The Amazon Way on IoT (My Notes)
- Principle 1: Reinvent Customer Experiences with Connected Devices
- Principle 2: Enabling Customers Anytime, Any Way
- Principle 3: Continuous Improvement via Connected Devices
- Principle 4: Do the Math - How IoT Enables Better Insights and Analysis
- Principle 5: Think Big, but Start Small
- Principle 6: How to Become a Platform Business Using the Internet of Things
- Principle 7: The Outcome-based Business Model
- Principle 8: The Data is the Business Model
- Principle 9: Disrupting the Industry Value Chain
- Principle 10: Synergies of the Flywheel
My write up notes reading John Rossman's book: The Amazon Way on IoT.
In this book, John Rossman proposed 10 principles to help business leaders and product owners implement successful IoT strategies.
IoT can be used to:
- Improve customer experiences. 👉 Principle 1, 2
- Improve and streamline operations. 👉 Principle 3, 4, 5
- Develop new business models. 👉 Principle 6, 7, 8
Principle 1: Reinvent Customer Experiences with Connected Devices
Customer obsession is the first principle of Amazon Principles.
What is the connection between user experience and customer obsession? User experience builds customer obsession/trust. The customer obsession then leads to long-term profits.
What’s the difference between customer obsession and customer focus? Customer focus means a shiner, more-profitable short-term opportunity, while customer obsession means being willing to do really hard things just to make life easier for its customers.
A list of innovative features from Amazon:
- Customer Reviews
- It was controversial when it first launched, vendors and brands wanted shoppers to see the positive reviews only, but Jeff and Amazon were sure of themselves that it is the only way to build long-term customer trust.
- Free Everyday Shipping
- 1-Click Ordering
- By the time you have entering login, billing, and shipping information fifty to a hundred times, you’re talking about five hundred plus minutes of your life you won’t be getting back.
- Look inside the Book
- Lifting book sales between 5 and 15 percents
These are features created following the strategy of obsessing over a better customer experience to build long-term trust. Using this principle leads the way into IoT product space:
- Wasn’t making money on the Kindle, but they were minting money on the products they sold from the Kindle.
- Dash and Dash Button
- It was missing sales opportunities long before its customers even made it to the websites -- particularly when it came to household groceries.
- The next generation of Dash is a set of sensors embedded directly within devices like Brita filters and washing machines. No button pushing necessary. They’ll reorder water filters and laundry soap on their own.
- A faster delivery was durable customer need.
How to put IoT to work for your customers?
- Start with the Customer.
- Walk yourself through an entire day in the life of your customer.
- Root customer obsession deeply into company’s culture.
- Remove Friction.
- What problems do your customers face?
- Is there data you could be collecting that would give you or your customer new insight?
- Think Broadly.
- The speed and efficiency of Amazon’s delivery are the pain points instead of just the design of websites or products they offer.
- Think about the power of IoT to provide a new interface for your customers.
Principle 2: Enabling Customers Anytime, Any Way
Retail has been largely impacted by e-commerce. This stunning transformation has created a new essential core competency for marketers to represent and managing brand and products effectively through multiple channels. From the customer’s side, they are experiencing the same brand from different channels like online, offline, phone, desktop, etc. They expect seamless experiences across platforms and channels.
“Omnichannel” is the idea that customers’ experiences with a company should be seamless across whatever platform or devices they might be using. IoT can help to build omnichannel to provide users with seamless experience.
How to build omnichannel? The core is a company’s capability to master information/data capability. Even more, the most useful data you can collect using connected devices isn’t about the product itself. It’s about your customers. Here are 2 examples:
Where are they? (Beacon technology)
- Are they where near a store?
- What have they searched for lately on your app or website?
- Can you offer it to them at a discount?
- Do they need buy groceries? (Imagine you are selling vacuum cleaners)
- Should you leave vacuum cleaners unconnected, let people fix it when people call for help?
- Or should you make it connected to remotely fix the issues like bag is beyond capability?
- Or should you reach out to let them know that the bag is 75% full and ask if they’d like to order another?
How to create a seamless experience using omnichannel? One helpful way is IFTTT (If This, Then That). It isn’t just useful as a tool, though. It’s also the perfect metaphor to use as you think about ways to improve your customers’ experience across multiple channels:
- Trigger: Connected devices provide an opportunity to identify a trigger
- E.g. “Order an Uber to airport”
- E.g. vacuum cleaner bag reaches 75%
- Action: Put evaluation and logic around that trigger and then specify another action or actions to take place. Anything a sensor can measure or detect can be used in this way.
Where may be the next omnichannel? Cars.
