Amazon Go: iPhone-disrupting-mobile-phones moment!

Amazon Go: iPhone-disrupting-mobile-phones moment!

When I first read about Amazon Go and the way it works, I felt this pure joy of experiencing unexpectedly thoughtful innovation. I had felt that before during iPhone launch. Such innovations make consumers fall in love with the brand and goes a long way to fuel profitable growth - not just because of the branding but also because it's going to be difficult for others to disrupt it. Why?

Amazon businesses, always, consists of 2 different layers.

First, they create the innovative customer-facing top layer to aggregate demand. In case of Amazon.com, it's the e-commerce layer which is a pure software product layer. For AWS, it is again the software layer on the top which makes it easy for the users to host their data.  Now for Amazon Go, it's the store plus the software layer (#AI #ML #IoT #FinTech #MobileCommerce) that will create superior customer experience layer. Moreover, of course, Amazon (and Berkshire Hathaway + JPMorgan Chase) announced that they would form an independent healthcare company for their employees in the United States. The company, it seems, would also create a technology layer to make things easy for their employees. (In my view this is a top layer of a massive business that they are planning to venture in. The press release does not talk much about anything. However, why would Amazon dabble in anything that is short of enormous market potential.)

Amazon is very good at designing and creating this top layer and get consumers to love them. In fact, it is second to none in forming this layer. Not even Apple. What makes me excited about Amazon Go, is how well designed the customer-facing layer is. Walmart or the other established players in retail should have done this earlier. However, Amazon seems to have beaten them and might consistently do it in the future to create superior customer experience at the store level. Through that, they will aggregate the customer demand better than the others. Below the top customer-facing layer, they create physical infrastructure layer to deliver value to the customers. For Amazon.com it is the logistics (warehouses and delivery) layer below. Within this, Amazon works very hard and invests billions in delivering the value to the consumers. For AWS, it is the farm of servers. For Amazon Go, it will be the logistics infra again (almost the same as Amazon.com). For the new health care initiative, they announced that they would work with their employees (around 500,000 around the world) and perfect the top layer. Moreover, once they do that, they will start pouring billions to create the underlying infrastructure of insurance (Berkshire Hathaway has it) and service providers.
Now, most of the startups (backed by the VCs) usually target to disrupt the first layer.  The traditional VCs+StartUps collaboration has often worked well in this layer. That is because the network dynamics of the internet help them scale the business rapidly without making a massive capital investment. However, when it comes to the Hard-Tech or where enormous capital investments are needed upfront, the VCs have not shown much interest. The payback time is long, and the risks of execution are more significant. Typically such investments are made through the strong balance sheets of the incumbents. In case of Amazon, there aren't going to be many disruptors in the near future. 


More on Amazon Go:


Just-walk-out Technology is going to be a proprietary one and Amazon will not license it to others. Remember, Amazon never licensed their e-commerce tech to others. Just as Apple, they wanted to be vertically integrated company and have always owned the supply chain to deliver value to the customers. Amazon, however, allows vendors to host their products on Amazon's infrastructure, for a fee. Would Amazon Go go the same way? I think they might. It is not just the Whole Foods that they may deliver this way.  The economies of scale and smarter inventory management, more efficient logistics, better in-store customer experience would probably provide them with the lowest cost structure to deliver the value to the end users and yet make them love the experience. Amazon.com disrupted a lot of traditional small players but has also created the opportunity for the new small players who can now sell stuff on Amazon and earn good money. Maybe Amazon Go will end up doing the same.
The first look Amazon Go indicates that Amazon (and Bezos) are at least as good as Apple (and Jobs). Every day, I see tiny companies finding it difficult to innovate well and more importantly, find even more challenging to execute flawlessly. And here's a $650+ Billion company which surprises us with their thoughtfulness and execution. So it is good to see all that, and I am happy for them. However, it is not all good news. It is not just the competition but also loss of jobs that worries me.

"If you have bigger lungs than your competitor, all things being equal, force them to compete in a contest where oxygen is the crucial limiter." - Jeff Bezos

Would the small business go out of oxygen? Is Amazon going to hit Anti-Trust? Yeah, it is indeed huge lungs they are developing. Amazon is aware of it and steering carefully to avoiding hitting Anti-Trust. #WashingtonPost Acquisition.

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Would the further automation/robotics in in-store, warehouse and delivery space make a lot more people lose jobs? Right now only the cashiers (73% of cashiers in the US are women) have lost their jobs in AmazonGo stores. However, it is not just Amazon. Walmart is investing much money in bringing in Retail-Tech and is planning to extend the tests for its shelf-scanning robots across 50 additional stores. Please watch the videos on robots developed by Boston Analytics. The robots are not necessarily developed only for retail. But they give us idea of how close we are to replace the lots of jobs.

Amazon ($658 B) & Alibaba ($502 B) Offerings:

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Though Alibaba had a later start, it is in quite a few more than sectors than Amazon and went into offline grocery retail earlier than Amazon.

 

How Does Amazon Go Work?:

Amazon Go uses the in-person-mobile-commerce — the concept that you can buy something without having to pull out a wallet to do so. (This can be so good for developing countries like India where mobile wallets will be more penetrated than the credit cards.) 
When customers arrive at the Amazon Go store, they flash their phones with a QR code on Amazon Go mobile app. That triggers a sensor turnstile as they walk in. Customers then pick up stuff they need. Each item is coded (black dots and squares) to help in-store cameras, scanners and infrared sensors detect selections. Whey they are done shopping, customers just walk out through the sensor turnstiles; the Go app processes their transactions, and they get digital receipts on their phones.

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At the Amazon Go store, data acquisition comes from cameras and sensors that track inventory and the activity of customers. Now, this is going to reveal so much about the habits of the customers. The use of mobile is a game changer; I guess Amazon will be pretty upset at missing the trick with their Fire Phone. That combined with Amazon Payment (maybe coming soon) would take this to the next level. Well, Alibaba is already doing that in China with Alipay. (And I would imagine Flipkart would soon start doing it in India.) 

 - By Sameer Sankhe

@SamSankhe | Linkedin: https://www.linkedin.com/in/sameersankhe/

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