For years now, even as Amazon has continued to leave behind a footprint the size of Godzilla, many have wondered: How does Amazon do it? How did they operate for the first several years of their existence at a loss in the billions?
Amazon’s business model continues to be: get as many customers as possible, satisfy them as much as possible, let the virtuous circle continue, and profit (however modestly). Or as Bezos himself puts it, “Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”
Amazon has long been known to burn cash in the quest to continue to grow into one of the largest companies in the world, and Wall Street has generally been quite patient with that strategy. Yet despite that, Amazon has put together a string of strong quarters, 11 to be exact.
Their current profitability comes from their cloud-server farm business, AWS. The company made a huge bet on building up the cloud-computing world just a few years ago, and it’s paying massive dividends. That is but an inkling of Amazon’s recent forays into industry disruption.
Just yesterday, the WSJ announced that Amazon is gearing up to launch a larger offering in the medical supplies business, and health-care supplier and services companies McKesson, Cardinal Health, and Owens and Minor all fell on Tuesday (although they have all stabilized since). FreightWaves covered last weeks’ announcement of Amazon’s strategic “last-mile” positioning related to their Whole Food retailer.
But wait, there's more!
Amazon also just announced the “Shipping with Amazon” program, an end-to-end shipping solution, with pickups from businesses and shipments made to consumers. Amazon is readying the service for its first launch in LA in the coming weeks, starting with companies that sell on its website. After its initial launch, Amazon looks to expand it out to other cities, possibly as soon as this year.
So why is UPS’s stock holding relatively steady (it’s down 1.1% over the past 5 days), and why do they have so little reaction to Amazon’s clear ambitions to compete in the same marketplace?
According to Ibrahiim Bayaan, Chief Economist at FreightWaves, “In the near term (next few years), (UPS) losing the volume altogether doesn’t feel realistic. Amazon has a large volume of packages, and customers that demand speed, and they have not developed enough of a network to deliver everything without the help of UPS and the post office.”
An additional threat would be when Amazon decides to deliver for other non-Amazon businesses. In the near term it’s not a big threat. Amazon probably will operate more like a regional carrier and not a significant national competitor to UPS.
“All of these carriers are having difficulty keeping up with the rapid rise of e-commerce just in general,” adds Bayaan.
“E-commerce grows 15% every year, much of it Amazon driven, and in some ways Amazon building out a logistic network is just about building out overall capacity in the market, particularly during the holiday season.”
With Amazon, you take the macro (world domination) and micro (what it means to you!) view taken into consideration all at once. It’s the near term play and the long term. As their footprint expands, they disrupt and influence multiple industries all at once, some more immediate than others. Some bolster the company in support of other expansions.
Sandeep Kar, Chief Strategy Officer of Fleet Complete, a global leader in commercial vehicle IoT solutions, agrees.
“It takes decades and billions and billions of dollars to build out the appropriate infrastructure for really being able to compete on this level, especially if you’re thinking globally.”
If anything, Kar says he sees even more players entering into the field, not just Amazon.
“It’s the beginning of the beginning in my mind because the other players like UPS and FedEx are going to have to find their place and bang it out and get competitive.”
“There’s lots of room for players like these,” he adds.
Consumers would rather sit behind their screens and do their shopping and have their goods delivered to their doorstep. It's becoming a fact of life. The e-commerce sector has a long way to grow to reach its peak. Meanwhile, from a consumer perspective, it's only a good thing that competition is emerging for the world's largest carriers.
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