Amazon (AMZN 2.08%) opened its first cashierless store to the public in January, and it already has plans to open as many as 3,000 Amazon Go locations within the next few years if all goes well.

But Amazon might have even bigger plans than just putting a convenience store on every corner.

The online retail giant is testing its "Just Walk Out" technology in larger format stores, according to a report from The Wall Street Journal (subscription required). If Amazon can successfully adapt the technology to suit bigger stores with greater square footage, higher ceilings, and more foot traffic, it could implement it in its Whole Foods locations. Beyond that, Amazon could license the technology to competing retailers, providing a source of high-margin revenue.

The sidewalk in front of an Amazon Go location.

Image source: Amazon.

A lot of challenges

It's important to note there are several challenges to overcome in order to expand Amazon Go's technology to larger store formats. Amazon notably ran into trouble throughout 2017, delaying the launch of its flagship Go location, because the system couldn't handle high amounts of traffic.

Tracking a customer around a larger store can be more complex. It's not just a matter of making the existing system bigger. Ceilings are higher. There's more space for customers to move around. And there are often more customers in the store at any given time.

Additionally, grocery stores like Whole Foods Market sell fresh produce by the pound. That will require a new solution either from the engineering end or from the retail end (price per unit instead of weight).

Another challenge is that some shoppers may not want a cashierless experience. Not everyone wants to scan an app to get groceries. Some customers may want to pay in cash, and others just might not like the idea of Amazon tracking everything they buy. Adapting cashier-less technology to larger-format stores with broader appeal than a convenience store may alienate some customers if there's no other payment option.

Helping the small merchants

Ultimately, the more store formats Amazon can support with its "Just Walk Out" technology, the more versatility it gives the company when it comes to creating its own store concepts or licensing the technology to other retailers.

But the small format might be enough to attract most potential clients. Larger stores like Walmart (WMT -1.69%) aren't going to license technology from Amazon. Walmart is already testing its own idea of a cashierless store, where customers simply scan products with an app as they shop. It's not nearly as elegant as Amazon's solution, but it's a lot cheaper to implement.

Companies the size of Walmart have the capital to develop their own technology if there's significant market demand for a cashierless experience. Walmart, in particular, has been pushing new technological innovation over the last decade or so, so it's no surprise that's it's already testing the idea.

Amazon may have better luck enabling medium-sized businesses to make the most of their retail space. The technology in Amazon Go can help those businesses reduce operating expenses and maximize the value of their floor space since they won't need to hire as many cashiers. The cost structure and shopping experience could help medium-sized merchants compete with the big-box stores.

Amazon already works closely with third-party merchants with its online marketplace and advertising products. It's not a big leap to get similar types of brick-and-mortar merchants to sign on with Amazon for their mutual benefit. Amazon may even be willing to license the technology for free in exchange for an exclusive cloud computing contract necessary to run everything.

Amazon will certainly want to get its technology working proficiently across as many store formats as possible. Reports that Amazon is working on several Amazon Go formats make sense, and that it might adapt and test the system in Whole Foods makes sense, too. If Amazon can prove out the value of the technology, it could have another big source of high-margin revenue down the road.