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Disruption Amazon Style - What you can learn from their Value Creation strategies

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Amazon is pursuing new markets and disrupting industries at an incredible pace. Almost every industry seems to be in its cross-hairs. Companies and industries that once thought they were safe are now worried about being “Amazoned”.

This presentation addresses questions such as: What new areas is Amazon disrupting? How are they doing this? Where are they likely to go? What are they investing in? How are they competing? What does it mean for you and your business?

Using the Four Values Framework, we’ll examine how Amazon is creating new value with Vertical and horizontal integration, Value Creation of new categories, Value Migration into adjacent categories and markets, and why they excel with their Value Delivery System. Most importantly we’ll conclude with implications for your business and how you can use the Four Values Framework to innovate, create new value and grow revenues.

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Disruption Amazon Style - What you can learn from their Value Creation strategies

  1. 1. Cloud and @Things Expo Santa Clara Convention Ctr., CA October 31, 2017 Disruption Amazon Style: What you can learn about their Value Creation Strategy Chris Kocher Managing Director Grey Heron
  2. 2. About Grey Heron: - translating technology into market leadership • 23 years, 130+ clients • Business and product strategy, marketing positioning, fund-raising, interim executive, advisory • Strategic BD, M&A, turnarounds • Large and small companies use us to accelerate key initiatives: – Outside perspective; fire-harden and tune strategy – Develop powerful, differentiated story; raise visibility – Fund-raising – Orchestrate march toward value-building milestones, monetization – Integrated sales and marketing programs
  3. 3. Amazon - Not Your Father’s Bookseller Anymore Chris Kocher kocher@greyheron.com Amazon is or will be competing in many sectors: • Ecommerce • Cloud Computing – Software • Internet of Things (IoT) • Entertainment (music, movies, TV …) • Consumer Electronics • Groceries, office supplies, consumables • Telephony and conferencing • Retail, on-demand apparel production • Payment systems and financial services • Artificial Intelligence- machine learning • Logistics and Transportation • Robotics, drone delivery • Advertising Networks, pharmaceuticals, gaming, local services…
  4. 4. Making Commerce Frictionless - Amazon’s six “A”s strategy Chris Kocher kocher@greyheron.com 1. Allow/enable – (via mobile, desktop, one-click, voice, dash buttons, auto replenishment) 2. Anyone – WW, banked & unbanked, college, business 3. To buy Anything- full range of selection: 20+ million items 4. Anywhere - online, with rapid delivery, in-store, pick up…) 5. Anytime of day or night 6. From Amazon – brand name partners, private label, custom clothes…
  5. 5. The 4 Values Framework™ for Monetization 1. Vertical - Horizontal Integration - the classic growth strategy Chris Kocher kocher@greyheron.com 2. Value Creation - new products and new categories 3. Value Migration - moves into adjacent categories and industries 4. Value Delivery Systems - company alignment behind core value propositions
  6. 6. - Masters of Vertical and Horizontal Integration • Payment systems, advertising, Twitch gaming networks… • Amazon Go, Whole Foods, retail stores and Bookstores • Echo, Alexa, AI voice platform – next gen UI • Dash buttons, Webcams and IoT devices • Firestick, FireTV, Fire Phone • Prime (Oscar-winning films/music) and Channels in Europe • Amazon Prime shipping, Amazon Fresh, Pantry, Wardrobe… • Kindle Readers • eBooks Online book seller • eCommerce and retail • Amazon Marketplaces Platform , Fulfillment by Amazon • Amazon Web Services (AWS- Cloud) • Distribution logistics, shipping, drones… • Airplane fleets (40 x 767s), freight forwarding companies • Private labeling in China (20+ private label brands) Amazon is integrating Up and Down the Stack Chris Kocher kocher@greyheron.com
