Last updated: Commerce untethered: Amazon and the war for your home

Commerce untethered: Amazon and the war for your home

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You need look no further than this site to learn how the Internet of Things (IoT) is poised to disrupt virtually every aspect of our personal and professional lives. This shift took a significant leap forward with Amazon’s recent launch of the Echo, their cone-shaped, cloud-connected speaker/digital assistant.

Echo is a clear indication that the war for our homes (and workplaces) is officially on. And while Echo’s chances of gaining mainstream success are small, retailers and brand manufacturers with direct-to-consumer ambitions should take notice of Amazon conversational commerce and begin planning for the day when commerce comes untethered.

Amazon conversational commerce

At launch, Echo doesn’t have transactional capabilities. That will change. Sure, Echo can tell you the weather or play music on command, but Amazon has no interest in providing information or entertainment beyond the shopping-related data they can glean from such queries. (Those with more suspicious leanings may have concerns that the device’s seven passive-listening microphones could be used to monitor background music, television shows, and even conversations to identify shopping cues and inform future product recommendations.) The ultimate goal of Echo is to front-run the incumbent paths to ecommerce purchasing—computers, tablets, smartphones—first for the home, then for the office, and funnel everything through Amazon’s ecommerce channel.

Echo is Amazon’s most ambitious attempt to date to place itself between consumers and search engines. The reasons they would want to do this are both numerous and nuanced.

Amazon relies heavily on search engines to drive traffic. However, they see the continual changes to search results pages that have resulted in a shrinking number of organic results, and know that despite all of their SEO efforts they have no direct control over the outcome.

This places more emphasis on paid search. In 2013, Amazon spent $157.7 million on Google advertising alone. As search advertising costs continue to spiral upwards, Amazon has every incentive to try and reign in this expense.

Additionally, Amazon iOS and Android apps, which provide a captive audience insulated from the web, also come with a hefty 30% cut for the app store owners. This doesn’t pair well with Amazon’s razor-thin margins. But perhaps most importantly, it’s just a matter of time until others get into the game, and Amazon will need every second of that head start to refine the device and experience and carve out its place in the home.

The competition for conversational commerce

Google and Microsoft are poised to compete. Google can leverage Android’s operating system to spin-off new device types, and their acquisition of Nest already puts their IoT-connected devices in over a million homes. Microsoft has a beachhead with their Xbox One gaming system and the Kinect gesture/voice-enabled controller, which can now be used independently of the gaming device. It’s only a matter of time until they enter the fray.

Even a few select Big Box retailers like Walmart and Target may have the incentive, and scale, to follow Amazon’s lead and either develop their own devices or closely align themselves with another player to join the race. Apple, on the other hand, may find itself at a disadvantage. With no native search engine and limited direct ecommerce capabilities, Apple will likely have to lean on their app store ecosystem, roll out a new category-killer device, or form a partnership to become a serious contender.

For smaller retailers and brand manufacturers, the implications are serious. Should Amazon or another large retailer take a leadership position in this new category of omnichannel commerce, smaller retailers will be cut out and further marginalized. Brand manufacturers will see their ability to connect directly with consumers diminished, and will be under pressure to both sell through these channels and provide favorable pricing to do so.

It’s far too early to call who will be winners and losers in the battle for the home, but there’s no debate that the war has begun.

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