Amazon.com (NASDAQ:AMZN) knows its customers so well that it has begun testing a data-driven method that allows it to ship a customer's order before the customer has even placed it. Called "anticipatory shopping," the process is the latest Amazon idea of how to get items into people's hands faster, thus removing another advantage brick-and-mortar stores have over the online giant.
And before you dismiss this as an idea from science fiction that has no practical possibility of ever happening (like Amazon's much-hyped tests involving delivery drones), this time the company has actually received a patent on its idea. In the patent, which was granted in December, the company specifically addresses the idea that delays in shipping "may dissuade customers from buying items from online merchants."
The process, though impressive, is not as magic and high-tech as it seems. Basically, according to the patent, it involves analyzing customers' buying habits and having some orders pre-boxed and ready-to-ship before the actual order is placed. Let's say Customer Y buys toothpaste around every 40 days from the online store and Customer Q orders the same box of pens every three months or so. Both of those orders could be packaged, sent to a shipping warehouse close to the intended consumer, and ready to go for when the customer actually makes the purchase.
In deciding what to pre-ship, according to the Wall Street Journal, Amazon said it may consider previous orders, product searches, wish lists, shopping-cart contents, returns, and even how long an Internet user's cursor hovers over an item. Essentially, the company will create probability charts to maximize how often it's right about what its customers will actually order.
Will it work?
Of course, no matter how good the software, there are eventualities Amazon -- all-knowing about its customers' shopping habits as it is -- can't know. Customer Y could break his toothpaste routine because there was a sale at his local grocery store. Customer Q could change pen brands on a whim. But if the correct guesses dramatically outweigh the failed ones -- and given how much data Amazon has on its customers, it would seem they would -- the efficiency of having goods in the right place and ready to ship would be a net gain even with the occasional orphaned, pre-packed box that has to be sent elsewhere.
How much faster could it be?
Aside from the over-hyped drone stories, Amazon has already begun building warehouses all across the country to bring goods closer to shoppers and reduce shipping time. The company also offers same-day delivery on a selection of items (for a fee) in major cities including New York, Boston, and Seattle. Even its regular delivery terms are pretty fast, so it's hard to imagine the company can get customers their stuff all that much faster.
This technology might improve efficiency and reduce shipping costs by letting Amazon package and prep similar items in large quantities. It also might help the company with its inventory control -- if you know a bunch of customers are likely to order light bulbs on a certain date, you can have a leaner process and reduce warehouse time.
In the patent, Amazon does not estimate how much the technique will reduce delivery times.
The Internet of things
As more and more home appliances and devices are becoming connected, it's not inconceivable that Amazon could tap into this data and use it to prepare orders. "More objects are becoming embedded with sensors and gaining the ability to communicate. The resulting information networks promise to create new business models, improve business processes, and reduce costs and risks," wrote McKinsey Consulting describing the so-called Internet of Things on its website.
In this world, Amazon might be uniquely positioned to use data it mines from its customers combined with data provided from the Internet of Things. Take, for example, the aforementioned light bulbs. Perhaps the light fixture will be a connected device, letting Amazon know that the bulb has -- or perhaps even will -- go out. Amazon will know what brand of light bulbs its customer buys and be able to ready the shipment for order -- a process that could be automated if the customer allows his connected light fixture to place orders, or one that would require a simple OK from the human.
In this scenario, Amazon is not only ready to ship the order, it's also so automated and convenient that the customer won't go to a physical store to get the bulb, even if it means having it faster.
Fool contributor Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.