Life is all about teachable moments and Amazon has a treasure trove of them thanks to its long and storied history of payments innovation.
The Seattle-based company is constantly unleashing new payment-related products and services. Some efforts succeed, some fail and the rest are a mixed bag — but regardless of the outcome, retailers have a golden opportunity to learn from Amazon's experimentation.
"Amazon is teaching graduate-level courses to other retailers, who can and do learn a lot from the company about providing sophisticated, ahead of the curve merchandising, logistics and customer experiences," said Allen Weinberg, co-founder of Glenbrook Partners, a Menlo Park, Calif.-based payments strategy consulting firm.
Amazon has made many strides in payments over the years, with some of its most promising efforts shaping the way retailers think about consumers and the sales process. Here are a few of Amazon's most notable success stories.
Streamlining payments. The company is a market leader in making payments easier for customers. For instance, its 1-Click system has been a game-changer for the online checkout process. It allows customers to make online purchases seamlessly because their payment information is already on file. Other retailers have sought to emulate Amazon's user-friendly checkout system, and Apple Inc. has licensed the company's 1-Click patent and trademark for use with its online store.
Amazon, which did not respond to requests for comment for this story, is also streamlining the payment process for merchants by offering an online and mobile checkout system similar to PayPal's. Amazon's Login and Pay allows shoppers to pay on a merchant's website with the Amazon account information already stored in their browser. The takeaway for retailers is that consumers place a high priority on speed, ease of use, convenience and safety.
"Amazon has clearly demonstrated is that if you make payment easy, shoppers will spend more money with you," said Penny Gillespie, a research director who follows electronic and mobile commerce for Gartner Inc. in Stamford, Conn.
Machine Learning. Amazon has been a pioneer in the science of getting computers to take action without being explicitly programmed to do so. By harvesting various types of data, the company for many years has used technology to gain helpful insights on customers, buying patterns and products they might like. Indeed, more than a third of the company's sales come from recommendations, according to Richard Crone, chief executive of San Carlos, California-based payments consulting firm Crone Consulting LLC.
Amazon has also begun using machine learning to improve its star-rating system and the trustworthiness of reviews. The idea behind this approach is that knowing your customer leads to stronger, better sales and repeat business—an important lesson for all retailers.
"It's not so much about payments as it is about data and we've only scratched the service on what we can do with payments data," said Crone.
Building Alliances. Amazon is also a market leader in connecting buyers with third-party sellers. The early days of the service had some wrinkles, but Amazon has since ironed out many of them and has prospered from the alliances it has formed. Third-party sellers accounted for more than 40 percent of the total units sold on Amazon in 2014, according to company data published in January.
It's hard to be all things to all customers, but taking a lesson from Amazon, retailers can choose to broaden their product offerings by developing an online marketplace of their own, like Walmart has done. Or, they can do something on a smaller scale by partnering with select non-competitors who can supplement products they don't offer but relate to their core products and are interesting to their customers.
"It's a competitive advantage in that I'm able to deliver the value that my customers want and I'm able to extend a service that extends beyond my inventory," said Ben Jackson, director of the prepaid advisory service at Mercator Advisory Group, a market research and consulting firm in Maynard, Massachusetts.
One twist on this strategy is the Plenti rewards program, which spans multiple retailers but generally limits participants to companies that don't directly compete with one another, like ExxonMobil and Macy's.
Of course, no company can be perfect at all times, nor should it want to be.
"Amazon is a very experimental company. They take innovation very seriously. An advantage they have is that they aren't afraid to fail," Jackson said.
Here are some of Amazon's biggest blunders along with some takeaways for retailers.
Amazon Local Register. In the summer of 2014 — and with considerable fanfare — Amazon rolled out its mobile app and secure card reader to provide merchants with the tools to accept credit and debit cards in person. With Amazon Local Register, the company threw itself into direct competition with Square, PayPal and others, attempting to woo merchants with the promise of excellent customer service and low prices. But the effort was short-lived. The mobile card reader service is no longer available to new merchants and will be completely shut down by Feb. 1, 2016.
"I never got the feeling that Amazon was really serious about it," said Brendan Miller, a principal analyst who follows the mobile commerce and payments space for Forrester Research Inc.
The functionality Amazon provided paled in comparison to Square's offering and Amazon never did much to make it more competitive besides making its fees less expensive than Square's pricing. The earliest criticism of Amazon's device was that the device seemed half-baked and did not work with users' existing Amazon accounts. "[Amazon] never made the big investment," he said.
