This is the latest in Localogy’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here, and its origin here.
Amazon this week announced that it’s bringing the cashierless functionality from it’s “Go” stores to third parties. It already piloted this third-party approach with a few airport stores, but will roll out its “Just Walk Out” technology more broadly to retailers that want to streamline customer flows and check-out bottlenecks.
For those unfamiliar, Amazon Go stores employ computer vision and other technologies to tally items as you shop. The benefit is a more operationally-efficient shopping environment in which people simply walk away, rather than wait in checkout aisles. The benefits include customer convenience and cost efficiencies.
But the endgame for Amazon wasn’t just to get into the world of physical retail. As is always the case with Amazon, it had bigger ambitions. In this case, Amazon Go Stores were a means to fire test Just Walk Out functionality for the larger endgame of powering other stores as a retail-as-a-service (RaaS) play.
If this sounds familiar, that’s because Amazon Web Services — one of the most successful tech products of the past decade — followed the same internal-external progression. It also may sound familiar because we’ve been speculating on Amazon’s RaaS play for months. In fact, we called this in our 2020 predictions.
Amazon Blitzes Retail-as-a-Service (RaaS): Connecting several dots, Amazon will roll out a “retail-as-a-service” play. This is one of the secret endgames of Amazon Go stores, and follows the playbook of AWS in being an internal tool that’s then rolled out for others. It will package up the technology for cashier-less stores and provide it as a service to other retailers. This will carry Amazon’s signature logistical streamlining to help those retailers improve margins and yield through modernized operations. The advent of 5G and other technologies like computer vision will meanwhile make Amazon RaaS more effective than the capital-intensive ceiling cameras it uses in Amazon Go stores today. Speaking of Amazon’s potential expansions, it also may make a big move into local food delivery and cloud kitchens.
Now that you’ve indulged us in some back-batting, the more important question is what this means going forward. We believe Amazon will continue to push Just Walk Out, and expand to more retail categories. It will also continue to refine the technology to create greater operational efficiencies.
Then it can roll out the technology more broadly as a RaaS powerhouse. It can extend to sub-verticals beyond convenience & grocery. And fixed costs will decline in what is essentially a Moore’s Law-oriented tech stack. It likely has a timeline of replacing ceiling cameras with less-obtrusive computer vision.
But where this gets interesting is the ripple effect it will have across the retail sector (familiar territory for Amazon). Others will be compelled to adopt similar in-store streamlining technology out of competitive pressure. That could be from Amazon, or other RaaS startups that are stimulated to fill a demand gap.
And that’s already happening, considering well-funded companies like Standard Cognition, Leap and Mercaux. As competition and margin compression ratchet up, it will only invite new players and alternate approaches. We could also see RaaS specialization in different sub-verticals like Luxury, big box, etc.
If any of the above is true, rather than unhinged analyst speculation, it would fit the Amazon profile. It’s good at finding areas that are bloated, dated and ripe for disruption. This is where it can insert itself to improve margins, of which it then takes a share. Again, this is the AWS playbook.
Moreover, Jeff Bezos has explicated this plan in the past with his chilling but accurate statement: “Your margin is my opportunity.” But he’s really just accelerating the inevitable darwinism in retail in terms of innovating a dated industry-standard checkout experience. Down-market players should watch closely.