Dive Brief:
- Walmart is pressing technology suppliers not to use Amazon’s cloud services, telling them they must run their applications with another provider if they want to do business with Walmart, according to a report in The Wall Street Journal.
- According to the Journal, Walmart prefers to keep its data on its own servers or use services from Amazon’s competitors, such as Microsoft. A Walmart spokesperson told Retail DIve, “Our vendors have the choice of using any cloud provider that meets their needs and their customers' needs. It shouldn’t be a big surprise that there are cases in which we’d prefer our most sensitive data isn’t sitting on a competitor’s platform."
- Walmart’s move, if true, would target a massive source of profitability for Amazon, whose AWS boasts millions of users and high margins. In 2016, AWS posted $3.1 billion in operating income for 2016, almost $1 billion more than the company’s North American retail sales. A spokesperson for Amazon said that "we've heard that Walmart continues to try to bully their suppliers into not using AWS because they have an incorrect view that AWS is somehow supporting Amazon's retail business." She added that some suppliers are "refusing to be told that they can't use" AWS.
Dive Insight:
If Walmart wants to hurt Amazon, the AWS business unit is a good place to start, as its a source of massive profitability for the e-commerce giant.
The attack on AWS is just the latest salvo in a long-running but intensifying battle between Walmart and Amazon as the two companies vie to be the go-to retailer across product categories and sales channels. Along with little skirmishes like the AWS tussle, the two companies have made bold moves onto each other’s turf through headline acquisitions.
Walmart last year ramped up its online capabilities with the $3 billion purchase of Jet, a leading competitor in Amazon’s e-commerce universe. And last week Amazon created a media earthquake with plans to buy Whole Foods for almost $14 billion. Buying out the grocer would quickly ratchet up Amazon’s foray into both the grocery business and brick-and-mortar retail.
On its face, AWS might seem to have little to do with Walmart. Amazon has long prided itself on being a tech company, and the rise of AWS as the leading cloud and web services provider to other tech companies who use it to run their own products, solidified Amazon’s tech credentials. But the wild profitability of AWS also provides Amazon with a war chest of cash it can use to keep prices low and beef up logistics capabilities on the retail side, where it competes fiercely with Walmart.
Amazon’s North American unit made about $2.4 billion in operating income off nearly $80 billion in sales in 2016. Meanwhile its AWS unit made $3.1 billion from just over $12 billion in revenue — that’s a third more in profit off an eighth of what Amazon makes in North American retail revenue.
There’s no surprise about why Amazon wants to take on Walmart in groceries — the latter is the nation’s largest seller of groceries with category sales of $170 billion last year, and the category is key to driving store visits and customer loyalty at Walmart. “When the most disruptive retail force on the planet makes a $13.7 billion investment in your segment, it’s a bad day," Jason Goldberg, senior vice president of commerce at SapientRazorfish, wrote to Food Dive.
