Amazon

With Prime Service, Amazon Is Set to Crush Offline Retail

“Free” two-day shipping. Streaming video. An e-book lending library. All for $79 per year. Spelled out like that, Amazon Prime sounds like a weird ad hoc chimera of a product. Why those three things? And why that price?

Though the value proposition may come across as clunky, plenty of people are apparently sold. Amazon said Monday that it now ships more items via Prime’s two-day shipping than its free “Super Saver Shipping,” which gets you slower shipping but for no charge when you order at least $25 of stuff. I hesitate to follow Amazon’s lead and call its Prime two-day shipping “free,” since of course you are paying about $6.58 per month for the privilege — it’s cheap, but not free. Still, if you buy something from Amazon even just once a month, the math starts to make sense.

The math makes sense for Amazon, too, both on a practical and a more existential level.

If you’re already a regular Amazon shopper, getting your stuff quickly for cheap will likely make you buy more. The speed in itself is appealing, plus the more you spend, the more value you get out of that $79.

Stepping back and looking at Amazon’s current and future success, the more ways Amazon can reduce friction around shipping, the more likely you will view buying online as a viable substitute for going to the store. Amazon doesn’t say how many people actually subscribe to Prime, a practice for which the company has been criticized and which has raised concerns about how well it’s catching on. Investors and Amazon both hope the program succeeds, because it helps mitigate Amazon’s key disadvantage as a retailer: You can’t walk right out of the “store” with the item you purchased. The closer Amazon can get to that experience — the more it can blur the distinction between online and offline — the less likely you’ll be to head out the door to the shop down the street.

Amazon is experimenting with same-day delivery to make the line between itself and its brick-and-mortar competitors even fuzzier. Meanwhile, one of Amazon’s most important partners appears to be diversifying its bets that getting your stuff hours after you order it will catch on. British startup Shutl also announced Monday that the private equity arm of UPS has chipped in on a $2 million funding round that will help the same-day courier service launch in the U.S. next year. A grainy picture of the Golden Gate Bridge on Shutl’s homepage tells you all you need to know about which U.S. city will be graced first by the service. By the time Shutl rolls into town, couriers in San Francisco should already be super-busy: eBay is testing a same-day delivery option in the city, and at least one other startup has entered the San Francisco get-it-now fray.

Whether any of these services can scale remains to be seen. But if same-day delivery works, the last meaningful differences between online and traditional retailers will start to fall away. For same-day to work for Amazon, the company needs to bring more distribution points closer to where customers live. Put a big Amazon marquee atop these smaller, more abundant warehouses, and you’ve got an Amazon big-box. Meanwhile, to compete, old-line big-box stores like Best Buy and Target will need to offer same-day delivery on items ordered online. Voila: Their stores begin to function more like warehouses holding inventory.

However distasteful the image of Wall-E-style consumerism may seem, the ruthless digital efficiency of 21st-century logistics makes getting what you want when and where you want it without leaving your chair an ever-more satiable desire. If Amazon Prime can deliver on same-day delivery, shoppers will grow more accustomed to the “point-click-get” paradigm. Other retailers, online and off, will have no choice but to follow.


http://www.wired.com/business/2012/08/amazon-prime-primes-amazon-to-crush-offline-retail/