Google parent company Alphabet (tkr: GOOG) needs to acquire Walmart (tkr: WMT) to better compete with Amazon (tkr: AMZN) and to reverse the negative trend in Google’s core search advertising business. While arch nemesis Amazon continues to make strides in retail (Amazon.com, Amazon Go, Key, Prime, Wholefoods), Google’s retail path has not been quite so smooth. Google Express – the company’s partnership approach to competing with Amazon – has yet to gain meaningful traction and Walmart exited the partnership earlier this year.
Amazon’s dominant e-commerce position has enabled the company to take share from Google in its core search advertising business. Amazon.com is the dominant product search platform which has resulted in Amazon taking Ad Revenue share from Facebook and Google.
Walmart’s retail domain expertise would greatly benefit Google. Walmart’s e-commerce investments in recent years – (WMT e-commerce effort led by jet.com founder Marc Lore) – have accelerated Walmart’s learnings to the point where it is a strong competitor to Amazon. Further, Walmart’s store locations serve the dual purpose of providing a traditional retail experience combined with e-commerce distribution capability – a combination Amazon lacks. Walmart has demonstrated an appetite to test new services such as its text-based concierge service – Jetblack – available in New York. In short, Walmart brings much to the table.
Would Walmart be willing to be acquired by Google? If not, would Google be willing to pursue a Walmart acquisition regardless of Walmart’s deal appetite? A hostile deal would not work in our view. That’s not to say that Google could not execute a hostile deal. Rather, the two corporate cultures are so different it would make it very difficult for less than willing partners to effectively execute post-deal close (shades of AOL and Time Warner 20 years ago).
In the absence of a friendly acquisition it would be far better for Google to rekindle a partnership with Walmart and to gradually work toward an acquisition from there. The fact that Walmart recently chose to pursue a technology partnership with Microsoft suggests that ship has sailed – for now. If Alphabet/Google wants to acquire WMT, co-founder/CEO Larry Page will personally have to spend significant time courting Walmart CEO Doug McMillon and e-commerce CEO Marc Lore (Lore built Jet.com on top of MSFT Azure). While Microsoft (tkr: MSFT) CEO Satya Nadella has this skill-set, the jury is out as to whether Page has grown in this area.
Outside of Walmart, Google could pursue smaller acquisitions such as Target (tkr: TGT), and even e-commerce players like Wayfair (tkr: W), but Walmart ought to be the primary target (no pun intended).
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