Chris Kanaracus

Managing Editor, Constellation Insights Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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There are few better ways to take the measure of enterprise software buyers' moods than by examining Oracle's fourth-quarter results, which were released this week. Q4 is always Oracle's biggest quarter of the year, and all eyes were on what numbers it would post for cloud revenue.

Put simply, it was a blowout, with cloud revenue up 58 percent year-over-year to $1.4 billion. Within that total, SaaS was up 67 percent to $964 million while PaaS and IaaS revenues, which Oracle is now counting together, were $397 million. For the full year, cloud revenue rose 60 percent to $4.6 billion. 

The results shot Oracle's stock up dramatically, lifted its market capitalization to north of $200 billion, and had executives in a even more positive mood than usual during the earnings conference call. Here are some of the key takeaways from the call and quarter. 

In the margins: Oracle's gross margin for SaaS in the quarter was 65 percent, up from 54 percent last year. The company hopes to reach gross margins of 80 percent on SaaS over time. Meanwhile, the gross margin for PaaS and IaaS fell to 47 percent from 54 percent, an outcome Oracle attributes to investments in data center buildouts. 

On-premises stability: While on-premises software revenue was flat at $7.5 billion, new software license sales fell 4 percent to $2.6 billion. Oracle made up the difference with a 3 percent rise in maintenance revenue, which was $4.9 billion. That result reflects "high attach and renewal rates" on support contracts, Oracle said—but it could also partly reflect revenue gained through license audit activities. Maintenance remains a highly profitable venture for Oracle—and all software vendors, for that matter—and the company is keen to preserve it as much as possible, even as more customers buy into cloud.

Chasing Salesforce: Oracle is going to surpass Salesforce as the number one SaaS vendor, CTO and executive chairman Larry Ellison said on the call. That's because it has a more diverse SaaS portolio, Ellison added:

The reason we are confident that we will pass Salesforce is because we have a three-fold SaaS application suites for ERP, for HCM and for CRM including financials, procurement, supply chain, manufacturing, human resources, payroll, marketing, sales and service. Salesforce in contrast only competes in three of these nine market areas.

It's not always clear how customers benefit from this sort of chest-thumping, but if the competition continues to heat up between Salesforce and Oracle, they could win out through better pricing and bundling options, as well as heightened innovation. Time will tell.

Cloud ERP crushing it: Oracle's cloud ERP revenue was up 156 percent in the quarter, a figure that does not include sales from NetSuite, CEO Mark Hurd said. (Netsuite is being positioned as Oracle's SMB option for cloud ERP, while its Fusion suite is aimed at large enterprises.)

Oracle picked up 868 cloud ERP customers in the quarter. Among others, Oracle struck cloud ERP deals with Allianz, BNP Paribas, GE, the Kraft Heinz Corporation, Juniper, MetLife, Minerals Technology, Motorola, NCR, Netflix, Newell Rubbermaid, Orange, Pearson, Sinclair Broadcast Group, Textron, the University of Maryland, Vanderbilt University and Volkswagen, he added.

More tellingly, two-thirds of cloud ERP customers in the quarter had never purchased an Oracle ERP system before, Hurd said. That suggests Oracle has assembled a strong sales organization, is successfully raising awareness outside its installed base, and most importantly is able to put viable cloud ERP solutions in front of a diverse set of companies and organizations.

Sales switchup: Hurd responded to recent reports that Oracle was planning significant layoffs in its sales force once the quarter closed. (See the Register's report here.) He denied the idea of layoffs, while acknowledging Oracle has been making some changes:

This is all just not true. So, is our sales force shrinking? No. Do we change things in our sales force? Sure. Is there any major reorg going on? No. But remember, our competitors change. We have some very simple principles how we run the sales force. We lineup our sales force by product. We line them up by buyer and by competitor. And that market tends – those dynamics can change or competitors change we have noted over the past several years. .. Second, we are building out, as we have told you over the past couple of years, big hubs that are doing a lot of our selling. And so we have the byproduct of that is that our sales force is actually increasing in numbers, but our cost per salesperson is actually declining. 

