Are STEM Toys a Commodity?

Did Amazon’s Announcement Turn STEM Toys into a Commodity?

Amazon announced that they have opened STEM Club Toy Subscriptions that for $20 per month will provide, each month, an age appropriate STEM toy for your child. They STEM Club is open for 3–4 year olds, 5–7 year olds, and 8–13 year olds. Did Amazon commoditize the market for STEM kits? Did Amazon step on innovation?

The STEM Club sounds wonderful for parents, but not so wonderful if you are the CEO of a STEM kit company that isn’t in the STEM Club. But let’s look at the announcement positively. Amazon’s marketing and brand power can drive more interest in STEM than any other company. There is the likelihood that Amazon STEM Club can expand the number of kids exposed to STEM. We might look at kids ten years down the road giving credit for engineering degrees to Amazon. At the very least, STEM is all over the news today as a result of Amazon’s announcement. (See links below.)

Looking at the details provided, Amazon is able to offer a modest $20 per month price point by offering only Amazon exclusive items. That makes sense. Amazon can control the cost of it’s exclusive items. We have to assume Amazon is in the business of making money and does not want to sell kits that cost more than $20.

There are many STEM kits that are on the market which cost, and are worth much more, than $20. Did the Amazon Toy Club just drive down the prices in the STEM kit market? Will parents and kids get hooked on the STEM club and graduate to spending more dollars on higher end products? Or did Amazon accidentally stifle innovation and close down the market for these innovative products?

How is Amazon STEM Club going to affect the STEM kit industry?

There are many companies in the market that design and manufacture STEM kits such as Goldie Blox (STEM for girls), LittleBits (electronic blocks to spark invention), Sam Labs (Smart Construction Kits), and coming to the market, Circuit Cubes (electronic building blocks). All these companies have innovative and engaging STEM kits that range in complexity and cost. Unfortunately, most if not all of the STEM kits are above the $20 price point. I don’t think any of these companies could survive if they had to sell their STEM kits for under $20.

There will be more exposure and pressure to push the prices down to compete with Amazon. The road to take is to stay premium and differentiate. Take advantage of the new parents and kids that might be paying attention to STEM now that Amazon has taken this step.

Amazon might consider working with STEM businesses to create entry point products that fit the price point and provide exposure to their higher end products. The STEM club model can be expanded to include a higher end $39 per month kit, providing a bit more relief to the businesses creating smart block technology.

Is STEM Club going to kill innovative STEM businesses?

The STEM companies mentioned have unique branding, loyal followings and have secured a niche. I don’t think they are going any where. I am hoping that Amazon STEM club will raise the visibility of STEM and generations of kids that will grow out of the club and into more complex STEM kits. In turn, driving parents and kids to purchase more innovate and complex STEM toys.

Amazon can take the low end entry point of STEM kits, expand the market size, and leave the high end STEM kits to these innovative companies.

Sidestepping the Competition

There is a path for STEM kit companies to side step the direct Amazon competition. They can focus more effort on getting STEM kits into the classrooms. Most, if not all, are selling STEM kits as enhancement activities to teachers. But selling STEM kits for enhancement activities is brutally competitive. The STEM companies can achieve deeper penetration and bigger purchases if they start wrapping STEM kits with Science and Math curriculum.

School districts and state education departments are under great pressure to produce results in core subjects. They purchase products from companies that can deliver accountability and results. STEM kits wrapped in state aligned curriculum can satisfy a need that Amazon can not compete.

How Long Will it Last?

We could see the STEM club become a short lived experiment if Amazon sees interest drop off after a few months by it’s subscribers. What type of churn are they expecting in the STEM club? Will a $20 kit provide enough engagement and curiosity for parents to subscribe from 3yrs old to 13yrs old (120 months)? I think the answer is no, but Amazon is full of surprises. I know they will be working hard to continually increase the value of the kits. This may be enough to keep the churn rate low and the club successful. In the mean time, if you are a STEM company, take advantage of the STEM exposure and pick up new customers.

News Links for Amazon STEM Club:
Engadget
https://www.engadget.com/2017/01/25/amazon-stem-club/

TechCrunch
https://techcrunch.com/2017/01/24/amazon-launches-a-subscription-service-for-stem-toys/

CNET
https://www.cnet.com/news/amazon-stem-club-sends-your-kids-a-science-toy-every-month/

Originally published on January 25, 2017 at www.bigsoftwareideas.com