Why Is Amazon Buying Woot? The Answer May Surprise You

Last Updated Jul 2, 2010 6:00 AM EDT

Amazon (AMZN) has agreed to buy Woot, the clearance site that sells one item per day. But Amazon already has a similar last-chance feature on its own site, and it nearly always stocks the same items that Woot (albeit at a slightly higher price). So why buy Woot?

The deal, which occurred on undisclosed terms, will bring Woot's 2.75 million registered users into the Amazon fold, and will deliver Amazon one of the most talked-about brands in electronic retail. Woot began in 2004 selling gear aimed at prodigal computer nerds -- beefy video cards, spacious hard drives -- and has since expanded into more mainstream consumer goods, wine, toys and clothing. Dozens of imitators have since cropped up, selling niche products to impulse buyers with a litany of other interests.

The NYT hypothesized that Amazon's interest in Woot is based in its pursuit of those very same impulse buyers. Its coverage of the acquisition says:

Although Amazon has long offered its own daily deals, Woot attracts impulse shoppers that Amazon has not been able to capture, said Sucharita Mulpuru, a principal analyst covering e-commerce at Forrester Research. "Amazon is a destination that is all about focused buying; you go there when you're looking for something very specific," she said. "Woot is about persuading you to buy something you didn't even know you needed."
But ReadWriteWeb has a more instructive take from marketing guru Michael Vorel, who argues that the acquisition will serve two purposes. Firstly, he says, the items sold on Woot have such thin margins that the real value must be in something else: namely, the behavioral information Amazon can gather from such "real-time" buying (real-time, he says, in the sense that TV shopping is real-time). Secondly, Woot gets about 10% of its referral traffic from Facebook, which means that those real-time purchases are tied closely to buyers' social graphs.

But Vorel doesn't go far enough in his appraisal. Yes, the real-time connection is important -- it allows Amazon to test incentives -- and yes, Facebook's contribution is important. But both those points neglect the real concept that will superintend both real-time buying and Facebook in the next five years: mobility.

Woot is a dead-simple concept that is ripe for social activity, which is why Facebook is already the source of so many referrals. (If you see a cool item on Woot that seems right for a friend, you may be likely to share it promptly because the deals expire so quickly.) But dead-simple sales concepts are also ideal for smartphones, which are less adept at at granular searching and long-tail shopping. If Amazon expands Woot's functionality to appeal to all kinds of different users -- men, women, gamers, athletes, readers, music fans, and so on -- then it can use what it knows from your account to present you with a "custom" 24-hour deal every time you open your Amazon app (or the Amazon mobile site) on your phone.

The response it gets to those splash-page items will further increase the accuracy of its recommendation system, which I've argued before is the most valuable asset the company has, based on the most valuable data in the history of the Web: what people buy. In short: buying Woot isn't just buying a handy one-trick pony. Rather, it is a tool Amazon will use to present users with targeted, last-chance virtual offers, no matter where they go in real life.

Related: