For a company its age, bookseller-turned-everything-provider Amazon.com.com (NASDAQ:AMZN) refuses to act its age. But then Amazon has always been a company ahead of its time.
The company that began as an online bookstore when few had even heard of the Internet has morphed into one of the most integral names in all of technology today. The company forgoes profits today to build market share and dominate product verticals tomorrow. And now in another interesting recent move from Amazon, the e-commerce giant is taking a leaf out of the playbook of high-growth ride-hailing service Uber, to develop the next iteration of its innovative delivery service.
Meet Flex, Amazon's Uber delivery clone
Recently, Amazon launched a new delivery program, dubbed Amazon Flex, which largely mirrors Uber's UberEATS delivery service. Like Uber and other start-ups such as Postmates and Instacart, Amazon plans to hire contract drivers to ferry already purchased merchandise over the so-called "last mile." Reportedly, Amazon plans to use Flex only to fulfill orders from its on-demand Amazon Prime Now one-hour delivery service that made its debut last year. Amazon says it plans to pay Flex drivers between $18 and $20 per hour.
To facilitate all these plans, Amazon has created an app that provides pick-up, drop-off, and routing location for drivers using the service. It also says it plans to screen all applicants, using a third-party service to perform background checks on potential Flex drivers. The service reportedly will initially launch in Seattle. Amazon has also launched pilot test programs for other delivery projects, such as Amazon Fresh and Amazon Prime Now. And although Amazon Prime Now has succeeded while Amazon Fresh still struggles, Amazon Flex holds a number of interesting implications for the e-commerce powerhouse and its investors.
But how does this benefit Amazon?
I can see three potential benefits or opportunities that Flex creates for Amazon. First, Flex could potentially create some much-needed cost savings on Amazon's shipping expenses. The company reportedly contracted its Prime Now deliveries to professional courier companies in cities where it's available. And with shipping expenses increasing 31% last year, Amazon could hope to generate cost savings by in-sourcing this critical "last mile" of its on-demand delivery network.
Second, owning the delivery experience could also help Amazon expand the number of markets in which its Prime Now service can operate. Not every city is like New York, enjoying an army of eager bike couriers, so there's a limit to the number of cities in which Prime Now can enter. Gaining an advantage here is crucial, because Prime also enables Amazon to increasingly steal share from an area of retail that thus far has been insulated from competitive pressures. As a Piper Jaffrery tech analyst summarized it: "Same-day and same-hour delivery have the potential to open an entirely new retail segment to Amazon -- the instant gratification market. ... Traditional retailers have historically enjoyed in-store pickup as a competitive advantage over Amazon -- that advantage is slowly going away." I hadn't considered Amazon's potential to steal away business on daily essentials from your closest convenience store, but if Amazon Flex creates the means to do so, it could prove to be revenue-accretive for the company.
Third, Amazon could potentially benefit from developing expertise in mapping and routing technologies. Although its exact application isn't yet clear, Amazon has shown a remarkable ability to create new businesses out of its own expertise. For example, Amazon's incredibly successful Amazon Web Services cloud-computing product was born out of Amazon's own expertise in developing scalable servers. Taking this idea one step further, it's plausible, though by no means given, that Amazon could pivot Flex into an on-demand delivery service for smaller companies wishing to tap into affordable, on-demand delivery.
A few other opportunities could also exist with Flex, but hopefully you see the overarching theme here. By taking control of its own on-demand delivery network Amazon is positioning itself to thrive, as this trend should only increase in popularity in the years to come.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.