Amazon’s massive infrastructure heaves with so many packages — more than 11 billion annually — that it has to crowd-source last-mile deliveries to people’s homes. Now it has a new scheme to help keep those goods flowing: Amazon Delivery Service Partners.
The program, unveiled early Thursday morning, promises to give entrepreneurs everything they need to launch their own Amazon package-running service.
Hopefuls must go through an application process. Once accepted, they have the makings for their own business, with backing from the e-commerce giant. Amazon will lend a hand with operations such as gas, insurance and benefits, along with technology, training, access to the company’s logistics information, services and even the opportunity to shadow one of its existing delivery partners. It will also lease them Prime-branded vehicles.
The would-be entrepreneurs can expect to pay $10,000 or so for operational costs, but they can pull in as much as $300,000 in annual profits by running a fleet of up to 40 vehicles, Amazon claimed. On its surface, the model resembles a franchise arrangement, but according to an Amazon spokesperson, the company has no stake in the business and does not get any sort of ongoing cut. The program participants would fully own their businesses, handle hiring and manage other affairs.
This isn’t the first time Amazon enlisted the public’s help with hustling boxes. Amazon Flex taps the gig economy by contracting individual car owners in more than 50 American cities — sort of like an Uber for package deliveries. The company also runs its own fleet of 7,000 trucks and 40 planes, and partners with outside vendors, such as FedEx, UPS and the U.S. Postal Service. The latter relationship came under fire a few months ago from President Trump. His tweet storm drove Amazon’s market value down by as much as $53 billion at the time.
The new delivery program may or may not be a reaction to those attacks, but it’s certainly a response to the company’s staggering — and growing — delivery expenses. According to Amazon’s last annual 10-K filing, shipping expenses cost the company $21.7 billion last year, up from $11.5 billion in 2015, and they’re expected to go up even further.
“We have great partners in our traditional carriers and it’s exciting to continue to see the logistics industry grow,” said Dave Clark, Amazon’s senior vice president of worldwide operations, in prepared remarks. “Customer demand is higher than ever and we have a need to build more capacity.”
Logistics is a tough nut to crack for any e-tailer. In fact, over the next five to 10 years, e-commerce will only become more “asset heavy” as firms attempt to rein in the problem, Morgan Stanley wrote in a report Thursday. But the investment bank sees Amazon’s program as evidence of the tech company’s constant innovation to mitigate shipping costs that amount to 13 percent of its revenue.
“Near term, this could help Amazon manage its shipping cost through growth,” the report posited, “[and] long term this could lead to a more efficient and profitable core retail business.” In simple terms, the Morgan Stanley analysts said the program boosts Amazon’s negotiating power with delivery partners, while also handing it a public relations win, as a growth driver for small businesses and the job market.
Amazon’s sprawling empire seems to be expanding in all directions lately. For fashion, it’s working to develop fitting tech, thanks to its 2017 Body Labs acquisition, and it just publicly released its Echo Look fashion camera and Prime Wardrobe service this month. Notably, the latter’s try-before-you-buy proposition will likely send its delivery system into overdrive.
Meanwhile, in another part of the Amazon universe, last year’s Whole Foods grocery acquisition may have just gotten a run for its money for peak media buzz, thanks to the company buying its way into the pharmacy business.
On Thursday, the news of Amazon scooping up online pharmacy PillPack rattled the market, with stocks tumbling for competitors like Walgreens, CVS and Rite Aid. By mid-morning, the deal had obliterated $24 billion in market capitalization across 10 of the largest health-care companies in the U.S. While significant, the market tremors are not even the biggest panic Amazon triggered this year.
Last January, it teamed with JP Morgan and Berkshire Hathaway on a low-cost, independent health-care company for employees. They said they just wanted to provide “simplified, high-quality and transparent health care at a reasonable cost” for their workers, which number close to one million people. But that did nothing to ease industry concerns, as $30 billion in market value across the top health-care companies vanished.
To date, plans are still rolling forward: Last week, surgeon and writer Dr. Atul Gawande was appointed the new health-care company’s chief executive officer. There’s no clarity yet on if or how the business may plug in with the PillPack deal.
Attempting to connect the dots across Amazon’s array of efforts may seem fruitless. But it’s hard to ignore the looming probability of a future in which life’s fundamentals hinge on its ecosystem. Customers could order all the food they want from Amazon, and if they don’t like what they see from Echo Look, they can have their neighbors deliver the drugs to make them feel better.
It may never be a simple matter of asking Alexa to order medication. But it may not be that far off the mark.