Episode 320 | Business Model Breakdown of Amazon Go

Show Notes

In this episode of Startups For The Rest Of Us, Rob and Mike do a business model breakdown of Amazon Go. They talk about the biggest challenges the store may face including security and delivery logistics. They also explore the technical and social impact of the idea.

Items mentioned in this episode:


Mike [00:00]: In this episode of ‘Startups for the Rest of Us,’ Rob and I are going to do a business model breakdown of Amazon Go. This is ‘Startups for the Rest of Us’ episode 320.

Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product, or you’re just thinking about it.

I’m Mike.

Rob [00:26]: And I’m Rob.

Mike [00:26]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?

Rob [00:31]: Well, as soon as our predictions episode went live a couple of weeks ago, we had a few comments to get posted into that thread. It looks like at least one, and perhaps two, of my predictions literally came true within weeks of us making them.

The predictions episode went live on the sixth or seventh of December, but we actually recorded it two weeks prior to that. One of my predictions was that there would be at least one more high profile bootstrapped startup self-funded acquisition. And I’d specified that by “high profile” I mean it’s a big company. It’s not some sale of technology. I was thinking it was actually going to be a much larger funded company acquiring somebody, and, sure enough, big congrats to Dan Norris and his team, because WP Curve looks like they were acquired. I think they announced it on maybe around December seventh.

Mike [01:17]: That’s awesome. Congratulations to Dan and the entire team for that. I also want to point out here that acquisitions were one of my predictions from the previous year. So, technically we’re both right on this one, I think.

Rob [01:29]: That is really funny. So you predicted for 2016 – which technically we’re still in – that there would be more acquisitions than IPO’s or something. And then my prediction really is for 2017, but I think it counts. As soon as we make the prediction –

Mike [01:41]: I think it counts.

Rob [01:42]: As soon as you make it, I think if it happens after that then you’re correct.

Mike [01:45]: Right.

Rob [01:46]: It was pretty cool. It was cool to hear that news, not because it made the prediction correct, but just because of all the work Dan’s done building his businesses and sharing with the world his experience in writing ‘Seven Day Startup’, and his content marketing engine book. He’s just done a lot of stuff. And now he’s doing Black Hops Brewing. He started an entire beer brand, like a microbrew, in Australia.

Mike [02:07]: Yeah. He started that a while ago, actually while he was running WP Curve. It’s been interesting to follow those things. One of the other predictions somebody pointed out was that I had a wearables prediction for last year and, apparently, Pebble decided to shut down and sell off all their IP’s. I think at the time that we recorded the episode we hadn’t been aware of the, but that’s another one. Then you also had an unmanned drone delivery previously happened as well. That happened about two weeks or so after we recorded the episode.

Rob [02:35]: It looks like on December 14th or something. So right there in time. They’re talking in New Zealand about how Domino’s Pizza’s going to start doing unmanned drone deliveries, and then Amazon did one in the UK. It was literally December 14th, Amazon completes its first drone powered delivery. I think this was yesterday. It’s kind of interesting timing. I guess these things are, I don’t know. I wouldn’t call them obvious. It’s funny, our predictions in the past, a lot of them never come true, and then we make a few predictions here and two or three of them come true within two weeks. It’s really odd.

Mike [03:05]: I do want to say congratulations to Cristoff and Benedict for selling out FEMTO Conf in Germany. This was on my list of predictions as well that more of these types of things would be popping up. But, to be fair, I knew about this one in advance, so I don’t know if we can really count that as part of a valid prediction.

Rob [03:22]: Very cool. So what are we talking about today.

