Amazon Payments: Friend or Foe to Resellers?

By Kevin Kogler, President of MicroBiz

By now, everyone reading this article should know that Amazon has entered the mobile point of sale market with the release of Amazon Local Register. The service is a secure card reader and mobile app that allows local businesses to accept credit and debit card payments from a smart phone or tablet. Amazon is offering a below market ‘teaser’ flat rate of 1.75% in an attempt to grab quick market share from Square, PayPal, ROAM and others.

So Why is Amazon Willing to Lose So Much Money on Amazon Local Register?

Given that Square lost hundreds of millions with its 2.75% flat rate offering, why would Amazon be willing to lose even more with its 1.75% flat rate offering? The rumblings around Silicon Valley are that Amazon’s vision is far greater than putting Square out of business or disrupting eBay’s profitable PayPal service. Rather, Local Register is the first step in a grand plan by Amazon to be the dominate player in the bricks and mortar retail world – which still comprises 85% – 90% of total purchases – in the same way that Amazon dominates the online world.

At a very high level, Amazon’s strategy for physical or offline retailing is to:

  1. make it easier for a wider array of brick-and-mortar shops to sell on Amazon; and
  2. provide Amazon shoppers another way to receive orders on the same day they are purchased.

Amazon Local Register is just the first step in getting local brick and motor retailers reliant on Amazon’s retail management services and technologies. This initial plan is to capture retailers that have wanted to sell on Amazon, but did not have the time or resources to post items on Amazon.com. The long-term plan is for Amazon to be able to reduce its own fulfillment and infrastructure costs by ‘free riding’ on the investments these local retailers have made in their physical store locations, employees, inventory, merchandising/brand and customer service.

Amazon’s Grand Vision to Dominate the Retail World

Amazon’s vision is to give online shoppers who want to purchase products on Amazon.com the option of same day delivery by leveraging the local inventory and service infrastructure of tens of thousands of local retailers. To drive business to this local retail network, Amazon wants to show online shoppers the price and real time availability of the item being purchased at several retailers in the online shopper’s immediate neighborhood. The online shopper would then have a couple options for fulfillment. One option of course would be the current shipping options offered by Amazon (Amazon Prime or other 3-10 day shipping options). Additionally, through this network of Local Register retailers, Amazon would allow Amazon online shoppers to either pay for or reserve the product on Amazon.com and then pick it up from the physical store stocking the item. Another Local Register-enabled option would allow Amazon online shoppers to have these goods delivered directly from the store on the same day an order is placed. The local retailer partner would either handle the local delivery itself for a fee, or more likely, use a crowd-sourced network of delivery people (also rumored to be in the works by Amazon) to deliver the goods.

How Amazon Plans to Get Brick and Mortar Retailers ‘Addicted’

Amazon is smart enough not to announce its end strategy all at once – as this would scare off local retailers already wary of the ‘evil empire’ based in Seattle. So, Amazon intends to use a stealthy plan to gradually get retailers addicted to the benefits of aligning with Amazon – despite the risk that Amazon could eventually cannibalize their business.

This would involve several phases. The first step is to establish a billing relationship with the local brick and mortar retailer – which is where Amazon Local Register fits in. Amazon is hoping that the low teaser rates and some simple management tools will provide enough incentive to get businesses using an Amazon POS system. The benefit to Amazon is that the Amazon Local Register proves it with a view into the types of transactions flowing through local offline businesses.

The second phase would be to increase the reliance on Amazon technologies. Amazon plans to keep introducing more software tools into the point of sale software included with Local Register. This will help retailers keep better track of their in-store inventory. While these tools will help the local retailer, they will also provide Amazon’s more detailed information on product mixes, inventory levels, costs, margins and sales volumes at the local store level.

As the strategy progresses, Amazon would provide tools to help local businesses sell more easily though the Amazon.com marketplace. Retailers would use the Amazon-provided tools to list items on Amazon – or send some inventory to Amazon and let the giant online retailer handle shipping.

Eventually, Amazon would tie these local stores into their fulfillment system, using these stores as pickup locations for crowd-sources delivery contractors that support same-day delivery, too.

Amazon expects local retailers to be attracted to the ability to sell into Amazon’s online customer based – as well as the potential of Amazon sending local buyers to their physical stores to buy and pick up goods. To accomplish this, Amazon will need access to up to date inventory information from its local retail partners or risk shoppers ordering items for pickup only to find the store is out of stock.

Keep in mind that the assets that Amazon is deploying can be used for markets other than retail. The Amazon Local Register is also being used by local service providers, such as plumbers and repair businesses. Amazon is rumored to be developing an online review site and directory that will compete with existing service-focused marketplaces such as Angie’s List and Yelp. Amazon Local Register could provide data that will help power its service provider directory.

How Does This All Impact the Reseller Community?

Amazon has shown no interest in working in partnership with the existing players in the market while going after a new opportunity. While Amazon has not disclosed details on its go-to-market strategy, history would suggest that Amazon will not be embracing an indirect model or trying to sell POS systems through the reseller community.

What should VARs do? First, many retailers are going to be dubious of using a technology from a company that was founded with the primary goal of putting local retailers out of business. At the end of the day, Amazon is interested in growing its business – not the retailer’s business. So, VARs should educate retailers on the risk of turning over data and eventually their operations a direct competitor of their business.

Second, VARs should establish an omni-channel strategy. The lines are blurring between offline and online commerce, and more and more retailers are selling through multiple channels (stores, e-commerce, marketplaces such as eBay and Amazon). VARs need to educate themselves on best practices in omni-channel retailing in order to continue to be viewed as a trusted advisor to their retail customers. Do not be afraid to evaluate other technologies if your current partners are not moving fast enough.

Third, there are competitive solutions available today. Many enterprise retail software vendors have developed onmichannel solutions. There are also affordable cloud-based systems that can be integrated with other apps to create an onmichannel platform for the SMB market. For example, Amazon’s direct competitor eBay has products leveraging PayPay, eBay Market Place and other technology assets such as the Magento e-commerce platform. Plus, eBay is a technology provider to retailers and does not compete directly with its retailer customers.

Forth, Amazon will be challenged to meet the needs of all types of retailers without becoming overly complicated. Each retail vertical has different workflow needs, and every retailer does things a little different. So retailers need the expertise of a VAR to help select, customize and install the best system for a particular retailers needs.

Looking at the recent stream of announcements by Amazon, and you will see that Amazon is trying to compete with everybody – Netflix (Amazon Prime Video), Google (online adverting network), Apple (Kindle Tablet/Mobile Phone), PayPal (Pay with Amazon), etc. While Amazon is clearly all about using its scale and pricing power to gain an advantage over smaller competitors, at some point Amazon’s investors will demand that Amazon narrow its focus and stop incurring huge losses to launch new businesses.

None of this happens overnight. To achieve scale, tens or hundreds of thousands of businesses will need to adopt Amazon’s credit card reader and checkout software. Given that Amazon has just launched a basic card reader, it will be a long time before any of these plans become reality.

About MicroBiz

MicroBiz develops cloud-based omni-channel POS and inventory management software for small to mid-sized retailers seeking to manage their store inventory, e-commerce site, online marketplaces and mobile point of sale terminals from a single platform. MicroBiz was founded in 1985 and is based in Menlo Park, CA. MicroBiz software has been purchased by over 25,000 retailers in 20+ countries.

Note: These are the views of the author and do not reflect any inside or non-public information provided by Amazon.