Sniffing out the details on the Amazon / Diapers.com acquisition.

November 7, 2010

ChannelAdvisor ChannelAdvisor By ChannelAdvisor

Full disclosure – ChannelAdvisor and Quidsi share an investor in NEA.

Reports that Amazon will announce a $540m acquisition of Diapers.com tomorrow (parent company is called Quidsi and also operates soap.com) are floating around the internet.   This would mark the third major M+A on top of Zappos and Woot.

It’s an interesting turn of events when you look at the sequence of milestones:

  • October 09 – Quidsi raises $30m, revenues closing in on $100m, growing > 100%
  • September 10 – Amazon announces Amazon Mom.
  • October-November  10- Amazon starts price war with Diapers.com – consistently 10% below, leverages Mom.
  • Late 2010 – Diapers.com growth rumored to slow dramatically due to intense Amazon compeititon.
  • November 8 – Amazon announces M+A of Diapers.com

What’s the Poop on this transaction?

It seems there are two likely scenarios here:

  1.  Amazon wanted into the space, started competing and realised it was harder than they thought – thus they took the M+A path.
  2.  Amazon wanted to acquire Diapers, Diapers said no, Amazon hammered them with Mom and a price war – Diapers capitulated.

The Diaper’s biz doesn’t stink – Buying into Growth 

In either case, this is a huge category with annual sales over $10b and one that Amazon clearly wants to have a leadership position in.  By acquiring Diapers.com, they are taking a big step towards locking down this category.

Diapers is said to have hit $180m in 09 and on their way to $300m in 2010 – > 60% growth and targeting 1.2b in 2012.

Put a pin in it.

What do you think – is this is a brilliant move by Amazon?  Did they force diapers.com into a corner?  Will this be a successful addition or a ripey dipey?

SeekingAlpha Disclosure – I am long Amazon and Google. eBay is an investor in ChannelAdvisor.