Mike [03:24]: Today we’re going to do a business model breakdown of Amazon Go. If you’re not familiar with this we’ll link it up in the show notes, but you can go watch a video from Amazon that talks about their Amazon Go store. Essentially, it’s a new type of convenience store that doesn’t have any cashiers. There’s no checkout lines. There’s not even a self-checkout aisle. You just walk in, pick up your stuff, and it recognizes who you are based on when you checked into the store, and it keeps a virtual shopping cart for you while you walk through the store and pick things up. If you put something back it takes it off your shopping cart. Then when you leave it just bills your Amazon account and automatically charges you through that account so that they don’t have to swipe credit cards or anything like that. First reason I wanted to talk about this was because it’s a little bit different than something that we typically talk about. Typically, we talk about things in the self-funded, or bootstrapped, entrepreneur space. I thought it would be interesting to talk a little bit about a business that doesn’t necessarily directly relate to the things that we do on a day-to-day basis, but the other piece of it is being able to objectively look at business ideas. Part of that is when you’re evaluating your own business ideas, or your own products, and trying to get it into different markets, being objective about those instead of — obviously you want to be optimistic about the things that you can accomplish and achieve but, at the same time, you also need to maintain a certain amount of objectivity, and be able to recognize where problem areas are. I thought that by digging into some of the pros and cons in areas where Amazon Go might have some issues getting to market, or where things will work out in their favor or not based on the advantages and disadvantages, that they have that you can kind of extrapolate those things and be able to more objectively look at the things that you’re working on in your day-to-day or month-to-month.

Rob [05:08]: Yeah. I think it’s a good exercise to run through a business model like this – something that someone who’s trying to innovate on the model, in essence. I also think that it’s just a nice way to kind of wrap the year up. It’s a fun little diversion to talk about something as interesting as this, that is essentially a big company really trying to turn retail on its head; a big company that, while we think of them as a retailer in quotes because they’re ecommerce, they really don’t do much in terms of brick and mortar, and they’re trying to figure out how to automate all the things, and I think that’s a pretty admirable goal. So let’s dig in. By the way, if you haven’t watched the video – it’s a two-minute video – I really do recommend that you go check it out, because I was blown away by just the coolness factor of walking into this thing. You walk in, you push a button on your phone – which I’m sure it’s an Amazon Go app or whatever – push a button to let it know you’re in the store, then you just walk around, grab some stuff, and you put it in your bag or whatever. Then you just walk out and it charges you. This is where Amazon has innovated in such an incredible way. Online is the one-click checkout in Amazon Prime, where you only have to think about shipping. I spend so much at Amazon that I imagine that they’re going to name an entire building after the Walling family here pretty soon. It’s because of that innovation, right? It’s the one-click, no think, “I just know that it’s going to come, and it’s going to arrive from them.” And I think it’s the same thinking going into here. They’re just trying to remove all friction for buying stuff. Anytime I think about going to the store I think, “Ugh! Am I going to have to wait in line?” You have to whip out this archaic piece of plastic that’s been around for 30 years, and it’s slow. It works most of the time, and on and on and on, whereas it’s like if I can just be in and out I think it’s a really cool idea.

Mike [06:46]: Yeah. So to give a little bit more background about this. There’s one pilot store for the Amazon Go idea that’s currently located in Seattle, Washington. It’s only open to Amazon employees, and there’s not really any public information about a wider rollout. They’ve talked a little bit about possibly having as many as a couple thousands of these throughout the United States between 2017 and 2020, but they’re real sketchy on the details, and it’s not really clear when this pilot program rolled out. The idea is that it’s a small store. It’s only about 1,800 square feet, which is larger than the typical convenience store in the United States, but it’s also much smaller than a regular grocery store, which is anywhere from 45,000 to 60,000 square feet. So it really fits into that convenience store market. As we go through these we wanted to talk about a bunch of different areas, but the first question that I think we wanted to ask was, “Why would Amazon want to do this? Is this just a PR stunt, or is this something that’s really viable?” And as we talked about very early on, if you looked at their advertisements for the drone technology three years ago, you would have looked at it and said, “Well, it’s been three years. It’s just a PR stunt.” We talked about that right at the beginning of the episode. They just did their first unmanned commercial flight. So it’s interesting to look at this and say, “Well, they’ve got this idea. They know it’s going to take them several years, and that’s why they’re working on this pilot store.” I think that that’s a fascinating way to start, and I think that it’s very analogous to the way that entrepreneurs will start rolling out products, and work with a few individuals or trusted people that they can rely on for feedback, and get that feedback that they need, innovate, figure out what the kinks are, work those things out, and then roll it out to a wider audience. It really seems to me like that’s what Amazon is doing. I don’t think that this is a PR stunt. I think that they really believe in this. Now, will it actually work out in the end? Who knows. We’ll see. But it looks to me all indications are that they fully believe in this and they’re trying to work out the kinks right now. That’s why they’re using their employees to do that.