  7. 7. AWS is Now Running at $18 Billion Annually - Amazon overall: Q3 2017: 42% Revenue and 36% Op. Profit Growth Chris Kocher kocher@greyheron.com October 26, 2017 • $ 4.6B Revenue • $ 1.2B Operating Profit
  8. 8. AWS is Expanding into Enterprise Applications Chris Kocher kocher@greyheron.com • AWS has expanded well beyond its virtual servers (EC2) and virtual storage (S3). Over the past few years, AWS has expanded into business software applications, replacing the need for enterprisewide licenses from other vendors. For example, WorkMail provides enterprise-class email. Amazon WorkDocs provides an enterprise platform for document management, sharing and collaboration. In February, Amazon announced Chime for enterprise conferencing, and last month, Amazon announced Connect for contact center services. • The ace up Amazon’s sleeve is its broader suite of AWS building blocks, such as artificial intelligence, neural networks, blockchain, big data, digital marketing, gaming, government compliances, and IoT. - Network World David Michaels April 12, 2017
  9. 9. Amazon’s AWS Backend - Perfect for IoT Data Chris Kocher kocher@greyheron.com • AWS IoT Framework • Red Hat support for Openshift on AWS (on ramp to AWS) • SDKs for developers to work with IoT devices • Kinesis Analytics tuned for analyzing high-volume streaming data* • AWS Lambda – Alexa integration • Special data ingestion devices – Snowball – petabyte appliance • AWS IoT Gateway, AWS Rules Engine, AWS API • AWS Registry to track IoT devices • Specialized GPUs for AI and machine learning • Amazon and Intel developing Speech Enabled Development Kit • Partnering with VMware on VMware Cloud on AWS • Pricing 250K free 512K messages/mo. Or $5 per million
  10. 10. In IoT Amazon is in 6 of the Top 10 Sectors Chris Kocher kocher@greyheron.com • Connected Home and office – Dash buttons, Echo speakers, Alexa, webcams, door locks... • Medical: – Gmate Smart Glucose Meter - Dash button to reorder test strips • Transportation, shipping, logistics: – Beijing Century Joyo Courier Services- Chinese freight forwarder – Leasing 40 Boeing 767 jets to deliver packages for Prime Air – Utilize US Post Office for Sunday delivery • Connected Car: – Ford Synch- Alexa integration – Garageio- Home –Car integration • Industrial Internet (IIoT): – Kiva robotics for warehouse automation – factory floor 40K robots • Retail – Amazon expected to account for 50% of ecommerce in 2021 - Amazon Go Stores and Bookstores
  11. 11. IoT Front End for eCommerce – Dash Buttons - frictionless commerce for home and office Chris Kocher kocher@greyheron.com Dash Buttons (2015) for the home: – one click e-commerce ordering Dash Buttons (2016) programmable – ordering all kinds of things Dash Buttons  Futures? - low cost IoT sensors and endpoints?
  12. 12. Amazon’s Other Front End for IoT - Alexa, Echo, Dot, Tap, Look, Show - a new platform for a new world Chris Kocher kocher@greyheron.com • New category, smart speaker • Front end to ecommerce engine • Voice controlled ‘browser’ • Gateway to the internet • AI- based, next gen UI • Voice interface to entertainment - Pandora, Spotify, Tune In… • Controller for your Connected Smart Home • Virtual assistant – reminders, timers, calendar, weather • 15,000+ ‘skills’ – news, radio, jeopardy, horoscopes, weather, time, traffic, Uber, fantasy football… • 15+million sold in 2016 (Parks)- impacting Bose and Sonos sales • 128 million - the number of devices that may run Alexa in 2020 • Could be a $10B business by 2020 - RBC Capital Markets Forecast
  13. 13. Amazon Echo Leading the Pack -A whole new platform & category - voice controlled speakers Chris Kocher kocher@greyheron.com • Google “Home’ with Google Assistant $129 -teaming with Target/Walmart on Google Express • Apple’ Homepod with Siri $350 (avail Dec ‘17) - Built by Invantec (Apple Air pods) ? Linked via HomeKit • Microsoft Invoke (Harmon Kardon) with Cortana $199 – speech recognition and AI (teamed up with Amazon for interconnection) • Sony Xperia Hello 4.5” display, Android, $1300 • Samsung ‘Vega’ (Bixby voice); Sonos One $199 with Alexa… • Facebook ‘Aloha’ (May 2018 ?) $500 like Amazon EchoShow