Cranking up the Cloud Machine: In May, Oracle announced an agreement with longtime customer AT&T that will, among other things, see the telco migrate thousands of its internal databases to Oracle's IaaS and PaaS. While the press release issued at the time suggested AT&T would use Oracle's public cloud, on the call Hurd revealed that the agreement will involve Oracle's Cloud Machine appliance, which replicates its PaaS and IaaS inside a customer's own data center:

[T]hey have several hundred large databases that have 70%, 75% of all of their company’s data. They have badly wanted to get the benefits of cloud, provisioning, a lot of provisioning and all the new features that come with product modernization, consolidation of that infrastructure, yet in many cases they have got regulatory pressures on what they can put in the public cloud and what they can’t. ... we take our Oracle cloud machine and we are able now to do all of that with them on their premise and give them all the benefits of the cloud, we manage, we patch, we basically run the cloud for them.

Oracle sold more 100 Cloud Machines in the quarter, and wants to ultimately deliver them to tens of thousands of customers. Hurd didn't provide any context for the quarter's results on Cloud Machine, which was launched in March 2016, such as the percentage increase or decrease in unit sales. Constellation believes that while data sovereignty and regulatory guidelines remain strong drivers for private cloud, Cloud Machine may remain of interest mostly to all-in Red Stack shops for some time to come.

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Chris Kanaracus

Managing Editor, Constellation Insights Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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US President Donald Trump met with a sizable group of the tech industry's most prominent CEOs, including Microsoft's Satya Nadella, Apple's Tim Cook, IBM's Ginni Rometty and Oracle's Safra Catz. Trump's pow-wow was only part of a longer day of "brainstorming" sessions between adminstration officials and tech leaders, with the goal of outlining ways to modernize government IT. 

Most of the inaugural meeting of the American Technology Council, as the group is called, took place in private. But through official transcripts and news reports it's possible to get a picture of what was discussed, as well as take its measure. Here's a look at some key takeaways.

Trump makes nice: Trump has found himself at odds with much of Silicon Valley, particularly at the rank-and-file employee level but also in the c-suite, over actions such as his executive order to halt immigration from some Muslim-majority nations and decision to withdraw the US from the Paris climate agreement. But during his meeting with tech leaders, Trump put on a serious charm offensive, according to a transcript:

We have approximately $3.5 trillion of market value in this room -- but that’s almost the exact number that we’ve created since my election.  (Laughter.)  In fact, I think we have you beat by a little bit, which is a pretty good number.  But I congratulate you all.  Done an amazing job.  

Your innovation has shaped the modern world and created millions of jobs.  America should be the global leader in government technology just as we are in every other aspect, and we are going to start our big edge again in technology -– such an important industry.  I view it from the standpoint of jobs and other things; you view it somewhat differently.  But we’re all in the same ballpark.  It’s so important.  So important.

We’re embracing big change, bold thinking, and outsider perspectives to transform government and make it the way it should be, and at far less cost.  

Trump's stance is hardly surprising, particularly for a first meeting, but he's now also on record calling for a cooperative working relationship with tech giants. He's also positioned his son-in-law Jared Kushner, who is said to be one of the president's most trusted confidants, in a key role overseeing US technology policy. Even if Trump himself delegates the day-to-day work, it's safe to say that a healthy relationship with Silicon Valley sits fairly high on his priority list. 

This ballgame is mandatory: In turn, tech CEOs at the meeting struck an overall conciliatory tone with the president (although Cook reportedly pressed Trump on immigration and other issues, according to reports.) But while left-leaning Silicon Valley CEOs may privately not relish being in the same photograph frame with the president, they have little choice. That's because of the ongoing tax reform debate in Congress, which could result in significant benefits for their companies. (Indeed, a number of lobbying firms for Google, Amazon and other tech giants visited the White House for meetings on tax reform Tuesday.)

The H-1B Elephant: A key issue for Silicon Valley is the H-1B visa program, and the topic got a dedicated working session during the meeting. It's not clear what occurred during that discussion, but in April Trump issued an executive order calling for reforms to the program.