Rob [08:45]: Right. I don’t see it as a PR stunt as much as proof of concept, right? A MVP, where I bet they’ve been in labs working on this for a while – for a year or two – trying to figure out the technology. They say that they’re using visual recognition and all this other stuff. I’m thinking couldn’t you just use NFC base from your phone, or Bluetooth or something like that, but maybe that’s just impractical. I’m obviously not super up to speed on all that stuff. But why wouldn’t this be viable I think? What’s the biggest concern that you’d have in building this? It’s someone’s going to come in and steal a bunch of stuff. That’s the big thing. That’s why you have someone in the stores to make sure people don’t just come in and walk away with the stuff. And the question is do we think Amazon has the engineering prowess, and the money, to fund this to make that not happen. I think they do. I think that in order to get into the store, if you have to push this button on your phone or it doesn’t let you in the store, then now they know who you are, and if you went and stole a bunch of stuff, why can’t they just charge it? You know? That’s the whole point. I guess if someone snuck into the store, you snuck a friend in – I think they’re going to be able to figure ways around this, and that’s why they’re only rolling one out. They’re going to just see, and if that does happen I bet they’ll figure out, “Well, we do need a person on site at every store just to make sure people don’t steal stuff.” And at that point, they’ve figured out a lot of stuff. So do I think this is viable? Absolutely. I don’t think it’s a PR stunt. I think that Amazon has – they’ve come from shipping normal ecommerce sites, where you think back 10 years how long it used to take to get a book from Amazon, and it was whatever it was; a week, 10 days. Then they said, “We’re going to do everything two day, as long as you pay for Amazon Prime.” Then they have same day in a bunch of places. Now they want to go to basically instant. They want to go to where they can either deliver it directly to you, or you can just be walking down the street and Amazon is everywhere. It’s interesting when you talk about it being a convenience store, because that’s technically correct, but when I think of convenience store I think of like Circle K or Seven Eleven, which is kind of a – I don’t know – I’ll just say a crappy convenience store. I don’t tend to buy stuff at convenience stores. But the pictures they’re showing here is of – it’s almost like Whole Foods level quality stuff. It’s a convenient store with a lot of more higher-end stuff that you or I would probably be more likely to purchase, rather than hot dogs that have been sitting on a spinner for six hours, and Slurpies.

Mike [11:04]: Yeah. I think that goes into the types of products that they’re offering into the stores a little bit. But I kind of want to step back a little bit to one of the things you talked about was just the security of the place, and dealing with things like hacking attempts and theft. As you said, having that pilot store, doing that as a proof of concept, and using Amazon employees. Those people aren’t going to be stealing from the store. They’re going to be exercising the system. They’re going to be trying to identify the edge cases so that they can work them out. I worked at Wegmans Food Markets back in the year 200,0 and we actually rolled out an online shopping project for Wegmans. It was only available in one store, it was a pilot program, and you could order your groceries online, and you would show up, and you would pick the stuff up. It was, I think, seven dollars, but it would save you an hour and a half to two hours of weekly food shopping. So if you had that extra seven dollars to spare, or you just want to throw it at it, you could just place your order completely online and you just show up at a designated time. You tell them when you’re going to show up. They’ll bring it out. They’ll put it in your car. I don’t even think you sign for it. They knew who you were, so you would just basically walk away with it, which was fantastic because your information was tracked. I think they verified who you were, but that was it.

