Walmart’s acquisition spree in the consumer space has earned the company a lot of press recently. The speed of these acquisitions is a bet that buying companies, brands and talent is the only way for Walmart to catch up to Amazon, its biggest rival.

Is Walmart building a reputable competitor to Amazon or will it flame out like Yahoo, the last company to acquire its way to nothing? Looking at its strategy alongside Amazon’s gives us some clues.

Walmart’s acquisition strategy

Last August, Walmart purchased Jet.com ($3.3 billion), which put Marc Lore, its founder, at the helm of Walmart’s entire ecommerce strategy. In 2017 alone, the company has acquired ShoeBuy ($70 million), now called Shoes.com in January; Moosejaw ($51 million) in February; Modcloth (~$50 million) in March; and Bonobos (~$300 million), which is pending due diligence. Additionally, before the Walmart acquisition, Jet bought Hayneedle ($90 million) in February, 2016. So far, the total spend tops close to $3.9 billion dollars. Walmart has around $6.9 billion of cash on hand, which it can use alongside stock to finance future acquisitions. (Amazon, conversely, has close to $22 billion on hand, as well as a record high stock price.)

There are two lingering questions from Walmart’s acquisition spree, which shows no signs of slowing: 1) what is Walmart’s strategy?; and 2) will it help them compete with Amazon?

A recent Bloomberg profile of Lore and his strategy set the scene, as he appeared in a video laying out the company’s new strategy with him steering the ship:

But Lore’s 40-minute presentation doesn’t hold back about the threat posed by its most fearsome and increasingly powerful archrival. “AMAZON IS DOMINATING” reads a slide on a large screen behind him. In the video, Lore presents a plan to bet Wal-Mart’s future not on e-commerce standbys such as books, electronics, and toys, but on product areas only now becoming popular online, including apparel, fresh food, and “everyday essentials” like drugstore items. “We’ll need to take the offensive, swim upstream,” Lore says. “As Sam Walton said, ‘Opportunity lies in the opposite direction.’ ”

Walmart’s strategy, it seems, is to go in a different direction as Amazon, as evidenced by its recent purchases. These six acquisitions fall into three different categories: marketplaces, multi-brand stores and mono-brands. Jet is the only marketplace, meant to be an Amazon.com competitor. Shoes.com is a Zappos competitor and Moosejaw is an outdoor-focused ecommerce shop, both of which are multi-brand stores. Modcloth and Bonobos are mono-brands that produce and sell their own products.

Amazon’s acquisition strategy

Amazon’s buy versus build strategy is much different than Walmart’s. The company notoriously tries to build as much as it can in house, experimenting with projects and developing expertise over a five to seven year time horizon that’s a signature of CEO Jeff Bezos.

From Brad Stone’s excellent book “The Everything Store”:

Amazon made very few acquisitions. The lessons learned from its early acquisition spree in the late 1990s were still felt inside the company. Amazon had impulsively spent hundreds of millions to buy unproven startups that it could not digest and whose executives almost all left. In the resulting retrenchment, Amazon became uniquely parsimonious in how it approached mergers and acquisitions. . . . Jeff Blackburn, Amazon’s chief of business development, said that Amazon’s bruises from the 1990s helped to create a “building culture” there. Every major company faces decisions over whether it should build or buy new capabilities. “Jeff almost always prefers to build it,” Blackburn says. Bezos had absorbed the lessons of the business bible Good to Great, whose author, Jim Collins, counseled companies to acquire other firms only when they had fully mastered their virtuous circles, and then “as an accelerator of flywheel momentum, not a creator of it.”

In the consumer space, Amazon has only made a few purchases since the company’s founding in 1994: Shopbob in 2006, Zappos in 2009, Quidsi (Marc Lore’s former company) in 2010, and Souq this year. Other known names, such as MyHabit (which was shut down in 2016) and Eastdane were actually launched internally, not through acquisitions.

There are two common themes to Amazon’s four acquisitions in the last twenty two years: 1) they were defensive, not offensive, acquisitions; and 2) they are either marketplaces or multi-brand stores, not brands.

Defensive acquisitions

The first tenant of Amazon’s defensive acquisition strategy is that it’s focused on defense, not offense. Zappos and Quidsi, specifically, were purchased after an all-out price war. Bezos forced these founders to capitulate rather than driving their respective companies to insolvency.

The Zappos story is worth diving into to show how Amazon acts in competitive times. What follows is a summation of the Zappos/Amazon saga from “The Everything Store.”

By 2005, Zappos had close to $400 million in annual sales. Amazon figured they could buy the company for around $500 million, but Bezos had no interest in paying that price at the time. He had another idea: build a new website to compete directly with Zappos until they give in. For all of 2006, the company built out a new site called Endless.com, spending $30 million to design and develop it. Endless.com offered free overnight shipping and free returns, and even though the company would lose money on every sale, it would put an immense amount of pressure on Zappos to respond. As expected, Zappos upgraded its free shipping speed to overnight from the five to seven day window it previously offered.

Ironically, Endless.com had a minimal amount of sales so even though it lost money on a per order basis, the aggregate impact on Amazon’s bottom line was small. Zappos, however, had hundreds of millions of dollars of sales and its profit margins took a direct hit as was forced to respond to Amazon’s provocations.

