Big Bad Amazon is coming for you.

Every day there is a new story in the press about Amazon's bully tactics, as Jeff Bezos's company continues to march into more and more industries.

Most recently, Amazon made major waves with its $13.7 billion acquisition of Whole Foods, a move that wiped out some $22 billion in market cap among Whole Food's competitors within 24 hours of the announcement.

After seeing Google slapped with a record $2.7 billion antitrust fine two weeks later, many pundits fired back by suggesting that Amazon's acquisition and continued growth was a sign that the company should be looked at for anti-trust violations.

Antitrust Won't Stop Amazon

Yes, Amazon has had nearly unprecedented success and is now threatening to take over more major industries like food. But Amazon's success is only one side of the story. What you don't see are stories questioning why old industries haven't taken action against the Amazon threat.

While the Whole Foods acquisition was a surprise to most, Amazon has made its intent to get into the food space clear for years. Incumbents have mostly ignored or downplayed this threat rather than trying to figure out a strategic response.

Yet almost no one calls these companies out for their failure to innovate.

Conveniently, old enterprises have been granted victim status with no opportunity to fight back against the big, bad Amazon. This narrative has to change.

This line of thinking excuses these company's inaction and the longer it continues, the longer it will take for meaningful competition to modern monopolies like Amazon to appear.

Realistically, anti-trust lawsuits take many years and will not immediately address the issue at-hand. Instead, Amazon's growth will only increase and its expansion into traditional industries like B2B distribution and food will continue unabated.

The only real response to Amazon's growing dominance can come from the incumbents themselves.

Learning from Walmart's Mistakes

In 2009, Walmart started its own Walmart.com Marketplace initiative in attempt to compete with Amazon's growing third-party marketplace. Unfortunately, this initiative failed. However, in 2016, Walmart - finally realizing its mistake - acquired Jet.com for $3.3 billion.

According to recent reports, Jet.com is gaining significant traction post-acquisition, and Walmart's ecommerce revenue grew a staggering 63% in the first quarter of 2017. Amazon even had to adjust its longstanding policy on the threshold for orders to qualify for free shipping in response to Walmart's recent 2-day free shipping initiative. This is what real competition looks like.

In other industries, incumbents are also starting to wake up. Hotels have long been complaining about Airbnb, but almost none of them have figured out how to respond properly. Hotel brands building a few apps and digitizing a few parts of your hotel experience won't stop Airbnb from continuing to grow like gangbusters.

Hotel's lack of real innovation is typical of incumbents faced with disruptive platforms coming into their industries. These incumbents often talk a lot about what's usually called "digital transformation," but these initiatives typically just amount to papering a few digital tools over their existing business models.

But some in the hotel industry are starting to realize this won't be enough. At the end of July, Wyndham Hotels acquired Love Home Swap, an Airbnb competitor.

Like Walmart, Wyndham realized it needed a radically different response. These old school businesses need to figure out how to become platform businesses. This is digital transformation done right.

Change Brings Opportunity

If a large platform like Amazon or  Airbnb sees the potential to build a platform in your industry, this is both a threat and an opportunity. Innovative incumbents should see the opportunity to embrace new business models that will help them not only survive the next five to ten years, but thrive.

In particular, when platforms like Amazon enter an industry, incumbents need to respond by building their own platforms. Platform businesses have a strong winner-take-all dynamic, so incumbents need to make sure they have a platform in the race. Even if Walmart's Jet.com ends up as #2 to Amazon in the consumer ecommerce market, Walmart's management will have created immense value for Walmart and its shareholders.

Acquiring platforms isn't the only option. If incumbents act quickly enough, they can build their own for a lot cheaper.

Jet.com was purchased 22 years after Amazon was founded. Love Home Swap was acquired 9 years after Airbnb's founding. (Remember, in 2015, Airbnb raised $1.5 billion.)

However, if Walmart's marketplace was successful in 2009, Walmart could've saved a lot of money and wouldn't have needed to buy Jet.com for $3.3 billion. The key is to start building a lot earlier in the cycle. If an incumbent lets a platform hits scale in your industry and has already raised billions in investor capital, it's too late to build your own platform from scratch.

What are a couple industries that still have the opportunity to fight back? B2B Distribution and freight trucking.

Amazon is rapidly entering B2B distribution with its Amazon Business marketplace, but it's not too late for incumbents to respond. B2B distribution is early-on enough that building a platform marketplace from scratch could still work.

Freight trucking has competition from Amazon and Uber Freight along with many startups like Convoy. Building from scratch would be an uphill battle with little room for mistakes. Still, it's early enough that a platform acquisition could be had for a cheaper price than spending billions.

Amazon's success is by no means inevitable. Its growth is driven by its innovative platform business model and willingness to take risks. Most incumbent CEO's that Amazon has faced weren't up to the task. They're often more interested in stock buy backs than taking risks to make sure the company is successful for the next ten years.

However, innovative CEO's looking to fight back against their tech disruptors should take heart. The playbook for how to respond is out there, and you have the resources and industry knowledge that can enable you to win.

Now this isn't to say beating Amazon would be easy. From our experience working with large established companies, CEO's who are trying to convince their teams to embrace disruptive business models often feel a bit like they're trying to steer the Titanic away from an iceberg. It's a daunting task, yet it can be done.

Still, there are other CEO's who are simply waiting around and hoping regulators will be the ones to stop Amazon. They shouldn't wait too long. They better start heading for the life boats.

Published on: Sep 22, 2017