The Value Chain Constraint

An interesting article by Ben Thompson on his blogsite stratechery.com looks into the concept of value chains. Thompson illustrates that technology has constraints that are often overlooked by technology optimists. Companies like Amazon and Google have built a strong business model using specific technological capabilities to their advantage. When they using their technological capabilities in a way that does not connect with their core business model than things get messy.

Amazon bought Wholefoods to help Amazon advance into the groceries market. Their online sales of perishable goods is not showing success so far. The value chain of this market is different from the non-food sector where Amazon is the leading enterprise.  For non-food there is no sell-by date and thus goods can be stored in warehouses until a buyer is found. Food cannot stay on the shelves for long. Amazon’s business model will not really work for groceries and therefor Amazon has to change their approach in order to be successful. Only to find that there are already strong competitors like Walmart who might not have the online presence as Amazon, but who already have the distribution facilities to support the delivery of perishable goods.

Thompsons argument illustrates that just investing in technology without a good understanding of value chains or business models is throwing money away. It is using technology to strengthen the value chain that will make the difference.

The Value Chain Constraint

On June 16, 2017, minutes after Amazon announced it was buying Whole Foods Market Inc. for $13.7 billion, grocery store stocks fell through the floor; from MarketWatch ( emphasis mine): Shares of grocery stores took an unexpected hit Friday as investors reeled from the news that Amazon.com Inc.

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