Amazon's Cloud Billowing into IoT, AI, and Just About Everything Else

@Things Expo
Javit’s Center, New York
June 6, 2017
Amazon’s Cloud Billowing into IoT, AI,
and Just About Everything Else
Chris Kocher
Managing Director
Grey Heron

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

Amazon is 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
• Consumer Electronics
• Telephony and conferencing
• Retail, on-demand apparel production
• Payment systems and financial services
• Logistics and Transportation
• Artificial Intelligence- machine learning
• Robotics
• Advertising Network ….. Airborne Warehouses

And Amazon Moves Very Fast…. Just Last month:
• Announced Amazon Echo Show and Look devices
• Channels- Live and archived TV programming in Europe to
compete with TV content providers
• Book stores – just opened one in NY at Columbus Circle
• Reinventing retail - patents for custom, on-demand clothing
machines
• Ramping up live music events and funding playwrights to
extend its reach in entertainment
• Advertising network to compete with Facebook and Google
• Testing drone delivery outside Cambridge England now
• Set up development team near Paris to build an air-traffic
control systems for fleets of drones
• Amazon Cash – Prepaid debit cards for the underbanked
• Subscribe with Amazon – Paper, magazine, TV subscriptions

In IoT Alone, Amazon is in Multiple Sectors
• Connected Home and office
– Dash buttons, Alexa, replenishment services and partner programs
• Medical:
– Gmate Smart Glucose Meter - Dash button to reorder test strips
• Transportation, shipping, logistics:
– Beijing Century Joyo Courier Services- Chinese shipping company
– Leasing 40 Boeing 767 jets to deliver packages
– 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

The 4 Values™ (4V) Framework for Monetization
1. Vertical-
Horizontal
Integration
2. Value
Creation
3. Value
Migration
4. Value
Delivery
Systems

Online bookseller…
…Or, Economic
Powerhouse
Masters of Vertical and Horizontal Integration
• Payment systems, advertising, Twitch gaming networks…
• Amazon Go – 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…
• Kindle Readers
• eBooks
Online book seller
• eCommerce and retail
• Amazon Marketplace Platform , Fulfillment by Amazon
• Amazon Web Services (AWS- Cloud)
• Distribution logistics, shipping, drones…
• Airplane fleets, shipping companies
• Private labeling in China (7+ private label clothing brands)
Amazon is integrating
Up and Down the Stack

Amazon’s AWS Backend - Perfect for IoT Data
• 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
• Pricing 250K free 512K messages/mo. Or $5 per million
*2lemetry acquisition March 2015, includes beacons and facial recognition

Amazon Web Services (AWS) 2017 Run Rate~$16B
- vs. Sales Force which is about $12B
Source: Network World 10/31/16

AWS’s expanding footprint
• 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

IoT Front End for eCommerce – Dash Buttons
- frictionless commerce for home and office
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?

Amazon’s Other Front End for IoT
- Alexa, Echo, Dot, Tap, Look, Show - a new platform for a new world
• 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
• 12,000+ ‘skills’ – news, radio, jeopardy, horoscopes, weather, time,
traffic, Uber, fantasy football…
• 3-4 Million sold in 6 months- 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

Echo is Leading the Pack in this New Category of
Voice Controlled Speakers/Devices
• Google ‘Home’ will be controlled by
– Google Voice, Google Now, OK Google
• Apple’s new Homepod with Siri $350
- announced at WWDC June, 5,2017
- similar to Echo, positioned as Apples first home AI product, 6
tweeters and a subwoofer . May be built by Invantec which built
the AirPods.expected to control devices via Apple’s Home Kit as
well as play music, read news, set timers…
• Microsoft - Using Cortana speech recognition and AI
• IBM- Watson with “Cognitive Computing”, Samsung
Bixby, Cisco, Voysis, Orange Djingo, Huawei…

The Echo Show - Another Alexa-Powered Device
• 10 inch touch screen display
• Powered by Alexa voice
• Hybrid interface
• Tablet overlap?
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”

The Echo Look - Another Echo Powered by Alexa
“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”
Will it evolve into a body scanner combined
with Computer Vision, AI to enable customer
on-demand apparel manufacturing?

• 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…
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

Amazon’s $100M Alexa Fund
- Helps Build Out the Echo Ecosystem
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

Amazon’s Disruption of Retail
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 and closing 400 stores,
April 2017
• The Limited in bankruptcy in
2016 and closing 250 stores
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 bookstore in
Columbus Circle, NY May 2017
• Amazon Fresh Groceries
available in 21 US markets
• Amazon expected to pass Macy’s
as largest seller of apparel in 2017

Amazon in Your ‘Hood’

Needham Predicts Amazon will account for 50% of
ecommerce by 2021

Amazon’s $439.8B Market Cap
- Bigger than next 5 competitors combined

Amazon’s Disruption of Apparel/Retail
- “On Demand” Apparel Manufacturing System Patent granted to Amazon
in 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

Amazon Go’s ‘Just Go Technology’ :
- Re-engineering Retail?

Grocery Store of the Future
CB Insights April 14, 2017

Amazon is Eating the Entire Supply Chain
- Conquering the Last Mile of Home Delivery
• 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…
• 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 shipping subsidiary
• Offering Amazon’s private label items

Taking Distribution to a Whole New Level?
Source: Lucas Films

What if You Had a Blimp for a Warehouse?
- floating over major metropolitan areas

… With Drones that Delivered Packages Everywhere…
Photo sourced from Audi TV ad

…Delivering Small Items to Your Door in Minutes

US Patent # US9305280 B1
- Filing date: December 22, 2014 Publication date: April 5, 2016
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.

Amazon, Mercedes and Partners Addressing the Last
Mile Delivery Challenge
Amazon awarded patent for
drone docking and recharging
stations on lampposts
Mercedes working with Mattermark
And Starship Technologies on drone
And robot delivery vans

Hermes and StarShip Technologies Begin Trials of
Self-driving Robots in London (BBC 4-17-2017)

Amazon by the Numbers
• ~80M Prime subscribers paying $99 per year ~$8B (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
• AWS Cloud revenues  $16 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.

The Amazon Way in IoT : 10 Principles
- “A journey not a Single step”- John Rossman
1.Obsess over customer experiences
2.Create seamless experiences across platforms and channels
3.Pursue continuous improvements
4.Data isn't enough, do the math
5.Think big, but start small
6.Use IoT to become a platform company
7.Facilitate outcome-based business models
8.Find a path between monetizing data and protecting privacy
9.Disrupt the industry-value chain by exploring new products
and services
10.Build a flywheel for your IoT strategy

8 Things Amazon is Likely to Focus on in the Future
- ideas you can use to accelerate your IoT monetization strategy
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

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 ConnectedHome
Monetizing IoT: Show me the Money
Chris Kocher

Amazon in the Catbirds Seat for Advertising
Amazon moving into the $200 billion online ad mkt.
• In 2016 Amazon Ad Revenues= $1.6B vs. Google $79B
• Amazon offering more ad space for outside businesses
• Offering a set of advertising tools and services now
• Amazon can leverage all the info they've gathered on
shopping
*Bloomberg and Infoworld 3-25-17

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