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KEY POINTS

  • Initially derided as an April Fool’s joke, Amazon’s Dash buttons have caught on with consumers who are placing orders at a run rate of more than a million per year.
  • Amazon has dramatically expanded the number of buttons available from the initial 10 to the current 150. Consumers can purchase household products, health and beauty products, snacks, pet food—even macaroni and cheese—with the push of a Dash button.
  • The buttons serve exclusively Amazon Prime members; they give members more value and entice non-members to sign up.
  • The devices provide significant benefits to Amazon including endearing and locking customers into Amazon’s infrastructure, likely beneficial wholesale prices and help with logistics. Also, only Amazon receives the data collected from Dash purchases.
  • Dash buttons are just one appliance connected to Amazon’s Dash Replenishment System, which also provides consumables for connected washing machines, vacuum cleaners, pet feeders and many other appliances.

EXECUTIVE SUMMARY

Initially considered an April Fool’s joke due to its simplistic nature and pundits’ miscalculation of human laziness, Amazon’s Dash button has surpassed all expectations. Estimates are half a million of the devices have shipped. Moreover, the Dash order rate recently doubled to more than two button presses per minute, or a run rate of more than a million orders a year.

The initial buttons offered everyday items such as detergent, diapers, and razor blades. But now, Amazon has exploded its catalog to encompass 150 buttons for such unusual items as Nerf darts, guitar strings, soup, macaroni and cheese and pet treats.

Although the buttons cater to our inner laziness and desire to not waste time shopping for mundane, everyday consumables, there is more to Dash buttons than meets the eye. First, they are only for Amazon Prime subscribers; it is an exclusive service just for them. This is also an enticement for non-members to sign up. And, the buttons are only one component in Amazon’s Dash Replenishment Service, which accommodates a large number of other connected devices that use consumables such as water pitchers, dishwashers, robotic vacuums and garbage cans. Finally, the digital nature and connection with Amazon’s databases and fulfilment network provides a wealth of data for Amazon to analyze and determine optimal product assortment, pricing and shipping methods. These optimizations are all likely favorable to Amazon and its margins.

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It turns out Dash buttons are no joke. Rather, they are a simple, elegant Internet of Things (IoT) appliance that enables busy consumers to avoid the tedium of standing in line at a store or even having to pick up their smartphones to reorder everyday consumables. They are also an innovative demonstration of the benefits the Internet of Things can bring to our everyday lives.

 

WHY DASH IS IMPORTANT

Fung Global Retail & Technology considers the Dash significant for several key reasons:

  1. The buttons are basically free to consumers.
  2. The device offers convenience for the consumer.
  3. The device further cements the bond between Amazon and its customers.
  4. The device can provide superior margins for Amazon.
  5. Dash is a technology platform that leverages the Internet of Things.
  6. The device represents another benefit exclusive to Prime members.
  7. It promotes Dash Replenishment Service.
  8. The technology provides a source of data to Amazon.

 

“Free” Buttons

Amazon’s Dash buttons are priced at $4.99, essentially at zero gross margin, and they come with a $4.99 credit awarded after the first use. This makes the button free to consumers.

 

Consumer Convenience

With the Dash button, the consumer no longer has to pick up his or her smartphone or log on to Amazon’s internet site to place a routine order for a consumable item. Moreover, the customer can logically place the detergent Dash button on the washing machine so he or she does not forget to reorder detergent, and Amazon can more quickly receive the order.

 

Customer Relationships

Amazon’s Dash is yet another service that is designed to endear and entrench itself with its Prime customers. This offering represents a virtual circle for Amazon: the more services it offers Prime customers, the more likely they are to renew their membership, which makes it more convenient to order from Amazon.

 

Margin Boost

Prime members likely seek to, “get their money’s worth,” from their membership fees, and are less likely to compare prices and spend the time and trouble of shopping elsewhere just to achieve small savings. This enhances Amazon’s margins. Although there is not necessarily a causal relationship, Figure 1 shows Amazon’s operating margins improved as the number of Prime members increased.

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Technology Platform

While the dominant application for the button today is the replenishment of household consumables, Amazon’s Dash is a low-cost device for connecting to the Internet of Things. It contains all the components of a portable/wearable IoT device: a processor, wireless communications, an output device (LED) and a sensor, the switch. The button could be expanded to incorporate other sensors and output devices. Amazon sells a generic dash button to developers for connection to various web services (including AWS IoT[1], AWS Lambda[2], Amazon DynamoDB[3], Amazon SNS[4]) for $19.99.

Hackers have also reprogrammed the Dash button to perform additional tasks, such as order pizza, beer, Uber cars, keep grocery lists, track habits and music practice, act as a silent doorbell and control household electronics devices, among many others.

 

An Exclusive, Prime-Only Benefit

Although it seems any Amazon customer could benefit from the device, Dash buttons are available exclusively to Prime members, likely because they also qualify for free, two-day shipping. Prime-only services include, free two-day shipping, media, such as video and music, offerings, and Amazon Prime Now one- or two-hour shipping.

 

Dash Replenishment Service

Dash Replenishment Service (DRS) is Amazon’s infrastructure behind its Dash buttons and other connected devices that access Amazon’s retail platform to build automatic reordering experiences for their customers. Selected connected DRS devices include:

  • Aesop Works’ iUSHU, a smart device that tracks medicines and food use and provides statistics on the phone; it ensures patients take their medicine and keeps it away from children.
  • Brita Infinity Smart Water Pitcher monitors the status of the filter and when a new one is needed, places an order via the user’s wi-fi network to Amazon Dash replacement.
  • GE Appliances’ wi-fi connected dryers and dishwashers interact with the Amazon Echo intelligent appliance and will soon support automated reordering of dryer fabric softener sheets and dishwasher detergent packs.

