Thursday, July 14, 2011

Should Amazon acquire Starbucks?

What next for Amazon? Should Amazon acquire Starbucks?

There is more to the acquisition logic than location of their head quarters. ( both Amazon and Starbucks are head quartered in Seattle )

I wrote earlier about cafe of Friendster in Kuala Lumpur and suggested Google, Amazon, Facebook might launch similar cafes in future. ( Coincidentally this store was next to Starbucks !)

Amazon has been constantly innovating, expanding and getting into new areas. Amazon started as online book retailer and constantly expanded online shopping categories. Later Amazon has successfully moved into devices ( Kindle) and Web Services. The core strength of Amazon in all its ventures has been the User Experience and Operational Excellence.

Starbucks has also been known for User Experience and Operational Excellence.

Amazon users will like this fit. All book lovers are coffee lovers too though all coffee lovers are not book lovers !! Here lies growth opportunity for Amazon. The skeptics who still have not been active in purchasing online will get the first hand opportunity to experience Amazon capabilities in coffee shop. ( A small Amazon experience corner in Star bucks Coffee.)

Next Growth for innovative companies will come, when they leap from early adopters to main stream majority. Here company owned retail stores, which show cases company's product and services, can help bridge the gap. Apple captured the imagination of the majority with Apple retail stores ( It has generated more footfalls than Disneyland !!). The Apple retail concept has been successful even in country like China, where Apple look alike is easily available for one fifth of original price.

As Amazon moves further into consumer devices competing with Apple , sooner or later it will have to open Amazon owned stores. Amazon has operations ( separate website) in only nine countries ( US, UK, Canada, Japan, Germany, France, Italy, Austria and China).

International expansion takes time. First priority for Amazon will be to establish its presence in other countries ( India, Australia are on list ) and then probably few years later can think of opening its retail stores.

Starbucks acquisition can expedite international expansion. Starbucks has presence in 50 countries and 17000 outlets.

Financially it should not be a problem for Amazon as in sales and in market Starbucks is much smaller than Amazon
Starbucks Sales is just $10 Billion compare to Amazon's Sales of $30 Billion
Starbucks Market Cap is just $30 Billion compare to Amazon's Market Cap of $100 Billion

The question is whether Jeff Bezos would be willing to buy Starbucks and more importantly whether Howard Schultz be willing to sell Starbucks ? Meanwhile, I will continue to buy books from Amazon and read at Starbucks !