business news in context, analysis with attitude

"The Innovation Conversation" is sponsored by ProLogic: Leading the Industry in Loyalty Marketing Services for Independent Grocers.

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

And now, the conversation continues...

KC: This week, I just want to bounce a few recent stories off of you … things that I think may have meaning beyond the immediate implications.

First, there were a bunch of retailers agreeing to sell the Amazon Echo voice recognition device … which I described as a kind of Trojan Horse strategy by Amazon, since one of the things the Echo does is allow people to order products easily and seamlessly from Amazon … including, one can assume, products sold by those retailers.  Is this just traditional retailers willing to do anything for some short-term sales?  Or do you think they really don't understand what they're doing?

Tom Furphy:
I could not believe my eyes last week when I saw the press release about this. Just when you think retailers can’t be any more naïve regarding the impact of Amazon on their business, they pull something like this. I cannot fathom why any retailer in their right mind would sell the Echo.

Echo is a brilliant strategy for Amazon. It is an Internet of Things (IoT) connected “hub” device. The Echo answers to the name “Amazon” or “Alexa”. Using voice commands, you can operate lighting, turn up or down your thermostat and operate any IoT connected device. There will be a very large number of these IoT devices launching over the next few years and many more apps and devices will run through the Echo. It’s right out in front with competitive and forthcoming options from the likes of Google/Nest and Apple.

The Echo allows you to ask it just about anything and it will search the web and come back with a pretty good answer. It is a cooking timer that you don’t have to touch. You can vocally check weather, sports scores and get the news. You can even listen to your favorite music and turn the volume up and down with your voice. It is designed to become the trusted hub of the home, used by all family members.

Most importantly, it allows you to order from Amazon. And it does so very well. Since my wife and I are geeks for practical innovation in retail, we’ve been experimenting with it at home. She will be cooking, and as she dumps the last of the pasta into the boiling water she says “Alexa, please order Barilla pasta.” And Alexa responds “Barilla Pasta, Mezze Penne, 16oz., Pack of 4, $15.00. Shall I place the order?” My wife will say “Yes” and Alexa will confirm it was placed. You can order on demand and also keep a shopping list on it. The Echo records and keep a record of EVERYTHING we ask it, further building the data set that can be used to personalize our experience and market to us. That, plus our browse and purchase history on Amazon make it very easy for Amazon to be very relevant to us.

So, why would a retailer be so short sighted to want the $179.99 sale in return for any other future business from these shoppers? Sure, Home Depot sells lightbulbs and other connected devices. But, as a shopper, why would I go back to that store when Alexa knows me so well and can easily order from Amazon and have orders get to my home today or tomorrow?

These retailers are basically saying “Here you go Amazon. Here are my loyal customers. I’m giving you access into their homes where they will give you all of their personal information (if for some strange reason you don’t already have it), they will tell you what music they like to listen to and which topics interest them. They will ask you to suggest recipes and they will ask you to send them products. You will record all of this and get to know them much better than I do.” Really, that is what is happening here.

Retailers will sell these devices to their loyal customers. They will try it, sign up for Prime, increasingly use it, get great recommendations and order even more from Amazon. Eventually these customers will have no reason to go back to the retailer where they purchased the Echo.

One more step for Amazon toward total retail domination.

KC: There also was the CEO of delivery service Postmates, who says he wants to be the anti-Amazon, and thinks he can succeed with services that Amazon also offers because many bricks-and-mortar retailers won't want to do business with a company that they see as their most dire competition.   Do you think he has a point?  (Of course, the Echo story we've already talked about suggests that he's wrong - that retailers see short-term sales as more important than long-term brand equity.)  And is it enough to be the anti-Amazon?

It is important for anyone that deals commercially with Amazon – as a partner, a supplier or competitor – to have a strategy to either compete with Amazon, or to hedge against reliance on them. Sooner or later, everyone will realize they can benefit from an “anti-Amazon” strategy. So, to that end, I think it is a great for Postmates to position themselves as the anti-Amazon.

That said, living up to that strategy will be a challenge for Postmates. Perhaps in a future Innovation Conversation we can discuss this and other on-demand models. Net, they face a significant challenge to generate the requisite volume and delivery density required to make their models profitable while providing a good value to retailers, restaurants, delivery staff and consumers. Amazon has the benefit of almost every consumer having an Amazon account, having a proven partnership platform and having an inventory of hundreds of thousands of SKUs available for instant delivery. Physical and digital and digital goods can all be delivered on demand. They have very good density of activities. Can Postmates become a comparable go-to destination for the shopper? If they are successful, it could be a nice hit. But it’s a big, risky bet that will require a lot of patient capital to develop.

KC: Two other quick things:  Any thoughts about the concept behind the ShopWithMe installation in Chicago, designed to be a kind of global, moveable showroom that I think ultimately speaks to some brands' desire to disintermediate traditional retailers?

We often hear that manufacturers want to reach shoppers wherever, whenever and however they want to be reached. So I think it’s great they are experimenting with this.

I’ve always been a big believer in the concept of retail on-demand or retail anywhere. ShopWithMe seems to be taking an interesting approach at delivering on this promise with seemingly robust capabilities across marketing, merchandising, transaction / tendering, follow up service and back end processes. I have not tried any of the capabilities, so I cannot speak to the richness or effectiveness of the experience. But there seems to be some merit there. The ultimate votes will be cast by shoppers. It will be interesting to see their uptake on this.

I’m not so sure that it’s so much about manufacturers wanting to disintermediate retailers. Probably some of them do. Especially those that have been beholden to antiquated, strong-arm retail practices. But I think that most manufacturers love going to market through retailers that are fair and that offer added value to the overall brand and shopping experience. If they allow brand messaging to make its way through to marketing and merchandising, if they provide an inviting venue for shoppers to engage with their products, if they share information back with manufacturers to enable them to learn and improve their offerings and if they eliminate friction in the various engagement points and processes, manufacturers will not feel the need to go around them. ShopWithMe certainly seems to do that.

KC: Fair enough. And how about the move by 7-Eleven to broaden their locker strategy, offering not just Amazon lockers but also FedEx and UPS lockers.  Seems to me that this is proof positive that the revolution has arrived…

I think the locker strategy is perfect for 7-Eleven and is a win for shoppers. They are clearly positioning themselves to be about service and convenience. They provide value around a quick stop for gas, coffee, refreshments or merchandise in a pinch. You can even have a key made at some locations if you’re locked out of your house (they have a fingerprint reader to authenticate you, have a digital copy of your key stored in the cloud and can cut on demand). Lockers are great if a shopper can’t receive an order at home, or if they don’t want something valuable to sit on their front step. 7-Eleven is a great place to pick up products and grab a few things while there. This is great for 7-Eleven, Amazon and other e-commerce retailers. I think the strategy will be here for a while. I suppose you could say that the revolution has arrived!

"The Innovation Conversation" will return in a couple of weeks. If there are subjects you'd like us to chat about in the future, let us know.
KC's View: