Amazon buys Quidsi, gets foothold in baby market

The world's largest internet retailer, Amazon, has long fought for a place in the competitive world of baby care products. It has taken another course this week by purchasing Quidsi, the parent company of Diapers.com, avoiding a lengthy battle to gain market share.

Organic growth has largely fueled Amazon, but with the acquisition of Quidsi, Amazon aims to gain a dominant market share immediately. It purchased the company for $500 million in cash. Amazon looks to profit mightily from the deal: Jordan Rohan, an analyst at Stifel Nicolaus, tells The New York Times that Quidsi "figured out a combination of specialization and scale," allowing it to "fulfill orders more efficiently than Amazon." Amazon acknowledges that Quidsi has excellent supply chain management and understands the importance of cost reduction.

Quidsi is already a major player in the baby market. It is expected to generate about $300 million in revenue this year – 66 percent higher than 2009. Quidsi will operate independently from Amazon and without management changes, must like what happened when Amazon acquired Zappos.com last year.

Nonetheless, consumers stand to lose on the deal. Prior to the agreement, Amazon competed with Diapers.com by selling diapers at incredibly discounted prices. Many analysts, including Mr. Rohan, expect this to change.