Why, one might wonder, do we talk so much about Amazon’s platforms from Alexa to Fire TV and DRS (Dash Replenishment Service) on here? What does this have to do with online retail? A TV set-top box with a software platform has nothing to do with retail, right? And neither does a voice interface gadget, does it?
Partly. Right now. But in the very near future these platforms and much more will constitute online retail to a far greater extend than the web.
Let’s take a step back and look at the bigger picture.
First: We are undoubtely moving away from the desktop Internet and Browsers and websites as interaction model and towards an app centric context. Even website traffic now is coming mainly from mobile devices. Count in app usage and the completion of this shift is closer than most might think.
Second: This changes things, as they say. The browser was neutral. Mobile platforms are not. Meaning: Features Apple and Google are implementing in their operating systems (OS) have direct effects on the app ecosystems on top of them.
Consider for example the long-term ramifications of a payment system like Apple Pay baked into the OS. Having bank account details of hundreds of millions of customers is one veritable moat around Amazon’s business model. But only until every small online merchant selling via mobile means can securely tap into, for example, Apple Pay for payments. Payments are only an example. App stores are the successors of the (Google) search engine, for better and for worse. You spend a lot on SEO? Start worrying how to optimize for an app (store) world. (Todays obvious answer: Buy app install ads on Facebook.) The list goes on. But the important thing is this: Only the platform vendors can add or subtract features from the mobile operating systems. They control the app stores, and with them the main distribution model for apps (the successors of websites and hence webshops). Amazon (and any other online retailer) has no handle on Apple Pay and anything else Apple or Google might do.
Third: The same platform dynamics are going to play out in other areas: TV, Smart Home, Screenless E-Commerce, Internet of Things in general, etc. We will never return to the desktop Internet and the web. Both will stay as relevant parts of the new digital world. But by no means are they going to be the most important parts for the majority of people. Not by a long shot.
Fourth: Now what do you do as a big online retailer? One possible road is to build your own platforms. Be the master of your destiny. Ideally.
Amazon missed to boat on mobile. Now the company is determined to not let that happen again on any other (future) platform.
Not everyone can obviously build their own general interest platforms. In any given context there can only be a handful of platforms, sometimes even only one.1
But maybe even more important is this: It is hard to build and establish a software platform.
Barnes & Noble, for example, tried to play a similar game and is retreating right now. The Digital Reader:
The “greatest digital mistake” for Barnes & Noble was how its app store was set up:
During the early years of the Nook platform, before B&N sold rebranded Samsung tablets, its hardware strategy was built around custom Nook Android tablets.
Starting with the release of the Nook Color in 2010 and ending with the release of the Nook HD in 2012, B&N was building its own tablets and then trying to support them with an ebookstore and an app store.
Here’s the catch: You could load ebooks on to the Nook tablets from many ebookstores, but thanks to how B&N locked down the hardware you could only get apps from B&N.
That’s not a terrible idea on the face of it, but B&N could never make it work. They never had more than a couple hundred apps in the Nook App Store during that period, virtually guaranteeing that you would not be able to find the 4 or 5 apps you absolutely needed (I wanted OverDrive and Adobe Reader, and could get neither).
A similar circumstance killed the Amazon Fire Phone: Without the wide selection of apps available on iOS and Google’s Android the Fire Phone had no chance in the market. It was positioned and priced as if its platform, its app store, were comparable to the Google Play Store. (which lives on similarly priced Android phones)
Not falling into that trap and getting a software (app) platform of the ground is hard.
But there is no way around this. Even and especially for online retailers like Amazon wanting (and probably needing) to play in this league.
You can not just build a store front-end and expect it to be as successful as a general interest platform with similar features. Alexa/Echo would not be interesting to many people if it were just a way to order groceries and put items on Amazon’s wishlist. These features will give Amazon a big advantage long term. But they have to be baked into a ‘wider’ platform, so to speak.
That is why it is very important to look at how Amazon is patiently laying the groundwork for its future strategy pillars.
Take Amazon’s voice interface platform Alexa as a case study:
- First comes the Echo, a dedicated voice controlled gadget, released in November 2014.
- Over the next year the Echo gets a software development kit (SDK)) and more and more integrations. (“Amazon Echo update adds Pandora, iTunes, and Spotify voice control“, “Amazon Echo adds Hue and WeMo smart home voice control“, “SmartThings Support Is Coming To Amazon Echo“, “More control: Amazon Echo gains advanced trigger commands with IFTTT“, “Premium Spotify subscribers can now play music directly on Amazon Echo” and so on) The result: “At CES 2016 Amazon Alexa Was Everywhere“
- Third-party integrations get fostered by getting direct investments: The Alexa fund invests in some companies creating devices and applications integrating Amazon Echo. (See here for more)
- The Echo also gains e-commerce capabilities like re-purchases of previously bought items on Amazon. (Great for consumables)
- In June of 2015 the voice interface platform behind Echo (the “Alexa Virtual Assistant”) gets unbundled from Echo, paving the way for getting integrated into, say, cars.
