It’s funny… sometimes the biggest developments in the tech world are not technological at all.
Sometimes it’s a law being rewritten, sometimes it’s a corporate merger, sometimes it’s a news event that creates a sudden outcry for a technological solution.
Now the big development is the cancellation of a common fee.
Amazon (NASDAQ: AMZN), one of the world’s biggest online retailers, announced this week that shipping will now be free for “small and light” products that weigh less than eight ounces and cost less than $10.
Amazon is calling the program “Fulfillment by Amazon (FBA) Small and Light.”
On the surface, it seems a trivial announcement, but it simultaneously ties into several of Amazon’s more innovative developments: Fulfillment by Amazon for third-party e-commerce vendors, same-day delivery and half-hour delivery, delivery by drone, and the Amazon Dash Button.
By making delivery of small items free, Amazon is eliminating one of the few barriers that keep consumers from buying EVERYTHING online.
Why Amazon Wants It
What was the last thing you bought online that was under $10? It was probably an app or a music album or a video stream, and not a tangible piece of merchandise that had to be delivered.
Yet the average American spends more than $6,000 on small-ticket items every year.
According to the Department of Commerce’s Bureau of Economic Analysis, the average American spends $42 per month on household cleaning supplies, $35 per month on personal care products, and $281 on food. These totals consist mostly of items under ten dollars, and they’re most often purchased at brick-and-mortar stores.
If Amazon can convince its current customers to start buying these small items online, it’ll be worth $87.35 billion in monthly revenue.
Monthly. That’s $1.048 trillion a year — solely from its existing customer base, solely from a small slice of its discretionary spending.
The drawback is that it can’t be fast and free. FBA small and light products can take up to eight days to arrive at their destinations.
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The Benefit to Everyone Else
This is no longer about customers buying directly from Amazon — it’s about customers buying from third-party merchants that use Amazon’s fulfillment services.
Though Amazon is itself a major online retailer, it’s better to think of it as a platform or as a vendor of merchant services.
Fulfillment by Amazon’s motto is, “You sell it, we ship it.” Merchants ship their products to Amazon, keep them in Amazon’s fulfillment centers, and allow Amazon to pack and ship all sold products.
FBA Small and Light opens up Amazon to new types of merchants. With lower fulfillment costs than the standard FBA program and no minimum order requirements, Amazon is opening the door for online dollar stores, auto-fill commodity merchants whose businesses center on the branded Dash Button, and other high-volume, low-dollar merchants.
Two years ago, I said, “Same day delivery is web retail’s holy grail” in the quest to defeat brick-and-mortar shopping. It remains true.
For it to become a reality, the consumer needs an online option that’s as quick, cheap, and easy as going to the store.
Amazon now has both the quick and the cheap parts.
Good Investing,
Tim Conneally
For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.
