Amazon.com Inc. has opened its delivery doors to other online businesses, a process that has taken around six years and may not have gone quite as planned. The only way to know how far Amazon will go with this is to wait and see.
The Buy with Prime service would enable a select number of merchants to offer the benefits of Amazon’s ubiquitous Prime offering, including shipping, through their online storefronts. Currently, the service is only offered to merchants that already use Amazon’s fulfillment and shipping services. However, Amazon (NASDAQ: AMZN) stated that its invite list will be broadened during the year to include merchants who do not utilize its fulfillment service as well as businesses who do not sell on the platform.
Some may point to the very last paragraph as proof that, after a half-decade of conjecture, Amazon would finally create a delivery service aimed at businesses that do not use its retail or fulfillment operations. It is an area on which Amazon CFO Brian Olsavsky may be asked to remark on Thursday afternoon, following the announcement of the company’s first-quarter earnings.
In theory, such a move would pit Amazon against UPS Inc. (NYSE: UPS), which has Amazon as its largest delivery customer. It would ratchet up competition with FedEx Corp. (NYSE: FDX), which hasn’t worked with Amazon in nearly three years. It would also remove Amazon from the United States Postal Service, which was formerly a key Amazon vendor but has been neglected in recent years as Amazon has taken more delivery business in-house.
Last Thursday’s announcement was merely the first step. Amazon appears to be testing the waters in order to evaluate merchant reactions to the scheme. It is not regarded as a true integrated carrier in the mold of FedEx, UPS, and the Postal Service because it does not offer pickups unless in extremely unusual cases. UPS, which received 11.7 percent of its $94 billion in revenue from Amazon in 2021, does not appear to be concerned about any invasion. UPS CEO Carol B. Tomé dubbed Amazon’s promotion a “really creative marketing move” on Wednesday. She did, however, say that Amazon permitting other merchants to offer Prime services does not jeopardize UPS’ competitive position.
UPS and Amazon have developed a “mutually beneficial” agreement, according to Tomé, in which Amazon effectively handles deliveries that UPS isn’t interested in delivering.
According to Dean Maciuba, managing partner, US, at Crossroads Parcel Consulting, the program will have an influence on the other parcel carriers because merchants who were self-fulfilling their orders with the carriers will transfer to Amazon if they choose to participate. According to Maciuba, Amazon “is still not near to having the capability to serve as an integrated carrier and to compete directly… for third-party business” that is not tied to its e-commerce operation.
Trever Outman, co-founder, and CEO of consultancy Shipware LLC, has a different perspective. Amazon may evaluate the fulfillment and shipping performance of orders not made on its site by “wading into the shallow end of the competition waters” with the restricted launch, according to Outman in a LinkedIn post earlier this week.
According to Outman, the controlled rollout is the “first half” of the game, during which Amazon measures merchant and consumer demand, develops invoicing and pricing models, and increases final-mile delivery density. Once those boxes are checked, Amazon will extend the program to select outside shops, according to Outman.
Amazon had been working on the initiative until the Covid-19 outbreak halted it; in fact, it had eight big sort centers across the country to service non-Amazon accounts, according to Outman. “It’s not a stretch to think that major retailers with high pickup density in those areas are currently talking and planning with Amazon,” Outman wrote in the post.
“We’ve all seen Amazon’s playbook before,” Outman added. “They’re systematic, they stick to the numbers, and they play for keeps.”
