The first is the actual cost of buying and installing the equipment those costs, like rent, are incurred regardless of how much revenue the store ultimately produces.įar more extensive, though, are the costs of developing the underlying systems that make Amazon Go even possible. In the case of Amazon Go specifically, all of those cameras and sensors and smartphone-reading gates are fixed costs as well - two types, in fact. Certainly the more it serves the better: that means the store is achieving more “leverage” on its fixed costs. In the case of convenience stores, rent is a fixed cost 7-11 has to pay its lease whether it serves 100 customers or serves 1,000 in any given month. To sell 100 more items requires even more time - costs increase in line with revenue.įixed costs, on the other hand, have no relation to revenue. That is, for a convenience store to sell one more item requires some amount of time on the part of a cashier, and that time costs the convenience store operator money. To understand the economics of tech companies one must understand the difference between fixed and marginal costs, and for this Amazon Go provides a perfect example.Ī cashier - and forgive the bloodless language for what is flesh and blood - is a marginal cost. This point is foundational to nearly all of the analysis of Stratechery, which is why it’s worth repeating.

Most of all, the implications of Amazon Go explain both the challenges and opportunities faced by society broadly by the rise of tech. The economics of Amazon Go define the tech industry the strategy, though, is uniquely Amazon’s. The trick is that you don’t pay, at least in person: a collection of cameras and sensors pair your selection to your Amazon account - registered at the door via smartphone app - which rather redefines the concept of “grab-and-go.” Yesterday the Amazon Go concept store in Seattle opened to the public, filled with sandwiches, salads, snacks, various groceries, and even beer and wine (Recode has a great set of pictures here). I’m in Seattle and there is currently a line to shop at the grocery store whose entire premise is that you won’t have to wait in line.

Amazon go store