There are two ways to extend a business. Take inventory of what you’re good at and extend out from your skills. Or determine what your customers need and work backward, even if it requires learning new skills.
Jeff Bezos

Let me start off by saying that the Kiva acquisition is a typical Amazon play. Totally left field but the implications is potentially massive. Think about it like this, a distribution centre is as strong as the technology that runs it. Kiva adds efficiency and technology to Amazon and its various holdings.

“Amazon has long used automation in its fulfillment centers, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow,” said Dave Clark, vice president, global customer fulfillment, Amazon.com. “Kiva shares our passion for invention, and we look forward to supporting their continued growth.”

“For the past ten years, the Kiva team has been focused on creating innovative material handling technologies,” said Mick Mountz, CEO and founder of Kiva Systems. “I’m delighted that Amazon is supporting our growth so that we can provide even more valuable solutions in the coming years.”

The last few weeks have had me thinking about the last part of the ecommerce ecosystem. It is arguably the most unsexy part of the entire process but in my opinion it is the deal maker or deal breaker. Yes, I am talking about shipping.

It all started with a Bloomberg article that makes mention that Amazon may have fewer Prime users than what the market thinks. Yes, the article is a bit sketchy but it does create doubt over the amount of Prime subscribers Amazon has.

Amazon.com Inc. (AMZN)’s Prime service, a linchpin of its effort to keep customers loyal and fuel long- term profit, has attracted fewer than half as many members as analysts estimate, three people familiar with the matter said.

As of October, 3 million to 5 million people subscribed to Prime, a program begun in 2005 that provides two-day shipping for $79 a year, said the people, who asked not to be named because the figures are private. Amazon is working to reach 7 million to 10 million in the next 12 to 18 months, the people said. Analysts have pegged the current number at 10 million or more, with expectations for it to climb higher this year.

Amazon Prime for those that don’t know is a subscriber business that fits “on top” of their business. By being a Prime member (which costs $79 per year), members get free 2 day shipping on all purchases.

It may sound like something small but it is a massive value added service and I am sure that Amazon gets a lot of purchases due to this programme. Why would I buy anywhere else If I can at a price get  expedited delivery?

The one major weakness of this product at the moment is the fact that it can only be used by US residents. It makes sense as I suspect that most of these items are shipped from a variety of locations in which Amazon has warehouses. However, I believe might be trialling something that can be seen as a “Prime-like” service for the rest of the world.

A few months ago when FlipKart in India got a lot of press regarding more funding and another clue came to why they are so successful at the moment. Flipkart has stayed quiet over this development (no press releases that I could find) but they have a partnership with Aramex and Bluedart. Flipkart are not the first to provide COD to their customers but have made it a popular way to conclude a transaction for Indian online shoppers.

They allow people in the Middle East the ability to buy products from US, UK and Chinese online retailers without having residency in those countries. There are quite a few of these businesses that advertise in South Africa (MyUS, ReShip and International Checkout ) but Aramex is a company you don’t read about often. Aramex is a silent operator but are critical to their partners.

I digress, in India, users that buy online in general don’t pay via credit card as they don’t trust paying money to an unknown company. To counter this trust issue, Flipkart partnered with Aramex to provide Cash on Delivery facilities to their users. Immediately that adds another reason for users to shop at Flipkart as they don’t have to pay for their order while shopping immediately, thus a barrier to conversions is removed.

Then Amazon unveiled something similar to this in Italy via a partnership with the Italian Post Office. The only major difference between these concepts is in Italy payment only is done via credit cards. It makes sense as the Italian ecommerce market is more mature in comparison to the Indian market.

The Italian postal service, Poste Italiane, has begun a trial in which its carriers will deliver goods ordered from Amazon.com Inc.’s Italian web site, and in some cases accept payment.

Consumers will have the option of paying for purchases at Amazon.it or paying via a credit card when the postal carrier delivers the goods. Postal workers are being equipped with palm-sized, card-reading devices so they can accept payment, Poste Italiane says.

I generally don’t believe in coincidences when 2 relatively similar products are seen in 2 different parts of the world online.  Thus I think Amazon (as big as they are) would have seen how successful the  concept has been with Flipkart and thus thought they might want to trial something similar. In both cases it leads to less barriers to complete a transaction on either Amazon or Flipkart.

I find 2 things interesting:

1. The service is free at the moment but potentially have a cost in the future for users. That sounds like “We are testing how this is adopted by Italian online shoppers that  Shop with Amazon Italy.”

2. What stops this from being rolled out in other markets in which Amazon has a presence. Call it “Prime for the Rest of the World”.

I have noticed something, Amazon tests concepts all over the world and then depending on results rolls it out in many other markets. (They also allow users based in certain countries free shipping based on their country of origin)

One other thought; if a country is taxing Amazon purchases; why not place this concept with the local postal service as another revenue stream. It is a win-win for all involved. Amazon has happy customers and the local government can ensure that they get an import tax. I have said for a long time, nothing stops Bezos and company putting a lump sum down with the government and asking them to take a percentage of the import tax from this lump sum. Talk about disrupting a market..

I have a theory on what Amazon may do to consolidate the Kiva acquisition. (I have to thank Jason Calacanis for planting the seed for this idea.)

The most important part of the ecommerce transaction is currently not controlled by Amazon. Your orders are either shipped to you via DHL or now (ISTORE) and in the US it is normally UPS. What happens when Amazon goes to USPS shareholders and they make a acquisition offer? I remember when I was in the US that my Amazon purchases came normally via the same USPS delivery man. Yes, this may seem to be anti competitive but it will ensure USPS a long term future. Be honest FedEx is really the dominant courier service in the US.  I can fully see this happening and by doing this Amazon ensures that they control the entire purchase process. Amazon’s competitors (Barnes & Noble, Staples, Walmart, Apple and Office Max) will immediately scream “Anti competitive behaviour” on Amazon’s  part but why has no-one done it? Simple, they don’t have the cash reserves to do it.

Anyone who has spent 45 minutes waiting in line at a post office this holiday season could only hope that Amazon would take over that moribund institution and knock some reforms into it. But all of Amazon’s efficiency, all of its selection and low prices, comes at a cost. The retailer’s continued success will be determined by whether people are willing to pay it.

Efficiency will be the factor that ensures that Amazon continues growing profits. Kiva will lead to more efficient processes in Amazon warehouses. Together with Prime it creates many barriers for competitors to combat if you are competing with Amazon. That is a mark of a very successful business in my opinion.