Rather than the current lottery-based system, Trump wants reforms that would ensure visas are issued to "the highest skilled and highest paid workers," thereby protecting American jobs and wage levels. While there are laws on the books requiring H-1B holders to be paid similarly to their American counterparts, that hasn't necessarily happened in practice.

The H-1B issue affects far many more companies than those in Silicon Valley, of course. But as for reforms, the short answer is that they're not coming anytime soon. Trump's order gives a number of federal departments until November to review it and provide recommendations. At that point, it's possible that Trump could make some changes to the program administratively, but more sweeping ones may require an act of Congress. 

Still only (very) partly cloudy: The American Technology Council is headed up by Chris Liddell, a top Trump aide and former Microsoft executive. In an interview with CNBC, Liddell revealed that the government has a long way to go in adopting cloud services. Only 3 or 4 percent of the government's $86 billion in annual IT spending is tied to the cloud, and moreover, it's running roughly 6,000 data centers, he said. 

If accurate, it's a daunting assessment. While a working group at the meeting tackled questions around cloud migration and data center consolidation, a broader transition is undoubtedly still years in the making. The question is whether the pace can be accelerated under the Trump administration.

In the name of transparency: In a document outlining the meeting's agenda, the White House called for a strategy "in which the public is able to track federal operations, often in real-time or near real time." 

Under the Obama administration, large amounts of public information was made available through initiatives such as Data.gov. The wording in the White House's documents seems to take the idea of government transparency a bit further. If it gains traction, the proposal should enjoy support from both sides of the aisle in Washington.

POV: The first meeting of the American Technology Council appears to be a relative success, with no reports of controversy or discord emerging in its wake.

At the same time, it is just a meeting. Skeptics may view it as nothing more than one of many photo opportunities to come. And for all the talk about government IT modernization and procurement reform, both are perennial problems that will require years of sustained effort—spanning multiple administrations and Congresses—to substantially solve. 

Meanwhile, from a policy perspective, the ATC so far has given the floor to the viewpoints of Silicon Valley's elite. These may not always align with enterprise IT leaders in general, or the public. Constellation believes that a balanced US tech policy going forward will keep many voices involved in the discussion.

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Chris Kanaracus

Managing Editor, Constellation Insights Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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Holger Mueller

Vice President and Principal Analyst Constellation Research

Holger Mueller is VP and Principal Analyst for Constellation Research for the fundamental enablers of the cloud, IaaS, PaaS and next generation Applications, with forays up the tech stack into BigData and Analytics, HR Tech, and sometimes SaaS. Holger provides strategy and counsel to key clients, including Chief Information Officers, Chief Technology Officers, Chief Product Officers, Chief HR Officers, investment analysts, venture capitalists, sell-side firms, and technology buyers.  Coverage Areas: Future of Work Tech Optimization & Innovation  Background: Before joining Constellation Research, Mueller was VP of Products for NorthgateArinso, a KKR company. There, he led the transformation of products to the cloud and laid the foundation for new Business Process as a…...

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Dropbox turned heads when it announced last year it had migrated 90 percent of its storage off of Amazon Web Services and onto a homegrown, global network.

The company's explosive growth—it now counts more than 500 million users and 500 petabytes—had been enabled by AWS's Simple Storage Service, but a few years ago Dropbox came to believe that it had to create its own system in the name of continued performance and customization. 

Dropbox didn't stop at building a global storage system, as VP of infrastructure Raghav Bhargava revealed in a detailed blog post this week. Rather, over the past year it has made dramatic investments in an edge-oriented, private network infrastructure that it says is speeding up performance and cutting costs significantly. 

We’ve built a network across 14 cities in seven countries on three continents. In doing so, we’ve added hundreds of gigabits of Internet connectivity with transit providers (regional and global ISPs), and hundreds of new peering partners (where we exchange traffic directly rather than through an ISP). We also designed a custom-built edge-proxy architecture into our network.

