Amazon (AMZN 0.80%) is best known for its industry leading e-commerce business, and rightly so. Since its debut as an online bookstore in 1995, the company has become a worldwide leader in digital retail, so much so that it's often described as the "everything store." Amazon is also hailed as a leader in cloud infrastructure and is quickly becoming a force to be reckoned with in digital advertising. Yet if you ask most investors, they probably wouldn't associate the company with robotics.
Yet robots are an increasingly important part of Amazon's business and could one day be a profit center for the company. Let's look at what's happening and what it could mean to investors.
Image source: Amazon.
Addressing a compelling need
As the world's largest digital retailer, Amazon ships a lot of packages. The company employs a veritable army of warehouse, logistics, and fulfillment workers to pick, pack, and ship items to more than 300 million customers worldwide. Amazon closed out 2022 with roughly 1.5 million employees, many of which facilitate the movement of goods through its massive storage and distribution network.
Alongside that massive workforce is an equally eye-opening cadre of robots that help to advance the productivity of its human employees, while also improving worker safety, according to the company. As a result, Amazon has more than 520,000 robots integrated into its operations, with more coming online every day.
One example is its automated packaging robot. The system, designed to handle as many as 700 orders per hour, runs upwards of $1 million plus ongoing expenses, but Amazon has said it recoups the cost in as little as two years. More recent innovations include Sparrow, which can identify, select, and handle millions of individual products, using a combination of computer vision and artificial intelligence (AI). There's also Proteus, Amazon's first fully autonomous mobile robot, and Cardinal, which accelerates the sorting process into an automated workflow.
A tipping point
Again, most people don't associate Amazon with robots, but all that could be about to change, according to Cathie Wood, co-founder and CEO of Ark Investment Management. In Ark's Big Ideas 2023 report, Wood notes, "Amazon is in the early days of mass robot adoption, pointing the way for other industries." She goes on in the note that the company is at an inflection point. Amazon is producing about 1,000 robots per day, according to the report. "We believe that by the year 2030, Amazon can have more robots than employees," Wood said in a recent interview.
Amazon currently only deploys its robotics technology internally, but with more than a decade of robotics expertise under its belt, the company could one day decide to turn this into its next big moneymaker.
An interesting parallel
When Amazon first entered the e-commerce business, it had no intentions of being the cloud infrastructure leader. But necessity is the mother of invention, as the saying goes.
Back in 2000, Amazon was struggling to develop a system that would allow third-party merchants to build digital retail stores on top of the company's existing framework. Doing so proved to be more difficult than imagined, which prompted Amazon to develop a clear and useful set of infrastructure services -- like computing, storage, and databases -- that developers could use across the company. Amazon had also become quite adept at spinning up and maintaining dependable, scalable, and economical data centers for use in its own digital retail operations.
By 2006, things had evolved to the point where Amazon could sell these services to others, and Amazon Elastic Compute Cloud was born. This segment would eventually become Amazon Web Services (AWS), the dominant cloud infrastructure leader, even to this day.
There's a distinct parallel to the evolution of its cloud services and its growing army of multipurpose robots.
In an interview, Siddhartha Srinivasa, Amazon's chief of robotics artificial intelligence, addressed the company's strategy when it comes to developing innovative and groundbreaking new technology. "We don't develop technology for technology's sake," Srinivasa said. "We want to develop technology with an end goal in mind of empowering our associates to perform their activities better and safer."
Amazon created its cloud computing technology to solve internal problems, but AWS eventually become the company's most important profit center, responsible for more than 15% of the company's net sales and all of its profits in 2022. Amazon's growing robotics expertise was a path to managing and shipping more packages. It wouldn't be a stretch to imagine the company selling or licensing its warehouse robots. Some smaller robotics companies have introduced robots-as-a-service businesses, leasing robotic systems to warehouse operators -- one of several possible paths forward for Amazon.
The bottom line for investors
Ark's Big Ideas 2023 report notes that robot performance has improved 33-fold over the past seven years, driven by advances in computer vision and more advanced AI algorithms. The data suggests that as the productivity of Amazon's robots improves, so too does its bottom line.
The growing proficiency of Amazon's robotic workforce is -- for now -- merely in service of the company's massive logistics and fulfillment network, but the parallels to its cloud infrastructure history are simply too compelling to ignore.