Rob [12:15]: Sign me up. That sounds great.

Mike [12:18]: It was fantastic. It was different than some of the other online services where you would order it and then it would be delivered to you. This you actually had to go to a store, but you literally told them when you were going to show up and they would have everything all ready. And they would have people go out and do your food shopping for you. So, going back to the security of it though, because they’re having those people who are Amazon employees work in there and use the service itself, it kind of mitigates that particular problem. At least for now. It delays them having to solve that.

Rob [12:46]: You have to bet that they have already tested, and are going to have their employees test, “Try to steal something.” Like go, do it. Like the white hat penetration testers. Even though their employees aren’t going to do it intentionally, they’re going to probably try to game the system and figure out where the weaknesses are before they let real people in.

Mike [13:06]: One of the other things that you had brought up was the types of goods there. You had mentioned – this kind of played back into your thoughts of what a convenience store was. You mapped it back to Seven Eleven and various other types of stores. I had a little bit of a conversation about this with my wife, and after about five minutes or so she totally tuned out, which is why we’re having the conversation on the podcast, so that I can talk about it with somebody else.

Rob [13:33]: So that our listeners can completely tune out?

Mike [13:34]: So that our listeners can tune out. Of course. But in this particular case, if you look at the different types of stores out there… You’d mentioned that you probably don’t want to go there and buy a hot dog, for example. Is that something that they would offer? My guess is probably not. It seems to me like they’re positioning it more as something that you go in, you pop in there after work or something like that because you need something for dinner. You can buy pre-prepared meals and stuff like that and then just take them home and cook them — not pre-prepared, but everything’s pre put together and you just basically take it home and cook it. I feel like that’s the type of arrangement that they’re going for. One of the things they wouldn’t do, for example, is they wouldn’t couple it with a gas station, because there’s lots of other things that go along with that. You have to have people there manning it in case something goes wrong. In terms of the workers on site, I really feel like one of the challenges that they will have is that you still need to deliver stuff to the store. You still need to have the shelves restocked. You still have to have things get pushed to the front. There are some mechanical ways to do that, but you still have to have somebody on the back end kind of fulfilling some of those needs. Logistics don’t just take care of themselves. You can automate a lot of that stuff with Robots, but there’s only so far that you can go with that kind of stuff. You still have to have somebody there doing something.

Rob [14:48]: Right. I don’t see this as being a store with zero people in it. It’s probably a store with maybe 10% of the staff that you would normally need, or 20%. You know, some drastically reduced numbers. Because if you think about what Amazon does they do a really good job of cutting costs. That’s been their big thing is to drive costs down and get stuff to us very quickly. If you think about maybe the two guiding principles that Amazon has done since they launched in – whatever it was -’94.

I think that’s interesting to think about. You do still need to stock shelves, and eventually I could see them replacing that with some automated shelf stocking mechanism. I’m sure they have those in their big warehouses. But at first I would bet they’re going to have people in there doing it. And maybe at first they’ll have someone at the front door making sure nobody without pushing the button gets in. And maybe they won’t. That’s where it comes with these – they’ll run a pilot, and then it’s like launching an app, right?. You run your pilot, you see what happens, you see what people like and don’t like, you see what breaks, you see what needs to scale. Then I could see them automating things more and more over time, using human automation up front, and then with the big 10X, 100X thinking Amazon has, I can imagine that long-term they could feasibly want to completely automate these stores where there are zero people on site, but I would doubt that they would do that at the start.

