Amazon has been making waves since the first Amazon Go grocery store opened on December 5th. The store doesn’t open to the public until early 2017, but judging from its promo video, the concept promises the ultimate grocery shopping experience: Walk into your local Amazon Go, grab what you need off the shelves (the technology magically knows what is added to the cart), confirm the purchase, and leave, without ever standing in a checkout line.
Amazon hasn’t announced any concrete plans for the future, but it should be obvious that its end game isn’t to become a leader in the notoriously low-margin grocery industry, which averages just 1-3%. I predict Amazon Go is part of a strategy to grow its payments business and continue expanding into physical retail. And, like everything Amazon does—from the Echo to video streaming—drive traffic to Amazon.com.
Amazon is not new to payments, having launched the current Amazon Payments platform in 2013 after several failed attempts. Like PayPal, Payments allows customers to shop securely across different online merchants using a single Amazon login. Despite recent growth—150% in 2015—Amazon Payments has struggled. One challenge is simply that the payments industry is crowded and highly competitive, with small companies like Adyen, Square, and Stripe elbowing PayPal, Visa, and Citi’s Retail Services group for market share. Another challenge, unique to Amazon, is that the company is a direct competitor to many potential clients, especially larger retailers.
Earlier this year, Amazon launched its Global Partner Program, designed to bring more retailers onto its payments platform that allows customers to make purchases across multiple retailers using an Amazon login.
Imagine if Amazon were to license or give away Amazon Go’s underlying technology to grocers (and potentially other types of retailers as the technology develops)—providing they accept Amazon Payments, of course. Few retailers, even those worried about competition from Amazon, would be able to decline a free next-generation technology that would transform the customer experience, reduce theft, and allow for major reductions in labor—the second largest expense in retail. And no payments company would be able to offer retailers anything even remotely like Amazon Go’s technology.
As for Amazon, why would it give away a technology that cost millions of dollars to develop? For the same reason Amazon does anything: To generate millions of additional customer interactions and potential purchases on Amazon.com every day, not to mention the new revenue from processing fees.
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There is clearly immense value in this technology for both retailers and Amazon. But beyond a cashier-less retail experience, what would widespread adoption of this technology mean for customers?
After a customer scans their smartphone into an Amazon Go-enabled supermarket, every step taken, every item picked up, put back, or purchased, would generate data. A patent filed by Amazon in 2014 gives us an idea of just how comprehensive the camera and sensor network likely is. Once the technology learned a customer’s purchasing habits, it would be able to offer relevant discounts, notify customers if the milk at home is expired (it would know the expiration date, after all) or if the toothpaste is likely empty based on purchase frequency. Customers could upload their diets, allergies, or preferences for or against certain ingredients and be alerted when they pick up an offending food. Eventually, these features could be unified into an augmented reality that gives customers a truly individualized shopping experience. This technology could mean the Internet of Food.
Amazon Go marks a big step forward for the entire retail industry. This technology could transform business models and the customer experience, and the use of technology across retail. But for Amazon, this is really about getting people to log into Amazon.com a few additional times per year and place an order.