The edge proxy is a stack of servers that act as the first gateway for TLS & TCP handshake for users and is deployed in PoPs (points of presence) to improve the performance for a user accessing Dropbox from any part of the globe. We evaluated some more standard offerings (CDNs and other “cloud” products) but for our specific needs this custom solution was best. Some users have seen and have increased sync speeds by as much as 300 percent, and performance has improved across the board.

Compare that to 2014, when Dropbox's network was confined to the US, with just two data centers. This was a problem, since 75 percent of Dropbox users reside outside the US. 

Much of Bhargava's post is a deep dive into the technical details of Dropbox's network buildout, one that defies easy summary here but is well worth a read.

At a high level, Dropbox's big gamble on going it alone has apparently paid off. The new network architecture has raised median download speeds for some European users by 40 percent and upload speeds by 90 percent. It's working even better in Japan, with download speeds doubling and upload speeds tripling. Dropbox has also cut its non-US networking costs by 50 percent.

By the end of 2017, Dropbox will have an infrastructure presence in 25 facilities across 10 countries and four continents. It is 

"Moore's Law has aided software across the whole stack—the only exceptions are battery life and network performance," says Constellation Research VP and principal analyst Holger Mueller. "So it is crucial for vendors at scale to improve their network performance, especially with edge and routing -elated strategy. Network quality results in user productivity and good user experience, so it's a key area for investment."

While Dropbox's requirements dwarf those of most enterprises and cloud software vendors, its decision to move off the public Internet—and how it did so—nonetheless stands as a valuable case study that could well prove influential in the coming months and years. 

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Chris Kanaracus

Managing Editor, Constellation Insights Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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Andy Mulholland

Vice President and Principal Analyst, Constellation Research Constellation Research

Andy Mulholland is Vice President and Principal Analyst focusing on cloud business models. Formerly the Global Chief Technology Officer for the Capgemini Group from 2001 to 2011, Mulholland successfully led the organization through a period of mass disruption. Mulholland brings this experience to Constellation’s clients seeking to understand how Digital Business models will be built and deployed in conjunction with existing IT systems. Coverage Areas Consumerization of IT & The New C-Suite: BYOD, Internet of Things, IoT, technology and business use Previous experience: Mulholland co authored four major books that chronicled the change and its impact on Enterprises starting in 2006 with the well-recognised book ‘Mashup Corporations’ with Chris Thomas of Intel. This was followed in…...

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There are more than 700 cryptocurrencies available for trading online, and many are derivations of Bitcoin, which in turn is based on the blockchain distributed ledger technology. (Go here for Constellation Research VP and principal analyst Steve Wilson's concise definition of these terms.)

IOTA took a different approach entirely when it began working on a DLT for the Internet of Things two years ago. Rather than use blockchain, its Tangle architecture uses a DAG (directed acyclic graph). IOTA co-founder Dominik Schiener summed up the differences in a recent blog post:

At its core, the Tangle still has the same underlying principles as a Blockchain: it’s still a distributed database, it’s still a P2P Network and it still relies on a consensus and validation mechanism.

But, if we are to summarize the main differences between the Tangle and the Blockchain, the two most apparent ones are how the Tangle is structured (a DAG), and how we achieve consensus.

In IOTA there are no “blocks” in the classical sense. Instead, a single transaction references two past transactions. This referencing of transactions is seen as an attestation: with your transaction you attest directly that two transactions, and indirectly that a subsection of the Tangle are valid and conform to the protocols rules.

Instead of a smaller subset of the network being responsible for the overall consensus (miners / stakers), the entire network of active participants (i.e. devices making transactions), are directly involved in the approval of transactions. As such, consensus in IOTA is no longer decoupled from the transaction making process: it’s an intrinsic part of it, and it’s what enables IOTA to scale without any transaction fees.

Transaction fees are no joke in the cryptocurrency world. On average, Bitcoin transactions now cost more than $1. That may not be much if the amount being moved is significantly large, but IOTA envisions a world where many millions of IoT devices will not only exchange data but make purchases from other machines, as Schiener writes:

We envision a future where Machines trade resources (computation, electricity, storage, bandwidth, data etc.) and services with each other without the involvement of any third party — purely Machine-to-Machine. As the Internet of Things starts unleashing itself, the need for “Smart Decentralization” is apparent.

