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Convergence Disrupted: Amazon Goes Brick-and-Mortar

Amazon locker

Disintermediation is the heart of the Internet’s value proposition; cutting out the middleman in order to reduce distribution costs at scale. Now the first and best example of this point, Amazon.com, is quietly going a bit in the other direction.

According to a report Monday by Reuters, Amazon is installing “lockers” in 1,800 Staples office supply stores nationwide. These are not cloud-based digital content lockers, but instead large automated dispensing machines.

The Amazon lockers at Staples will allow online shoppers to have packages sent to the office supply chain’s stores. Amazon already has such storage units at grocery, convenience and drug stores, many of which stay open around the clock. Amazon.com Inc., the world’s largest Internet retailer, is trying to let customers avoid having to wait for ordered packages due to a missed delivery.

The reason for Amazon’s move, which Seattle-based GeekWire says was quietly launched a year ago, is not difficult to figure out. The “last 30 yards” are the most important part of its supply chain, for which Amazon largely relies on UPS. Yet as consumers, especially Americans, now spend little or no time at home during business hours, there is often no one available at the shipping address to receive packages.  That makes the opportunity cost of buying from Amazon, namely the time required for delivery, higher than otherwise the case, in turn making alternatives such as Walmart, Apple and Best Buy in-store pick-up or RedBox DVD rental kiosks far more attractive to buyers. Marketing experts call this the “omnichannel” retail strategy, designed to prevent “showrooming.”

The irony is clear. A company born on the Web, one that essentially birthed the distinction between virtual and brick-and-mortar retailing, is making a big investment (including whatever undisclosed fees it will pay to Staples) in the very companies its business model threatens. While Apple’s retail stores may have been unexpected for a PC manufacturer, they represented an incremental change to the company’s distribution system. Amazon, in contrast, is moving stealthily into a new, mixed-mode business model that embraces part of the IRL retailing segment it once promised to make irrelevant.

Whether this will make a competitive difference remains to be seen. Consumers can now (literally) vote with their feet.

Note:  Originally prepared for and reposted with permission of the Disruptive Competition Project.

Disco Project


Business Methods Run Wild

The U.S. Patent and Trademark office recently granted a patent to NetFlix for their online DVD ordering system. [NYTimes.com]. Now, I am a long-time NetFlix customer, but this indicates there’s a real problem in our patent system with the increasing issuance of so-called “business method patents.” Tim Hanrahan and Jason Fry write in Real Time for the Wall Street Journal that

The Internet bubble may have burst, but one of its unfortunate side effects is still with us, like a drunken partygoer who hasn’t noticed that a) it’s dawn, b) there’s no more beer and c) everyone else has gone home. . . . If you thought the [business-methods patent] controversy was as dead and buried as, say, IPOs for online pet-food delivery businesses, guess again. . . . Could someone — anyone — please grab Mr. Business Method Patent by the collar and heave him out in the hall so we can clean up?

Hear, hear!! It was bad enough with Amazon’s “one-click” patent, but now we’ve got insurance patents, order-processing patents and other patents for what are not inventions, but just ideas. Of course ideas are creative and deserve protection, but they should not be patentable. The difference is that copyright and trademark permit others to use creative ideas — within limits — to make better works, but patents are exclusive. It’s a difference of kind, and a crucial distinction between things that people actually build and things that they just dream of. Dreams are wonderful fantasies, as are business methods patents.