Early in December, 20166, Amazon announced its latest foray into the grocery business – Amazon Go – which relies on what Amazon calls “the world’s most advanced shopping technology” to provide a Just Walk Out shopping experience1. No lines, cashiers, and no credit cards are required at this store. But what makes this technology so advanced, and why have other retailers failed to bring an automated experience to consumers? What has allowed Amazon to Just Walk In to the brick-and-mortar convenience store business and cook up a storm? The answer lies in the company’s amazing ability to bring together existing technologies, from outside and within its own portfolio, and implement disruptive architectures in seemingly boring industries.
There are no radical or modular innovation elements involved in this “most advanced technology.” The stores use computer vision, used extensively in military technology, our personal computers, and now self-driving cars, to track customers as they move around in the store. Simple RFID and QR codes allow the store to know which customer has walked into the store and which items are being picked up from the shelves. Amazon applies its existing deep learning capability to improve the accuracy of its inventory tracking2. Let’s say if the RIFD sensors cannot tell whether you had picked up turkey or salami, then the store will draw on tiny amounts of computing capacity on the AWS infrastructure to analyze your purchase history and determine what you may have picked up from the shelves. The plethora of sensors across the store can then tell that you are walking towards the exit. As you pass through a “transition zone” computers add up your purchases and charge you through a pre-existing mobile payment platform2. No new technologies, but a beautifully orchestrated symphony between sensors and deep learning algorithms.
Video introducing the Amazon Go concept.
What is even more interesting is the failure of incumbents to develop a timely response. Amazon had actually filed a patent for this concept 3 years ago3. One could even argue that Amazon simply transplanted a tweaked version of its Kiva warehouse capabilities to the Amazon Go concept store. Amazon’s highly automated warehouses use the same sensor technology as Amazon Go to improve inventory tracking and ensure that operators pick the right items from shelves. Despite the concept being displayed in plain sight, the incumbents in the convenience and grocery markets simply could not respond. A case could be made that they should have seen how Amazon’s warehouse innovations could be brought into their own operating model. After all, most convenience and grocery businesses maintain at least some of their own warehouse capacity. This situation delineates the challenges that traditional businesses face in incorporating digital technologies. Convenience and grocery businesses aren’t set up to have IoT innovation divisions. Even if they attempt to partner with “technology-as-a-service” providers, integrating different pieces of the puzzle across platforms that may not be compatible without additional work or resources ends up proving very challenging. This situation also exemplifies how incentive structures at operating companies cause them to miss these waves of change, because they define a very narrow competitive scope.
Amazon is just beginning to unleash architecture-driven disruptions. The company has developed a powerful portfolio of technical capabilities, and its nimble organization structure allows product marketing, operations, and technical teams to work collaboratively on new problems. While they have not full embraced LEAN testing methods – often focusing on growth over demonstrating profitability first – they are very good at leveraging their resources to test new ideas that are natural extensions of their existing capabilities. In addition to the architecture innovations, Amazon Go will benefit tremendously from Amazon’s supplier base and infrastructure already developed for its Amazon Fresh business. This portfolio of resources creates tremendous threat for many industries, as Amazon can implement new architectures without having to worry about economies of scale in individual businesses.