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I like reading stratechery time to time for tech related strategy writeups. But this writeup somehow loses plot. The focus is too much on what are fixed and var

I like reading stratechery time to time for tech related strategy writeups. But this writeup somehow loses plot. The focus is too much on what are fixed and variable costs and the repeat of Amazon's buyout of Kiva. What would have been an interesting discussion is to look at how the retail market is actually unfolding: https://www.bloomberg.com/graphics/2017-retail-debt/ https://www.bloomberg.com/graphics/2017-retail-debt/ And whether cutting out the variable costs of a cashier etc is really worth the trouble in R&D and systems. Edit: After reading some of the responses, I wanted to add something. If we look at the linked article above, retailers are taking in loans to open more and more stores. The idea being more stores = more customers = more profit. But that is not materializing at all. The question becomes - where does the issue lie really? Are variable costs the reason? What does Amazon Go solve really? Sure, some might say better software is the whole point of Amazon Go. But,we are not talking about a SaaS where the cost of delivery is nearly negligible - it takes nearly the same amount of real estate and fixed costs to deliver 1 or 1000 of a SaaS product. That is not true for B&M. If they want to ramp up then they will need to open more stores - that requires real estate and other fixed costs.

jjallen 9y ago
There's not just the reduced cashier costs, but the vastly increased revenue per foot of store that will come about when customers know they don't have to wait in line. The store will also be less empty per dollar of sales; or, said another way, shoppers will spend less time in store, creating the appearance of an emptier store for shoppers walking by, making it less time-consuming to enter. Oh, and don't forget those prime signups just for people who want to try the store (though the number of non-prime subs when these stores rollout will be not huge).
- nieksand 9y ago
  Indeed. The article didn't touch on how this approach reduces friction for buyers, which is hugely important. For the short-to-mid term, I suspect that frictionless shopping is a bigger deal than change in cost structure that comes from booting cashiers.
  - panarky 9y ago
    Exactly this! Stratechery has a giant blind spot about Amazon's strategy, completely missing their #1 objective: customer obsession. Bezos was clear about this from the beginning [0] and he repeats it every chance he gets [1]. He's not just bullshitting, this is actually the strategy, and it fucking works! Stratechery opined that the Whole Foods deal was about putting Amazon products in physical stores. Of course not, it's the opposite -- it's about bringing awesome Whole Foods products to far more customers than Whole Foods reaches today. Now Stratechery says Amazon Go is about eliminating cashier labor and leveraging fixed costs. Ridiculous! If a well-paid cashier costs $15 per hour and can scan 12 items per minute, the cost is only 2 cents per item. In fact, the cashier savings is probably more than offset by additional labor on the sales floor and to maintain all the sensors, cameras, turnstiles and software. This is all about Bezos' customer obsession. If I don't have to wait in line, I'll happily shop Amazon Go every time I can, multiple trips per week. As a customer I'd be thrilled to eliminate the dead time of waiting in a line. [0] 1997 Letter to Shareholders https://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.htm https://www.sec.gov/Archives/edgar/data/1018724/000119312513... [1] 2016 Letter to Shareholders https://www.amazon.com/p/feature/z6o9g6sysxur57t https://www.amazon.com/p/feature/z6o9g6sysxur57t
- Gargoyle 9y ago
  I must be weird. At no time has the idea of a line ever influenced my decision to go into a convenience store.
  - sgift 9y ago
    Or people like me who don't go shopping in convenience stores at Saturday are weird. I only do it under duress if I forgot something the other day, because I know the line will be so damn long.
  - jonknee 9y ago
    Happens all the time to me, I'd rather give my money to someone with more appropriate staffing than wait in line to buy something.