Mike [15:59]: Yeah. In terms of the other logistics, you still have to get goods to the store. There’s a difference between shipping things to that location versus taking them in that location and then putting them on the shelves, or making them accessible for the customers. At Wegmans there was a fully automated and robotic warehouse, where – I forget how many thousand square feet it was – but it was just enormous. And they had, I think, two or three people there. And those two or three people were there solely to unload the trucks, put the pallets in certain places, and then machines would come and take everything and then stock it. Then when they needed something – they needed a pallet of whether it was frozen meat or what have you – they would just go over to a computer and hit a few buttons and boom, the Robots would basically go grab everything off of the racks and then pull it down and be able to deploy it so that the trucks could come in and pick that stuff up. It was fascinating that there was this massive warehouse and there was nobody in it. It was like a ghost town. It was very stark contrast to one of the other warehouses that we had in place there. I can see Amazon doing the same type of thing for, not just inside the store putting stuff on the shelves, but longer term. If you look at the way technology is going, you’ve got driverless cars. You could theoretically have a truck pull up and drop a bunch of stuff off, and then other Robots that would move things around inside the store. But I question how soon in the future that’s going to be. In terms of some of the technical considerations I’ve seen in this, there are questions about the item attribution and tracking. You had mentioned these a little bit it terms of the near field techniques for identifying items, or maybe RFID, or something along those lines. I could see a bunch of different ways that they could do that, but the question is how feasible is it to do that at scale? Pilot program will really eliminate a lot of those questions, or at least get answers to them, and it will help them figure out how to do things in the future. I don’t think that they’re really concerned right now on scaling that stuff. They’re just trying to figure out, “How do we fix this problem?” Or, “Where are the biggest problems that we have? Let’s prioritize those, and once we get to a point where we think that those are low enough then we can deploy this out further.” I don’t see that as any different than launching a new application or a new product. You have to figure out where those problems are, and then you get to the point where you say, “Okay, now we can start scaling this up. We don’t need a fulltime support rep, because we’re not getting the tickets that you would if you had launched it with problems.” One of the questions that comes up to me is, “What about the social implications of this?” And you had said with Seven Eleven this seems like a more upscale version of it, and kind of trends more to the Whole Foods type of store. But what are your thoughts on the social implications of a store like this? Is this something that you’re going to be able to make work in urban areas? Or does it have to be in a city? Are people going to be used to that type of thing? Are they going to get themselves used to it? Or is it something people are going to shun and say, “No. I don’t want anything to do with that.”

Rob [18:53]: I think just having the Amazon name on it. This is such a brand recognition thing. I think it will be a novelty at first. And I think if I saw one – the first time you see one, just like the first time you saw an Apple store, it’s like, “I’ve got to go check this thing out.” And if it’s a cool experience, and it delivers on what they say, I don’t see why you wouldn’t go back. But if that first experience is rocky, or maybe you give them two chances or something, I think it could be tough for them to gain traction, which I think is why they probably want to roll it out fairly slowly. I think that socially – this seems like just an urban thing. I can’t imagine rolling this out in a small town or something. But that’s just me. Just based on – it’s probably mostly based on the goods I saw in the ad itself. It just feels like something that that convenience, and that speed, and that transactional nature, I think, fits cities really well. People don’t necessarily want to take time to talk to the shop keeper like they might in a small town, so I do think this would be more urban oriented, and I think there’s plenty of room in terms of room for improvement in the grocery space. I think this could be interesting. There’s another implication here, and it’s of jobs. What about the jobs it will take away from people? I think there’s this whole conversation to be had around the idea of technology in general. It just takes jobs over time. It takes some, and it creates them. It “transforms” is probably a better way to say it. It takes from lower-skilled workers and it tends to create jobs for higher skilled workers. People protested – if you recall – the buggy whip manufacturers protested automobiles, and they said, “There should be no more cars, because they’re bad.” and it was going to put them out of business. And there were a bunch of strikes when automated, I think it was cotton gins, came out. The women who had done that by hand for hundreds of years. There were union strikes and all this type of stuff, and they said, “These things are evil, and it’s going to take jobs and you shouldn’t let them do it.” And so, you have to ask yourself this question is that, “Should we not have those things? Should we not have those advancements?” The same thing with factory Robots that are putting stuff together. They do take jobs, then they create jobs for people who can program and maintain the Robots, and they create other stuff. I think that is a thought process. It’s probably too deep into the weeds for you and I to specifically go back and forth on it in this particular episode, but I do think that’s something that’s going to start entering this conversation as they roll these stores out.

