A friend read my post yesterday and asked for my thoughts on shipping companies. At CCAW, we spent a ton of money on shipping over the years, so I learned a lot about this space. UPS and FedEx have their strengths. UPS’s roots are in ground shipping (three to five days’ transit time). FedEx’s core is express and overnight shipping. For many years, these two were the only game in town for nationwide small parcel shipping . . . and then came Amazon.
Amazon has been building out its own logistics and delivery systems for years. It leased planes for an air network, built a large fleet of semitrucks, and partnered with independent contractors who deliver packages to customers’ doorsteps. With these, in combination with its warehouse infrastructure and logistics technology, it has built a formidable shipping operation.
I think Amazon will follow a similar playbook to build its AWS cloud computing business. Its e‑commerce business required substantial cloud computing resources to support its rapid growth. Amazon opted to build this infrastructure and invite other companies to use it too. This meant that Amazon offset some of the costs of the infrastructure with revenue from AWS customers. Fast forward to today, and AWS is one of Amazon’s most profitable business units and a growth engine.
Amazon will likely do something similar with shipping. It will offer shipping options that compete directly with UPS and FedEx. It will be able to offer lower prices because it has other revenue streams (e-commerce, digital advertising, cloud computing, etc.). The more customers it attracts, the more it will build out its offerings. When all’s said and done, its shipping operation could be bigger than UPS’s and FedEx’s.
I’m not sure when this will happen, but I’m confident that it will. And I think the competition will accelerate innovation, which we’ll all benefit from.