The Pampers wars: How Amazon crushed Diapers.com & broke the diaper market

Diapers.com was selling diapers online a year before Amazon

Diapers and Soap.com were founded under Qudisi in 2005 to help you get everything as a new parent delivered right to your door. You got free shipping on orders over $49, and the idea was to capitalize on the growing e-commerce trend with a focused category-level approach. Shopping online in 2005 was a rough experience by today’s standards, and Diapers.com was trying to make it easier for parents.

Bezos took notice & aim

Quidsi optimized its supply chain to be profitable, shipping items like diapers and promised to get them to parents fast for free. Quidsi had outfoxed Amazon, and Bezos took notice. Bezos reportedly instructed the company to match the price of Diapers.com at all costs, but in reality, Amazon undercut Diapers.com until they acquired them in 2010.

Amazon consistently had a lower list price than Diapers.com after 2006 and threw millions into competing programs like “Amazon Mom” which offered Prime members up to 30% off diapers (this program did not exist by the time I had kids). From 2006 to 2010, Amazon halted Diapers.com’s path to profitability completely, and investors lost their appetite to go up against Amazon.com.

Amazon was able to use later the leverage of having ground their business to a halt to force Qudisi to sell. By 2015 Amazon had transitioned “Amazon Mom” to “Amazon Family” presumably having felt secure in its new position as a diaper king.

What’s the big deal with Pampers? Why Diapers?

Pampers (owned by P&G) makes the best diapers. I change diapers daily and have tried them all – Pampers makes the best 2 diapers (Baby Dry & Swaddlers). Pampers has also fascinated me long before I had kids, partly because, as a student of Amazon, I wondered what could make them willing to lose money shipping a product that customers ultimately throw away. 

In recent years we have seen a spike in inflation and a push for profitability from retailers. As a new parent, I watch what I pay for many grocery items and hadn’t given much thought to diaper pricing considering the historic formula shortages. However, eventually, my family stopped using baby formula, and my bills for Pampers gained focus. I was blown away to find that a product Amazon used to be willing to lose money on was now likely a profit center for them.

Amazon undercuts and then buys Diapers.com

To find out how this happens, we must return to early 2010 on the eve of Amazon’s acquisition of Qudisi. E-commerce was booming by 2010, and diapers were popular online – Diapers.com was founded in 2005 but crumbled under Amazon’s pressure. Qudisi hadn’t yet achieved profitability, mainly due to Amazon, and their path was less clear than ever as they had been accruing debt.

Buying Pampers got more expensive over the last decade

I looked at the price of Pampers economy “Baby Dry” diapers to get a clear picture. Still, retail pricing is challenging to track as packaging changes relatively frequently and old SKUs are sunsetted. Before buying Diapers.com, Amazon was, by estimates selling at a loss and consistently undercutting Walmart. However, by 2023 (6 years after diapers.com was shut down), the unit price of Amazon matches Walmart – it is no longer cheaper.

E-commerce is booming & Amazon is the biggest bully

We have to return to before 2010 when Amazon buys Qudisi in an all-cash (parent of Diapers and Soap.com) for 500M. Qudisi had an ARR of 300M at the time of acquisition and, since being founded in 2005, had faced brutal negative margin pricing from Amazon.

So why did Amazon pay 500M for Diapers.com when everyone knew it would never have profitability, and why would Amazon shut it down within 7 years?

Simple – Amazon openly and consistently seeks to control the diaper market. Since the early 2010s, when big data was popular. During this time, news headlines about big data, news was coming out about Target being able to predicate pregnancy of its customers and sometimes knew before its customers knew that they were pregnant.

Amazon correctly believed that if they could remain top of mind for diapers – by being willing to lose money for 5 years on a product, they would ultimately be able to raise the price and capture a coveted customer set. Ten years after the fact, we know this is what Amazon executives planned; Insider reported in leaked emails an aggressive strategy to undercut Diapers.com.

Amazon’s Customer Strategy

Amazon was building out its long-term customer strategy, and getting as significant a share of the diaper market as possible was core to that. Why? Families spend more, and families with young kids have incredible LTV (“life time value” is a way marketers measure how much you will pay in the future, typically 1-3 years out). For Amazon, this strategy was a win-win – they were willing to lose a few dollars on each order of diapers to get more of a family’s wallet, and it would put unbearable pressure on new market entrants.

So what now? Prices for diapers seem to be going way up

P&G has record profits in this inflationary environment, and now Amazon is on the way up with diapers helping – rather than hurting their bottom line. Average per unit costs for Pampers Baby Dry are up 18% on Amazon and 15% on Walmart – both companies seemingly content to make a few bucks an order rather than undercut each other. After Qudisi was acquired, Pampers’ price increased by 9.09% at Amazon from 2015 to 2023, while it only increased by 5.57% at Walmart.