Mike [21:12]: Yeah, but I think that the idea of displacing the jobs, and really just moving those jobs from one place to another, is something to kind of consider here, because it ties directly into where would you put these stores? As you said, you kind of would probably tend towards urban areas, not towards the rural areas, and the urban areas are where those highly skilled workers tend to congregate. Part of the reason for that is that they tend to get paid more. The lower skilled workers don’t tend to live in the cities because it’s expensive to live there, and if you don’t have good marketable skills that demand that you get paid well for them, you can’t afford to live there. You can’t afford to live in New York City if you don’t make at least reasonably decent money, because New York City is way more expensive to live than other cities. So if you’re essentially replacing the jobs of those workers, and eliminating them, those people can’t really afford to live in those cities anyway, for the most part. Not to say that there aren’t a fair amount of exceptions, but you’re essentially displacing those skilled workers outside of the cities. It also ties back into Amazon having this awareness, or location information, about where their customers currently are, because they’re shipping to them already so they know what their addresses are, and they could use that information to identify, “Where is a good spot for a store?” I know when we worked at Wegmans they would spend a couple of years trying to figure out, “Where is the next store that we’re going to build?” And they would get all this demographic information from people, public sources. Try and figure out, “How much money do people make in this area? Is this going to be a profitable store? Or is it going to be a place where we’re going to lose money, or we’re going to have to shut it down? We’re not going to be able to do as many things as we want. Or are we going to be able to charge the prices that we want?” For someone like Amazon, if they can look at the average revenue per users of a particular area, and they know all this data around those people that says, “Hey, these people spend a lot of money with Amazon. Let’s put a store right in the middle of them.” Chances are good those people are going to shop there.

Rob [23:06]: Yeah. That’s the beauty of Amazon has your home address, and so they know the location of the people who probably spend the most on Amazon, or who buy high end things. They have big time information advantage over their competitors. I think one of the other social implications that I didn’t bring up when you were asking about that is that the store essentially requires you to own a smart phone, and that has some implication in terms of the income level of the audience, or the potential customer. And I think that’s another one there. They’re just basically saying that that is a requirement, and they know there are so many people with phones who are willing to spend the money. I think that’s probably a good bar to have.

Mike [23:44]: Right. One of the actual challenges like with a grocery store of any kind is that the margins on grocery stores, on goods that you buy at a grocery store, tend to be really thin. They don’t make a lot of money on most of those goods. They also have to deal with what’s called “shrinkage”, which is generally referred to as stuff where the goods are just damaged, or food spoils. Stuff like that. Those types of things count against the margins that you would make on most of the goods there. I think that because of their targeting at people who have smart phones, those people are going to tend to be better off financially, and are going to be able to spend more money, and they’re going to be willing to spend a little bit extra money in order to get the additional convenience that I think a store like this would operate. In a way that disadvantage, you look at that and say you can only target these people. Well, those people have money. That’s not necessarily a bad thing that you’re targeting those people with money.

Rob [24:41]: One thing I think Amazon’s doing really well here is they’re leveraging their brand. And I think if you think about what are the parallels in our space, think about someone like a Brennan Dunn, who has an email course, and then an ebook, and then a video course, and then a conference. And think of ‘Startups for the Rest of Us’ and how it has the academy, and I wrote a book, and you wrote a book, and we have MicroConf. We’ve kind of leveraged the trust people have in us. There’s a lot of examples of this online. But I think that’s something that Amazon has as an advantage, is that imagine in it wasn’t Amazon doing this, and if we heard that a brand new company raised a billion dollars in venture funding and they want to roll these out across the country. “A”, we wouldn’t be talking about it on this podcast, because it just wouldn’t be notable, and you’d be thinking, “This is never going to work. I don’t necessarily trust the brand. Are they going to be able to pull this off?” Whereas with Amazon they have deep pockets, they do things really well, they make things work that seem like they’re not going to work, and frankly, I by so dang much from them that, for me, it’s kind of a no-brainer to at least consider and at least give them a shot. I think leveraging that trust and that brand recognition is something that is going to do really well for them here.