    - Gargoyle 9y ago
      So where do you go instead?
      - jonknee 9y ago
        Sometimes nowhere, sometimes down the street. I do the same thing for restaurants, if there's a wait or my reservation isn't ready on time I'll go somewhere else. There's tons of competition out there, no need to waste my time for the benefit of a business owner.
  - reaperducer 9y ago
    I agree with you, and go one step further. I refuse to use self-checkout. For two reasons. 1. I don't like the thought of contributing to a system that costs people (cashiers) their jobs. 2. The whole reason I go to a store is for customer service. If I wanted self check-out, I'd order online from one of the same-day-delivery outfits.
    - onion2k 9y ago
      I don't like the thought of contributing to a system that costs people (cashiers) their jobs. People in boring, low paid jobs shouldn't be there. There are far better things people can be doing than working a till. The idea that we're doing people a favour by 'enabling' them to have a job when that job is tedious menial work a tiny compute can do is nonsense. We need to automate those jobs away to free people to do more interesting, fulfilling things. We also need to do things to work out how to enable those people to do more interesting work, like figuring out how to pay people if the free market fails, but that's a separate issue.
- pythonaut_16 9y ago
  In a way, what Amazon is really testing here is how to make brick and mortar shopping competitive with online shopping. But rather than undercutting their online business what they're really doing is finding ways to compete with other retailers in spaces that are hard online, such as groceries and immediate items.
- lumisota 9y ago
  A Prime subscription isn't required to use the store. https://arstechnica.com/information-technology/2018/01/we-test-the-worlds-first-amazon-go-watch-you-shop-grocery-store/ https://arstechnica.com/information-technology/2018/01/we-te...
petra 9y ago
It's per usual. Looks like Ben's strategy is to publish empty bait articles in his free blog, agitate the net, and than collect all that knowledge and give it to his subscribers. Smart strategy, but ,meh.
- canes123456 9y ago
  Are you a subscriber? The weekly articles are not bait. They are longer about bigger theories and trends. The emails are shorter and more focused on news. He just applies and develops the same theories to the daily news. Both are very good IMO. Who is better in this space?
- 1123581321 9y ago
  I don’t agree this article is bait, but I listen to the podcast and I do like that it’s recorded long enough after the article to factor in some of the responses. It’s a valid strategy (and a good micro-example of his aggregation theory.)
canes123456 9y ago
"And whether cutting out the variable costs of a cashier etc is really worth the trouble in R&D and systems." No, it is not worth it... for a retailer. This is what makes it an effective moat. Fast forward 10 years and Amazon will have a cost advantage over all the other retailers. Amazon store's can be open 24 hours without any extra costs. They can be much smaller or hold items that are less profitable.This will eventually pay for the moat but it will take a very long time. Longer than most companies are willing to wait for it to pay off. Amazon will also you the tech in more ways than just these stores.
- raisedbyninjas 9y ago
  "Fast forward 10 years and Amazon will have a cost advantage over all the other retailers." Once this happens, then Amazon can sell every retailer Amazon Retail Services the same way that it sells AWS. Maybe they can even be deployed via shipping containers on demand. State fairs, festivals, summertime around lakes, disaster recovery areas all have a spike of consumers that is limited by where retail storefronts are already in place and mobile facilities like food trucks.
  - canes123456 9y ago
    I don't think so. They want to be the only middleman. Suppliers can buy shelf space in Amazon stores but I don't think they will help retailers. They want to make a small percentage of every sale.
cpsempek 9y ago
It's a long term play, I think. All of the tech becomes a sunk cost, and over time the removal of variable costs creates the ability to scale with costs still trending to 0, or, less upwardly.