  14. 14. The Echo Show - Another Alexa-Powered Device Chris Kocher kocher@greyheron.com • 10 inch touch screen display • Powered by Alexa voice • Hybrid interface • Tablet overlap, $229 Dialpad a new third party telephone offering for the Echo • Developed by 2 Google engineers • Turns Alexa into an Internet phone • Hands free calls/video and access to contact lists • APIs tie into any Alexa enabled devices – Like a Ford Car or LG Washing Machine • Amazon failed with the Firephone but may now compete with ATT, Verizon and Comcast with an “Alexa everywhere voice strategy”
  15. 15. The Amazon Key In Home Kit w/Lock and Camera - IoT Devices or Trojan Horse into the Services Market? Chris Kocher kocher@greyheron.com On the Surface • Yale, Kwikset locks - Amazon Cloud Camera • Alexa voice integration • Monitoring of Amazon inside package delivery • In 37 cities where Amazon Logistics delivers • $249 for Lock, Cam, installation and Happiness Guarantee • The rest of the story - hidden strategy? • Another part of Amazon’s IoT Connected Home strategy • Delivery theft anxiety reduction strategy: remove consumer concerns • Enables homeowners to monitor service and delivery people • Integrates with 1200 service providers in 60 professions (maids, dog walkers, plumbers… gets into local services marketplace like Angie’s list • Use camera and facial recognition for security and insurance reductions?
  16. 16. The Echo Look - Another Echo Powered by Alexa Chris Kocher kocher@greyheron.com “Echo Look is “a kind of digital fashion adviser, allowing people to upload photographs of themselves to get style recommendations through a combination of software algorithms and human fashion specialists” Prime Wardrobe allows members to try up to 15 items at home before paying for them. Will the Echo Look evolve into a body scanner combined with Computer Vision, AI to enable custom on-demand apparel manufacturing?
  17. 17. Amazon’s Disruption of Apparel/Retail - “On Demand” Apparel Manufacturing System Patent granted April 2017 • Amazon Look coupled with computer vision, patented on-demand clothing manufacturing • Designers can focus on design and let Amazon produce custom clothing • Stores become even less important • Just as Amazon helps authors publish books it may now enable designers to design and let Amazon handle the rest • Amazon’s sales of clothing were $22B in 2016, 6.6% of the market - expected by Cowen Co. to grow to 16% by 2021 • Amazon moving toward custom fit, on-demand clothing • (Sold about $2.5Billion in 2016 in private labels)
  18. 18. • Lighting • Heating and Cooling • Smart switches and outlets • Connected Cars • Entertainment systems • Appliances • Security Systems • DIY and professional installers Alexa Skills Set : News Flash, Jeopardy, Jokes… 15K+ skills Alexa Voice Services API - unbundled from Echo for other HW Amazon is Building out a Powerful Ecosystem - partners reinforce the platform in a virtuous circle Chris Kocher kocher@greyheron.com
  19. 19. Amazon’s $100M Alexa VC Fund - Helps Build Out the Echo Ecosystem Chris Kocher kocher@greyheron.com Rachio – an intelligent water sprinkler control system Sutro – a smart pool monitor Petnet- a smart feeding appliance for pets Musaic – an intelligent sound system for playing music and controlling lights Scout – a do-it-yourself security system for homes Garageio – smart garage door monitor and opener Mojio – a connected-car tracking and monitoring system
  20. 20. Amazon’s Disruption of Retail - 6700 stores already closed in US 2017 – more than all of 2008 The Old Guard • Kmart announced in January it was closing 109 stores • Sears in “substantial doubt” that it could continue operating • In 2016 Macy’s indicated it would be closing 100 stores • 138 JC Penney Stores Closing - - March 17 CNBC • Payless Shoes declaring Chapter 11, closing 400 stores • The Limited in bankruptcy in 2016 and closing 250 stores • Lord & Taylor space to WeWork The Avant-garde • In Q4 of 2016 Amazon had online sales of $102.7B in US which was 8.3% of the 1.24 Trillion Dollars sold at retail -NY Times 4/15/17 • Amazon Go pioneering retail convenience stores with no checkout lines – fully automated • Amazon opens 12 bookstores in 2017 • Amazon Fresh Groceries available in 21 US markets • Amazon expected to pass Macy’s as largest seller of apparel in 2017
