Prediction: Wal-Mart Will Buy Amazon.com

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Includes: AMZN, WMT
by: Paul Kedrosky

Much to the chagrin of many people, some of whom are Amazon employees that I know, super-retailer Wal-Mart will buy Amazon.com this year.

There are four driving factors:

1. Wal-Mart lags badly in its own web presence (see the Alexa figure at right).
2. Amazon has built a more viable business than Wal-Mart thought it would.
3. This past year was a tipping point for more ubiquitous and growing presence for online shopping in retail.
4. Wal-Mart can currently afford it. With total cash of $4.5 billion against Amazon's cash of $1.4 billion, and comparative market caps of $199-billion and $20-billion, the time is right. Granted, it would almost certainly be dilutive, but the strategic value would trump its dilutiveness.

Many will call this the end of the web's golden age, with a major original web presence being taken out by an old-line retailer. There will be much weeping and gnashing of teeth as people go from the euphoria of 2005's infatuation with Web 2.0, to the 2006 Wal-Mart-driven sense that the thrill is gone.

[Update] More than one person has pointed out that Alexa's data on Amazon is screwy, what with Amazon owning Alexa. Fair comment.

And I'll trump that with another point against me. According to some forecasters, Wal-Mart's traffic is growing faster than Amazon's, to the point that Wal-Mart caught Amazon on Thanksgiving day in market share of visits. You know what though? I still think Wal-Mart will buy Amazon this year -- but it doesn't have to be at current price levels ;-)

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