When you think retail, Microsoft Corporation (NASDAQ:MSFT) probably doesn’t immediately come to mind. Let’s face it, Microsoft stock isn’t generally considered a retail play.
However, it appears as if the company really is interested in retail and not just from the Microsoft Store or Azure cloud services perspective. A report in Reuters claims Microsoft is testing automated checkout technology for retailers, working on a system that would take on Amazon.com Inc.’s (NASDAQ:AMZN) Amazon Go.
One of the prospective partners Microsoft is talking to about this no cashier, no checkout technology is Amazon’s primary retail competitor, Walmart Inc (NYSE:WMT).
Report: Amazon Go May Face Competition from Microsoft
Although retail technology may not appear to be a big part of Microsoft’s business on the surface, that is misleading. Retailers often use Windows and Office in their operations, of course. But one of the key drivers of Microsoft stock now is its Azure web services, which has been repeatedly posting big revenue growth (up 93% in the last quarter).
Many retailers rely on Azure to host their e-commerce websites, a business that pits Microsoft against industry leader Amazon Web Services (AWS).
According to a report in Reuters, Microsoft is preparing to challenge Amazon in its latest retail experiment, Amazon Go.
You’ve likely seen the hype about Amazon Go. The high-tech store opened by Amazon at the start of this year employs an array of cameras and advanced technology so that shoppers walk in, browse, take what they want and leave.
No checkout, no cashiers, no line-ups. They are billed automatically for what they “purchase.” At first, there was speculation it might have been a one-off tech showcase installation, but news broke in May that Amazon Go locations are on tap for Chicago and San Francisco.
That news has retailers edgy about the possibility of Amazon Go and its technology spreading. And with the possibility that Amazon could license the Amazon Go model to other retailers, Microsoft sees the opportunity to offer an alternative.
According to the Reuters report, Microsoft is working on a system to take on Amazon Go. The company already has several retail partners who have implemented automated checkout systems of their own using its Azure cloud services. The Microsoft team has worked on using cart-mounted cameras and hired a computer vision specialist from the Amazon Go team.
And as The Verge points out, Microsoft recently unveiled Project Kinect for Azure, which combines its 4th generation Kinect camera with Azure AI services. Having that technology available off the shelf is going to be a advantage. The Microsoft team has also been experimenting with smartphones as part of the shopping experience.
Reuters’ sources say that Microsoft is in talks with Walmart about a potential partnership for an automated checkout system. Given that Walmart has ratcheted up its fight against Amazon on the e-commerce front, the prospect of Walmart adopting Amazon Go-like tech in retail locations isn’t good news for AMZN.
What’s in it for Microsoft?
If the company can pull this off and develop an Amazon Go competitor that can be deployed to retailers, there’s money to be made for Microsoft and an upside for Microsoft stock.
The problem, as Reuters point out, is that retailers already have thin margins, especially the grocery stores and convenience stores where this technology seems most likely to be deployed. Automated checkouts may reduce labor costs that help to offset the investment, but Microsoft will be pushed to keep the price of its system low.
Still, there’s considerable potential revenue on the table. According to the Reuters report, one analyst has pegged the value of the U.S. automated checkout market at $50 billion. That’s enough to interest Microsoft. And the possibility of being able to counter Amazon Go is likely enough to keep Walmart interested as well.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
