4 min read

The Last Mile Opportunity and Amazon's Breakfast Octopus

The last mile is defined as the movement of people and goods from a transport hub to a final destination in the area such as a warehouse using various types of third-party logistics providers.
Think of it as the UPS shipment from Amazon’s Warehouse or UPS hub to your doorstep. It’s often the most difficult part of e-commerce logistics. It’s also what creates the most friction. People like to order online, yet only 6.6% of all retail sales were done online in the past quarter.

Waiting a day or more for the gratification of buying something is more friction filled for 95% of the population (general statement) than getting in your car and driving to the store. That’s all going to change in the next ten years as we can subjectively agree that ordering something from your phone or your computer is much easier than going to an actual store. Well within ten years, I believe we will be able to have 80% of the products we want delivered to us as fast as we would get a pizza from Dominos. This will play out through software, there is no doubt in my mind about that as a universal truth. The question is how we’ll get there, there are two options:

1 – Amazon’s ecommerce software builds out warehouses and logistics to deliver products within 30 minutes.
2 – A TBD new player (Postmates, Instacart, Uber, new entrant,etc.) builds software that interfaces with existing retail locations, effectively turning them into warehouses, to deliver products within 30 minutes.

If I had to make a bet, I’d bet on the latter here. As much as Amazon is an unstoppable giant, their entire warehouse infrastructure wasn’t built upon the last mile with 30 minutes as the most optimal ship time, but next-day as the most optimal ship time. The difference between 30 minutes and 24 hours doesn’t seem large, but it is. Items such as groceries often have to be within a short window and consumer gratification makes us want everything now (more than ever in an on-demand world). It’s a classic innovator’s dilemma as Amazon is stuck in the paradigm of warehouses and infrastructure for next day instead of next hour.

Software companies like Instacart can scale much more rapidly than Amazon can make this shift. The “warehouses” they need already exist at the edge of the network at every node and in every city. They just need to scale software and their workforce. I believe this can be done more easily than Amazon laying developing warehouses and the last mile to every node at the edge while having to maintain its online first mentality.

This is what’s scary for Amazon – if a TBD company can lay this infrastructure significantly faster than Amazon can, a person will find the ordering convenience through this TBD company a better experience. Do not underestimate the power of convenience and how it is the Mjolnir of customer experience. If you had to pick between getting something the next day or getting something within 30 minutes, which would you pick? The majority of users don’t particularly care what warehouse something comes from (Amazon’s) or (local store X), but how fast they can get it. If they did, e-commerce would have overtaken retail commerce as opposed to eaten a significant chunk of it. Don’t get me wrong, I would never see Amazon going away, the same way desktop computing isn’t going away even with mobile, it’s just becoming second fiddle.

I know this might sound absolutely crazy, but these are the times we live in. Everything is up for grabs. We’ve seen one company become larger than the entire taxi industry in four years, mobile phones overtake desktop, and AirBnB become one of the largest hospitality brands. For the next 20 years, the more likely scenario to happen is the one that would seem least likely ten years ago. When you realize as an entrepreneur that no existing incumbent is safe and that everything is up for grabs, you begin to understand what’s possible.

So what about the Breakfast Octopus? Breakfast Octopus is what Jeff Bezos referred to Woot.com as when acquiring it:

Bezos had ordered an exotic meal: Mediterranean octopus prepared with potatoes, bacon, green garlic yogurt, and a poached egg. When Rutledge asked Bezos why he had decided to buy Woot, Bezos paused for “several painful seconds” before answering.

“You’re the octopus that I’m having for breakfast,” Bezos said. “When I look at the menu, you’re the thing I don’t understand, the thing I’ve never had. I must have the breakfast octopus.” http://www.businessinsider.com/jeff-bezos-matt-rutledge-profile-2014-6#ixzz3JXpc7v00

The real Octopus for Jeff Bezos is the last mile and its acquisition of the Washington Post. It’s a small investment for him to understand one of the greatest last mile plays we’ve seen – the newspaper business. It’s the yin to Amazon’s yang and the thing they do not understand as thoroughly as e-commerce. It has been Jeff Bezos’s end game for quite a while all the way back to Amazon’s inception, with a slightly different twist:

Bezos had much grander visions of turning his company into the most dominant retailer in the world. One memorable fever dream involved storing products in the homes and apartments of local bike messengers in major cities. It was an answer to the logistics quandary called the “last-mile problem.” How could Amazon economically deliver products to customers’ doors without tacking on cumbersome shipping charges? Employees scratched their heads at Bezos’s proposed solution. They already had their hands full battling theft by workers in their warehouses. The notion of leaving inventory in random garages seemed insane.

The forward thinking approach is to use drones as a 10x improvement over trucks or couriers. Drones would allow Amazon to fly “birds eye” through the last mile. It seems crazy, but so was getting anything delivered to your door in under a day 20 years ago. 5 years is the new 20 years in technology, so we may very well see drones as the solution to the last mile.

Whether it’s drones, couriers, or newspaper delivery trucks, Amazon has made the last mile their end game for a very long time. Do not underestimate Jeff Bezos and the fact they have been thinking about this problem for a long while. At the end of the day, Amazon may be the TBD company. It may buy a startup in the space and continue its dominance. It likely realizes that the last mile is as much of its achilles heel and future as WhatsApp/Instagram was for Facebook. I have no clue what the answer is, but I do know everything is up for grabs.