Transaction fees are, of course, anathema to that vision, given that in many cases a machine-to-machine purchase could be measured in cents. Tangle's architecture is intended to make transaction fees a non-issue. Tangle also takes aim at massively increasing scalability and transaction throughput, factors that have plagued previous cryptocurrencies, particularly Bitcoin. In turn, the question of scalability is inextricably intertwined with the notion of a massive network of machines making autonomous purchases from one another. 

Tangle's architecture is described in much greater depth through IOTA's well-written whitepaper, which is available here. The startup's work on Tangle dates to 2015, although its founding members have been working with blockchain and distributed ledger technology much longer than that. 

Its cryptocurrency began trading earlier this month and quickly accumulated a market value of more than $1 billion. As for Tangle, IOTA is conducting case studies for the platform in energy, mobility, smart cities and infrastructure, and expects real-world projects to emerge this year. 

While it is early days for IOTA, the startup's work looks promising and speaks to critical pain points for IoT, says Constellation Research VP and principal analyst Andy Mulholland.

"It has been apparent for some time that the requirement definition for IoT, and the requirement definition for fintech are very different, and that the terms blockchain and distributed ledger are all too often used with too little in-depth understanding," he says. "For those faced with the challenge of managing the commercial business exchange of the very, very small amounts of data that IoT endpoints will contribute individually—though collectively there are millions of endpoints,—will be very interested in the approach that IOTA brings."

"With transmission costs at the extreme micro level, and a different approach to security, one more in keeping with the nature of dumb sensors, IOTA is bringing a useful alternative in the distributed ledger space to Hyperledger," he adds.

Hyperledger is a fast-growing industry consortium working on distributed ledger technologies, counting heavyweights such as IBM among its members. 

This week, the group announced the formation of a new performance and scalability working group that will focus on both software and hardware-related issues:

The PSWG is starting at the base of the mountain in terms of performance and scalability. The group will identify multiple key use cases across different vertical markets. For each of the use cases key metrics will be identified. Each metric will be defined along with how it will be measured. This work will lead to defining a framework and measurement criteria.

The key will be how to define and implement a consistent and fair test suite for each use case. This is important to the industry and to the end user, as it will provide a fair measure of how a specific implementation will perform in different use cases. This will allow the user (customer) to select the proper implementation for their use case.

"Hyperledger is seen by many as the most significant industry initiative to deliver commercial decentralised transaction management, but the question as to scalability, and indeed suitability, continues to be the big issue," Mulholland says. "This new working group is a key move."

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Chris Kanaracus

Managing Editor, Constellation Insights Constellation

Chris Kanaracus is managing editor of Constellation Insights.  Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members.  Prior to joining Constellation, Kanaracus spent seven years covering the enterprise software industry for IDG News Service, where he frequently broke exclusive stories with a focus on end-customer issues. Kanaracus has also held various managerial and reporting roles at newspapers in New England since 1998. Twitter: @chriskanaracus , Title: Big IdeasConstellation Insights Insights delivers exclusive, daily analysis of breaking news across Constellation’s eight business research themes to Constellation Executive Network members. ...

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In a stunner of a move, Amazon will pay $13.7 billion to acquire upscale supermarket chain Whole Foods Market. It's a move that will significantly change Amazon as a company and has implications for the future of retail, omnichannel commerce and supply chain practices. 

Once the deal closes in the second half of this year, it will be business as usual, with Whole Foods CEO John Mackey remaining in that role, and the chain's stores retaining their branding and supplier relations, according to a joint statement.

The companies' announcement emphasized Whole Foods' track record as a purveyor of healthy, fresh foods—67 percent of its business comes from fresh products—and with the deal Amazon gets a major jumpstart into the grocery business, which is estimated at nearly $700 billion in the U.S. alone.

