Is there a company more innovative than Amazon.com (NASDAQ:AMZN)?
Without question, tech giants like Apple, Alphabet, Facebook, and others deserve mention here, but Amazon's unique ability to envision and develop entirely new and complimentary businesses may be its most underappreciated competitive advantage.
Recently, word broke that Amazon is considering creating its own fleet of air freight shippers to compete head-to-head with UPS, FedEx, and the USPS. A new report suggests that Amazon's logistics ambitions could be even grander than anyone realized.
Amazon has held discussions about expanding its Fulfillment by Amazon service to a global scale, according to a recent article from Bloomberg.
Internal company documents obtained by Bloomberg suggest that Amazon senior management reviewed a proposal to create a global logistics and fulfillment infrastructure as far back as 2013. The internal proposal, dubbed Operation Dragon Boat, illustrates a worldwide delivery system that transports goods produced by third-party suppliers from places like India and China all the way to a hypothetical home in Atlanta. This idea spans the entire shipping life cycle from the first mile to the much detested "last mile."
The initiative would yield a new business line for Amazon, known as "Global Supply Chain by Amazon," seeking to capitalize on the estimated $1 trillion in annual global cross-border e-commerce sales expected by 2020. Amazon could launch Global Supply Chain by Amazon as soon as later this year, claims Bloomberg.
Seeing around the corner
Pursing bold ideas are exactly what makes Amazon such a visionary and successful company. Though it would represent perhaps the most audacious undertaking in its history, the payoff could be huge.
A successful move into and execution of Global Supply Chain by Amazon could create an entirely new $400 billion business for the world's largest e-commerce site, claims Robert W. Baird analyst Colin Sebastian. For context, Amazon's 2015 sales amounted to $107 billion, the first time it surpassed $100 billion. But beyond this gargantuan opportunity, investing in Global Supply Chain by Amazon would also carry two more key advantages.
First, like it did with AWS and third-party listings on its website, creating a new revenue source that deals with a key cost of Amazon's own e-commerce operations could serve as an effective subsidy for Amazon and its shareholders. This could lower its expenses, which in turn would lead to lower costs and a better customer experience for its customers, which would further drive sales. This virtuous cycle is known as Amazon's Flywheel .
What's more, even if Amazon is playing possum with its eventual ambitions in either direction, the threat that it might disrupt its current supply chain partners could serve as massive leverage as Amazon negotiates its shipping contracts with UPS and FedEx.
To be clear, this would be an expensive and long-term commitment on Amazon's part, one that carries with it a certain degree of risk. However, Amazon also enjoys an impressive track record of managing such projects with tremendous discipline. So while it would be a substantial undertaking, the prospect of Amazon creating another sizable competitive advantage would bolster its ability to win the battle for the future of e-commerce.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon.com, Apple, and Facebook. The Motley Fool recommends FedEx and United Parcel Service. 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.
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