Amazon's reinvention of the warehouse is a logistical advance on par with the shipping container or the bar code. Gluekit;
Alamy; Middle Truck: Corbis; Right Truck: Getty Images
Convenience stores are a trillion-dollar industry worldwide, despite the fact that they're not actually very convenient. In principle, at least, 7-Elevens have been optimally spread throughout your region and optimally stocked with items you want in a pinch. But with their limited footprints, they can't stock nearly enough items to satisfy everyone. And given that you probably need to drive there anyway, you might as well travel the extra 10 minutes to the supermarket or big-box retailer that has what you really want.
True convenience shopping is on its way, though, and we won't need to drive at all to enjoy it. Instead, the store will come to us: Within five years, the majority of items we crave on short notice—ice cream, books, umbrellas, lightbulbs—will be available for delivery the same day. This will be enabled, in part, by better interfaces (speech-recognition apps for ordering items by voice alone, sensors in fridges to guess what we'll need before we even realize it) and by better data analysis. But the most crucial change will be in the streets: fleets of delivery vehicles that strategically traverse the roads of cities and suburbs, stuffed with the items that retailers' algorithms will predict we want.
Of course, the 7-Elevens of the world probably won't be the companies to achieve this. Big tech firms—most of which built their multibillion-dollar businesses on moving weightless bits around—are now racing to make this sci-fi vision a reality. Just as getting those bits the “last mile” into homes and businesses was the defining technology challenge of the '00s, so getting actual stuff the last mile will be the tech challenge of this decade. In short, logistics—the tech industry's boring sideshow—has emerged as its central drama.
THESE TRUCKS COULD EVEN CARRY PRODUCTS THAT YOU HAVEN'T ORDERED BUT THAT AMAZON'S ALGORITHMS PREDICT YOU PROBABLY WILL.
It's hardly a surprise that Amazon is the farthest along in building this future. Back in the early days of the web, when everyone else was trying to figure out how to make the Internet work better in and for itself, Jeff Bezos was already trying to make it work for the world of physical retail. To move stuff at the speed of the Internet—that is, as fast as possible—the Amazon founder realized he needed to think algorithmically about order fulfillment. Amazon reengineered its distribution centers according to rules that make computer sense rather than common sense. Inventory is stored not by category but simply by whether a shelf has room. And multiples of the same item aren't stockpiled together; instead they're dispersed throughout a warehouse, to minimize the distance workers (or robots) have to travel through these monumental million-square-foot facilities. All told, Amazon's reinvention of the warehouse is arguably a logistical advance on par with the shipping container or the bar code.
But the ambition of what Amazon has done inside its warehouses is nothing compared to what it's now trying to do beyond those walls. On the streets of several US cities, lime-green trucks emblazoned with the AmazonFresh logo deliver groceries the same day they're ordered. And food is just a wedge product that, if it catches on for Amazon, could turn the company's trucks into roving nodes on a logistics network that's able to deliver nearly anything.
Over the past several years, Amazon has foregone profits to fund massive new “fulfillment centers” within range of the largest metro areas in the US. Once reluctant to set up operations in states such as California that would force it to collect sales tax, Amazon is now betting that proximity to its customers will lure them into ordering more, enticed by the sheer speed with which their every shopping whim can be fulfilled. And there's every reason to think the gambit will work. Unlike the first generation of delivery debacles (such as Kozmo and Webvan), Amazon has spent 20 years perfecting warehouse management and achieving the economies of scale required to make same-day delivery work. And while the retail world's other logistical powerhouse, Walmart, could become a viable competitor, only Amazon among all its rivals has always operated as a technology company first.
For Amazon, the endgame is nothing less than ubiquity: a fleet of trucks to serve as a 21st-century version of the milkman and the mail carrier combined. Amazon trucks could become a daily presence on neighborhood streets, delivering nearly anything the online retailer sells—which is almost everything. These trucks could even wind up carrying small aerial delivery drones—of the sort that Bezos touted, to much incredulity, on 60 Minutes last year—as well as products that you haven't ordered but that Amazon's “anticipatory package shipping” algorithms (a concept the company patented in December) predict you probably will.
LOGISTICS HAS ITS LIMITS: SAME-DAY DELIVERY MIGHT NEVER BE POSSIBLE EVERYWHERE, AND THE CARBON FOOTPRINT CAN'T BE SIMPLY WISHED AWAY.
All of the technologies to make that future possible already exist; it's just a matter of putting the pieces together. And Amazon is hardly the only company with the potential to pull it off. Think about Google, whose acquisitions and big experimental projects over the past year—robots, drones, self-driving cars, same-day delivery shopping—seem to be aimed at building a physical platform for its machine intelligence expertise. Meanwhile, Google's main online business, search, has focused on using artificial intelligence to anticipate users' information needs before they even ask. If Google could combine those two strengths into a kind of Google Now for stuff, it would have most of the necessary tools for taking on Amazon in the streets. And in the process, it would bring customers back to Google to search for products its advertisers sell, rather than heading straight to Amazon to buy them.
Yes, there is a limit to what high tech logistics can accomplish. Same-day delivery might never be possible everywhere, for example, and the carbon footprint of the system can't be wished away. But the improvement that such a system will represent over our convenience-store present will still be remarkable. Amazon is promising more than 500,000 different items available for same-day delivery through its current experimental program, while the biggest big-box superstores carry about 150,000. True, this is still just a small fraction of the hundreds of millions of items Amazon sells—but as the company's infrastructure expands, and its algorithms get better at shuffling merchandise according to patterns of demand, the portion of items available will radically expand as well. Both the beauty and challenge of same-day economics for Amazon is that the more the system gets used, the more efficient—and therefore affordable—it becomes.
Over time, the network of trucks can become a kind of ambient consumer layer, rendering brick-and-mortar retail ever more superfluous. In the process, as with the spread of broadband, these new delivery platforms will create multibillion-dollar businesses not just for the companies that control the platforms but also for companies that sell through them, hiring those ubiquitous trucks to ferry their own products, services, things we haven't even thought of, right to your doorstep. For that future to arrive, we just need to solve the new last-mile problem—and a solution may be right around the corner.
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