But with the financial crisis looming, consumer spending was slowing. As lenders tightened their borrowing limits, it put an immense amount of pressure on Zappos and its $100 million line of credit that it was using to acquire inventory. Zappos saw its growth rate slow dramatically during this period, as inventory is oxygen in the physical goods world.

Amazon ended up buying Zappos for $900 million in 2009, three years after Bezos showed initial interest. While this was more than Bezos had wanted in 2006, Zappos had over $1 billion in sales at the time, making it a bargain. By one estimation, Bezos spent over $150 million over two years on Endless.com, all with the goal of squashing Zappos.

The Quidsi story is just as bad, if not worse, and is likely one of the biggest reasons Marc Lore is on a mission to defeat Amazon. It’s personal.

Marketplaces over brands

The second important difference between Amazon and Walmart’s acquisitions strategy is that Amazon is solely interested in marketplaces and department stores, while Walmart is also interested in brands. Over the last twenty two years of Amazon’s existence, the company has transformed from a traditional retailer who buys inventory to a marketplace that skims a tax off of every product that flows through its platform. Amazon is increasingly holding more inventory on behalf of other merchants in its hundreds of fulfillment centers, but it does not carry this inventory on its balance sheet. This is the most scaleable way to build out Bezos’ vision of The Everything Store. As I recently wrote about Amazon’s potential to fuel direct to consumer brands, “Amazon is increasingly a commerce infrastructure company, not a retailer.”

Amazon’s acquisition strategy is entirely inline with its overall strategy. It’s the realization that any individual product brand, such as Modcloth or Bonobos, has a finite addressable market. But marketplaces such as Amazon are able to reach exponentially more customers by aggregating inventory from millions of different vendors, and can scale on a lighter cost structure than brands or multi-brand shops that hold inventory. Put differently, Amazon’s model is built to thrive in the internet-era.

While Walmart’s acquisition strategy is garnering lots of press, its long-term viability is unclear. Buying brands and multi brand retailers that need to hold inventory is a pre-internet business model, not to mention an expensive one to maintain. Additionally, like Yahoo, which bought fifty three companies over Marissa Mayer’s time as CEO, endless acquisitions does not guarantee success. As Amazon learned the hard way, building up expertise in-house allows a company to internalize the expertise for the long run, not bolt it on.

Private labels

Another interesting divergence between Amazon and Walmart’s strategies is through the lens of private label. Walmart is no stranger to private labels: it has over fifty of them at last count. Amazon, by contrast, has twenty as of last count but fourteen of them are in fashion and apparel. While Walmart continues to buy name brands, Amazon is going in the opposite direction, spinning up more private labels based off of the unparalleled data set it has as a result of running Amazon.com for over twenty years. It can see intent, the idea that someone wants to buy something, and work backwards from demand. In a world with too much supply that can’t find demand, starting with demand is a huge advantage.

The future

Walmart will likely continue buying brands and retailers in the consumer space. Amazon likely will not. The only exception for Amazon might be something in the fashion realm, which it’s been working to master for over a decade. While the company has not failed by any means, it continues to take its time learning about the market and how best to cater to it. For some, this is taking too long, but Amazon goes at its own pace.

If Amazon was looking for a rare offensive acquisition in the fashion space, Farfetch, Stitch Fix and Shopify would be three very interesting options.

Farfetch

Farfetch operates a similar model to Amazon, aggregating inventory from hundreds of brands and boutiques into a single place for customers to shop, with complimentary shipping and returns. Most importantly, fashion brands trust the leaders and the quality of the shopping experience, something Amazon is still working on.

Farfetch has also spent a considerable amount of money building out its logistics infrastructure, which, like Amazon, allows it to deliver a high-touch shopping experience. While these efforts might be duplicative of Amazon’s in some areas, there is a luxury bent to them, such as the ability to deliver to yachts and 90 minute delivery in select cities. It’s unclear if this acquisition would happen, given Amazon’s preference for building and learning in house, but it would be an interesting outcome for both companies.

Stitch Fix

Stitch Fix merges the best of styling and data science to put the right products in front of the right shoppers, and it is on a tear. A recent report shows it is profitable and on track to hit $1 billion in revenue. Stitch Fix is also building out its private label offering, using its data to spin up labels that fill holes in the market. The company embodies the platform and private label approach that Amazon is taking, along with a considerable data operation. Since the head of Amazon Fashion just left, Stitch Fix founder Katrina Lake would be a very interesting person to fill those shoes.

Shopify

Shopify as an ecommerce platform is most reminiscent of the long tail, the idea that the internet has allowed companies to sustainably target many different niches not just mass groups of consumers. While Amazon has Amazon Web Services (AWS), its cloud computing arm, which drives a significant amount of profit in the company’s bottom line, Shopify is effectively the closest thing to the AWS of ecommerce. Like Amazon’s business model shift, Shopify taxes all of the commerce that flows through its system. At the end of 2016, the company had over 377,500 merchants from approximately 175 countries selling on its platform, according to its annual report. Shopify also recently introduced an integration that allows its merchants to sell on Amazon very easily, so the companies at least know each other. The company fits with Amazon’s platform play and has made considerable headway into the long-tail of ecommerce, something Amazon is always working on.

It’s unclear if Amazon would buy these companies and it’s unclear if any of them would sell, but this space will be really interesting to watch. With Amazon and Walmart plowing ahead in their own ways, a lot is going to change as two massive players battle it out for the future of this industry. Along the way, the buy versus build debate will only continue.