The Amazon Shadow Economy
The news that Blackstone purchased nearly $18B of warehouse real estate reflects a trend that I think is just now coming into full view: the Amazon shadow economy.
Over the last several years, it’s become clear that Amazon’s capabilities and demand are starting to outpace even Amazon itself.
When two-day shipping was rolling out to Prime subscribers, only products housed in Amazon-owned warehouses were eligible for Prime’s free two-day benefit, allowing Amazon to drive greater usage of its profitable fulfillment operations. Today, with demand for Amazon products outstripping the company’s ability to build warehouses, Amazon will Prime-certify third-party fulfillment centers, sharing profits with external warehouses to keep up with growing consumer demand. And just this week, Amazon announced that 10 million products are now available for one-day shipping. With increasing memberships and an expectation from customers to tighten delivery times as close to real-time as possible, it’ll be difficult for the e-commerce giant to handle all on its own the logistics necessary to remain competitive.
We’ve already seen Amazon attempt to meet its logistics needs with its own creative solutions. In February of 2018, the company announced its own shipping service, putting it in competition with FedEx and UPS. Then, in June of 2018, the company announced a program called Delivery Service Partners in an attempt to solve its last mile delivery problem. Through the program, Amazon contracted with entrepreneurs seeking to start their own small businesses delivering packages from warehouses to homes. Sporting Amazon-branded uniforms and logoed vans, the company offered an established brand in exchange for local know-how and a self-starter network of drivers.
But so far, most of the existing strain on the Amazon machine has been solved by Amazon itself. I think that this week’s purchase by Blackstone (who sold many of the same assets to GLP just a few years prior) may signal a clear opportunity for another company with talent and capital to prosper as consumer expectations exceed even Amazon’s fabled capacity.
