Amazon (NASDAQ:AMZN) recently announced it would sell Amazon Go's automated checkout technology to other retailers. Shoppers will be able to enter stores by scanning their credit cards, cameras and sensors will track the objects they add to their carts, and they can simply walk out of the store to complete their purchases. The service, dubbed "Just Walk Out," isn't tethered to an Amazon account like Amazon Go.
The Wall Street Journal recently claimed that Amazon offered the service to Walmart (NYSE:WMT) and Target (NYSE:TGT), but neither retailer was interested. That chilly response wasn't surprising since both companies view Amazon as a major competitor -- but it also highlights a crack in Amazon's armor, which rivals like Microsoft (NASDAQ:MSFT) and Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google can exploit.
Walmart and Target already have big tech partners
Walmart and Target were both once major customers for Amazon Web Services (AWS), the top cloud infrastructure platform in the world. But over the past two years, both retailers reduced their dependence on AWS via partnerships with Microsoft and Google.
In 2018, Walmart signed a five-year partnership with Microsoft to make Azure its "preferred" cloud infrastructure service. Walmart converted its websites and apps to run natively on Azure and used Microsoft's tools to bolster its machine learning, data management, and supply chain management capabilities.
Microsoft also reportedly helped Walmart develop cashierless stores to counter Amazon Go. Microsoft also inked similar cloud and smart retail deals with major retailers like Kroger and Walgreens Boots Alliance.
Target shifted some of its cloud infrastructure to Google Cloud in 2018. Google signed similar cloud deals with Home Depot, IKEA, and Bed Bath & Beyond. Google hasn't dabbled with cashierless tech like Amazon and Microsoft yet, but it wouldn't be surprising if it joined the nascent market.
Why Microsoft and Google are more attractive partners
Walmart, Target, and other major retailers are turning their backs on Amazon because they don't want to feed the e-commerce giant's strongest business. Amazon generates most of its revenue from its online marketplaces, but most of its profits come from AWS.
AWS's revenue rose 37% in 2019 and accounted for just 12% of its top line. However, its operating profit rose 26% and accounted for 79% of Amazon's operating profits. AWS's high-margin revenue subsidizes its e-commerce unit's low-margin strategies -- including Prime memberships, digital content, and cheap Echo devices -- which lock in more shoppers.
Walmart and Target didn't want to keep feeding that profit engine, so they turned to Microsoft and Google instead. Therefore, there's no reason to believe that either retailer will ever deploy Amazon's "Just Walk Out" technology in their stores.
Moreover, Walmart and Target already offer other streamlined (albeit lower-tech) checkout options, including self-checkout kiosks and curbside pickup for online orders. Installing massive networks of cameras and sensors across their stores, which are considerably larger than Amazon Go's stores, would also be costlier and messier -- and the initial setup costs could offset any potential benefits.
Does "Just Walk Out" have a future at all?
Amazon stated that its "Just Walk Out" service won't be linked to its own e-commerce ecosystem in any way and that it wouldn't gather any data from those retailers. Unfortunately, Amazon can't change its reputation as a "retail bully" overnight, and many retailers won't be eager to use any Amazon-branded service.
There also aren't any clear statistics about loss prevention at Amazon Go's existing stores, but there have been plenty of reports of intentional and accidental shoplifting. Installing a pricier system that is less effective at loss prevention than manned checkout systems would be a lose-lose situation for early adopters.
Lastly, cashierless tech already went through a boom and bust cycle in China, where JD.com and Alibaba scaled back their automated plans due to high expenses and the challenge of restocking perishable goods. If Walmart is actually interested in deploying cashierless tech across all its stores, JD -- which it already owns a major stake in -- might be a better partner than Amazon.
The bottom line
Amazon might convince a few retailers to try out its Amazon Go technology, but it's doubtful that it will ever gain steam with major retailers like Walmart and Target. Retailers aren't eager to feed Amazon's growth engine, and lower-tech checkout systems probably still work better for most retailers.