retail news in context, analysis with attitude

Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week, we talk about new challenges to Amazon, privacy issues affecting Facebook and other online companies, and the next big thing…

And now, the Conversation continues…

KC: I’ve been fascinated to read a lot of the post-holidays Amazon coverage, because it seems to be all over the map - Amazon continues to blow everybody away, though grocery continues to be a problem in part because of stronger competition, so it plans to do more with its Whole Foods business, expanding it geographically so it can tighten its grip on consumers’ e-commerce preferences.

In some ways, the coverage seems to suggest a company for which things are not going as right as in the past, but to me, it suggests that Amazon is simply facing inevitable realities as it grows and other companies do what they need to do to compete.  I do think its rumored plans to build on its Whole Foods business make a ton of sense, because if Amazon is good at something, it is being aware of its differential advantages and knowing how to exploit them.

I think I wrote last week that these could be dangerous times for Amazon because things inevitably are going to get tougher and more challenging … that’s life.  But the opportunities only are going to get greater, too, I suspect, and the challenge for everybody in the space is finding the “wow!” innovation that changes the game.  And I wouldn’t bet against Amazon.

Tom Furphy:
Happy New Year! We could write an entire book on this.

Amazon has gotten large enough, its experiments wide enough and initiatives so advanced that more of the experimentation is happening in view of the customer. I would estimate that somewhere over 90% of Amazon’s experimentation happens inside the company, away from the customer’s view. As they become larger, the 10% that customers can see become larger bets, higher profile and more plentiful. Amazon is comfortable with that.

I won’t say that it will always be smooth sailing and that Amazon will be immune to failure and to competitive losses. They fail all the time. And they are as vulnerable as anyone. They will continue to make many mistakes, and some will be costly. Along the way they will bring some “wow” innovations to market. And they’ll keep raising the bar so that today’s wow is tomorrow’s table stakes.

However, I would also warn that most of the growing pains that we see publicly are not necessarily signs of weakness or vulnerability – certainly not any more than Amazon has traditionally had weaknesses and vulnerability. I don’t think anyone in the industry – competitors, suppliers or pundits – should take any joy or solace in these public struggles. It’s all part of innovation and growth. It’s how they’re wired.

The Whole Foods expansion seems consistent with Amazon’s general growth strategy. They like to experiment and iterate on a small scale, which they did initially in just a few markets, then expand sequentially once the various service elements are proven. We’re a year-and-a-half post the acquisition. That seems like a good timeline to reach this upcoming expansion. And expansion supports Amazon’s overall strategy to solve all of their customers’ shopping needs, with Grocery being a key pain point and large share of wallet.

Finally, I also agree that Amazon’s competitive set in the Grocery category is getting better. Grocery delivery or pickup is available in almost all reasonably sized markets in the US. The work that Walmart, Kroger, Target and others are doing is admirable. As retailers get better at serving customers on their own or with partners, it will put increasing pressure on Amazon to be better. And vice versa. In the end, that’s a win for everyone.

KC: I’m curious to what degree you think that Facebook’s various problems - all of them related at their core for caring far more about profits and capitalizing on user information that it does about use privacy concerns - are likely to have an impact on how consumers see all technology companies.  Is it inevitable - or at least likely - that if consumers learn not to trust Facebook, they’ll be more inclined not to trust Google and Apple and Amazon and so forth…?  And how should these companies build their cultures and structure their internal DNAs to have the right priorities and, at the same time, the right approach to transparency?

Yes, I do think it’s a risk that Facebook’s privacy issues will impact consumer trust in other technology companies. I think that there is a pervasive concern that companies may exploit user data or be vulnerable to attacks or other misuse of the data. And it’s justified.

However, I also believe that most of these other companies take security and privacy very seriously. They understand how critical it is to success. They teach it to their employees and partners from the beginning and they embed it in all they do. It’s their lifeblood.

The synergy between data and utility is powerful. As long as the data is kept secure and used to the clear benefit of the customer, I think you will continue to see services get more personalized and provide more utility to users. When companies understand that, protect the data, and are allowed to push the envelope on capabilities, wonderful things can happen.

That’s not to say that there are not risks out there and that all companies can be trusted. Companies must earn and maintain that trust over time. New companies should be viewed with some level of skepticism, have their policies challenged initially and then prove their credibility over time by keeping data secure and appropriately using the data in expanding ways to their customers’ benefit.

KC: Since this is the first Innovation Conversation of the new year, let me ask you this - what do you think will be the driving theme behind the next big consumer-centric technological innovation?  I’m not asking for a specific prediction about a specific product … but rather what you think will be the big problem that will be addressed by a big solution?

I think we’re going to see the biggest consumer-centric innovations occur in health care. We know that some of the highest search volumes on Google are related to medical conditions. People want to take care of themselves without the cost and convenience burden of the traditional office visit. At the same time, connectivity to the human to measure health and wellness indicators is getting quite advanced via IoT devices, wearables, online engagement, AI and machine learning. This is the perfect match between human need and market capability. And it’s going to feed on itself in 2019 and beyond.

There is a massive opportunity for retailers and brands to participate in this movement. As consumers evaluate and manage conditions with trusted online experts, retailers can provide access to prescriptions and products to support care. Retailers can be wellness advisors, nutritionists, chefs and product experts. The data that will be generated from these platforms, while being kept safe, can be used by retailers to further personalize and improve their service to shoppers. And manufacturers can use the data to develop new products and formulations to meet patient/shopper needs.

It’s a massive industry that is ripe for disruption. I think we’ll see large strides forward in 2019.

The Conversation will continue…

KC's View: