Why Is Amazon Investing In Autonomous Vehicles?

A few days ago Amazon invested into a 2-year-old autonomous tech development company Aurora that is ed by ex-Google and Tesla executives. Amazon is the largest investor here.

Amazon is also testing a robot called Scout!
It’s a six-wheeled autonomous delivery robot that delivers packages door to door in the neighbourhood.

Why is Amazon doing this?

Before we understand this, let’s take appreciate that Fulfilment is one of the key strategic needs of any commerce marketplace.

We discussed in a few of our earlier episodes of digitalDNA about how e-commerce marketplaces are investing in logistics, supply chain and offline integration.

Amazon, for example, has aggressively been building out its warehouse network to the point that it now has warehouses within 20 miles of nearly 50 per cent of the U.S. population.

But at the same time, fulfilment expenses also bleed the marketplace the most, again, in case of Amazon about USD 34B was spent on fulfilment in 2018 (against a new revenue of USD 232B, that’s about 15% of net revenues gone only in fulfilment expenses)

The fulfilment costs have doubled from 2016 to 2018.

Now given that Amazon’s Prime business is worth over USD100B, and the fact that the consumers have become accustomed to almost free and lightning fast deliveries, Amazon and other com marketplaces do not have a choice but to find alternatives.

McKinsey predicts that autonomous deliveries will slash retailers’ shipping costs by 40%.

At the same time, it’s also important to understand that Amazon is fast expanding into new areas like groceries or prepared food delivery, where the dynamics of fulfilment are diverse.

Look at this chart to understand how Amazon can face competition in future:

One can observe that Amazon will face competition in future from Logistics companies like DHL as well as from contemporaries like Walmart who are partnering with Google’s self-driving cars already for deliveries and of course the upcoming startups in the e-com marketplace space. (Check the Chart in the above video)

Given this situation, Amazon’s is deploying this 2 pronged strategy to counter all present and future competition:

Network-driven fulfilment and logistics, which are connected by various warehouses and are connected with diverse technologies like drones, robots and autonomous vehicles
2. Own as much as possible of this fulfilment network. That is why unlike Walmart, Amazon is investing and not just partnering into autonomous vehicle technology.

This will give Amazon a cost advantage as it scales up plus pre-empt new competition, as the entry cost would be too high, as also open up a new area of monetization- it would offer deliveries services to other marketplaces and local retail outlets, retail chains and even offer integration services to logistics companies.

So expect Amazon to be a top logistics company in the coming future apart from a leading commerce marketplace.