Mike [25:49]: The other thing that is gives them is that the fact that they’re Amazon they have all these resources that they can bring to bear on it to solve all of the smaller issues so that when they do scale it up they have those issues taken care of. But you had just said, “Well, what would happen if this was some unknown startup who raised a billion dollars?” My first would be Webvan, which they rolled out a billion-dollar infrastructure back in the year 2000 and the whole thing collapsed on them. They just couldn’t make it work because the margins on groceries tended to be so low, so they couldn’t get all the delivery stuff taken care of. But by doing that pilot program, by concentrating on one thing, and leveraging their existing resources – which essentially provides them a runway. They’ve got billions of dollars coming in on a regular basis, and they can experiment with this one thing over here and see if it works; see if it’s something that they think is going to be able to turn into something big down the road. And if it’s not, it’s not a big deal. But if it is, then they can kind of put gas on the fire and push it for whatever they can get out of it in order to make it a long term profitable thing that they can roll out nationwide. And that’s really the key thing here, is being able to leverage your previous successes to future successes, and make sure that you’re doing things carefully in a way that it allows you to experiment without breaking the bank. If you don’t have that runway of some kind you’re really just rolling the dice, and it seems to me like Amazon is doing a lot here to hedge their bets.

Rob [27:13]: All right. So to wrap us up, what are the chances that you give this? That they roll this out, and they roll out thousands of stores and it becomes a big success?

Mike [27:21]: Thousands of stores?

Rob [27:23]: Is that their prediction? It’s like 2,000 stores by 2020?

Mike [27:25]: It’s wasn’t real clear. Those were kind of guesses that I’ve seen online.

Rob [27:29]: Got it. So maybe just say critical mass, whatever that means. That in most major cities when you and I go, maybe it’s not Starbucks level on every corner, but that it becomes a viable thing, like however many Apple stores there are, that there’s that many Amazon stores.

Mike [27:43]: Yeah. I could see that happening, and I could see that happening with probably the next four or five years. Whether they get to 2,000 stores in the next three years I don’t see that happening, because there’s a lot of competition out there. I could see them certain types of stores that are already in place and offering to essentially replace them. Go to the management and say, “Hey, would you like to convert this thing to an Amazon store?” But Amazon also likes to maintain control, so I’m not so sure that they would really want to do those types of partnerships. They would really just want to say, “Hey, we’ll buy you out. Or we’ll take over your space.” Something along those lines. They’re going to have to figure out what their profits margins on each of those stores are per square foot and find places where it really makes sense for them to do that in a way that can undercut competition around them and help make sure that the place stays in business. I say this is better than even odds. I’d probably say 60% or 70%. I’m hesitant to go higher than that, but given Amazon I’m also very hesitant to go less than 50%, 50% on it.

Rob [28:40]: Yep. I think it’s going to work. I am bullish on anything Amazon tries to do in terms of their ability to execute and do crazy big hairy audacious things. So I think that we will before long be seeing Amazon stores in a major city near you. And that wraps us up for the day. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from ‘We’re Outta Control’ by MoOt used under creative comments. Subscribe to us in iTunes by searching for ‘startups’ and visit startupsfortherestofus.com for a full transcript of each episode.

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One Response to “Episode 320 | Business Model Breakdown of Amazon Go”

  1. You might be thinking small about Amazon Go — if the technology works and customers accept changes in rituals, Amazon may be able to market their technology services to other retailers, much in the way that retailers don’t generally roll their own POS and inventory systems. They have a history of leveraging their own processes and technologies when they work and there is a market need.

    Anyway, pretty cool vision.