Hi Reader,
In the world of e-commerce, few stories illustrate the ruthlessness of competition and the strategic brilliance of Jeff Bezos’s Amazon as vividly as their acquisition of the New Jersey based Diapers.com.
Founded in 2005 by Marc Lore and Vinit Bharara, the company was originally named 1800DIAPERS and focused on selling diapers, wipes, and formula to new parents. Its business model was simple but effective: offer free shipping on diapers and other essentials, and allow parents to schedule recurring orders. This convenience, combined with excellent customer service and a wide selection, quickly made Diapers.com a favorite among busy parents.
The Warning
By 2009, Diapers.com had expanded its product line to include baby clothes, car seats, strollers, and toys. The company was generating over $100 million in annual revenue and was valued at around $300 million. Its parent company, Quidsi, also launched Soap.com and BeautyBar.com, further diversifying its offerings.
Later the same year, Amazon sent a senior vice president to talk about an acquisition with the founders of Quidsi. They were, however, not interested in selling since they believed they could grow independently and compete with Amazon. But Amazon was not about to take no for an answer.
The Price War Begins
After Quidsi rejected Amazon’s initial overture, Amazon launched a full-scale price war. Amazon’s pricing bots began tracking Diapers.com. When Diapers.com experimented by changing their prices, they watched as Amazon’s website immediately adjusted its own prices to undercut them - by up to 30%!
The impact on Diapers.com was immediate and severe. Revenue growth slowed, and the company’s investors grew wary of continuing to pour money into a business that was losing ground to Amazon’s deep pockets.
The Negotiation
On the very morning that Quidsi’s founders were scheduled to meet with Amazon in Seattle to discuss a potential acquisition, Amazon rolled out Amazon Mom. This new service offered huge discounts and free shipping on diapers and other baby supplies. The message was clear: Amazon was willing to lose money in the short term to eliminate a competitor. Calculations showed that Amazon was on track to lose $100 million over three months in the diaper category alone! For Amazon, this was a small price to pay to kill a competitor.
Quidsi, now very clearly with no option but to sell, also started talking to Walmart. Quite obvious since Walmart was eager to bolster its own e-commerce efforts (btw, horribly late in the game if you ask me!) But Amazon played hardball. Amazon warned Quidsi’s founders that Bezos was prepared to drive diaper prices to zero if they sold to Walmart.
The Quidsi board considered letting the Amazon deal expire and resuming negotiations with Walmart. But by then, Bezos’s willingness to use the “thermonuclear option” had its intended effect. The Quidsi executives, fearing the consequences of prolonged competition with Amazon, ultimately agreed to sell to Amazon.
The Deal Is Done
On November 8, 2010, Amazon announced that it had reached an agreement to acquire Quidsi, the parent company of Diapers.com, for approximately $550 million. The acquisition was structured so that Quidsi would continue to operate independently under its current leadership team, similar to Amazon’s previous acquisition of Zappos.
Amazon’s official statement highlighted the shared commitment to customer service and innovation. Marc Lore, co-founder and CEO of Quidsi, expressed excitement about joining Amazon and continuing to serve an even larger audience.
Kahaani abhi bhi baaki hai...
However, the story did not have a fairy-tale ending. In March 2017, Amazon announced that it would shut down Diapers.com and all other Quidsi sites due to lack of profitability. The sites were officially closed on April 19, 2017, and their URLs were redirected to Amazon.com.
The Bigger Picture: Competition, Predatory Pricing, and Antitrust
The Amazon-Diapers.com saga is often cited as a textbook example of predatory pricing and aggressive competition. Amazon was willing to lose up to $100 million in a single quarter on diapers alone to undercut Diapers.com and force it to sell.
Critics argue that this behavior is anti-competitive and harms consumers in the long run. By eliminating competitors, dominant companies like Amazon can raise prices and reduce choice once the competition is gone. (Just like our Indian telecom sector now!)
The Amazon-Diapers.com saga remains a powerful example of the dynamics of competition in the digital age. and a reminder of the importance of vigilance in protecting competition and consumer choice.
Here's my YouTube video on why I went from 4500 to 900-odd subscribers when I got serious about LinkedIn to drive my business. Or you can read it on LinkedIn.
Newsletter Exclusive: ONE slot a week.
