April 3, 2015 by jimstogdill
The Dash Button – Can you say lock in?
Amazon announced the Dash Button this week and most of the buzz was of the “is this an April fools joke?” variety. That’s unfortunate because it’s a really interesting development and deserves more careful consideration. The Button is simple but it demonstrates the impact of inexpensive inter-networked things.
Simon Wardley’s take was probably the most interesting I’ve seen, if a little bit breathless. The Dash Button is best suited for recurring consumables and while that will hurt local grocers, I don’t see it cratering their businesses despite the importance of paper towels and milk to their bottom lines. I also don’t buy into the idea that Bezos bought the Post (and Buffett bought Media General) to turn it’s printing presses and delivery trucks into a Button manufacturing and distribution engine.
To put my money where my mouth is I bet Simon a cup of tea that Warren Buffet won’t be making a “small fortune” by 2030 on the manufacture and distribution of digital electronics via printing presses. He should have said “Berkshire Hathaway” because I’ve got not only the weight of my argument on my side but the actuarial probability of Warren’s expiration by then as well. If I lose, I’m counting on the mists of time to intervene on my behalf and maybe Simon will just forget our bet by then.
The thing that struck me immediately about the Dash Button is that each one is branded. It’s not a configurable device that you the user can connect to any product on Amazon. There is a limited set of products from large manufacturers that you can choose. Why did Amazon, the exemplar of the long tail in retail, give you so few options? I mean, Amazon’s whole business has been about virtualizing supply so that they can *offer* you everything without necessarily carrying the cost of stocking it. Maybe this is no big deal, but Amazon *narrowing* your choices seems likes a big deal, and a kind of reversal.
Amazon might have taken this approach to simplify the Button-using experience. There is already some (maybe not insignificant?) friction in authenticating the device to your wi-fi. Perhaps Amazon thought that if you had to link a particular button to a particular product and quantity it would tip you over some to-hell-with-it complexity threshold.
Or, and I think this is more likely, Amazon sees the Button as a way to increase their marketplace leverage. Buying space on a branded Dash Button might be the digital equivilent of the shelf slotting fees that get your label at eye level. If you pick the product, no slotting fees. If they pick, they can get paid and presumably brands are going to pay (now or in the future) for the privelage of being included. Just like on grocery shelves the larger brands will be able to better afford it, and it will probably be worth it to them.
When you go to the grocery store to buy consumables, P&G et al are relying on brand power and shelf placement to keep you buying the same thing every time you go in. It works pretty well, but there is the potential for leakage. Other brands can buy eye-level space too, and they can offer coupons with littly blinky lights to catch your attention and tempt you to switch. However, P&G knows that once you put a Dash button on your washing machine you’ll never even go down that aisle again. In fact, you may not even notice when the price goes up. P&G will be turning Tide into a recurring (and unthought about) revenue stream like the cable bill that goes straight to your credit card. Brands that participate will be paying for the privelage, but in return they get even greater customer lock in and loyalty. Lock in that can be monetized with future price increases and lower marketing costs. It’s the brand equivalent of that thing on your phone where the app defaults to “sure, you can access my data.”
Pulling this thread a little bit further, you might wonder why the button isn’t just built into the product packaging instead of shipped out as a separate item (I did). I think there are a few reasons. First, the electronic components inside the Button cost about $1.50 or so. That’s not a lot to amortize across a year or more of purchases (until the battery dies) but it would be too much to add to every in-store purchase (shipped re-purchases would be packaged without it) given that many of them would go unused.
Of course, the bigger reason (that made me go “duh” when I thought of it) for this is that this *is* a disintermediation play and no grocer is going to allow a Button’d product on their shelf that encourages Amazon re-purchases. That’s the button that the large grocery chains should have built (but didn’t for the reasons that Simon points out).
Actually, I think that’s wrong. This isn’t a disintermediation play (you won’t be buying Tide direct from P&G), this is a *reintermediation* play that simplifies P&G’s logistics and gives them better customer lockin, but with a tradeoff should scare them. If Button works they will get the lock in they want, but via a partner with the kind of market power that only Walmart wielded in consumer goods up until now. It looks attractive today, but down the road they’ll probably be looking at Amazon the way book publishers do.
