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eCommerce Intelligence: Amazon’s Play for the IoT’s Commerce Layer

April 6, 2015
Keith Anderson
Written By
Keith Anderson

Amazon has just announced the launch of Amazon Dash, a push-button auto-replenishment service and the latest Amazon innovation aimed at reducing friction in how people buy. But what are the implications that this pattern of innovation and parallel developments have for retailers and manufacturers?

Amazon’s recent announcement of Amazon Dash provoked so much skepticism that the etailer had to publicly affirm it wasn’t an April Fool’s joke. Instead, approximately 250 products spanning pet food, baby formula, kitchen bags, pasta, breakfast & nutrition bars, and a handful of other consumable categories appear to be eligible for Dash button replenishment, which consists of:
  • Amazon Dash Button – a thumb sized, wi-fi connected button for convenient placement anywhere — like pantries, laundry rooms, and bathrooms — used for re-ordering a specific product
  • Dash Replenishment Service (DRS) – An API launching this Fall that will enable connected devices to trigger push-button or automatic replenishment (based on monitored consumption)

I’m not spending much time speculating how quickly or widely the Dash button will be adopted. It’s just the latest in a long line of Amazon’s efforts to simplify the mechanics of buying, including a patent for “anticipatory shipping,” the Flow app, #AmazonCart, and last year’s launch of the original single-purpose Dash scan/speak handheld device.

The relentless experimentation will continue. Eventually, like Prime and Subscribe & Save, some of these experiments will stick. Word will spread, and adoption will accelerate exponentially. When, not if.

Here are a few key considerations:

Amazon is committed to grocery and CPG

AmazonFresh, Pantry, Dash, Elements (Amazon’s own–albeit challenged–line of private label consumables), and international investments like Kirana Now collectively signal Amazon’s global ambitions as a food and consumables retailer.

It’s a tough business, but the strategic value of high-frequency, everyday essentials to Amazon is immense.

If you sell grocery or CPG products and don’t have a strategy or culture for continuously improving on the dimensions of price, selection, or convenience, you are increasingly at risk of being blindsided by Amazon’s steadily maturing model.

Auto-replenishment has profound economic benefits

The power of auto-replenishment for everyday essentials is profound.

Auto-replenishment programs lock shoppers in to a specific retailer, category, and brand — raising switching costs and creating annuities for both retailer and brand.

According to Profitero’s February 2015 Amazon FastMovers data for the US, of the top 100 best-selling products in each category, 32 Beauty products were eligible for Subscribe & Save, 44 in Grocery & Gourmet Food, and 47 in Health & Personal Care. Shoppers like to set it and forget it.

Auto-replenishment can also improve the often challenging economics of online fulfillment of low-cost consumables.

Regularly-scheduled deliveries can typically be shipped by ground, significantly lowering shipping costs compared to air freight for more urgent orders.

As programs like DRS enable replenishment triggered by real-time consumption data, both shopper satisfaction and inventory productivity stand to improve.

First mover advantage

In many aspects of retailing, being best is what matters, not being first.

But value-added retention programs like Prime, Subscribe & Save, and Dash Replenishment Service do create opportunities for both Amazon and the brands that move first.

Appliance makers that integrate DRS in their products may get credit with shoppers for differentiation. I doubt DRS will be a primary factor in shoppers’ decision tree, but it might be a tie-breaker.

And brands that are early in offering Dash button eligibility could lock shoppers in before competition enters the consideration set.

Many of the brands promoted in the launch press are established market leaders like Bounty, Tide, Smartwater, and Glad. But Amazon seems eager to support smaller brands and even hobbyists. It may need to nudge smaller brands to its Fulfilled by Amazon (FBA) service, but supporting the long tail adds value to Amazon as a platform and gives participating small brands another potential edge.

Be mindful of B2B

While the Dash button and DRS are oriented to consumers, there are implications for Amazon’s B2B ambitions too. Amazon has been quietly investing in major enhancements to its Amazon Supply unit, and while B2B isn’t as flashy as B2C, it’s another major market segment primed for innovation.

The dynamics of auto-replenishment are equally or more powerful for B2B procurement. Changing corporate buying behaviors is a monumental task, but what Amazon learns from consumers could be applied here as well.

Winner takes all for the Commerce Layer of the Internet of Things (IoT)?

It’s “day one” for the Internet of Things (IoT). Hardware innovation is just beginning to accelerate, and software standards and protocols are still the Wild West.

But this strikes me as a very strong sign that Amazon aspires to serve as the commerce layer of the Internet of Things. And that’s a massive long-term opportunity.

As the IoT matures, APIs will emerge for automating areas like communication, home security, entertainment, energy management, and much more. I suspect there will be room for lots of players to peacefully coexist.

But the commerce layer may be a winner-takes-all scenario. Given the requirements for a customer experience that combines adequate product selection, user-friendly hardware and software, secure payment processing, and efficient logistics, the bar seems higher in this area of the IoT.

Amazon has a head start. And, as it did in the first generation of eCommerce, it may be poised to capture a disproportionate share of the IoT’s commerce layer.

Request your complimentary Amazon FastMovers reports which benchmark your competitors’ products on Amazon US and Amazon UK every month. Available across 10+ categories, these reports rank best-selling products on Amazon by pricing and ratings & reviews, as well as helping you to gauge the importance of Amazon programs such as Subscribe & Save.

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