- * It's already happening in China with Buy+.
- * It would be enormously popular among niche sellers.
- * All the trends indicate that VR is here for the long-run.
Back in March 2016, Amazon made a curious announcement: The company was hiring a team to start building a virtual reality platform for its Video division to work on "immersive storytelling."
Now, this wasn't particularly surprising to anyone who follows digital media and entertainment: Both Netflix and Hulu have their own VR programs, so it stands to reason that Amazon Video will have its own VR catalog of movies and TV shows. I expect that soon enough, you'll be able to watch all of your favorite titles in virtual reality. (And to be sure, watching "Gladiator" or "300" in VR will be, presumably, very awesome - and very terrifying.)
But here's something I don't understand: Why isn't Amazon developing virtual reality for its retail division? They should be.
Specifically, I'm envisioning a full-fledged shopping mall where customers can walk around, browse stores, check out different products, and interact with other shoppers. They could shop alone, or with friends, and even meet new people browsing alongside them.
Amazon could even create virtual celebrity shopping companions, so that you could buy pet toys with a virtual Tom Cruise. (Not that you'd necessarily want to.)
The point is: An Amazon virtual shopping mall would be an amazing experience, not just for the consumer, but for the next generation of sellers as well. (More on that in a bit.) Now, this may all sound like science fiction, but it's very much a possibility.
In fact, it's already happening in China.
In late 2016, China's largest e-commerce company, Alibaba, debuted Buy+, a virtual reality shopping experience that Vice dubbed "the latest - and largest - in a cluster of recent attempts to write VR into shopping's future."
Buy+ is a fairly straightforward experience: You stick on the VR headset, you wander around the store, examine products you're interested in buying, and put them into your cart by staring at a blue dot on the product. "Once customers get used to consuming and interacting with certain content format, it would be hard to go back," a Buy+ representative told Vice. "The evolution from 2D to 3D is unavoidable."
According to Vice, an hour after Buy+ launched, 30,000 people had tried it.
Within a few days, 8 million had given it a go. And I'm not surprised.
"The evolution from 2D to 3D is unavoidable."
As an investor, I'm constantly analyzing how retail business models will evolve with new technologies. And right now, Amazon is delivering perhaps the most efficient online shopping model: they have same-day shipping, a fleet of delivery trucks and vans, over 90 distribution centers across the country, and a constant devotion to getting customers their products as quickly as possible. (In fact, they even just patented a floating blimp warehouse that can - theoretically - dispatch delivery drones to get your package to you within minutes of making the purchase.)
In my mind, Amazon is the king of innovation when it comes to supply chain and logistics.
But here's the thing: While Amazon is delivering on efficiency, they could do a better job of delivering on experience. Why? Well, despite the fact that Amazon is one of the top ten retailers in the world, people still get in their cars and go to the shopping mall to buy products, right?
A view of Alibaba's shopping mall, VR-style.
I'm not going to attempt to answer why people go to the mall, but I'd argue it has to do with a few things: One - they want to be social. Two - they want to browse new products. Three - maybe they like the smell of Wetzel Pretzel. Who knows. The point is, there are lots of reasons why physical retail still has value, and will continue to have value in the long-run.
But on the flipside of that coin, I'd argue that building a virtual-reality based infrastructure for the shopping experience could create a massive experiential boom for a company like Amazon.
There's a few reasons why.
First, it's relatively cheap.
Think about how much money a real estate developer like Simon or Westfield needs to spend in order to buy land, build a mall, maintain that mall, pay taxes on that mall, secure that mall, and advertise that mall to retail tenants and consumers.
It's an enormous expense and undertaking that takes years to build.
In contrast, an Amazon virtual reality mall would be developed internally by a relatively small "construction team," and once it opens its doors, it would be accessible to customers from literally anywhere in the world.
Consider that by 2025, Goldman Sachs estimates that 32 million people will be using VR to buy products online. In my mind, that number could actually be substantially bigger, considering the fact that Amazon is surging past 60 million consumers subscribed to its Prime service.
Second, I believe it would be enormously popular among niche sellers and encourage a new generation of designers, small business owners, and entrepreneurs.
For this point, imagine you want to open a small boutique that sells women clothing. If you want to open a physical space, you're going to need plenty of capital and an appropriate retail space. The next best option might be to open an online shop on your own website, become an Amazon seller, or just use an Etsy or eBay page.
Sellers would be attracted to the idea of opening a "shop" on an Amazon virtual reality mall because it would be relatively turnkey, it would be cheaper than opening a physical space, it would reach a potentially wider customers base, and it could feature the products in a more compelling, 3D-manner.
Third, people just seem to want this to become a reality, and the trends indicate that VR is here for the long-run.
According to a recent survey of 1,400 people by Walker Sands, "66 percent of consumers say they are interested in shopping via virtual reality, and 63 percent said that they expect virtual reality to change the way they shop."
If the customer is already asking for it, why not deliver it?
Amazon has killed it on the efficiency end of their value proposition to customers. But right now, experience is the big growth engine in the retail economy. So, while Amazon has had blockbuster success with its same day shipping programs and Amazon Prime, the next big market to capture will be within retail experience. It's like the old saying: "If you build it, they will come."
To me, that's the perfect encapsulation of what Amazon should be doing. If they build the VR mall, consumers will come.
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Arne Alsin and Worm Capital clients are currently long Amazon (NASDAQ:AMZN) and stand to benefit if the trading price of Amazon increases.
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