Amazon.com(NASDAQ:AMZN) has made waves in several areas of retail and beyond, but the e-commerce giant may be best known for its aspiration to deliver packages to your door in as little time as possible. To accomplish this, the company has experimented with delivery by drone, bike messenger, and a host of other more commonplace options. Now, the company could be turning to a surprisingly low-tech carrier: you.
The pilot program -- dubbed "On My Way" -- would enlist everyday Americans to help deliver Amazon packages while en route to another destination. The company is working on an app that would coordinate the deliveries and make payments to anyone willing to drop off a package.
The program, which is still in development, may not ever go live. That is not all too surprising considering the efforts of Uber and delivery services like Instacart and Postmates to turn transportation and delivery into an efficient algorithm rather than a simple equation of labor and vehicles. So-called "last-mile" delivery has become a competitive space recently, as even Google has entered the race with its Express service, partnering with dozens of retailers to provide one-hour delivery in some cities.
For Amazon though, winning the this war is most crucial since its business model, which is set to generate more than $100 billion in revenue this year, is predicated on low prices and fast delivery. Meanwhile, it continues to stuff its loyalty program, Amazon Prime, with more benefits, recently introducing same-day delivery to several cities, creating the expectation among its customers that shopping with Amazon will only get faster and easier.
Shipping ain't easy
This quest to ship packages wherever and whenever customers need them has not come cheap. Last year, Amazon racked up $8.7 billion in shipping costs, up 31% from the prior year. Shipping revenue has grown as well, in part because of increases in Prime membership, and net shipping costs have remained stable at 4.7% of revenue, or $4.2 billion last year.
The "On My Way" program could have the effect of not only speeding up transit times but also lowering costs, as connecting with someone already traveling in a certain direction would presumably be cheaper than shipping through FedEx and UPS. Amazon also needs to establish or partner with brick-and-mortar operations that would allow it to store packages before people can pick them up. Other hurdles include vetting potential couriers and sorting out the liability for lost or damaged packages.
In 2013, rival Wal-Mart briefly considered sending packages with customers to locations near their home address, but that proposal never came to fruition. Otherwise, there have been no major attempts to disrupt the delivery model practiced by FedEx and UPS despite the aspirations of Uber and others.
To crowdsource or not
As the so-called sharing economy gains traction, it sometimes seems like all of our problems will be solved by apps and independent contractors, but the model employed by AirBnB and Uber suits some businesses better than others. They generally take advantage of inefficiencies in labor or asset usage, and it is not clear that the "On My Way" program would benefit in the same way.
There are certainly enough challenges: Amazon's size alone -- it ships 3.5 million packages a day -- means the program would have to reach considerable scale to make an impact. The service is also unlikely to draw participants for one-off deliveries unless it pays enough, but costs would have to remain low to beat the major carriers. UPS, for example, has an average cost of about $8 per package.
That means the potential savings for Amazon are likely slim, and that is one reason the program may never reach the public. Even if it never enjoys a wide launch, the "On My Way" service shows us that Amazon is willing to consider virtually every tactic imaginable to speed up delivery and improve its service. The move also exemplifies the company motto of "Put the customer first. Invent. And be patient." That formula has been a recipe for success and will continue to be so, with or without "On My Way."