In the beginning, Amazon was a lot like any other startup. Founder and CEO Jeff Bezos did a little bit of everything for the company.
"Nineteen years ago, I drove the Amazon packages to the post office every evening in the back of my Chevy Blazer," Bezos writes in his latest annual letter to shareholders. "My vision extended so far that I dreamed we might one day get a forklift."
>'The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8.'
But since then, Amazon has gotten a little more ambitious. After many critics (including us) derided his announcement late last year that his company was testing delivery drones, Bezos also used his letter say that the company is doubling down on this wildly ambitious project. Not only is the delivery drone program happening, but according to the CEO, it's well underway. "The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8," he writes.
His bullishness on drones isn't entirely unfounded, following a recent court ruling that nixed the Federal Aviation Administration's authority to ban commercial use of small unmanned aerial vehicles. Others are working on drone delivery, and in the distant future, this kind of thing may be commonplace, assuming cultural norms evolve along with the technology. In the near term, it's hard to see how swarms of small octocopters traveling from warehouses to people's backyards will actually improve the efficiency of Amazon's retail operation. But one way or another, the CEO's letter shows, Amazon will continue to hone a delivery network that pushes the limits of instant gratification.
Take the earthbound version of Amazon Prime. For an annual fee, Prime members get unlimited two-day shipping on eligible products at no extra cost. The program has been a key driver of Amazon's whirring revenue engine, and Bezos says that it continues to thrive. "On a per customer basis, Prime members are ordering more items, across more categories, than ever before," he writes.
In his letter, Bezos did not address Amazon's recent decision to raise the annual price of prime to $99, up from $79. And since Amazon doesn't release precise figures on Prime memberships, it may be hard to know if the increase has any impact on new memberships or renewals. The decision to raise Prime's price came in response to the billions Amazon loses on shipping costs, and it seems that Bezos and company believe that the addictiveness of Prime will more than make up for the pain of paying extra $20, along with perks such as access to Amazon's Netflix-like Instant Video library.
>Whatever the thinking behind the Prime price increase, the Bezos letter makes it clear that shipping is one area on which Amazon will not skimp.
Whatever the thinking behind the increase, the Bezos letter makes it clear that shipping is one area on which Amazon will not skimp. Along with pushing ahead on drones, the CEO said the company is aggressively iterating on the design of its warehouses and the software that keeps them running. Now running as many as 96 "fulfillment centers" in all, Amazon has bled profits over the past few years largely because of the money it has poured into expanding and improving its warehouse network. And the expansion keeps going. In the U.S., Bezos said, Amazon will expand its limited Sunday delivery option "to a large portion of the U.S. population," thanks to a deal with the U.S. Postal Service. In the U.K., Bezos says Amazon has started making many of its deliveries itself to keep up with demand, and in Chinese cities, Amazon now relies on bike couriers.
Ultimately, even as it moves more aggressively into areas such as streaming video and cloud computing, Amazon's logistical systems are a much more crucial technology to the company's lasting success. The core business of Amazon is selling and delivering physical stuff, and Bezos has always displayed a strong commitment to the technophilic belief that the only way to succeed is to always get better (what Bezos calls Kaizen, or the Japanese business philosophy of continuous improvement). Bezos knows he has to keep figuring out ways to get people the stuff they want more quickly and cheaply, and drones are one possibility. Whether Prime Air ever really flies or not, the mere existence of the program at all telegraphs to shareholders that for Bezos and Amazon, even the sky might not be a limit.
