I, Amazon: the e-tailer buys a robot company

I, Amazon: the e-tailer buys a robot 

  1. A robot shall not damage a package or through inaction allow a package to be damaged
  2. A robot shall not cause a Prime delivery to take more than two days (excluding weekends and holidays)
  3. A robot shall not cost the company more than using  a human being unless it conflicts with the first two laws

–The Three Laws of Amazon Fulfillment Center Robotics

I just made up those three laws as a parody of the brilliant Isaac Asimov’s Three Laws of Robotics which, although used for fiction, have guided work with actual robots.

Yes, there are actual robots…and that probably doesn’t surprise anybody any more.

There are also companies that make robots…and Amazon just spent a ton of money ($775 million) to buy one.

Kiva Systems is an “Automated Material Handling Order Fulfillment System”. It uses orange, boxy robots that travel around a warehouse to get the products that people buy online.

It makes great sense for Amazon to use them, presuming that they are more efficient and cheaper than using humans.

Lots of companies use Kiva:

  • Crate & Barrel
  • Diapers.com
  • Drugstore.com
  • The Gap
  • Office Depot
  • Staples
  • Toys R Us

and many more.

Reducing costs in delivery is a huge issue for Amazon.  I’ve written before about how I see the Kindle Fire partially as a way to get you to join Prime, Amazon’s pay $79 a year, get free 2-day shipping on many products program. Amazon’s been spending like crazy to make Prime more attractive, adding no additional cost book borrowing (which is costing Amazon more than half a million dollars a month) and free streaming videos (which also costs Amazon a lot of money…and they keep adding more).

The profit for Amazon, in my opinion, is in physical goods (what I call “diapers and windshield wipers”). You just don’t make that much money on digital items, typically. It’s also certainly where the opportunity is. Yesterday, I used Prime to buy dish soap. We were low, and I’d forgotten to get it at the grocery store. I checked the price (there’s a particular brand we like), and the Amazon price was good…even though it was a larger quantity than I would have gotten at the store. I’ll have it faster this way than I could get it locally (I’m just not going to have the time to go in the next two days), and it was definitely easier to do.

By the way, in this case, I could have subscribed to it and gotten it a bit cheaper…but I needed it very quickly, which doesn’t happen on the first order when you subscribe.

Without Prime, I wouldn’t even have thought about using Amazon for dish soap. That’s the opportunity element.

As shipping costs rise, though, won’t that cut into the Prime profit?

Only if other costs remain the same, and that’s what Amazon can tackle with fulfillment automation. There have been stories about the difficult working conditions at Amazon warehouses. This one touched off a firestorm:

Morning Call article

Whether the allegations are true, partially true, or false, it resonated with people partially because it makes sense to people that Amazon needs to be more efficient than has traditionally been possible. Similar to all of the stories on the Foxconn plant (one of the key ones has been partially refuted): that idea that iPads (and Kindles, by the way) are made by people in terrible conditions is an idea people will believe…it plays into our fears about how our luxuries might exploit others.

If Foxconn was full of robots, I don’t think we would have seen those stories.

Yes, having robotic warehouses may stimulate stories about robots taking jobs away from humans…but I think that may be more of an accepted trend to people who buy high tech products. It’s complicated: I would be pretty sure that some of the people making a living as digital authors or selling stuff on eBay, or as Amazon Associates might otherwise have been working in jobs which have been filled by robots and computers.

When I talk to people about what computers (and those are robots of intellection, in a sense) do well and what humans do well, I always make this point. computers are better at doing the same thing over and over again. Humans just aren’t very good at that. When I show someone how to use a keyboard short cut (or even better, something that automatically changes an abbreviation into the full words) to bring in a phrase, I sometimes have people say that they could type it faster themselves. At that point, I say: “Okay, type your name and address ten times.” They look at me like I’m crazy. I explain, “The reason I bring that up is that you are going to make mistakes in those ten times, and have to stop to correct them. You’ll get tired of typing. You may be able to type it once faster, but you can’t type it over and over again faster.”

What humans are supposed to do better than computers is make decisions. If you do the same thing over and over again in your job, and you don’t need to use your mental power to decide how it should be done, your job is in danger of being replaced.

On the other hand, if you have expertise, your job opportunities may be expanding.

