Emails released by the Judicial Committee of the House of Commons this week confirm allegations that critics have long opposed Amazon: that the company̵7;s aggressive price cuts in 2009 and 2010 were designed to undermine a new competitor.
This rival, Quidsi, got traction from a site called Diapers.com, which sold baby products. The Amazon had every reason to worry. As journalist Brad Stone wrote in his 2013 book on Amazon, Bezos did not start selling diapers until a year after Diapers.com. At that time, diapers were considered too bulky and with a low margin to be profitable to deliver.
But Kidsey’s founders figured out how to do it. They optimized packaging for children’s products and located warehouses near megacities. Not only did this allow them to receive cheaper land transportation rates, but it also allowed them to provide overnight delivery to most of their customers – in many cases faster than Amazon’s own delivery.
Quidsi’s plan was to gradually expand to other categories of retailers, as Amazon had done a decade earlier. If Quidsi’s growth continued uninterrupted, the company could become Amazon’s main competitor. But Amazon was convinced that this did not happen – first by starting a brutal price war, and then acquiring the company. The new emails give an inside look at Amazon’s thinking during this battle.
At a hearing on Wednesday before the House Judiciary Committee, Mary Gay Scanlon (D-Pa) opposed Bezos for aggressively lowering Amazon’s diaper prices. Bezos replied that he did not remember the specifics.
“I can tell you that the idea of using diapers and similar products to attract new customers who have new families is a very traditional idea,” Bezos said.
When Scanlon asked how families benefited from the price increase in the Amazon after expelling a major competitor, Bezos replied: “I do not agree with this provision.” He noted that there are many other places to buy diapers, including numerous brick retailers.
“They are our biggest competitor in diapers”
In early 2009, Kidsey’s growth caught the attention of Amazon executives. “They are our biggest competitor in the field of diapers,” Amazon CEO Doug Herrington wrote in an email received by the Chamber’s Judiciary Committee. “They keep the pressure on us. They probably have lower execution costs than we do.”
A few minutes later, he wrote, “We need to compare prices for these guys regardless of cost.”
According to Stone, the head of Amazon met with the founders of Quidsi in 2009 and urged them to consider selling the company. The founders refused. Amazon soon reduced diaper prices by as much as 30 percent.
But Quiddsey continued to grow. By 2010, the company had earned loyalty to thousands of young parents and earned $ 300 million.
In June 2010, Quidsi announced that it was expanding to the second product category with the new soap.com website. This was pointed out by Jeff Bezos, who asked several subordinates for their views in an email on June 8.
“Given the strength and competence of diapers.com, soap.com is our most important short-term competitor in the HPC space,” said Herrington Bezos and other Amazon performers (HPC apparently refers to “health and personal care” – someone from the Product Category Amazon).
“We have already initiated a more aggressive ‘victory plan’ against diapers.com in diapers / children’s spaces,” Herrington continued. In addition to offering “leading prices for diapers,” Herrington writes, Amazon was preparing to launch a new “Amazon Mom” program that offered parents deeper discounts on diapers and related products if customers subscribe.
The Amazon is shaking with pressure
The founders of Quidsi did not want to sell their company, but the war over the price of Amazon diapers began to hurt Quidsi. Growth slowed, and Quidditch had trouble raising additional capital to continue expanding.
On September 14, the founders of Quidsi flew to Seattle to meet with Amazon and discuss a possible acquisition. As Kidsey’s founders sat in a meeting with Amazon’s brass, Amazon hit Kiddie in the gut. He announced a new program called Amazon Mom, which offered a free Prime service and an additional 30 percent discount on diapers if users signed up to get them through Amazon’s monthly “subscribe and save” program. This was a bigger discount than Amazon offered on most other subscription and storage items.
This put Quidditch in an insurmountable situation, as Stone writes:
That month, Diapers.com listed the Pampers case at $ 45; Amazon valued it at $ 39, and Amazon’s mother’s subscription and savings customers could get the deal for less than $ 30. Quidsi executives once took what they knew about shipping rates, given the wholesale prices of Proctor and Gamble, and calculated that Amazon was moving to lose $ 100 million in three months in the diaper category alone.
Amazon’s losses may have actually been even greater. During Wednesday’s hearing, Scanlon said internal documents obtained by the committee showed that Amazon had lost $ 200 million in diapers in one month.
The Amazon knew that Quidditch was bleeding dry. An internal email later in September discussed price cuts that Quidsi was forced to compete with Amazon Mom’s new discounts. “They expect to lose a lot of money in the next few years,” wrote CEO Petro Kravets. “It will make the situation worse.”
Kids had no money to fight the protracted price war with the Amazon, and venture capitalists were reluctant to give Quiddice more money to fight what looked like a hopeless battle. So in November, Quidditch was reluctant to sign a merger agreement with Amazon.
“I don’t remember that”
When Stone wrote his book, the head of Amazon told him that (in Stone’s words) “everything Amazon later did in the diaper market [after mid-2010] was planned in advance and not related to Quidsi competition. “But recently released emails contradict that statement. Herrington specifically listed Amazon’s Mama promotion as part of Amazon’s” aggressive “plan to win against diapers.com.” Later in the same email, Herrington wrote that “if this plan cuts the main diaper business for diapers.com, it will slow down the adoption of soap.com.”
Amazon’s claims are also difficult to match after the acquisition. Stone notes that “a month after announcing the acquisition of Quidsi, Amazon closed its company. [Amazon Mom] program for new members. “Then a few weeks later, when the Federal Trade Commission unexpectedly reviewed the deal, Amazon reopened Amazon’s mom, but with smaller discounts. In fact, Amazon raised diaper prices soon after the purchase.
When Scanlon asked if Bezos had signed up to raise diaper prices after the purchase, Bezos had promised ignorance.
“I don’t remember it at all,” he said. “We compare competitive prices. I believe we have been following diapers.com.”
The FTC eventually approved the deal. Amazon initially allowed Diapers.com to continue as a separate service, but closed it in 2017.