  21. 21. Amazon Grew Their Private Labels Business - From $0- 2.5B in a Decade Chris Kocher kocher@greyheron.com Source: Business Insider and 1010 Data
  22. 22. Amazon in Your ‘Hood’ - Amazon Relies on Delivery Speed not Brick & Mortar Store Proximity - (90% of US population within 10 miles of Walmart ) Chris Kocher kocher@greyheron.com With Whole Foods, Amazon is within 20 miles of 63% of US population
  23. 23. Needham Predicts Amazon will account for 50% of ecommerce by 2021 Chris Kocher kocher@greyheron.com
  24. 24. Amazon’s $439.8B Market Cap - Bigger than next 5 competitors combined Chris Kocher kocher@greyheron.com
  25. 25. Amazon Go’s ‘Just Go Technology’ : - Re-engineering Retail? Chris Kocher kocher@greyheron.com
  26. 26. Grocery Store of the Future Chris Kocher kocher@greyheron.com CB Insights April 14, 2017
  27. 27. Amazon Whole Foods and Food Delivery Chris Kocher kocher@greyheron.com A spectrum of stores, food delivery, restaurant take-out… • Whole Foods is a large point of presence with 460 stores, distribution hub, locker drop offs, (in the future, returns like they are testing at Kohls?) • Access to fresh foods, faster delivery • Amazon moving from online to physical stores while Walmart started with physical stores and moving to virtual/online with Jet, delivery partnerships, robots, private labels, etc. • Amazon also planning some 10-40K sq. ft. automated stores (like Amazon Go: no cashiers, no registers and no lines) • Amazon App with Clover Restaurant App for take out ordering through the Amazon App in New England states
  28. 28. Amazon is Eating the Entire Supply Chain - Conquering the Last Mile of Home Delivery Chris Kocher kocher@greyheron.com • Connected home/office - Dash buttons or Alexa can recommend and order anything you need • Orders flow through Amazon commerce servers… – Powered by their AWS servers (and chips designed in Lab 126?) • With many delivery options: Prime, Fresh, Pantry, Now… • Whole Foods Hubs: fresh food, distribution points, pick-up lockers • Utilizing Amazon logistics and delivery vehicles… – Fleet of 40 Boeing 767s to skim high volume shipments – Leverage FedEx, UPS logistics and even USPS for Sunday Delivery • Distributed from Amazon’s highly automated warehouses – using Amazon’s 40K Kiva robots and inventory optimization • Replenished by ships coming from China to US… – Beijing Century Joyo Courier Services- Chinese freight forwarding subsidiary • Offering Amazon’s private label items • Returns at Kohl (Amazon Kiosks), other in-store lockers
  29. 29. Taking Distribution to a Whole New Level? Chris Kocher kocher@greyheron.com Source: Lucas Films
  30. 30. What if You Had a Blimp for a Warehouse? - floating over major metropolitan areas Chris Kocher kocher@greyheron.com
  31. 31. … With Drones that Delivered Packages Everywhere… Chris Kocher kocher@greyheron.com Photo sourced from Audi TV ad
  32. 32. …Delivering Small Items to Your Door in Minutes Chris Kocher kocher@greyheron.com
  33. 33. US Patent # US9305280 B1 - Filing date: December 22, 2014 Publication date: April 5, 2016 Chris Kocher kocher@greyheron.com Abstract Described is an airborne fulfillment center (“AFC”) and the use of unmanned aerial vehicles (“UAV”) to deliver items from the AFC to users. For example, the AFC may be an airship that remains at a high altitude (e.g., 45,000 feet) and UAVs with ordered items may be deployed from the AFC to deliver ordered items to user designated delivery locations. As the UAVs descend, they can navigate horizontally toward a user specified delivery location using little to no power, other than to stabilize the UAV and/or guide the direction of descent. Shuttles (smaller airships) may be used to replenish the AFC with inventory, UAVs, supplies, fuel, etc. Likewise, the shuttles may be utilized to transport workers to and from the AFC.
