It's no secret Amazon is willing to invest huge amounts of money to save a few dollars per sale. That's because the company makes a lot of sales. In fact, in just two days during its Prime Day sales, the company sold over 175 million items. A few bucks apiece adds up.
Still, it hasn't always been clear that Amazon's plans to launch its own delivery network would have a significant impact on the big players. Then, FedEx ended its apparently not-so-lucrative contract to deliver the retailer's air packages. Now FedEx seems to acknowledge that Amazon's efforts are a real threat--something it hadn't done before.
That's not to say Amazon doesn't have its work cut out for it. In fact, Goldman Sachs estimates it will cost the company as much as $122 billion to catch up to the major players. But it has every incentive to do so. It costs the company an average of $9 to move a package through third-party delivery services, but only $6 when it moves the same package through its own.
But it isn't just the loss of Amazon's business that has companies like FedEx worried. By the time Amazon is ready to be self-sufficient in delivering its own packages, there's likely going to be space on all those planes and trucks that Amazon won't hesitate to fill with boxes from other retailers.
Amazon plays for keeps.
Think about Amazon Web Services (AWS), which began as a way to sell excess computing power and cloud storage that the company had built for its own purposes. Today, AWS is the largest provider of cloud computing, and Amazon's most profitable division.
No wonder FedEx is getting nervous.
Look, FedEx isn't exactly a slouch when it comes to logistical innovation. I still remember, from working in sales there over a decade ago, being impressed by the pace and intentionality at which the company constantly refined its processes. But that doesn't change one simple dynamic of business: as you grow, it gets harder and harder to continue to grow.
Growth gets harder.
Here's what I mean. When you're a small startup, outsourcing enables fast growth, since it allows you to focus your limited bandwidth of time and energy on the things that matter most to your business. Or, as author Paul Sloane says, "only do what only you can do." At this stage, it's almost always cheaper to pay someone else to do the rest.
But at some point the dynamic changes and you begin to look for incremental ways to grow around the margins. A company the size of Amazon isn't going to double in size this year. That's just not going to happen. So, instead, it looks to leverage resources to increase its margin by eliminating the things that cost it money.
The most obvious way to do that is to bring its transportation logistics entirely in-house. And while it's going to cost some serious cash, the company has the resources to make it happen. With a little over $37 billion in cash on hand, and a market value approaching $1 trillion, I don't think there's any question the company will make it happen.
By the way, even FedEx agrees. In the company's most recent annual report, Amazon was listed more often than UPS as the company's most significant competitive threat. UPS and FedEx are both smart companies, and both apparently believe Amazon is likely to succeed. I wouldn't bet against either.
What I would do, if I were you, is use this as an example of how to be strategic about the systems you put into place as you grow. If you're just starting out, figure out what you need to do, and find the best expert to help you do the rest.
As you grow, be intentional about evaluating where you can innovate at the margins, eliminate expenses, and bring things in house based on your capabilities.