Or (The Future of Amazon Prime)
Amazon Dash Buttons have been written off as a misguided corporate strategy, a failed product, a gimmick, an April Fools Joke, or as (my favorite) a symptom of Amazon’s slow spreading disease. Though the buttons are an easy punching bag, their criticism is short-sighted. Amazon Dash Buttons are one way Amazon plans to increase engagement across its Prime ecosystem and give customers less of a reason to shop anywhere else.
Ladies and Gentleman, it is time to take the Amazon Dash Button seriously.
The Wonderful World of Amazon Prime
If “people will want to buy more than just books on the internet” was Amazon’s big bet of the 1990's, then Amazon Prime is their big bet of today.
Peter Thiel contends that “monopoly is the condition of every successful business,” but online retail is the anti-monopoly. With many buyers and sellers, homogenous products and near perfect information, it is a textbook example of perfect competition. Recall Econ 101: firms in perfect competition are price takers. If a firm in perfect competition raises prices, buyers will go elsewhere.
If Amazon can’t raise prices without losing market share, how can it grow?
Prime is the Amazon’s solution to the perfect competition problem. Prime was launched ten years ago as an all-you-can-eat free and fast shipping program. Customers pay $99 year to be a part of this “savings club.” So even if Amazon can’t raise prices, it can always raise Prime membership fees (as it did in 2014 by $20).
But in order to raise membership fees Amazon must increase the value of Prime for members by bundling other products with Prime. To date Prime Instant Video has been Amazon’s most valuable addition to Prime. Instant Video increases Prime free trial starts, conversions to paid membership, and renewal rates. It’s a valuable service that people love — and some would be willing to pay more for it.
Prime Music and Prime Photos are other products Amazon hopes will increase value for Prime members. These products have very high fixed costs which represent significant barriers to entry. By bundling them together Amazon is creating a quasi-monopoly of its own. No company in their right mind would try to build a competitor to this strange conglomeration of expensive and barely profitable services.
Amazon is removing friction from the buying experience.
The bundling of these services has an additional benefit: increased engagement within the Prime ecosystem. You’re watching TV with your Amazon Fire Stick and an ad comes on. Now you can buy it right then and there, no Google, no friction. Amazon becomes the starting point for online purchases and gives customers less of a reason to shop anywhere else. When customers stay within the Prime ecosystem, Amazon does not have to abide by the laws of perfect competition. It can set prices (to a degree) and buyers will remain loyal.
When Amazon launched Prime with free Super Saver Shipping, the company gave up millions in shipping revenue its first year. Amazon wagered that if it could achieve scale it could significantly reduce the cost of shipping and turn a profit. With Prime Now, Amazon is doubling down on this bet. Prime Now offers members free two-hour delivery on tens of thousands of its most popular items. Prime Now streamlines the buying experience for customers and is another way Amazon plans to keep customers within its ecosystem. If I know Amazon can get me what I need faster than anyone else, why would I shop anywhere else?
Dash Buttons are another way in which Amazon is removing friction from the buying experience. More on that in the next section.
The Dash Button Lifestyle
Ilive in San Francisco with 3 roommates and for the past two years we’ve been out of paper towels approximately 90% of the time. Our apartment is a Tragedy of the Commons — it’s in my best interest to let my roommates buy paper towels, but it’s in their best interest to leave it to me, so we all suffer. This is compounded by our “San Francisco” lifestyle. We work long hours at companies that provide breakfast and lunch. Someone orders Postmates every single day. Trips to the grocery store just aren’t in our weekly routine. Also, didn’t I buy the paper towels last time?
I ordered a Bounty Dash Button two months ago and for the first time in a long time I’m certain there are paper towels at the house. If we’re close to running out someone will press a button and we’ll have it in two days. I just Venmo everyone when I see the order show up on my phone. Paper towels are about $8 more on Amazon than at Safeway (thanks Dash Button Dudes) but divide that between the four of us and it’s a small price to pay for the convenience.
The experience might not be compelling enough for everyone, but it is for us. We’re ordering more stuff from Amazon, more frequently, and couldn’t be happier about it. Life inside the Prime ecosystem is so easy that we have little reason to shop anywhere else.
Facebook’s head of growth Alex Schultz (hi alexschultz) says that magic moments are what get people hooked on a product or service. For Facebook that moment was seeing your friends on the site for the first time. For me and my Dash Button, showing up after a long day of work to a fully stocked cupboard was a magic moment — but I’m unique. Amazon Dash Buttons aren’t universally magical right now, but combined with Prime Now’s free two-hour delivery they will be.
Push a button and have toilet paper appear at your front door — now that is a magic moment.— Tweet This
Dash Buttons and Prime Now are just the first steps in creating a magical, frictionless buying experience. Amazon is also investing in voice recognition — just say the word “toothpaste” in front of your Amazon Echo and poof! — and the Internet of Things. With Amazon Dash Replenishment your GE washing machine knows when you are running low on detergent and orders it for you.
The end result — be it Dash Buttons, Replenishment, Echo, or something else entirely — will be a buying experience that is almost invisible, so natural that customers don’t even think to compare prices.
Are we getting lazier?
Critics say that Dash Buttons solve a non-existent problem: How hard is it to go to the Amazon App and buy some freaking paper towels? Are you really so lazy that you need a button?
But how hard was it to pick up the phone and call a cab?
Marc Andreessen puts it better: