YOU WATCH MY BACK, I’LL WATCH YOURS!
Hey <<First Name>>,
On Tuesday Amazon CEO Jeff Bezos revealed one of the worst kept secrets in the package delivery industry and broke ground on the new 3M square-foot Amazon Prime Air hub at the Cincinnati/Northern Kentucky International Airport. The $1.5B project, which is scheduled to open in 2021, will house 100 airplanes on 900 acres of land. Bezos claims this is an initiative to "get you your packages faster," but the truth is he’s displaying his sharp elbows again and finally fulfilling Amazon’s long-standing ambition to control America’s shipping backbone, and fracture the dominance of FedEx and UPS.
Ironically, it’s the 15th anniversary of Amazon Prime, which launched in 2005, and is the greatest retail innovation of the internet age. For an upfront payment of $79, customers were rewarded with all-you-can-eat style two-day delivery on their orders. At the time Amazon charged customers $9.48 for two-day delivery per order, meaning if you placed just nine of these orders in a year, Prime would pay for itself. It made sense to hardly anyone at the time, and you couldn’t find an analyst who understood how Amazon could afford such an undertaking.
But, with the assistance of FedEx and UPS, in Amazon single-handedly — and permanently — raised the bar for convenience in online shopping. That, in turn, forever changed the types of products shoppers were willing to buy online. Amazon was now the alternative to the immediacy of brick-and-mortar stores, and Bezos’s instinct proved to be spot on; fast shipping was powerful enough to alter consumer psychology forever. Every major retailer in the world had to eventually adjust and change its infrastructure to the shift. Prime members spend more and buy more frequently than non-Prime members do, and as of last year, Prime boasted more than 100M paying members across the globe.
As part of its complete transformation of the e-commerce landscape, Amazon, UPS and FEDEX made two-day shipping the new industry standard — a standard which most would-be competitors couldn’t meet on their own without either investing millions in infrastructure or partnering with their greatest competitive threat
FedEx and UPS earned billions of dollars as a result of the massive amount of product customers ordered from Amazon during this time. Without the logistics of FedEx and UPS, Amazon would not exist, and it was essential for them to maintain close relationships with their third-party partners until now.
Two years ago, FedEx CEO Fred Smith blindly told stock analysts that concerns about Amazon shaking up the package shipping industry were "fueled by fantastical reports and the primary deliverers of e-commerce shipments for the foreseeable future will be UPS, the U.S. Postal Service, and FedEx.” And now, a recent Morgan Stanley report stated that both delivery giants could lose 10% of their revenue to Amazon Air by 2025.
Brick by brick, Amazon has always been building itself into a package delivery company to satisfy not only the unlimited demands of Amazon shoppers but eventually anyone who wants to move merchandise and possibly people from one place to another. Bezos shrewdness is again on full display, as he’s leveraged the shipping behemoths to build the largest company in the world and now he needs them to go away. Book retailers, grocery stores, department stores, and healthcare companies know the feeling.
Now everyone in the air, beware!