jjallen 9y ago

There's not just the reduced cashier costs, but the vastly increased revenue per foot of store that will come about when customers know they don't have to wait in line. The store will also be less empty per dollar of sales; or, said another way, shoppers will spend less time in store, creating the appearance of an emptier store for shoppers walking by, making it less time-consuming to enter. Oh, and don't forget those prime signups just for people who want to try the store (though the number of non-prime subs when these stores rollout will be not huge).

nieksand 9y ago
Indeed. The article didn't touch on how this approach reduces friction for buyers, which is hugely important. For the short-to-mid term, I suspect that frictionless shopping is a bigger deal than change in cost structure that comes from booting cashiers.
- panarky 9y ago
  Exactly this! Stratechery has a giant blind spot about Amazon's strategy, completely missing their #1 objective: customer obsession. Bezos was clear about this from the beginning [0] and he repeats it every chance he gets [1]. He's not just bullshitting, this is actually the strategy, and it fucking works! Stratechery opined that the Whole Foods deal was about putting Amazon products in physical stores. Of course not, it's the opposite -- it's about bringing awesome Whole Foods products to far more customers than Whole Foods reaches today. Now Stratechery says Amazon Go is about eliminating cashier labor and leveraging fixed costs. Ridiculous! If a well-paid cashier costs $15 per hour and can scan 12 items per minute, the cost is only 2 cents per item. In fact, the cashier savings is probably more than offset by additional labor on the sales floor and to maintain all the sensors, cameras, turnstiles and software. This is all about Bezos' customer obsession. If I don't have to wait in line, I'll happily shop Amazon Go every time I can, multiple trips per week. As a customer I'd be thrilled to eliminate the dead time of waiting in a line. [0] 1997 Letter to Shareholders https://www.sec.gov/Archives/edgar/data/1018724/000119312513151836/d511111dex991.htm https://www.sec.gov/Archives/edgar/data/1018724/000119312513... [1] 2016 Letter to Shareholders https://www.amazon.com/p/feature/z6o9g6sysxur57t https://www.amazon.com/p/feature/z6o9g6sysxur57t
Gargoyle 9y ago
I must be weird. At no time has the idea of a line ever influenced my decision to go into a convenience store.
- sgift 9y ago
  Or people like me who don't go shopping in convenience stores at Saturday are weird. I only do it under duress if I forgot something the other day, because I know the line will be so damn long.
- jonknee 9y ago
  Happens all the time to me, I'd rather give my money to someone with more appropriate staffing than wait in line to buy something.
  - Gargoyle 9y ago
    So where do you go instead?
    - jonknee 9y ago
      Sometimes nowhere, sometimes down the street. I do the same thing for restaurants, if there's a wait or my reservation isn't ready on time I'll go somewhere else. There's tons of competition out there, no need to waste my time for the benefit of a business owner.
- reaperducer 9y ago
  I agree with you, and go one step further. I refuse to use self-checkout. For two reasons. 1. I don't like the thought of contributing to a system that costs people (cashiers) their jobs. 2. The whole reason I go to a store is for customer service. If I wanted self check-out, I'd order online from one of the same-day-delivery outfits.
  - onion2k 9y ago
    I don't like the thought of contributing to a system that costs people (cashiers) their jobs. People in boring, low paid jobs shouldn't be there. There are far better things people can be doing than working a till. The idea that we're doing people a favour by 'enabling' them to have a job when that job is tedious menial work a tiny compute can do is nonsense. We need to automate those jobs away to free people to do more interesting, fulfilling things. We also need to do things to work out how to enable those people to do more interesting work, like figuring out how to pay people if the free market fails, but that's a separate issue.
pythonaut_16 9y ago
In a way, what Amazon is really testing here is how to make brick and mortar shopping competitive with online shopping. But rather than undercutting their online business what they're really doing is finding ways to compete with other retailers in spaces that are hard online, such as groceries and immediate items.
lumisota 9y ago
A Prime subscription isn't required to use the store. https://arstechnica.com/information-technology/2018/01/we-test-the-worlds-first-amazon-go-watch-you-shop-grocery-store/ https://arstechnica.com/information-technology/2018/01/we-te...

petra 9y ago

It's per usual. Looks like Ben's strategy is to publish empty bait articles in his free blog, agitate the net, and than collect all that knowledge and give it to his subscribers. Smart strategy, but ,meh.

canes123456 9y ago
Are you a subscriber? The weekly articles are not bait. They are longer about bigger theories and trends. The emails are shorter and more focused on news. He just applies and develops the same theories to the daily news. Both are very good IMO. Who is better in this space?
1123581321 9y ago
I don’t agree this article is bait, but I listen to the podcast and I do like that it’s recorded long enough after the article to factor in some of the responses. It’s a valid strategy (and a good micro-example of his aggregation theory.)

canes123456 9y ago

"And whether cutting out the variable costs of a cashier etc is really worth the trouble in R&D and systems." No, it is not worth it... for a retailer. This is what makes it an effective moat. Fast forward 10 years and Amazon will have a cost advantage over all the other retailers. Amazon store's can be open 24 hours without any extra costs. They can be much smaller or hold items that are less profitable.This will eventually pay for the moat but it will take a very long time. Longer than most companies are willing to wait for it to pay off. Amazon will also you the tech in more ways than just these stores.

raisedbyninjas 9y ago
"Fast forward 10 years and Amazon will have a cost advantage over all the other retailers." Once this happens, then Amazon can sell every retailer Amazon Retail Services the same way that it sells AWS. Maybe they can even be deployed via shipping containers on demand. State fairs, festivals, summertime around lakes, disaster recovery areas all have a spike of consumers that is limited by where retail storefronts are already in place and mobile facilities like food trucks.
- canes123456 9y ago
  I don't think so. They want to be the only middleman. Suppliers can buy shelf space in Amazon stores but I don't think they will help retailers. They want to make a small percentage of every sale.

cpsempek 9y ago

It's a long term play, I think. All of the tech becomes a sunk cost, and over time the removal of variable costs creates the ability to scale with costs still trending to 0, or, less upwardly.