- “Today’s car has the computing power of 20 personal computers, features about 100 million lines of programming code, and processes up to 25 gigabytes of data an hour.” 2014 Mckinsey Report
- Alexa is integrated into Ford SYNC system. Speech interface is the main user interface in the car.
Principle 3: Continuous Improvement via Connected Devices
Many companies have found value through a focus on continuous improvement methodologies like Lean, Toyota Production System, Statistical Process Control (SPC), ISO 9000 Quality Management, and Six Sigma. Many of them require gathering data to make data-driven decisions and continuous improvement. But manual data collection creates limited, slow, and stale data sets.
That’s where IoT comes in. IoT creates an exponential stream of affordable, real-time, and accurate data. This can help make continuous improvement really “continuous”.
Principle 4: Do the Math - How IoT Enables Better Insights and Analysis
“In God we trust, all others must bring data.”
- Measurement with Metrics in 4 steps:
- Define the decision making logic.
- Build an equation to describe that decision making logic.
- Improve the data you’re collecting.
- Use that data to power formulas. Use the formula to drive the decision-making logic.
An example from Clifford Cancelosi in home-repair business:
“Do the math”. At a high level, the efficiency of daily repair capacity for each technician was a function of three variables:
- The mean time it takes a technician to complete a job
- The mean time it takes a technician to move from job to job
- The percentage of times a repair job was completed in one visit
The formula is then this:
(eight hours * percentage first-time completes) / (mean time to complete job + mean routing time between jobs) = effective daily capacity (8 * .75) / (2 + .5) = 2.4
From there, he analyzed the possible errors including the following, which hence becomes metrics:
- Technician efficacy
- Wrong part on truck
- No part on truck
- Scheduling inaccuracy
Once you have the basic formulas, it becomes much easier to understand which parts can benefit from more data collection by connected devices:
- The actual routes of company delivery trucks and the actual time between stops using company provided tablets.
- The movement of key inventory using RFID sensors.
But it is not always making sense to use connected devices, e.g. a trial or short-term low-tech experiment. There are three levels of data-collecting:
- Hand-crafted collecting.
- OPW (Other People’s Work). Amazon Mechanical Turk is an example. People can hire other people to do the data-collecting process. It’s fun to know that Amazon Mechanical Turk is based on the idea that there are still many things that a human can do much more effectively than computers.
- Automate data collecting process with connected devices.
Principle 5: Think Big, but Start Small
The company is known for successfully tackling big opportunities. What many people don’t realize is that, to reach that vision, you’ll need to create and learn from a series of small, agile experiments.
- At marketplace, we thought up front that customers would want to shop through seller-specific storefronts. But as a result, we found customers are more likely to shop by category across Amazon’s entire site hence focusing on improving Amazon’s core browsing and searching capabilities.
- The Amazon Echo and Dash Button were invitation-only products for Amazon Prime customers. Only when feedback and reviews of the Echo and Dash Button were fantastic did Amazon open them up to the public.
Tactics for acting small experiments:
- Low-fidelity prototyping.
- Minimum Viable Product (MVP).
- Functioning prototypes.
- Fail Fast, and Fail Forward.
A few tricks helping company innovate:
- Invest like a Venture Capital Firm, and Create a New Portfolio.
- Create Autonomy and Separation.
- Delicate a Senior, Capable Leader to the Initiative.
- Craft the Right Metrics and Goals. (Hint: They are not typically about profit)
- Integrated Multidisciplinary Teams.
- Create an Insanely Better Products or Service.
Principle 6: How to Become a Platform Business Using the Internet of Things
Platform business matters. Platform businesses create the fundamental capabilities for customers and traditional businesses to do business with one another. It matters because:
- Network effect. E.g. iTunes allows artists to upload and sell their songs to customers. Artists direct their fans to the platform creating a network effect that builds the value of iTunes itself.
- You are crowdsourcing ideas, innovation, and investment to the betterment of your capabilities.
- Besides customer-based platform strategies, B2B (business to business) strategies present more opportunity.
To build a platform, 4 rules:
- Platform should simplify complexity (even make products self-service).
- Platform uses APIs to make embedding easy for customers.
- Platform provides ongoing value.
- Eat your own dog food.
E.g. The Echo is a long-term bet. It is far more than just an interactive home speaker. It’s a new type of computing interface that helps customers interact with their connected devices. Think of Echo as Amazon’s first IoT PC. As a platform, it provides 3 capabilities:
- Sophisticated speech-recognition capabilities.
- Event triggering
- Software platform for voice interaction and integration.
Principle 7: The Outcome-based Business Model
The 3 types of outcome-based business models: self-monitoring products, subscription, and as-a-service. How can IoT integrate with each?
- Self-monitoring product, e.g.:
- Brita water filter 'smart' pitcher automatic replenishments.