The lesson for retailers is clear. If you can't give something your all, then perhaps it's best to focus your efforts elsewhere. Indeed, in shuttering Register, Amazon said it intends to concentrate instead on the one-click Pay with Amazon app and further embedding payments into its customer relationship management.
Amazon Wallet. Amazon quietly launched its Amazon Wallet beta in late July 2014 and pulled the product from market six months later. It allowed users to store and manage gift and loyalty cards, but not credit or debit cards. Many viewed this limitation as a nail in the app's coffin.
Noteworthy for retailers is the importance of giving customers payment choices. While loyalty programs are important, it's clear that consumers also like network cards because they can be used anywhere. "Customers want choice, but they are only going to adopt payment methods that add additional value," said Gartner's Gillespie. A wallet app "is not going to become mainstream unless there's a strong value-proposition," she said.
The Fire Phone. Amazon also failed in its attempt to compete as a mobile phone distributor. The company designed the phone around shopping and payment capabilities, but its experience here underscores to retailers the difficulty of breaking into certain markets and the importance of really understanding the competition before moving ahead.
Amazon proudly touted the Fire Phone's capabilities at launch-time in the summer of 2014, but ultimately consumers weren't wowed by the device, sales fizzled and Amazon stopped selling it about a year later.
The Jury Is Still Out
Despite these high-profile flops, Amazon keeps trying, which is one of the reasons the company is so successful, industry watchers say.
"The key is to fail smart. You have to know when to pull the plug on something and how to take prudent risks. The other piece is making sure you are learning from it," said Weinberg, of Glenbrook Partners. "The worst thing to do after you fail is to shut down further innovation just because of the failure."
Indeed, Amazon continues to develop products that could potentially change the face of retailing as we know it. Here are a few examples of some newer offerings that show promise:
Firefly. While the Fire Phone was a bust, it had an innovative feature that is still available on certain Amazon devices and could be used more widely down the road. The Firefly software can scan its surroundings and identify products by look or sound. It would then direct users to the product's listing on Amazon's website, whether it's a physical item such as a book or a digital item such as a TV episode.
Right now, Firefly works on Amazon devices including Fire HD, Fire HDX 8.9, Kindle Fire HDX 8.9 and Fire Phone. If it gains broader traction beyond these few devices, it could have a big impact on how people shop across digital and physical channels.
"Any technology that's device-contingent always narrows down the prospects for using it, which has a direct correlation to success," said Gartner's Gillespie.
Amazon Dash Button. It's a sticky-backed battery-powered WiFi button that, when pressed, connects to the Internet and automatically places an order via Amazon for a specific household item.
The limitation of the product is that each button is specific to the brand on its label. A button for mac-and-cheese cannot be repurposed for reordering rolls of toilet paper.
Nevertheless, Amazon said in an Oct. 22 press release that Amazon Dash Button has received an overwhelmingly positive customer response and selection continues to grow; customers can now choose from over 500 products from 29 popular brands. Amazon has also formed relationships with more than a dozen device makers including General Electric, Samsung and Oster, to allow customers to order a wider range of physical goods from Amazon.
"Any retailer that delivers through the mail could do this," said Jason Oxman, chief executive of the Electronic Transactions Association, a global trade group. He personally owns four Dash buttons for household products like garbage bags and laundry detergent. He stuck the Tide button on his washing machine, so he can quickly reorder detergent pods through Amazon when he runs low.
Crone, the payments industry consultant, predicts that retailers will start to provide similar ordering systems for use within people's homes, cars and businesses. Amazon is paving the way, but he expects the concept to be more commonplace within the next three to five years.
Amazon Echo. The device sits on a table or a counter in your house and responds to voice-activated commands. You can use it in multiple ways, such as to play music or get news, weather or traffic conditions. What's notable for retailers is that customers can also use the voice-activated technology to purchase products directly from Amazon. With a spoken command, "you can access any product that Amazon sells and it will put it on your shopping list," said Oxman, who bought the Echo the week it became available. "It can't be any more streamlined."
While it's yet another gadget that consumers must pay a hefty price to own — Amazon typically lists it at $179 — there's something to be said for products that bring a retailer directly into a customer's home and make purchasing items easy. "It's a new way of enabling online commerce where you don't need to go to your computer and type things in," Oxman said.
The Bottom Line for Retailers
Certainly merchants have had and will continue to have a love/hate relationship with Amazon, and for good reason. But the company's successes, failures and repeated attempts to innovate should set the bar for other retailers and empower them.
"I think that's the great lesson from Amazon: That no matter what you think your business is today, it requires continual reinvention," said Gillespie of Gartner. "It's that continual reinvention that has brought the company to where it is today."