Amazon Wants a Piece of Uber’s Action

Amazon.com (NASDAQ: AMZN) has stolen a page out of Uber’s book and announced plans to develop an app that would allow anybody to become an Amazon delivery person.

The service, called On My Way, would try to reduce shipping costs and expand its services by using independent contractors. Basically, anybody could download then drive, walk or bicycle to a pickup point such as the post office, pick up the package and deliver it to the final destination.

Deliverers would log onto the app much as they log onto Uber. They would then get assigned a package to pick up and deliver in their area. The service would be similar to Google Express, which uses hired couriers to pick up packages from stores and deliver them to customers.

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Host of Problems Face Amazon Delivery App

The service is also similar to FedEx (NYSE: FDX), which uses independent drivers instead of hired employees to pick up and deliver packages. That could lead to legal hassles because the legal status of Uber drivers in the United States is far from settled. The state of Florida recently declared an Uber driver an employee for unemployment insurance purposes, and lawsuits challenging Uber’s definition of drivers as contractors are winding their way through the federal courts.

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There are a host of other problems awaiting Amazon here; for example, the insurance of packages. Who will cover insurance costs for valuable items like jewelry and electronics in such crowdsourced delivery apps? Insurance has been one of the big problems dogging Uber around the country. Insurance for delivery people would be a challenge because they would presumably have to be bonded to deliver high-value items.

The problem of driver selection arises; obviously, you would need people with dependable vehicles and no criminal records. How would you tell which drivers have vans large enough to carry merchandise and which might have refrigerated vans? More importantly, how would you tell which drivers are insured?

Why a Walmart/Amazon or an Amazon/Kroger Alliance Makes Sense

Logistics is also a challenge. How will packages get from the Amazon Fulfillment Center to drivers in the community? Would Amazon use hired truckers to do that or drop them off at lockers like the ones that Walmart Stores Inc. (NYSE: WMT) is testing at stores in Canada and the United Kingdom. One intriguing possibility here would be an alliance between Amazon and a retailer like Walmart or Kroger (NYSE: KR) that has locations all over the country.

Such an alliance would allow Amazon to use local stores as fulfillment centers, something Walmart and Kroger have tested in a number of markets. It would make it easier for Amazon to offer products like fresh produce through its website and to offer same day delivery.

Another possible alliance would be with Uber or Google Inc. (NASDAQ: GOOGL).  The UberRush courier service would be a natural fit with Amazon and so would Google Express.

There could also be political and other resistance to the plan. One big challenge could be the Teamsters Union, one of the largest, richest and most politically powerful labor organizations in the United States. UPS (NYSE: UPS) drivers are Teamsters, and they may not take kindly to competition from independent contractors. The Teamsters have also been moving to unionize Networked Transportation Drivers in California.

My guess is that you will not see the Amazon On My Way van in your neighborhood anytime soon. Amazon will need several years of development and testing to get this plan up and running. Most likely, Amazon will test it out in Seattle or the San Francisco Bay Area and then slowly roll it out across the United States.

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Yet such a service is inevitable because a merger of networked transportation and online retail is the next logical step in e-commerce. It is the ultimate and cheapest means of expanding Jeff Bezos’ ecosystem into your neighborhood.

Such a service is inevitable for another reason as well: Amazon needs to reduce delivery costs and fast. USA Today reported that the Everything Store lost $1 billion a quarter on shipping for the past two quarters. If that keeps up, its current business model might no longer be viable.

Cloud-sourced delivery then might not just be the next logical step for Amazon. It might be necessary to keep the company afloat for the foreseeable future.