Why Amazon.com Wants to Buy Diapers.com’s Parent

Nov 11, 2010 1:18 AM  By

Amazon.com is spending $545 million to acquire Quidsi, the parent company of Diapers.com, for the same reason the online retailing giant paid $850 million last July to buy online shoe merchant Zappos.com.

If you can’t beat them, buy them.

“That’s actually not a bad philosophy,” says Robert Passikoff, founder and president of brand consultancy Brand Keys. “It works out for everyone involved, because Amazon did not beat Diapers.com to death, and the purchase price seems to be high.”

Under the terms of the agreement, which was announced Nov. 8 has been approved by Quidsi’s stockholders, Amazon will acquire all of the outstanding shares of Quidsi for approximately $500 million in cash, and also assume approximately $45 million in debt and similar obligations. Subject to various closing conditions, the acquisition is expected to close in December.

Quidsi also includes Soap.com, which launched in July, and BeautyBar.com, a luxury beauty products site launched in June.

Amazon says Quidsi will continue to operate independently under its current leadership team. Passikoff noted that the strategy worked for Amazon when it acquired Zappos in July 2009. That’s because consumers didn’t see a change in pricing or customer service standards, and were still satisfied with Zappos.

Most of Amazon’s acquisitions are left to be standalone companies, says Forrester Research vice president-principal analyst, eBusiness, Sucharita Mulpuru.

“I don’t think I can point to a single example where there was the integration of supply chain or checkout or ecommerce platform,” Mulpuru says. “So it seems that Diapers.com would be a similar situation, where they are left to be largely autonomous.”

Why even do such acquisitions? “It could be to have access to their data, it could be a defensive move so they don’t get purchased by someone else,” Mulpuru says.

Amazon.com went into direct competition with Diapers.com in September when it launched its Amazon Mom. The loyalty program offers its members free two-day shipping and 30% off diapers and wipes.

Despite offering lower prices than Diapers.com, Amazon could not crack that merchant’s loyal customer base with price-based promotions, Passikoff says.

According to a report in San Francisco Chronicle on Nov. 5, Amazon launched a price war that trumped Diapers.com’s loyalty, and may have forced Quidsi into an exit.

“The Amazon Mom platform and community is a good idea, and it’s one that can be leveraged, because Amazon does online communities well,” Passikoff says. “But Amazon also saw there was no need to reinvent the wheel when there was a perfectly good wheel out there in Diapers.com.”