CNBC reports that Amazon is working on two new forms of delivery which would leverage technology to enable packages to be left for recipients in cars and homes. The main focus of the piece is a potential partnership with Phrame, which acts as a smart locker for cars and is backed by Bosch, but it also talks about Amazon working on what it calls a smart doorbell but would in reality have to incorporate a smart lock to work properly. Walmart recently announced a trial of in-home delivery with August in Silicon Valley, but Amazon has more incentive than anyone else to solve the problem of deliveries to customers who aren’t present given that its retail business is today almost entirely dependent on such deliveries. The big question I have around all this is the business model – both Phrame and existing smart lock products from companies like August are priced from $150 to $300, which is a large amount for Amazon to subsidize entirely, so I’d guess that it might offer some kind of partial subsidy of these products for heavy Amazon users.
Bloomberg reports that Amazon is making yet another shift deeper into the logistics value chain, specifically with regard to third party sellers. It will now look to take control of the delivery process for items stored at sellers’ facilities as well as its own warehouses in a program it calls Seller Flex. That doesn’t necessarily mean it’ll make those deliveries itself – it may well still use UPS and FedEx – but sellers will no longer be responsible for making those decisions; Amazon will. Amazon has slowly been taking over more control of seller shipping in recent months, including changes that sellers haven’t liked, though this one seems likely to be somewhat more neutral in its impact. UPS and FedEx share prices have both taken a knock, since they might end up being squeezed out of some functions here, but the immediate impact seems likely to be fairly subtle, given that Amazon simply doesn’t have its own matching infrastructure yet for may of the deliveries those companies make.
Walmart is buying New York same-day delivery specialist Parcel, which currently performs that function for a variety of smaller e-commerce companies and will continue to do so alongside becoming Walmart’s in-house vehicle for doing so. This acquisition echoes that made a while back by Target, when it bought Grand Junction, another company specializing in delivery in New York City. New York continues to be something of a unique market – I’m visiting this week, and have seen ads for almost nothing but delivery services on the subway trains I’ve been on, while the products being delivered range from groceries to food from restaurants to other essentials. The population and residential density in NYC is unmatched in pretty much any other locale in the US, and so it lends itself uniquely well to good economics for rapid delivery. None of this feels particularly scalable across the US, but as Amazon has long demonstrated, that’s not to say it doesn’t make for a multi-tiered approach to delivery in various places across the country, with ever faster deliveries in the biggest and most densely populated urban areas.
Reuters reports that Amazon is making arrangements to build a million-square-foot distribution center just outside of Mexico City as part of a ramp up in investment south of the border. As of right now, as far as I can tell, Amazon has one 400,000 square foot distribution center in Mexico, and the million square foot size is typical of Amazon’s larger centers in the US, so this would be a pretty big expansion. The Reuters article quotes Amazon’s revenues in Mexico last year as being around a quarter of a billion dollars, which would be 2% of its revenues generated outside its four largest countries (the US, Germany, Japan, and the UK), which in turn generate 92% of total revenues. So it’s a fraction of a fraction of Amazon’s global business today, despite being a neighbor to by far its largest market, the US. The Reuters article does a good job talking through some of the challenges for Amazon in operating in Mexico but also some of its early successes. Amazon has been able to become truly dominant in e-commerce in just a handful of markets globally, and it seems as through Mexico is in the mold of other countries where it’s been able to do so, rather than more like India or China, where it’s faced more obstacles. As such, Mexico could grow nicely in the coming years, but is never likely to become one of the biggest markets for Amazon.
Amazon Forces Refund Changes on Angry Sellers (Aug 2, 2017)
eBay: Yes, speedy shipping really is a thing with us – CNET (Mar 20, 2017)
eBay is announcing that it now offers guaranteed 3-day shipping on 20 million items, compared to Amazon Prime’s two-day shipping for over 50 million items. The difference in the range and timing here highlights another big difference: whereas Amazon increasingly controls its logistics infrastructure, eBay has very little control at all, which is why it’s been reluctant in the past to commit to delivery dates even though it says almost two thirds of its sales already reach customers in three days. That’s because eBay buyers are responsible for shipping their own goods, while Prime and Fulfillment by Amazon leverage the company’s massive distribution infrastructure including an increasingly deep investment in its own shipping. Yes, eBay is making progress here, but it’s going to be hard for customers not to notice both the difference in the number of items and the speed of delivery and spend their money accordingly.
Amazon Plans Air Cargo Service for Chinese Customers – WSJ (Mar 15, 2017)
There have been lots of stories about Amazon expanding in logistics over the last couple of months – see here (chartering planes), here (ocean freight), and here (an air cargo hub in the US), for example. Now it seems it’s investing in both sea and air cargo for Chinese sellers. That should allow Chinese companies to sell more easily and potentially cheaply to US buyers, but another interesting angle would be US sellers who source their goods from China – I know of several businesses which basically scan Amazon’s top seller lists for arbitrage opportunities and then have goods made in and shipped from China. So those would be other potential users of these new services. Overall, though, this is just another investment in unique logistics infrastructure and more of a competitive moat versus other retailers.
Yet another story about Amazon’s deepening investment in shipping infrastructure (see also ocean liners). Its Prime Air freight investment is an existing strategy, but Amazon is leasing the planes and has been using existing hubs, whereas this new $1.5 billion investment is to create its own hub in Kentucky. Amazon’s claim that it isn’t looking to compete with UPS gets harder to believe all the time.
Amazon Expands Into Ocean Freight – WSJ (Jan 25, 2017)
Amazon seems to be treating building its own shipping infrastructure as a major strategic goal at present, from running its own planes to shipping its own sea freight. That’s partly about leverage over the traditional companies it has historically outsourced these jobs to, and partly about flexibility and control over the infrastructure it needs to get the job done. The further Amazon goes down this route, the harder it becomes for anyone to compete on a level playing field – Amazon’s logistics and distribution infrastructure is reaching a point where it’s becoming a massive competitive advantage.
With the usual caveat about not assuming a patent filing implies immediate (or even any) intention to build something, this is another fascinating step in the evolution of Amazon’s logistics operation. Logistics are vital to Amazon’s ability to do what it does, and a small competitive edge driven by innovation pays off in big ways. Definitely looks like a better use for a barge than Google’s ill-fated Glass showroom.
Amazon is outgrowing the US delivery infrastructure, especially when it comes to Christmas sales, and so is making increasing investments in its own logistics operation beyond warehouses and fulfillment centers. The challenge here is the difference between average daily load and peak load at busy times, but Amazon seems willing to invest for the peak.
Angry Amazon pilots are warning last-minute shoppers that holiday deliveries may be late – Recode (Dec 19, 2016)
This piece highlights two things – Amazon’s ongoing challenges with ensuring that its deliveries arrive on time, and the complexities of getting deeper into logistics with flying its own planes. Anecdotally, I saw several packages from Amazon delayed by one or more days in early December, so the existing system clearly is feeling the strain.