Amazon has been a busy company lately.
Last week, Amazon made two announcements. First, it announced the launch of Amazon Home Services, which connects Amazon-certified workers or service providers with customers to provide after-sales service for products bought from the company’s website or app for a fee.
In a statement introducing the service, Peter Faricy, Amazon’s vice president for Marketplace, said that Amazon’s customers often require a service after purchasing their products. “We are very excited to see if we can solve what today is a real pain point,” he said. “It’s tough to quickly find someone who is quickly qualified.”
Then, the company launched the Dash button — a pilot program for a device that enables customers to order products from Amazon Fresh by using a simple button. It seems like the technological (and interactive) equivalent of Post-It notes. Except in this case, the note is a Wi-Fi-connected button that triggers delivery.
Those announcements, by the way, came on the heels of news about Amazon drone tests and the release of Amazon Echo, a speaker that answers questions and places orders for you on the online retailer’s website or app.
At first glance, these might seem like typical random, new products and experiments, characteristic of Silicon Valley’s “Move Fast, Break Things” motto.
But the experiments are also indicative of the Seattle-based company’s thinking about a retail Internet of Things (IoT) ecosystem. More specifically, the company’s current business model, which successfully bridged the mobile and online ecosystems, could be significantly challenged from the emerging IoT phenomenon.
The supply chain of an IoT ecosystem
Supply chain is an important part of Amazon’s success as an online retailer. It does not have the headache of managing retail stores. In addition, the company streamlines warehouse processes that make it easy to manufacture and transport the final product to customer homes. That last part — customer door delivery — is a significant innovation on Amazon’s part. Most distribution agencies and manufacturing entities end their supply chain at physical retail superstores, such as Walmart and Target. Amazon, of course, nixed superstores and gained significant market share in the process.
That innovation has also resulted in a data windfall for the company. Thanks to the convenience offered by Amazon and its presence across multiple platforms, it has significant leverage in a product’s sale. It controls the last mile, so to speak, of a customer’s experience. The company also has access to troves of valuable customer data that enables it to customize preferences and upsell numerous other products.
But that is where its innovative streak ends.
The connection between customers and manufacturers is still mediated by retailers, offline or online. Manufacturers customize production schedules and volume based on inventory turnover data from retailers.
The Internet of Things, however, disrupts Amazon’s role in this connection. With installed device sensors that transmit customer data back to manufacturers, companies can get more data about customer behavior and consumption patterns. Services such as Egg Minder, track the number of eggs in refrigerators and send alerts to smartphone apps.
That example, of course, is a very small case study of an IoT ecosystem. The more important and profound disruption is occurring in manufacturing planning and processes. Orbotix, a Silicon Valley-based startup, feeds product activation data directly into its planning process. Thus, the startup is not completely dependent on retail data for its planning and forecasting process. Similarly, Black & Decker, which manufactures consumer appliances and tools, is exploring the use of integrated tools to generate notifications about battery statuses and review settings.
In each of these scenarios, Amazon’s role as a valuable input to manufacturing decisions is being minimized. By making inroads to customer homes with Dash and Echo, Amazon is likely attempting to prove its importance to brands and product manufacturers. The Dash button’s open programming, for example, enables developers from each brand participating in the pilot to code custom information notifications.
Home Services serves two purposes. First, it broadens the company’s offerings in the retail value chain and enables it to compete with large retailers, such as IKEA and Home Depot, who provide similar services. The difference is that both retailers sell physical products in physical stores; hence, their services are an extension of maintenance contracts. Amazon is leveraging its online model to step into the same space with the added twist of online reviews. Second, Home Services helps the company access more valuable customer data that it can use to custom craft new products or share with manufacturers.
According to Gartner, 4.9 billion connected devices will be in use by the end of 2015. In 2020, an estimated 25 billion connected devices will be in use. Through its retail experiments, Amazon is placing itself squarely in the connection between customers and manufacturers. If it doesn’t, the company could become as obsolete as the brick and mortar stores that it once beat in competition.