  34. 34. Amazon, Mercedes and Partners Addressing the Last Mile Delivery Challenge Chris Kocher kocher@greyheron.com Amazon awarded patent for drone docking and recharging stations on lampposts Mercedes working with Mattermark And Starship Technologies on drone And robot delivery vans
  35. 35. Hermes and StarShip Technologies Begin Trials of Self-driving Robots in London (BBC 4-17-2017) Chris Kocher kocher@greyheron.com
  36. 36. Amazon Spending $4.5B on Entertainment Content: - 67 TV shows and 20 movies in process for 2017 - HBO spent about $2B in 2016; Netflix spending about $6B In 2017 Chris Kocher kocher@greyheron.com Source: JP Morgan, Statista and Business Insider Forecasts
  37. 37. Recap: Amazon by the Numbers Chris Kocher kocher@greyheron.com • 55-80M Prime subscribers paying $99 per year $6-7B (CIRP research) • 50+% penetration of 124.6M US households • Amazon sells about half of all books and e-books in the US • Average spend by prime members is $1300 vs $700 non-members (2017) vs. 2016 when it was $1100 vs. $600 • Amazon Market Places sells $100B+ of other companies products(15%) • AWS Cloud revenues  $18 billion annual run rate – bigger than Google and Microsoft – AWS is one of the largest IT cos. • 40K robots in Amazon’s automated warehouses • Amazon shipping costs are between 5-10% of revenues • More than $1T is spent annually in international freight market in order to ship $19 trillion dollars of goods WW • Amazon ‘could’ earn $400 billion year in the global logistics mkt. – Robert W. Baird & Co.
  38. 38. To Infinity and Beyond Chris Kocher kocher@greyheron.com • Reimagining Commerce: 6As strategy, “Everything Store” • Prime – Keep extending and enhancing Business Prime – Membership packs - 10 for $499 or 100 for $1299 – Compete with Office Depot/Max, Staples…. • Real estate? • Automotive ? – Some analysts predict Amazon could carve out a $5 billion, or a 10.4 percent slice of the retail parts business by 2018 – Test drives with VW in LA and Chicago for prime members • Healthcare – Internal group 1492 looking at medical devices, EMRs, pharmaceuticals • Drug Stores? ($560B drug prescription business) seeking state pharmaceutical board approvals- approved in 12 states, in talks with Pharmacy Benefit Managers, hiring drug retailing talent, expect announcements by Thanksgiving
  39. 39. 8 Things Amazon is Likely to Focus on in the Future - ideas you can use to accelerate your monetization strategies Chris Kocher kocher@greyheron.com 1.Deliver low-cost, good-value, easy-to-use, scalable offerings 2.Build on core expertise - leverage Amazon’s stack 3.Create a platform/ecosystem that enables partnerships that can be further monetized 4.Keep things simple, technically and business model wise 5.Pursue self-service platforms (Mkt.Place, AWS, Alexa) and markets where Amazon can lever economies of scale 6.Take market share in short term, even at expense of profits 7.Seek out inefficiencies - optimize the ‘heck’ out of everything 8.Leverage Alexa voice recognition and AI across HW platforms 9.New sectors: drugstores, automotive, real estate…
  40. 40. Thank you! To discuss your Monetization or IoT strategy contact: kocher@greyheron.com www.greyheron.com Related articles on IoT, Monetization and Amazon Why Nest is down and Amazon up in the IoT Connected Home Monetizing IoT: Show me the Money Chris Kocher

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