Oddly, while Amazon isn’t letting consumers (or retailers) configure their own Dash Buttons, they did also announce the Dash Replenishment Service that allows developers to embed auto replenishment into a device’s electronics (think printer cartridges) either through a button push or automatically when something runs out. It doesn’t appear that Amazon charges any fees for this they appear to doing it for the spend-through it will generate.
By the way, if there is a surprise in this, it’s that Walmart didn’t do it. After all, there would be tremendous synergies between in-store and online purchases. Walmart *could* put buttons on the shelves with no worries about losing the downstream business, and they are a reasonably technical company (at least in analytics) so might have been immune to some of the innovation problem of more traditional retailers. However, without Amazon’s online focus plus growing hardware competency, it probably just wasn’t in the sweet spot of possibility.
It’s worth returning to Simon’s notion about the tie-in between newspapers and the Dash Button for a moment. The Dash Button solves the problem of recurring orders of high-use consumables, but it may make the problem of marketing new products worse as a result (if it keeps you from even walking into a grocery store, or down certain aisles). Newspaper ads with embedded buy buttons might be the perfect antidote, assuming they still exist.
I see some difficulty in this though. Assuming it becomes practical to print electronics as complex as wi-fi or bluetooth onto newsprint, it seems unlikely that we would go through a cumbersome wi-fi authentication process to push a buy button on a one time ad. Would we authenticate an entire newspaper, or even our subscription? Maybe, but if my copy of the paper isn’t electronically unique all kinds of fun pranks come to mind. My neighbors have barking dogs that just won’t shut up. I’d love to stand on the sidewalk in range of their wi-fi and push all the buttons for incontinence products, even if all it does is fill their inbox with “did you order this?” messages.
Asking a printing press to print unique electronics and then deliver each version to the right house so that wi-fi authentication only has to be done once is going to be a hard and logistically expensive problem to solve. So, pick your poison: delivery custom uniquely personalized papers to each doorstep or accept a non-authenticated “buy” button sitting on your doorstep. Near field communications embedded into the paper might solve the authentication issue by enforcing proximity with a reader in your possession (and authenticated to you), but then you might as well skip the cost of embedding electronics and just a QR Code.
This post is about first impressions, which needless to say may turn out to be wrong, and there is one other impression that the Dash Button made on me on first encounter. When I watched Amazon’s video the thing that jumped out at me was the giant cardboard box used to deliver that one jug of detergent. With the Dash (not the button) Amazon advertises that you can scan items to add to a list for future delivery, but with the Dash Button they seem to be saying that every button push will be delivered separately. In an era when grocery stores are encouraging us (or compelling us, depending on where we live) to re-use grocery bags, this strikes me as irresponsibly wasteful. And that’s not counting the fuel cost to deliver those packages to our doors.
Figure: That’s an awful big cardboard box for one jug of Tide.
I grew up during the gas crises of the 1970’s. In that era we were encouraged to “make all of your stops in one trip to save gas.” People have begun to comment on the societal cost of individual Amazon deliveries of every little thing compared to a bulk shopping trips. But here Amazon seems to be outdoing themselves. They already hide the incremental cost of delivery inside of a blanket Prime account membership to take the sting out of adding a $5 delivery charge to each delivery of a $10 item but with they Button they seem to give up any pretense toward sustainable practices. It’s fascinating to see this story the same day I’m reading these stories about Canadian deforestation. Amazon, if you are going to rule this much of the American retail economy you’re going to need to learn to be more responsible than this, even if we don’t always encourage you to with our purchase habits. A simple default setting that bundles purchases unless a rush order is indicated would work wonders.
Looking at Dash, Dash Button, and Dash Replenishment Service, it’s clear that Amazon is intent on locking up our recurring purchases. The Dash Button is fascinating because it hints at potential for cheap, essentially disposable, networked hardware to fundamentally influence business models and business relationships and, in this case to make a recurring ordering system actually work. I wouldn’t underestimate its impact.