Whole Foods logged about $16 billion in revenue last year, a small piece of the overall pie but much, much more than what Amazon has generated to date with its home-delivery grocery service. Whole Foods has been experimenting with grocery delivery through a partnership with Instacart, but that pact is undoubtedly doomed in light of this week's announcement. 

Amazon was reportedly planning to open as many as 2,000 Go stores, which use technology to eliminate the need for checkout lines and cashiers. But only a test store open to Amazon employees exists, with an announced 2017 launch yet to occur.

It's not clear whether Amazon will proceed with the smaller-store concept now, and has instead decided to buy an established grocery store player in Whole Foods, leveraging its brand, mitigating risk, and focusing on growing the delivery component.

Meanwhile, Amazon's vaunted supply chain expertise should be a boon for Whole Foods, helping it drive down costs than in turn could be passed on in lower prices. In turn, Whole Foods has something to teach Amazon about the perishable foods business.

Amazon can bring a vast amount of bleeding-edge technology to bear on Whole Foods' operations as well, but the grocer has already been working to upgrade its technology. It began partnering with Infor in 2015 to build a new cloud-based retail management ERP system, which will be used to consolidate a tangle of homegrown applications. (As it happens, Infor uses Amazon Web Services for its cloud infrastructure.) 

For one thing, Amazon has already built out an extensive network of distribution centers, but the addition of Whole Foods' more than 460 locations in the U.S., Canada and the UK instantly creates another concentric ring of distribution points, ones typically located in highly populated areas. 

No, Whole Foods won't be changing its name to Whole Warehouse. But it's easy to see how Whole Foods stores could include a countertop where shoppers could pick up Amazon packages, as well as make returns. Regarding the latter: Given storage and other logistical considerations, it's unlikely that these locations would handle returns on bulky items such as televisions or appliances. 

But clothing, on the other hand, would be an ideal candidate. Amazon is already poised to become the single largest U.S. clothing and accessory seller, with nearly $30 billion in clothing sales projected for this year. Amazon has also recently shifted toward higher-end apparel, a move that aligns well with the economic profile of many Whole Foods' shoppers.

While return rates for online clothing purchases will likely remain eye-watering, if Amazon customers know they can return clothes to a local store—while getting their food shopping done—they may be inclined to make more clothing purchases overall through Amazon.

Another possibility would see small, Amazon-branded retail shopping sections within Whole Foods' stores. The emphasis here could be on a frequently changing selection of high-margin, impulse buy items catering to the sensibilities of Whole Foods shoppers. 

Skeptics should note that many supermarket chains already house non-grocery related businesses, such as bank branches. Whole Foods itself has been steadily adding both quick-stop and full-service restaurants to its stores. It also stocks some housewares and home goods. 

Still, Whole Foods will still be primarily a grocery store after the deal closes, and Amazon's goal will be to grow its home-delivery business. Online grocery sales have been touted as the next big thing for well over 15 years, but it simply hasn't happened, as Amazon itself knows all too well. What's going to be different this time?

One challenge Amazon and other online grocery sellers have faced is the simple fact that consumers like to pick out their own perishables, particularly fruits, vegetables and meats. Delivery services provide convenience, but people do the picking for you. This will remain an inhibitor with Whole Foods customers, for whom part of the experience has always been the vast arrays of high-quality meat and produce found in the stores. 

Second, consumers don't want to pay more money for food purchased online. Rather, they want to pay less, just as they perceive to be the case with other online purchases. It costs money to pay workers to pick orders, and delivery drivers to make the deliveries, and the grocery industry's notoriously narrow profit margins don't care. 

Amazon has shown time and again it is willing to lose money in the name of gaining market share. Whether this will be the case with Whole Foods remains to be seen. Certainly, technological innovations could smooth the transition—automated checkouts like those found in the Go store could free up workers to handle delivery orders—but it's nonethless a vexing challenge that lies ahead.

This post was written on the same day Amazon and Whole Foods announced the deal. There will be much more to chew on in the weeks and months ahead, but one thing is for sure: Amazon has made yet another industry-changing move.

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