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Amazon.com Inc. Yanks Amazon Wallet and Elements Diapers; Investors Ought to Cheer

By Rich Duprey - Jan 26, 2015 at 6:47PM

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The e-commerce giant quickly pulled the plug on two services customers barely got to know, but don't call them failures.

Well, that didn't take very long. Just six months after launching its mobile payment experiment, Amazon Wallet, Amazon.com (AMZN 3.66%) recently pulled the plug on the fledgling service. And only six weeks after kicking off its new environmentally conscious diaper business, the e-commerce giant has yanked the swaddling clothes from that market.

The Internet retailer doesn't mind spending big bucks on untried ideas if it can result in a ton of sales. Photo: Mike Mozart via Flickr

Wallet never seemed to have much of a chance, as there were a number of built-in limitations such as only allowing storage of gift cards, loyalty cards, and membership programs, but not credit or debit cards. The diaper service looked promising as a niche business, even if it was never likely never to be a serious threat to Pampers and Huggies.

But the mobile payment app only got so-so reviews and the diapers apparently suffered from design issues. That both were quickly given the ax might seem to show how hot the Amazon incubator is when it comes to new ideas. It's almost like it's prove or die.

Not really, though. Amazon has a long history of experimenting with concepts -- and failing at many of them. Who remembers its A9 Search, Auctions, PayPhrase, or Payments programs?

And there are probably a lot of future failures in the works. How about delivery drones? Or its lockers?

The former seems more like an idea that was tossed out for public consumption to maximize consumer interest in its delivery services just before Cyber Monday. When the biggest day of the year for online retailers dawned, you can bet everyone was talking about Amazon.

Amazon Lockers were a bit of Machiavellian genius, partnering with the very bricks-and-mortar retailers it was competing against to install storage lockers in their stores where customers could go and pick up packages they bought from Amazon. Early partners like RadioShack and Staples quickly realized they were helping the rival that was killing them and abandoned them. It's unlikely many other retailers will install Lockers in the future; not if they know what's good for them.

The jury is still out on the Fire phone. Well, for CEO Jeff Bezos anyway, who says it's going to take many more iterations of the smartphone to really determine if it's a failure. Most everyone else thinks it's dead.

Not every idea goes according to plan. Photo: Amazon.com

Like a phoenix rising from the ashes
Yet from some of Amazon's failures a raging success arises. Its Auctions Web auction services spawned the ill-fated fixed-price auction site zShops, as well as a short-lived partnership with famed auction house Sotheby's(BID), all of which eventually led to the creation of Amazon Marketplace that lets customers sell new and used items.

So successful is this venue that there are now 2 million third-party sellers on Amazon worldwide and they accounted for 40% of all the units sold on the site in 2014.

What this suggests is that we haven't necessarily seen the end of private-label diapers or Wallet on Amazon. We just might not see them in their current form.

Customer complaints about the design of the diapers reportedly led to their being put on hold, and we may see a new and improved product re-emerge later on.

As for Wallet, Amazon said in an email to some outlets that, "we've learned a great deal from the Amazon Wallet beta program and will look for ways to apply these lessons in the future as we continue to innovate on behalf of our customers."

You can be sure there will be a future iteration of the mobile payment app. After all, it still has a toehold in space with Local Register, a rival to PayPal Here and Square.

Bet big or go home
Bezos doesn't mind betting big and losing if he can use the information gleaned to grow sales. He virtually taunts analysts every quarter with meteoric sales increases and breathtaking losses.

In Amazon's third quarter it recorded a 36% gain in sales to $6.5 billion, but losses widened from $41 million in the same period a year ago to $437 million this time around. But it's selling a ton of stuff and generating substantial loyalty among customers. Last month it announced that more than 10 million people "tried Prime for the first time" this holiday season. 

So, Bezos may have killed off Wallet and diapers before they had a chance to make a mark, let alone a difference, but investors shouldn't view them as a waste of money.

A lot can be learned in failure, or as Thomas Edison was quoted as saying about the number of times it took to make the light bulb, "I have not failed. I've just found 10,000 ways that won't work."

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