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By focusing on both innovation and customer satisfaction, Amazon.com (AMZN 1.30%) has become the tech giant that we see today. Now, it's using both of these principles to expand into the transportation space -- and competitors should be worried.
Amazon is beefing up its own transportation infrastructure
There are numerous ways in which Amazon is expanding its transportation arsenal. In 2016, Amazon launched Amazon Air, a cargo airline that will transport parcels across the U.S. As of June 2018, Amazon Air had 33 cargo planes. The company has announced, however, that by 2021, it will open its main "Air Hub" in Kentucky, increasing its number of cargo planes to 70 and creating over 2,000 jobs in the area.
Another key sector in which Amazon is trying to gain market share is in the auto industry. While it's not building cars, it is partnering with companies such as Volkswagen and Ford to provide cloud infrastructure. Volkswagen is currently using Amazon Web Services to connect its 122 plants and 30,000 supplier factories, while Ford is partnering with Amazon and Autonomic (now owned by Ford), to create a cloud platform for the transportation industry. And in addition to now offering Alexa Auto, Amazon is working with companies such as BMW and Audi for a fully integrated Alexa experience.
Beyond these traditional forms of transportation, Amazon is allocating a lot of resources toward new and innovative methods of shipping. Between December 2016 and May 2019, Amazon acquired 210 transport-related patents, whereas competitors Apple and Alphabet, only amassed 105 and 140 respectively. Amazon has also given $2 billion in funding to high-profile start-ups such as Rivian Automotive, the developer of electric trucks, and Aurora, a self-driving systems developer.
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Along with these patents and investments, Amazon has acquired technology companies to expand its transportation ecosystem. Among these acquisitions is Dispatch, a robotics company that has developed an autonomous delivery robot. This robot, known as Scout, is currently used to deliver parcels to Amazon customers in Snohomish County, Washington.
In the past, Amazon has tried to gain market share in the food courier industry. Amazon Restaurants, a food delivery service, was launched in the U.S. in 2015 and expanded into London in 2016. Due to competition from companies such as Deliveroo, Uber Eats, and Grubhub, this segment of Amazon was closed in 2019. Amazon are not giving up yet, however, after investing $575 million dollars in Deliveroo. While it's not apparent how Amazon will use this new relationship, one option is integration with Prime memberships.
Why is Amazon investing in transportation?
Amazon's founding CEO, Jeff Bezos, attributes much of his company's success to customer satisfaction -- Bezos doesn't just want to satisfy customers, he wants to "absolutely delight" them. In an attempt to reach this level of satisfaction, Amazon has made the delivery system as quick and efficient as possible -- ensuring next-day delivery, and sometimes even same-day delivery.
The other main reason for increasing investments in transportation is to lower the cost of doing business. In 2018, Amazon's net margin grew from 1.7% to 4.3%. While this increase is significant, in Amazon's 2018 annual report, management said that they wish to reduce costs of business and transportation even further. These investments into Amazon's transportation infrastructure appear to be working, with the trailing-12-months net margin growing to 4.8%.
How will this impact other companies?
Amazon's growth in transportation is already challenging the transportation industry as a whole. Amazon's development of self-driving technology will challenge both Uber and Alphabet's Waymo, while its growth in traditional transportation will challenge giant corporations such as UPS and FedEx.
These large-scale corporations face a massive threat from Amazon. FedEx has announced that due to Amazon's growth in the delivery industry, it has opted not to renew its ground-shipping contract. The delivery companies have also started taking measures to match Amazon's efficiency: Both now deliver packages seven days a week, and FedEx even unveiled its own delivery robot, which will be trialed in 2019.
These changes are definitely in order as FedEx reported a loss of nearly $2 billion in the most recent quarter. Revenue growth for FedEx has also slowed, with 2018 revenue up only 9% compared to 2017's 20%.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon. Read our full disclosure policy here.