- * Business should be aware that disruption, breaking traditions, reorganization, and structural changes will be a part of the fun when choosing to make the switch of integrating IoT to products.
- Subscribe-to-this, e.g.:
- UBI (usage-based insurance) uses a proprietary plug-in device like the Progressive Snapshot or native software in the car to track your driving habits.
- Zipcar blends a monthly subscription model with a per-use fee to provide access to a variety of cars or trucks.
- Dropcam (Nest Cam) sells customers on an affordable home-surveillance camera and optional recording and video storage services on a subscription basis.
- Scout as a home-security business sells a wide array of wireless, easy-to-install, and artfully designed sensors, monitors, and camera that connect to a hub unit. Customers can add a subscription to human-monitored surveillance services.
- As-a-service replaces products that you used to own and operate with the usage and outcome of those products. As-a-service charges for its services based on volume and quality.
- Rolls Royce provides jet engines as a service for commercial airlines.
How to navigate the transition to an outcome-based model? Making the switch to an outcome-based business is tricky and changes almost everything about your organization. Several things to keep in mind:
- Channel conflict. Customer relationship changes from distributors providing services to manufacturers providing services directly.
- Customer education.
- Accounting Uh-Ohs. Outcome-based models often create a revenue dip in the up-front periods. You’ll need to communicate clearly with customers, investors, and others to help set expectations.
- Internal reorganization. Your operations, account management, and sales processes may need changes to provide proactive service and minimize the number of issues.
- New talents. PMs, partner managers, and business-model innovators.
Principle 8: The Data is the Business Model
Through the Internet of Things, companies can collect an unprecedented volume and variety of data -- the new “black gold” -- which they will syndicate to create valuable new businesses and revenue streams.
The syndication business model is a popular approach to do data sales by syndication: the act of collecting, packaging, and selling access to data. HBR Syndication, E.g. Inrix, Experian, Nielsen, and Dun & Bradstreet.
In addition to direct syndication, there are also other indirect business models for working with data. E.g. Google Nest sells insights about customers’ energy, appliance, and utility use to utility companies.
The biggest risk -- and the biggest opportunity -- of the IoT data-brokerage business is its lack of regulation on privacy, data ownership, and security.
- Privacy: think it as three-legged stool
- 2nd stool is the impact of privacy on your business model and value proposition
- 3rd stool is your internal process and architecture for managing and adapting your privacy strategy.
Privacy: Safe Harbor Privacy Principles
- Notice - Individuals must be informed that their data is being collected and how it will be used.The organization must provide information about how individuals can contact the organization with any inquiries or complaints.
- Choice - Individuals must have the option to opt out of the collection and forward transfer of the data to third parties.
- Onward Transfer - Transfers of data to third parties may only occur to other organizations that follow adequate data protection principles.
- Security - Reasonable efforts must be made to prevent loss of collected information.
- Data Integrity - Data must be relevant and reliable for the purpose it was collected.
- Access - Individuals must be able to access information held about them, and correct or delete it, if it is inaccurate.
- Enforcement - There must be effective means of enforcing these rules.
- Security: “Legal by design” and “Security by design”
- It means recognizing the role that legal and security concerns play in the entire product-design life cycle. They cannot be separated or considered just as afterthoughts in the design process.
Principle 9: Disrupting the Industry Value Chain
A value chain is the end-to-end set of processes and activities for an industry. HBR’s classic “How to Map Your Industry’s Profit Pool” outlines the process of mapping your industry’s value chain, including revenue and margin percentage at each step of the way. The summary is as follows:
- Define the industry and value chain. Create boundaries and a definition of the industry you are evaluating.
- Define the size of the revenue and profit pool. For each major step in the value chain, estimate the size of revenue and profits or margin percentages.
- Create a visualization. This is typically accomplished by lining up the industry value chain from left to right and creating a bar graph for each step of the value chain. Assume the Y axis is “margin percentage” and the X axis is “revenue size”.
Principle 10: Synergies of the Flywheel
The flywheel. Considering the physics behind a flywheel: a rotating mechanical device that builds and stores more and more energy the more it rotates. Think about your business as a flywheel.
Three values of creating flywheel:
- Gain a deeper and broader understanding of your industry including opportunities, risks, and dead zones.
- Define your strategy, and prioritize specific actions.
- Help to communicate your strategy to others.
Here are 2 flywheels Amazon retail and AWS’s IoT use:
To build your own flywheel, here are 6 steps:
- Create a preliminary definition and scope statement
- Outline the key nouns and variables
- Rationalize and group the nouns and variables
- Build a causal relationship diagram
- Keep working the model and simplify overtime
- Identify the implications of the model