Expands Amazon’s plan to crush a startup rival with price cuts

in great shape / Jeff Bezos speaks through videoconferencing during a House Judicial Committee meeting on Wednesday, July 29, 2020.

An email published by the House Judiciary Committee this week confirms an allegation that critics have long leveled against Amazon: the company’s aggressive pricing for diapers in 2009 and 2010 to undercut an emerging rival was designed.

That rival, Quidsey, had gained traction with a site called Diaper.com that sold baby supplies. Amazon had good reason to worry. As journalist Brad Stone wrote in his 2013 book about Amazon, Bezos’ company didn’t start selling diapers until a year after Diaper.com. At that time, diapers were seen as much more beneficial and lower margins.

But the founders of Quidasy figured out how to do it. They adapted their packaging for baby products and deployed warehouses close to metropolitan areas. This not only allowed them to get cheaper land-shipping rates — it also allowed them to offer overnight shipping to most of their customers — in many cases, faster than Amazon’s own shipping.

QuidC plans to gradually expand to other retail categories, much like Amazon did a decade ago. If Quidsey’s growth remained uncontrolled, the company could become a major Amazon rival. But Amazon made sure it didn’t do so by first starting a brutal price war, then buying the company. The new emails provide an inside view into Amazon’s thinking during this battle.

In a Wednesday hearing before the House Judiciary Committee, Rep. Mary Gay Schnallon (D-Pa) told Bezos about Amazon’s aggressive diaper price-cutting. Bezos replied that he does not remember the nuances.

“What I can tell you is that the idea of ​​using diapers and products to attract new customers is a very traditional idea,” Bezos said.

When Scanlon asked how families who benefited from Amazon raised prices after taking out a major competitor, Bezos replied, “I don’t agree with that premise.” He said there were many other places to buy diapers, including several brick and mortar retailers.

“They are our biggest competitor in the diaper space”

In early 2009, Quidsey’s growth attracted the attention of Amazon executives. “They are our biggest contestants in the diaper space,” Amazon executive Doug Herrington wrote in an email obtained by the House Judiciary Committee. “They keep pricing pressure on us. Obviously we have lower costs than them.”

A few minutes later in a followup, he wrote that “we need to match pricing to these people, no matter what.”

According to Stone, an Amazon executive met with the founders of Quidasy in 2009 and encouraged them to consider selling the company. The founders refused. Shortly thereafter, Amazon reduced the prices of its diapers by 30 percent.

But the quidcy continued to grow. By 2010, the company had earned the loyalty of thousands of young parents and reached $ 300 million in revenue.

In June 2010, Quidsey announced that it was expanding into a second product category with a new site, Soap.com. Grabbed the attention of Jeff Bezos, who in a June 8 email asked several subordinates for their views.

“Looking at the strengths and competencies of diaper.com, soap.com is our most important short-term competitor in the hpc space,” Herrington responded to Bezos and the other Amazon execs (HPC explicitly referred to “health and personal care” Reference is) Amazon’s product categories).

“We’ve already started a more aggressive ‘winning plan’ against Diaper.com in the diaper / baby space,” Herrington continued. In addition to offering “market-leading pricing on diapers”, Herrington wrote, Amazon was preparing to launch a new “Amazon Mom” ​​program that offered customers deeper discounts on diapers and related products if customers Signed up for membership.

Amazon faced pressure

The founders of Quidsey didn’t want to sell their company, but Amazon’s diaper price war started hurting Quid. Growth was slowing down, and Quidsey was having trouble raising additional capital to continue expanding.

On September 14, the founders of Quidasy flew to Seattle to meet with Amazon and discuss potential acquisitions. As Quidcy founder Amazon sat in a meeting with Brass, Amazon struck Quidcy in the gut. It announced a new program called “Amazon Mom”, which offered users a free Prime service and an additional 30 percent discount on diapers when they signed up to receive them through Amazon’s monthly “subscription and save” program Of. This was a larger discount offered on most other subscriptions and save items than Amazon.

As Stone writes, this put Quidsey in an unstable state:

That month, Diapers.com listed Pampers’ case at $ 45; Amazon priced it at $ 39, and with subscribe and save, Amazon Mom’s customers could get a case of less than $ 30. At one point, Quidasy executives implied everything they knew about shipping rates into Proctor and Gamble’s wholesale prices, and calculated that Amazon was on track to lose $ 100 million in three months in the diaper category alone .

Amazon’s losses may actually be even greater. During Wednesday’s hearing, Schnallon said internal documents obtained by the committee showed that Amazon had lost $ 200 million a month from diaper products.

Amazon knew that this quidcy was bleeding dry. Later in September an internal email discussed price cuts, Quidsey was forced to compete with the new Amazon Mom discounts. “They expect to lose a lot of money over the next few years,” executive Peter Kravik wrote. “This will make it worse.”

Quidasy did not have the money to fight a long price war with Amazon, and venture capitalists were reluctant to give more cash to Quid in what looked like a hopeless fight. So in November, Quidsey reluctantly signed a merger agreement with Amazon.

“I do not remember that”

While Stone was writing his book, an Amazon executive told him (in Stone’s words) that “Amazon later did everything in the diet market [after mid-2010] It was previously planned and unrelated to compete with Quidasy. “But recently released emails describe the paradox. Herrington specifically listed the Amazon Mom rollout against Amazon.com’s” aggressive ‘plan as diaper.com. “Later in the same email. Herrington wrote that” The plan underscores the main diaper business for Diaper.com; it will slow down Soap.com’s adoption. “

Amazon’s claim is even harder to square with the company’s post-acquisition takeover. Stone says that “a month later when it announced its acquisition of QuidC, Amazon closed [Amazon Mom] Program for new members. “A few weeks after that, as the Federal Trade Commission unexpectedly closed the deal, Amazon reopened Amazon Mom — but with smaller discounts. In fact, Amazon diapers immediately after the acquisition Increased prices.

When Scanlon asked if Bezos had signed on increasing the prices of diapers after the acquisition, Bezos was unaware.

“I don’t remember all that,” he said. “We match competitive prices. I believe we followed Diaper.com.”

The FTC ultimately approved the deal. Amazon initially continued Diaper.com as a separate service but discontinued it in 2017.

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