Drivers hate dealing with passengers who swear, smoke or throw up in their vehicle. That’s the bet that underlies Amazon’s recent logistics endeavour, Amazon Flex.
Amazon Flex is a delivery system whereby independent drivers sign-up to deliver packages around their local area. It’s like Uber, but without the human passengers. Drivers are incentivised by guaranteed earnings of $18-25 an hour and all without the hassle of late pick-ups, small talk and ungrateful four-star ratings.
Your typical Uber driver
The video below describes how Flex works but, put briefly, it consists of the following:
- Drivers schedule ‘blocks’ of time (typically 2 hours each) when they’re available to deliver packages
- At the start of a block, drivers check in to their local Amazon warehouse to pick up packages
- The Amazon Flex app then routes drivers to various locations to drop off their wares
For Amazon, it just makes sense
Shipping costs have perpetually been a key concern of Amazon. In 2015, Amazon’s shipping costs exceeded $5bn and they have been growing as a proportion of revenue. Experts estimate that last mile (i.e. local delivery) accounts for about 50% of all shipping costs. With Flex, Amazon is able to save around 30% of these last mile costs that would otherwise go to local couriers. Furthermore, Flex gives Amazon greater control of their supply chain to ensure packages are delivered on time and customers are happy.
Creating the platform is made all the easier by the fact that there’s an existing pool of drivers, conditioned by the ride-sharing world, ready to take on this work. Flex has been selective in scaling its operations, targeting dense cities with high Amazon and ride-sharing penetration, thus utilising local network effects already in place.
Amazon Flex has an advantage compared to ridesharing companies
The tension between Amazon Flex and ridesharing services is clear – they’re fighting for the same pool of drivers. On top of this, Uber is also scaling up UberRush, a service which uses independent drivers to deliver packages.
However, Amazon Flex has an advantage because they currently only need to manage one side of the platform. The other side, delivery customers, is all just Amazon. More precisely, it’s selected delivery orders that end customers have placed on Amazon.com and are being fulfilled by Amazon.
Amazon Flex’s current platform ecosystem
Given the volume of these orders will far exceed Flex’s capacity in the near term, Flex can guarantee drivers reliable work and compensation for their scheduled blocks. The economics and reliability are therefore more attractive to drivers than other ridesharing and delivery services that are ‘on demand’ – allowing Flex to attract drivers away from established ridesharing players. (Compare, for example, how the UberRush deliveryman below waited for 5 hours with no work)
A steady flow of ‘customer’ demand also allows Flex to schedule drivers in fixed blocks. This provides stability in capacity forecasting and discourages driver multi-homing (at least, multi-homing simultaneously while on a Flex route).
But managing the platform still has its challenges
Despite these advantages, the future isn’t cut and dried. Amazon Flex still needs to manage constituents on all sides of the platform. Drivers are a tough bunch to satisfy and retaining them is critical given the low switching costs for drivers to move to a different delivery or ride-sharing platform. Thankfully for Amazon, driver complaints seem to revolve around their not having enough blocks of work, boding positively for availability of drivers on the Flex platform.
Typical Amazon Flex reviews on Glassdoor
Other issues will also arise if and when Amazon decides to use the Flex platform as a third-party logistics services. In such a world, Amazon would not only need to learn how to grow and serve third-party delivery customers, but also manage the tension between using Flex for their own delivery needs vs. prioritising third-party delivery customers’ requirements.
Amazon Flex’s future ecosystem?
However, with the ability to use Amazon.com deliveries to fill-in the ‘customer’ side of the equation, Flex faces less pressure to immediately scale its third-party delivery customer base. This gives Flex more time to figure out its third-party model and correctly position itself to capture part of the $250bn global courier market. And with Flex’s success, Amazon can progress one step closer towards world domination being earth’s most customer-centric company.