Kiva Systems: The Rise of the Robots

A decade ago, Mick Mountz was the logistics guy at dot-com-era e-grocery Webvan. He helped outfit warehouses with high-tech, 4.5 mile-long mazes of conveyor belts and carousels meant to sort, box, and deliver goods. The efficiency would be awesome; Webvan would make billions in the low-margin grocery business. That didn't happen. After Mountz quit in 2000 and the startup went bust the following year, he realized what was missing from his vision of automated warehouses: robots. He founded Kiva Systems in 2003.

The idea worked. Kiva robots are the backbone of Quidsi, the five-year-old owner of—and subject of Bloomberg Businessweek's Oct. 11 cover story—that (AMZN) bought this month for $540 million. Kiva technology is also used by Amazon-owned shoe seller, Gap (GPS), and about a dozen other retailers, says Mountz.

The robots are squat contraptions that resemble fast-moving orange tortoises. They scurry around warehouses and bring shelves of clothing, electronics, car parts—whatever a retailer sells—to specialized workspaces called packing stations. There, humans pick out products, pack them into boxes, and push them onto trucks. The systems usually run in the $4 million-$6 million range. The cheapest, for $1 million, comes with 30 robots and two packing stations. All versions work with the customer's existing inventory-management software. Next year privately held Kiva will introduce a leasing program so companies can use its robots just during peak seasons. Mountz claims distribution centers that use his product can increase worker efficiency by up to four times.

He adds that Kiva doesn't just help customers handle more product; in some ways the technology actually becomes smarter than humans. In Kiva-run warehouses the robots continuously reorganize inventory based on order flow. For example, if there's an uptick in sales of corduroy pants, the robots place those items closer to the workers. Less popular merchandise gets relocated deeper into the facility.

Distribution Edge

Quidsi co-founders Marc Lore and Vinit Bharara credit Kiva with helping them reduce costs enough to offer free overnight shipping to customers in about 70 percent of the U.S. (sorry, Hawaii and Alaska) on orders over $25. "Free shipping is now becoming the standard," says Cathy Halligan, a former executive at Wal-Mart (WMT) who's now a senior vice-president at PowerReviews, a service for adding customer reviews to websites. "If you can't run an operation at the lowest cost, you're going to bleed your P&L."

Lore and Bharara say the importance of logistics in Web commerce can't be overstated. They saw their opening after realizing most e-tailers focus on driving people to the website, not on back-end operations. Quidsi became so good at distribution that even Amazon, known for its logistical prowess, bought the company rather than compete with it, says Colin Gillis, an analyst at BGC Partners (BGCP). (Amazon declined to comment.) "To succeed in e-commerce you have to control the supply chain," Lore says. "The bigger you get, the easier that gets."

Mountz certainly wouldn't dispute that. His pitch: Kiva's bots let the little guys get in the game. "Now you can get Amazon in a bottle," he says. "Everyone can have what Amazon has."

The bottom line: Kiva Systems' warehouse robots help e-commerce stars cut costs and compete in low-margin businesses.

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