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To Challenge Amazon, Wal-Mart Should Follow Lyft's Example

By Jeremy Bowman - Mar 13, 2017 at 9:35AM

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Wal-Mart needs to position itself online as the anti-Amazon, courting merchants that the e-commerce giant has taken for granted.

Wal-Mart Stores, Inc. ( WMT -2.48% ) is an unfamiliar position these days.

The world's largest retailer, which put hundreds of mom-and-pop stores out of business with its superstores that offer rock-bottom prices, is now in a fight for its own relevance, playing catch-up to Amazon.com ( AMZN -1.81% )

Package at a doorstep

Image source: Getty Images.

After years of ignoring the opportunity in e-commerce, Wal-Mart finds itself playing second fiddle to Amazon, which now has a market cap nearly twice that of Wal-Mart's. In the last year, Wally World has taken steps to accelerate its e-commerce business by buying Jet.com, along with two smaller businesses, and rapidly expanding its online grocery pickup program.

In many ways, Wal-Mart's struggles to overcome Amazon's advantages is similar to a battle between the leader and challenger in another industry -- Uber and Lyft.

The rat race in ridehailing

Uber was the first-mover in the app-based ridehailing industry, and is by far the leader in an increasingly fragmented space. It's valued at a whopping $68 billion, more than carmakers such as General MotorsFord, and Tesla Motors, showing that investors have placed a premium on transportation rather than the car itself. Today, Uber is active in 81 countries and 581 cities around the world, including 209 in the U.S.

Ridehailing seems like the type of industry that would lend itself to monopoly. Once a company like Uber builds up an army of drivers and gets thousands of passengers to download its app, it would seem to have the network effects and barriers to entry to block competition.

But smaller ridehailing apps have crept into the mix. Lyft, the No. 2 ride-hailing company, has become Uber's principal challenger largely by positing itself as its cultural antithesis. Uber's brand is generally seen as bloodless and corporate, its logo draped in black. Lyft has positioned itself as the friendly ridehailing service, using hot pink as its principal color. For a while, Lyft drivers signified themselves by having hot pink mustaches over their cars' grills. Lyft, unlike Uber, allows passengers to tip, and encourages drivers to be friendly and make conversation with their fares. It also seems to treat its drivers better, and has not been subject to the protests and disputes that have become commonplace with Uber.  

Lyft aims for an overall different experience than Uber. That may have seemed like a minor detail, but in recent weeks a series of unforced errors have dramatically damaged Uber's already questionable reputation. First, a tweet accusing Uber of trying to break a temporary strike by New York cabbies at JFK airport went viral, prompting the hashtag #DeleteUber to start trending as thousands of users deleted their accounts and sent angry letters to the company. Later, a blog post vilified Uber for allowing rampant sexual harassment and a culture that demeaned women, and a video of CEO Travis Kalanick excoriating a driver was picked up by several media sources. Reports also emerged about software Uber created to undermine local regulations, and Kalanick is now reportedly seeking leadership counseling and searching for a COO. The narrative of Uber is a bad corporate citizen is now well established and has become a storyline in the media that will pop up every time there is a similar incident.

Lyft wisely took advantage of Uber's mistakes. During the chaotic weekend of airport protests, Lyft responded to the Uber boycott by pledging to donate $1 million to the ACLU. In the wake of the Uber backlash, Lyft downloads surged into the top ten in the App Store with nearly 200,000 in one day -- a new company record. It was the first time Lyft's downloads topped Uber's, nothing short of a coup for a company valued at $5.5 billion, just a fraction of Uber's worth. As Uber retrenches and licks its wounds, Lyft is now reportedly seeking another $500 million in funding.

What Wal-Mart can learn

Wal-Mart, with much greater profits than Amazon and a wealth of resources, is in a stronger position than Lyft, but the story above highlights one key way Wal-Mart can challenge Amazon as it attempts to build out its marketplace.

Amazon isn't exactly vulnerable in the way that Uber is. The company has a stellar reputation with customers, but there are some who view it as overly cutthroat, and it has been known to step on its merchants' toes. Amazon's merchants have complained in the past about the company taking their best-selling products, and selling them itself, directly competing with the merchants and often undercutting them on price.

For that reason, many merchants prefer selling on eBay, says Kevin North, CEO of Terapeak, an e-commerce analytics firm. eBay acts only as a marketplace and does not sell goods directly. Those merchants view Amazon "very, very cautiously," he said. He sees an opportunity for Wal-Mart, saying it could win over merchants by being friendlier than Amazon and not competing with them. North added that merchants are still working for clarity from Wal-Mart on what kind of partner it would be. 

Wal-Mart has sped up its efforts to recruit vendors, but it's still going too slow. At the time of the acquisition of Jet.com, Wal-Mart had just 600 sellers, compared to Jet's 2,400 after just a year in business. Wal-Mart had been struggling with onboarding vendors previously, but acquiring Jet changes that.

North called the Jet acquisition a "game-changer" for Wal-Mart in part because it brings on e-commerce mastermind Marc Lore, who founded Jet as well as Quidsi, which he sold to Amazon -- but also because it will help Wal-Mart ramp up its marketplace.

The company has already upped the stakes by offering free two-day delivery on orders of $35 or more. Now it needs to aggressively pursue vendors, and eliminate the popular notion that Amazon is the only game in town when it comes to online shopping. Like Uber drivers, Amazon merchants are wary of the company's monopolistic ambitions, and are eager to spread their wares over multiple sites. As Lyft has found, there are benefits to being No. 2.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,443.72 (-1.81%) $-63.35
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$137.14 (-2.48%) $-3.49
eBay Inc. Stock Quote
eBay Inc.
EBAY
$66.81 (-0.96%) $0.65

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