you ever done the in-store pickup? Not fun. You have to walk all the way to the back of the store, show your receipt, and then wait for them to find your product in the back and bring it to you. With Amazon? You order your product, and in a day or two it's at your door, no issues."
Yes, I have had the joy of trying Walmart in-store pickup.
"Hopefully with the acquisition of Jet, an online-only business [Walmart] will start to see things differently and not be overprotective of their stores at the expense of their online business," Citron said.
A very soft $3B
Some have pointed to the size of the acquisition as proof of a change in attitude.
The problem is that it's far from clear what the actual cost of this deal is. What Walmart actually announced was that the deal called for "approximately $3 billion in cash, a portion of which will be paid over time. Additionally, $300 million of Walmart shares will be paid over time as part of the transaction." Setting aside the word "approximately" — I'll give them the benefit of the doubt that they meant it's $3 billion when the rounding errors are fixed — the issue are those two "over time" references.
What "portion" of the cash "will be paid over time"? And what time frame? One month? Five years? As for the $300 million in Walmart stock, are there any conditions? Let's just say that if it was forking over $3 billion in cash and $300 million in stock on the day the deal closed, the signals would be far clearer.
Walmart is purchasing some great technology and some impressive talent with this move. Now all it needs is a radical change of attitude. Bentonville, it's all on you now.
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