What's the Point of Amazon Go?

Amazon Go has officially opened in Seattle. It's a physical store that takes the next step in retail automation—allowing customers to scan their phone as they walk in, pick up any items they want and walk out without getting in line to pay. It works with a massive array of sensors and cameras (displayed below) that track your movement, know what you pick up and charge you for what you take with you.

As I read about Amazon Go over the last few days, I kept running into tweets and articles suggesting Amazon Go might just be a novelty store, a one-off. But that doesn't make sense. I believe Amazon is in the early stages of something much bigger, and Ben Thompson offers a strong argument for that being the case.

This principle undergirds the fantastic profitability of successful tech companies:

- It was expensive to develop mainframes, but IBM could reuse the expertise to build them and most importantly the software needed to run them; every new mainframe was more profitable than the last.

- It was expensive to develop Windows, but Microsoft could reuse the software on all computers; every new computer sold was pure profit.

- It was expensive to build Google, but search can be extended to anyone with an Internet connection; every new user was an opportunity to show more ads.

- It was expensive to develop iOS, but the software can be used on billions of iPhones, every one of which generates tremendous profit.

- It was expensive to build Facebook, but the network can scale to two billion people and counting, all of which can be shown ads.

In every case a huge amount of fixed costs up front is overwhelmed by the ongoing ability to make money at scale; to put it another way, tech company combine fixed costs with marginal revenue opportunities, such that they make more money on additional customers without any corresponding rise in costs.

This is clearly the goal with Amazon Go: to build out such a complex system for a single store would be foolhardy; Amazon expects the technology to be used broadly, unlocking additional revenue opportunities without any corresponding rise in fixed costs — of developing the software, that is; each new store will still require traditional fixed costs like shelving and refrigeration. That, though, is why this idea is so uniquely Amazonian.
— Ben Thompson, Stratechery

Header image from The New York Times

TechnologyTimothy Buck