Other appliance and device makers that use DRS include: AESOP-Works (medicine and vitamins consumption tracking), August (smart locks) Behmor (coffee brewing system), CleverPet (pet food monitoring), Gmate (diabetes management systems), GOJO/Purell (hand sanitizers), Hershey (candy), JPO Certified (industrial controls), Neato Robotics (vacuums), Obe (pets’ foot/water consumption), Oster (smart pet feeders), Perfect Company (appliances), Petnet (smart pet feeders), Samsung (laser printers), Sealed Air (soap dispensers), simplehuman (garbage cans), SmartThings (home automation), Thync (wearable energy strips) and Whirlpool (washers, dryers and smart dishwashers) and Vivint (home security).

 

Source of Data

The Dash is by definition a device that is richly connected to Amazon’s commerce and replenishment system. It provides data on the time, frequency and location of orders, for every Dash button in a consumer’s home. The device is a proprietary source of information for Amazon which it can use to optimize product assortment, shipping methods and to maximize the profitability of each Dash item or set of items.

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DASH OPERATION

The Dash is a simple, one-button device that bears the logo of a particular product stuck to the surface via an adhesive strip. The Dash connects to Amazon’s servers via the user’s wi-fi network. It is configured via a smartphone app. When the button is pressed, the device’s LED illuminates and it sends an order to Amazon to ship a predetermined quantity of product to the user’s address on file.

The Dash aims to remove the tedium from refilling ordinary consumables such as coffee, detergent, diapers, razors and certain food items. It saves the consumer time.

The Dash button features order protection to prevent accidental presses from placing multiple orders. Once the button is pressed, it is disabled until the item is delivered. The user also has the opportunity to cancel an order online before it ships.

The key component in the Dash is the USI (Avnet) microcontroller, which also includes an 802.11 b/g/n wireless (wi-fi) controller, a memory chip, a printed-circuit board, a light-emitting diode (LED) and an AAA battery. BitsofCents.com estimates the cost of the device at about $5, which suggests Amazon sells the buttons at around cost. A photo of the Dash’s printed-circuit board is included in Figure 2. Due to the device’s low power drain, BitsofCents.com estimates the Dash can operate for two years on an AAA battery.

In the setup process for the device, the user can select from a variety of products to order. For example, a press of the Tide button will place an order for one of the following 14 varieties of the detergent, as shown in Figure 3.

5Amazon currently offers more than 150 Dash buttons in the categories listed in Figure 4.

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DASH HISTORY AND METRICS

Amazon launched the Dash button on its website on March 31, 201. This led some visitors to believe it was an early April Fool’s Day joke, since pundits doubted consumers would be so lazy as to want to order products by pressing a single-button rather than online.

Initially, the button was invitation-only. However, the buttons were made available to all Prime members in July 2015.

Although only 10 buttons were available initially, the number increased by a factor of ten on the device’s first anniversary and increased another 50% in the following three months, as shown in Figure 5.

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From a standing start, hundreds of thousands of Dash buttons have found their way into consumers’ hands, and the order rate has exploded in recent months.

Based on broker Piper Jaffray’s estimate of 300,000–500,000 Dash buttons shipped as of October 2015, Fung Global Retail & Technology estimates at least 600,000 buttons have been sold to-date.

Amazon reported in June 2016 the order rate had doubled in three months and that it was receiving two orders per minute. This annualizes to more than a million orders a year since one year = 525,600 minutes.

In August 2016, Amazon expanded the geographical availability of its buttons beyond the US to include the UK, Germany and Austria.

 

COMPETING PLATFORMS

Kwik is a startup based in Israel that also offers a one-button ordering device. It differs from Amazon’s Dash because it is an open IoT platform that retailers connect to their order system through an easy-to-implement application program interface (API.) Kwik’s platform also provides a dashboard for its users that gathers customer data, including total clicks, orders and conversion rates. Brands are offered a direct channel to their customers and the opportunity to collect real-time data about their buying habits.

There is also a large potential for single devices that are connected to the Internet for replenishment, such as water bottles and printers.

In October 2015, Thermos, in conjunction with Fitbit, announced a smart water bottle that syncs with a smartphone app via Bluetooth and enables people to monitor their hydration levels.

Hewlett-Packard (HP), which held a dominant 46% share of the large-format printer market in 2Q16 according to IDC, offers its own replenishment program and subscription service, called HP Instant Ink. HP printers also come with SureSupply software, which monitors toner levels and facilitates reordering—all from HP.

The brand, Poppy, developed a line of home appliances—coffee makers, baby formula makers and pet-food dispensers—with replenishment functions, however links on its website now direct visitors to Amazon’s Dash Replenishment Service.

 

CONCLUSION

Initially derided as an April Fool’s Day joke, Amazon’s Dash buttons have caught on with consumers who love the convenience of reordering detergent by simply pressing a button attached to the washing machine, rather than standing in line at a store or logging on to the Internet. The Dash buttons are a Prime-only benefit that offer value to members and entice non-members to sign up. The buttons are a boon to Amazon because of the favorable prices and data they provide to the company. The Dash button is just one way to connect to Amazon’s Dash Replenishment Service that caters to many of our needs.

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