The Oldest Innovation: Monopoly

Amazon’s purchase of Whole Foods is further evidence of its plan to corner the market on retail. It’s about consolidation, not innovation.

In fact, controlling an industry, otherwise known as a monopoly, is the oldest innovation known to business, perhaps because it’s the most elegantly simple:

Dominate a market and its pricing, and there’s profit to be made by taking out costs.

It’s what Walmart has been doing for years. Just ask any vendor how much fun it is to regularly have the company’s buyers demand lower prices while outsourcing more costs and responsibilities (reporting, system integration, delivery requirements and lots of penalties when things go wrong).

This horrible process often culminates in Walmart replacing the product(s) with its own private label brands (or no-name brands that meet the same specs), while keeping prices as high as possible without letting competitors undercut them.

The Amazon vs. Walmart battle is about who controls that margin.

You wouldn’t know it from the media coverage of the Whole Foods deal, though.

The most common storyline focuses on integrating online and geophysical retail, making frequent references to Amazon’s experiments with “click and collect” ordering and automated checkout, and Walmart’s aggressive online investment and acquisition strategy (it bought fashion site Bonobos on the same day of Amazon’s announcement).

But the underlying strategy is all about rollup, not rollout.

Already, I’m happy to give purchase dollars to Amazon Prime that I’d previously spent with stores located near my home; the company has innovated making buying easier and faster (and I’ve bought products its algorithms have recommended to me, and even subscribe to a few), and I’m wiling to pay a premium for it.

Walmart has become a one-stop shop for its customers also, primarily by stocking its stores with everything that used to be available at other local stores, only making them slightly cheaper (and not always). Its website strategy seems to aspire to duplicate this accomplishment.

Both companies rely on broad, deep, and complicated networks of suppliers, warehouses, and delivery platforms to realize the profit margin that pays for all of it. These infrastructures are nothing new, even if the tools and timing have changed.

Now, they’re even more solidly positioned to compete directly to own the markets they serve (or customers, really), in hopes of capturing that margin. Less different, and more better.

But then the ground will shift beneath them.

3D printers could enable home production of more products that were once shipped from faraway factories. Perhaps people will prefer to buy more hand-made and community-supporting products made locally.

Maybe people will want to buy differently than anyone has yet imagined, or just buy less, and look instead to savor those shopping experiences that Amazon and Walmart hope to erase. Maybe data security issues will make people start avoiding buying things online altogether.

There are vast amounts of money to be made consolidating retail, and lots of innovation will be required to extract every last bit of profit from it. Becoming a monopoly is a lucrative goal, but doing so is also an old idea.

The Amazon/Whole Foods deal isn’t about the future of retail; it’s about two behemoths battling to control the present.

Stay tuned for disruption.

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