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

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

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 - 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…

Making Commerce Frictionless
- Amazon’s six “A”s strategy
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…

The 4 Values Framework™ for Monetization
1. Vertical - Horizontal
Integration
- the classic growth strategy
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

- 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

AWS is Now Running at $18 Billion Annually
- Amazon overall: Q3 2017: 42% Revenue and 36% Op. Profit Growth
October 26, 2017
• $ 4.6B Revenue
• $ 1.2B Operating
Profit

AWS is Expanding into Enterprise Applications
• 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

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
• 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

In IoT Amazon is in 6 of the Top 10 Sectors
• 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

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
• 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

Amazon Echo Leading the Pack
-A whole new platform & category - voice controlled speakers
• 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

The Echo Show - Another Alexa-Powered Device
• 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”

The Amazon Key In Home Kit w/Lock and Camera
- IoT Devices or Trojan Horse into the Services Market?
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?

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”
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?

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)

• 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

Amazon’s $100M Alexa VC 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
- 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

Amazon Grew Their Private Labels Business
- From $0- 2.5B in a Decade
Source: Business Insider and 1010 Data

Amazon in Your ‘Hood’
- Amazon Relies on Delivery Speed not Brick & Mortar Store Proximity
- (90% of US population within 10 miles of Walmart )
With Whole Foods,
Amazon is within
20 miles of 63% of
US population

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

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

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

Grocery Store of the Future
CB Insights April 14, 2017

Amazon Whole Foods and Food Delivery
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

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…
• 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

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 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
Source: JP Morgan,
Statista and Business
Insider Forecasts

Recap: Amazon by the Numbers
• 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.

To Infinity and Beyond
• 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

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

Thank you!
To discuss your Monetization or IoT strategy contact:
kocher@greyheron.com
www.greyheron.com
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