Satish Jindel said the key to making Flex sustainable will be building density. Photo / iStock
Amazon.com said Tuesday that it is building its own network of delivery couriers through a program called Amazon Flex - the latest attempt by the e-commerce giant to bring something close to instant gratification to the process of online shopping.
With Amazon Flex, the company says, drivers can make from $18 to $25 an hour ferrying packages to customers that were ordered as part of its one-hour Prime Now delivery service. As with on-demand car services such as Uber and Lyft, drivers will be independent contractors who select their own work hours.
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The new approach is part of the retailer's ongoing obsession with getting items to customers faster, and could help reduce Amazon's dependency on major shipping carriers such as UPS and FedEx. And with Uber also experimenting with using its network for deliveries, it could also put these two big names in the tech sector in direct competition.
"They are more and more starting to confirm for themselves that for them to be such a big online retailer, having some capabilities of their own [for] distribution is a core competency, and not an outsourced one," Satish Jindel, president of logistics advisory firm SJ Consulting Group, said of Amazon.
But Flex also could ensnare Amazon in many of the wage and policy debates that Uber has faced as it has expanded rapidly across the country. There has been a flurry of legal battles over whether such on-demand drivers should be considered employees instead of independent contractors, and labor groups have criticized companies such as Uber, Instacart and others with similar business models for not giving these contractors benefits and other perks.
Amazon Flex is already active in Seattle and will soon be coming to other cities where Amazon's Prime Now program is offered, including Baltimore, New York, Miami, Dallas, Austin, Chicago and Atlanta. On its Web page about Flex, Amazon says that, along with delivering Prime Now orders, Flex drivers may someday deliver other types of Amazon orders, too.
That leaves Amazon subsidizing it, similar to what Instacart and the other delivery startups are doing.
Amazon frequently tests unconventional ways to get packages to customers. In April, Audi announced that it was testing an offering in Germany in which shoppers could have Amazon boxes delivered directly to their car trunks, and the Wall Street Journal has reported that Amazon tested a bike delivery service in Manhattan. Plus, the e-commerce company is famously experimenting with drone delivery.
Sucharita Mulpuru, an e-commerce analyst at Forrester Research, said she is skeptical that Amazon Flex will viable, since shoppers have again and again proven they hate to pay for shipping, and merchants might not be crazy about paying for this speedy delivery, either.
"That leaves Amazon subsidizing it, similar to what Instacart and the other delivery startups are doing," Mulpuru said in an e-mail. "That doesn't make for profitable transactions or loyal customers."
Jindel said that the key to making Flex sustainable will be building density. If each driver is being paid about $20 per hour, he reasons, five deliveries in an hour could get costs for Amazon down to $4 per package, a good price. But if a courier only delivers one package in an hour, the price no longer looks so good.
Overall, Jindel estimates that Amazon ships 4.5 million packages a day, about half of the volume that FedEx Ground does in a given day.
Amazon says Flex drivers will need to pass a background check and must be 21 years old. They also must have an Android phone, a sign that its app for drivers likely only works (or works best) on these devices. The company promises on its Web site that Flex drivers will be able to get "consistent work," as deliveries take place seven days a week.
Amazon chief executive Jeffrey Bezos owns The Washington Post.