Amazon recently announced its Delivery Service Partners program, enabling entrepreneurs to start and run their own delivery companies. With Amazon’s cash as fuel, these new business owners can run delivery fleets of up to 40 vehicles, while the retail behemoth provides discounts on capital expenditures and operating costs such as Amazon branded-trucks, uniforms, fuel and insurance.
However, when one company wields so much influence over supply, demand and fulfillment, it’s worth considering if these “innovations” belie a deeper motive. Is Amazon’s new last-mile delivery model a groundbreaking entrepreneurial opportunity or is it a risk to small business owners and other carriers?
Opportunities For Amazon To Improve The Final Mile
Amazon’s dominance in e-commerce is a well-established fact. Yet final-mile delivery continues to be a complex issue full of variables, from capacity concerns to customer service and experience. With its new Delivery Service Partners program, Amazon can take full control of final-mile shipments, crowdsourcing the gig economy to unlock latent capacity in hyper-local delivery agents (flowers, pharmacies, etc.) who aren’t connected to national retail networks.
Amazon may risk some customer service costs by relying on inexperienced delivery agents, but I believe its gain is much greater in being able to fully control the customer delivery (and return) experience down to each consumer’s doorstep.
Having a branded network of final-mile delivery providers also ensures greater consolidation of data and technology. Amazon can now track package delivery status in real time — down to the street block or traffic light — giving it the ability to innovate without the barrier of carrier adoption and enablement. Today, Amazon already features an Uber-style map where you can track some of your packages before arrival.
Finally, having an exclusive network of delivery drivers means Amazon won’t have to compete with rivals for available delivery windows.
Amazon + Entrepreneurs = A Dream Team?
When Amazon launched its e-commerce marketplace, it gave sellers access to hundreds of millions of new customers through its branded platform. The Delivery Partners program is similar in how it essentially offers a startup package for launching your own delivery franchise.
In a traditional franchise model, there is shared incentive for the corporate brand and the franchisee to protect the core product — and avoid conflicts that could put one or the other out of business. By contrast, Amazon is incentivized to control costs, create more delivery competition and drive down its own expenses.
Held captive to their largest customer through cash inflow and loan payments, I believe Amazon Delivery Partners will have little to no power.
Tight margins will force these small business owners to compete and undercut other program providers for market share and, ultimately, many may go out of business.
Amazon also hasn’t been shy about its ambition to own more self-sustaining technology. Over time, some might argue that Amazon’s end goal will be to take drivers out of the market completely, replacing them with drones, self-driving cars and other new technologies.
Milestones To Watch
While entrepreneur risk is high, there’s no question that this move will help Amazon fill in the gaps in its own transportation capacity. The company will now own the customer experience, increasing the threat to other carriers and shippers while pushing the majority of the risk downstream.
Amazon executives have said they primarily focus on being “really good” at what they do, implying that it isn’t their job to figure out how the company’s innovations create ripple effects in the marketplace. As the Delivery Partners program grows in popularity, it will be interesting to see if business owner responses begin to mirror other gig economy models such as Uber, with drivers realizing high risk and little return and demanding increased compensation for it.
As Amazon proceeds with this program, it is crucial to watch for critical milestones: How many entrepreneurs sign up? How much money do they make? How does the expanded delivery network improve (or hurt) the customer experience? How much more efficient does this make Amazon? What new customer-facing innovations will we see?
What do you think? How does Amazon’s new program change the competitive landscape for retailers and carriers? How do you feel about outsourced delivery drivers, and will the benefits outweigh the costs for new business owners?