- Alongside this Alexa/Echo gets deeper vertical integration like reading audiobooks purchased through Audible and even being able to read Kindle books aloud.
- Additional features like public transit schedules, sports updates and movie theater details are being added as well.
- Integration of Alexa into cars by Ford gets announced.
Look at it closely and you can see all the building blocks needed to establish a successful platform. Over the course of 2015 Amazon layed the groundwork to create a strong platform that is not just going to be popular. This platform will also be a very convenient way to purchase items of certain categories. But it has to be more than just that store front-end to get widespread adoption.
Here are the building blocks:
- Dedicated devices to get the platform initally rolling. ((1), the new Amazon Tap and Echo Dot just got additionally released)
- Allowing (2) and fostering (3) third-party functionality to create a rich general-interest platform that can be used for a wide array of use cases.
- First-party functionality: Useful features (7) have to be implemented early on to make the product useful for end-users. Once they start coming the other side (third-party providers) come as well. Think of this as the aquivalents of browser, maps and photos/camera apps on mobile operating systems. No mobile OS would get shipped without these.
- Subsequently, vertical integrations ((6) and (4)) increase the functionality of the platform further whilst also bringing your business into the fold. Now we’re talking!
- Unbundle the platform/service functionality from the dedicated devices (5) and make the former available as an API. This makes more integrations of the platform itself possible (8) and hence increases the reach. (Or in other words: A platform like Alexa can this way travel with the users wherever they go. This is not needed for all kinds of platforms. But for something like Alexa, that is first and foremost the manifestation of an interface model (voice), this makes a lot of sense: The voice interface will ideally one day be everywhere where the user goes. This is why obviously the Alexa interface is also available on the Fire TV for example.)
This is how you get traction. And this is how you build a platform strategically in the broadest strokes.
Amazon is establishing a voice interface platform. And in the process the company is making sure that:
- its offerings can not be shut out or be hindered by the interests of the general-interest software platform it is built upon (like on mobile where Amazon apps have to stay within what apps are allowed to do; for example, Amazon can not offer always-on voice shopping via its mobile apps)
- Products like Audible and Kindle e-books become richer by being integrated into Echo. Where can you buy e-books you can optionally listen to?
You can observe similar strategies to Alexa with the Kindle e-reader, the Fire TV and the Dash Replenishment Service (DRS).
Alexa, Fire TV and DRS are not material to Amazon’s business today. And they will not be tomorrow. But they will almost certainly be in the very near future major parts of Amazon’s business. The Fire TV puts Amazon on the biggest screen in the household. Alexa in its various incarnations2 cements Amazon as one major player in voice interfaces.
It is not a matter of ‘if’ but of ‘when’ those will move the needle.
Think AWS: Officially launched in 2006 to the public, it is now a main driver of profits for Amazon. And AWS, additionally, provides a serious infrastructure advantage to Amazon. It will not take ten years for Alexa and Fire TV to grow up. It may take half that time or even less.
A lot of questions remain but Amazon clearly shows with Alexa how and why online retailers should try and build general-interest platforms they control. Barnes & Noble on the other side shows how hard that is to pull off.
Successful platform strategies in a Post-PC world can look very differently. Zalando, for example, is (rightly so in my eyes) going for an app suite platform with the goal of eventually touching everything related to fashion.
I touched on some aspects to ponder in “Amazon vs. Zalando In a World Of Apps“.
Online retail in a Post-PC world will be far bigger than the industry could have ever been on the desktop. But it will also be more nuanced and diverse and, frankly, more complex on the business side.
- Amazon Echo Has a Head Start on Siri and Google Now
- Screenless E-Commerce: Amazon Echo Is A New Interface To The Internet
- Codename “Fox”: Will Amazon’s Coming Portable Version of Echo Be Like a Smartphone?
- Why Ford and Others Are Going to Integrate Amazon Echo/Alexa
- Amazon Echo keeps adding functionalities, becoming a strong platform
- The More the Merrier: Amazon Alexa Comes to Original Fire TV and Fire TV Stick
- Amazon’s Alexa and Dash Replenishment Service – A Level of Convenience Unseen Before
- What Amazon Might Try To Get Into Android Phones At ‘Factory Level’: Alexa
- At CES 2016 Amazon Alexa Was Everywhere
- What Zalando Sees as its Core Competencies to Push the Platform Forward
- Zalando gives insights into the company’s strategy
- A Prime Bundle
- ‘QVC 2.0’ and beyond: Why Fire TV is Amazon’s most important device