Are Smartphones Amazon’s Biggest Vulnerability?

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While Amazon is a big power in the American retail landscape, its dominance may be vulnerable to the changes brought to the scene by smartphones, apps, and the new services they enable. Farhad Manjoo reports for The New York Times that despite growing fears over the tech giant’s invincibility, Amazon’s dominance over our shopping is not assured and may not even be likely.

Beyond Amazon’s trouble with a dispute with Hachette, investors’ questioning of its aggressive spending, or the failure of the Fire Phone to catch on, Manjoo says that Amazon could become increasingly vulnerable to the threat of “technological upheaval,” with the smartphone as the main force behind the company’s vulnerability.

Smartphones have already changed the way Americans shop, and the transformations brought on by the ubiquity of the smartphone are just beginning to take hold. Apps like Instacart enable users to get groceries delivered from local supermarkets. Google Express delivers goods from big-box stores on the same day users order. Curbside lets users order items from Target and have them collected and ready when they arrive at the store. And Postmates delivers food, apparel, and other goods from a variety of local retailers.

Postmates is pushing the capabilities of its network of couriers even further, recently announcing a plan for retailers to build Postmates technology into their own systems with an API that “allows any developer to integrate fast and scalable local, on-demand delivery into their products, websites and apps” and gives retailers and developers “access to a delivery fleet of 6,000 drivers and riders in 18 U.S. markets.”

Manjoo notes that this gives local retailers access to tools that enable the sort of logistical efficiencies that have previously only been available to giants like Amazon. As more retailers adopt these sorts of platforms, their customers will be able to search stores’ inventories, purchase goods for same-day delivery, and search for help and reviews while inside a store. Manjoo says that while none of those technologies pose an existential threat to Amazon, making them available to brick-and-mortar stores may limit its reach.

Instacart, Google Express, Curbside, and Postmates have speed and convenience in common. Delivering purchases from local stores means items can arrive more quickly than they would when purchased with Amazon, which delivers items from warehouses that are a few hours away from most customers. While none of the startups challenging Amazon expect to slow its growth in the core categories where it’s already dominant, they are building new opportunities in areas like food, medicine, apparel, and other categories where Amazon hasn’t yet become invincible.

Instacart, for example, says that its poised to make more than $100 million in revenue in 2014, 10 times its 2013 revenue. Reports say that investors have valued the startup at $2 billion, and chief executive Apoorva Mehta tells The New York Times that the company is looking to expand beyond groceries. “We believe we started with the hardest vertical, and we’ll expand from there. Once you know how to pick avocados, picking towels is a lot easier.”

Mehta says that the biggest advantage of Instacart’s model is that it works with instead of against local retailers. He says that stores who use Instacart have seen their sales go up by as much as 10% annually — a huge figure in the grocery business. Jackie Donovan, the vice president for marketing at Fairway Market, a New York-based specialty grocery store, says that about half of the people buying its products through Instacart would not have shopped with Fairway Market had they not had the Instacart option.

While Amazon has experimented with using taxi-hailing app Flywheel to deliver packages, in an attempt to compete with the growing number of retailers and services that offer same-day delivery, Amazon may not be able to do everything that it wants to do as it tries to dominate the U.S.’s retail landscape. While investors have long given Amazon license to eschew profits for growth, Venky Harinarayan, an entrepreneur who has sold one company to Amazon and another to Walmart, says that that license will be harder to come by in the future.

“Wall Street has given them a lot of leeway in prioritizing growth over profitability, and they’ve taken full advantage of that,” Harinarayan tells The New York Times. “But it’s going to get harder and harder to get that license, and when that happens, we’ll see how their business starts to look, and how they respond to challenges.”

As the Wall Street Journal noted in November, reporting on Amazon’s trials with Flywheel, Amazon has tried many tactics to speed up delivery. It has tested its own delivery service, widened its use of regional couriers, collaborated with the Postal Service to deliver fresh groceries, and is developing aerial drones to drop off packages. Forrester analyst Sucharita Mulpuru said Amazon may be developing a “same-day delivery algorithm” to evaluate a variety of delivery services based on which one is fastest and cheapest.

Greg Bettinelli, a partner at Upfront Ventures, which has invested in a same-day delivery startup called Deliv, told the Wall Street Journal, “Amazon really created this market for faster and faster delivery, and if you’re a retailer, you’ve got to do something to compete against that. But that also means Amazon can’t stand still, they’ve got to keep innovating.”

But not everyone agrees that same-day service is the next big thing that’s necessary for anyone looking to stay at the forefront of the retail industry. While a growing number of startups collect orders placed online and deliver them to customers’ doors — within a day or within as little as an hour — Mulpuru thinks that same-day delivery remains a niche service for most Americans. “The reality is, people generally aren’t willing to pay enough for the service to make it worthwhile for these companies.”

So will smartphones and all of the services they enable bring about the downfall of Amazon? It’s too early to tell how the current challenges will play out, but how Amazon responds to the changing array of choices that retailers and smartphone-enabled services are offering to consumers is likely to play a critical part in how ubiquitous its services will be among Americans in the future.

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