Regardless, you can see how it makes sense for Amazon to use Kiva.

Does it make sense for them to buy it?

Is it just a case of the old Victor Kiam commercial about Remington razors? “I liked it so much, I bought the company.”

No, I think it’s important to note that Amazon sells fulfillment services to other people already. For them, getting orders out quickly and efficiently is a product, not just an internal process.

They’ll continue to sell Kiva robotic systems, even to competitors. That doesn’t mean that they can give themselves huge discounts on using the systems at Amazon, by the way…they can’t bankrupt Kiva with “employee discounts”, and they’ll be one of their own largest customers. 🙂

This will help reduce Prime costs for Amazon, though. They are investing huge amounts of money on fulfillment…building new centers all over the place. Rumor has it, they may be putting them into my home state of California.

That step of getting the products from the fulfillment centers to the customers’ homes is something that they can’t control very much right now…gas prices go up, they go up. It does make me wonder…is buying a package delivery company (like UPS or Fedex…not necessarily one of those, but that type of business) in their future? I could see them doing that and using capital to convert a lot of the vehicles to other energy systems. It could be good public relations and get that part of the chain more divorced from international politics.

The Kiva purchase is likely to make the stock drop at the announcement of the quarterly earnings for the time segment in which they spend the money. Investors don’t like the costs that Amazon is incurring, but this is about the future. Eventually, front to end, everything we buy might go through Amazon…today dish soap, tomorrow the world! 😉

What do you think? Is this a good move? Will Amazon help Kiva expand to even more companies? Is Amazon’s real strength going to be in physical products, not digital? Is it going to become impossible for other e-tailers to compete with Amazon, since the latter can spend the money to build the efficiencies? Will Amazon then sell the use of those systems, leading to individuals being able to fulfill products as well as big companies…making the garage sale a competitor to the department store? Eventually, is connecting individuals (authors, bands,  movie makers, knitters) to consumers the real business for Amazon? Feel free to let me know what you think by commenting on this post.

For more news about robots, see this category at another blog of mine, The Measured Circle.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

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7 Responses to “I, Amazon: the e-tailer buys a robot company”

  1. Lady Galaxy Says:

    Ever since the days of Robot B-9 of Lost in Space and Rosie of The Jetsons, and of course all the robots from The Door Into Summer, I’ve wanted my own person robot. Not some drone to retrieve packages, not an almost human android like Commander Data, but an interactive mechanical sidekick to keep me company and take care of me, and of course to warn me of “Danger, Will Robinson.” I don’t think it’s going to happen in my lifetime, but put me on the waiting list just in case.

    • Bufo Calvin Says:

      Thanks for writing, Lady!

      Oh, I totally understand! Just like with Robby and B-9 and Rosie, I do want a robot with which I can talk…but not one that could ever be confused for a human. I want one with flexibility of purpose…yes, we have a Roomba (well, actually, a Scooba…the floor mopping one, not the vacuuming one: it was a gift). I have a thumb-sized B-9 that talks…sweet! I have a little robot dog (nothing fancy).

      Still, robots are here and increasing. I don’t know if we won’t skip right over the ones we are picturing to the androids, though.

  2. Edward Boyhan Says:

    Amazon’s stock price was up roughly 3.7% (about $6.81) yesterday in response to the Kiva news (and this on a day when stocks were generally down).

    The wsj has a more in depth article on kiva, and a link to a video showing the robots in action here:
    http://online.wsj.com/article/SB10001424052702304724404577291903244796214.html?KEYWORDS=amazon+share+price+kiva
    It’s really impressive watching these little guys doing their thing. The discussion in the video about Kiva and its antecedents was also fascinating. If you hit the wsj paywall, then google it to get around it.

    You mentioned UPS in your post — apropro of nothing, UPS has been much in the business news of late because they are purchasing TNT Express, a large Dutch shipper. This gives UPS a commanding position in ground shipping in Europe. Fedex, UPS, and DHL (the big 3) are huge — probably way too big for even Amazon to swallow.

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      I’d noticed the rise in the stock price, although it’s always hard to attribute an up or down to a single factor.

      The site I linked for Kiva also has videos…

      Interesting on UPS, thanks! For me, it’s the concept that Amazon could completely flatten consumerism…direct creator to user delivery (provided by Amazon) that intrigues me.

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