Amazon -- which started as an online bookstore and became a store for anything plus a utility company for computing power -- may be transforming yet again.
The company is proceeding with a blueprint for a global shipping and logistics operation that will compete with the likes of UPS, FedEx and the fragmented global network of cargo and shipping middlemen, my Bloomberg colleague Spencer Soper reported on Tuesday. Bearing the film noir-style code name of Dragon Boat, Amazon's strategy envisions taking goods directly from factories in places like China, moving merchandise from many vendors on boats, planes and trucks and depositing it to shoppers' doorsteps either on its own or through other delivery companies.
Amazon has been assembling the pieces to make its logistics ambitions feasible. The company has tested package delivery by drones, pursued cargo plane leases, started using private delivery trucks, registered to provide ocean freight services and built a growing number of warehouses to house inventory and handle package sorting.
Those efforts, it turned out, may not have been only to take more control over delivery for Amazon itself. The company wants to go whole hog and handle shipping and complex delivery processes for others as well. If you're going to be the everything store, why not be everyone's delivery man, too?
The logistics business is huge, sprawling and messy -- exactly the kind of market Amazon loves. R.W. Baird analyst Colin Sebastian has estimated logistics could be a $400 billion to $450 billion market opportunity for the company. Amazon wins even if it never gets a logistics operation off the ground. Just the idea puts pressure on Amazon's delivery partners to keep prices low and on-time rates high.
UPS and the U.S. Postal Service rewired their systems to cater to Amazon, but they had to know this day was coming. Amazon CEO Jeff Bezos has a manic fixation on controlling the pathways to consumers' homes. And becoming a shipping and logistics company is classic Amazon. In its 20-plus year history, Amazon has repeatedly worked with partners like Toys "R" Us and Borders to study them, absorbed lessons from their businesses and taken over what they do like the Borg, only in a more Amazon-y fashion.
Amazon's potential global shipping and logistics operation has echoes of the company's go-big-or-go-home moment with its warehouses and package processing. Years ago, Amazon was using the same inventory management and package-sorting software as everyone else and struggled to get parcels out reliably. An Amazon executive told my colleague Brad Stone for his 2013 book on the company:
"We had a key decision to make...Was distribution a commodity or was it a core competency? If it's a commodity, why invest in it?"
Bezos and his lieutenants decided storing merchandise, sorting it and preparing it for delivery was too important to leave to third parties. So they rebuilt the systems from scratch, their own way. It was in hindsight a crucial decision that helped make Amazon, well, Amazon.
The company could deliver goods to customers faster than anyone else, building loyalty and giving Amazon an opening to start its Prime membership service. And it allowed the company to launch a now-booming business called Fulfillment by Amazon, in which the company lets independent merchants sell goods on Amazon's website while Amazon stows their merchandise and handles packaging duties.
The question is whether shipping and logistics is a "core competency" or if Amazon wants to get into that business for the wrong reasons, like frustration with perceived missteps or high costs from its shipping partners.
It won't be easy or cheap to rebuild the Byzantine network built over decades for global shipping and logistics. Remember, Wall Street, perhaps foolishly, has expected Amazon to be in profit-harvesting mode and not in seed-planting mode. It's also worth keeping in mind that Amazon's grand ideas don't always pan out. Remember Amazon's eBay killers, Amazon Auctions and zShops, or its DVD by mail company that was supposed to outflank Netflix? No? That's because they didn't work.
It's not an exaggeration to say this is a make-or-break moment for Amazon. The company scarcely has competition in e-commerce anymore. Its not tough to move digital bits and bytes for online shopping. Logjams with the physical moving and delivery of goods are the only barriers between Amazon and domination.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Stone's book has a hilarious section about a missing pallet of Pokémon Jigglypuffs that crippled Amazon's delivery system.
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