When charting the rise of popular Amazon (AMZN) services, it's hard to overlook how often a service was made possible by the growth of an older one. For example, the company's initial success as a direct online retailer provided the groundwork for building a third-party seller marketplace, and the warehouses built to support its direct e-commerce sales enable both the creation of fulfillment services for third parties and Amazon's Prime two-day shipping service.
Likewise, Amazon Web Services was made possible by the data center infrastructure Amazon built for direct and third-party e-commerce sales. And Prime's growth helped justify the costs of building popular video and music-streaming services for Prime subs.
All of this provides important context for Amazon's efforts -- pretty much an open secret at this point -- to lower its reliance on third-party delivery firms such as UPS (UPS) , FedEx (FDX) and the U.S. Postal Service (USPS). The Wall Street Journal is the most recent publication to take a look at these efforts, highlighting the company's last-mile delivery trials in big cities such as Los Angeles, Chicago and Miami and stating Amazon now "delivers its own packages from roughly 70 facilities in 21 states."
Amazon's warehouse-building binge has helped make this possible: Consulting firm MWPVL estimates Amazon now has more than 180 U.S. warehouses, or more than twice as many as it had in late 2013. Piper Jaffray estimates 44% of Americans are now within 20 miles of an Amazon facility, up from just 5% in 2010.
But there's now a lot more to Amazon's logistics infrastructure than just warehouses. To help move goods between its facilities, the company has leased fleets of Boeing 767 jets, and purchased thousands of Amazon-branded truck trailers that are driven by third-party firms. And as the WSJ observes, last-mile deliveries are increasingly made either by Amazon trucks or local delivery firms picking up goods from an Amazon warehouse.
There's also Amazon's Uber-like Flex service, which pays drivers by the hour to fulfill orders (using their own vehicles) for the Prime Now rapid-delivery service. Long-term, Amazon is also hoping to fulfill orders via its Prime Air drones. And with the company's Chinese unit having taken out a U.S. ocean freight license, a shipping fleet looks plausible.
None of this possible without huge shipping volumes. And this is where Amazon's still-tremendous growth, fueled by Prime adoption and third-party marketplace sales, comes into play.
49% of Amazon's second-quarter paid unit sales came via third parties, up from 45% a year earlier and 41% in Q2 2014. And research firm CIRP estimates Amazon had 63 million U.S. Prime subs as of June, up from 44 million a year earlier.
The firm also estimates the average U.S. Prime member spent $1,200 on Amazon last year, and the average non-member just $500. And with annual Prime subscriptions typically costing $99 per year, Amazon's Prime-related subscription revenue might now be north of $6 billion in the U.S. alone.
Spending by Prime members, much of it involving third-party sellers supporting Prime with the help of Amazon's fulfillment services (FBA), helped Amazon's North American segment revenue rise 28% annually in Q2 to $17.7 billion, and its International segment revenue 30% to $9.8 billion. That, along with a 58% increase in Amazon Web Services revenue, made a 35% increase in fulfillment spending (to $3.9 billion) palatable.
Amazon still insists it's only looking to supplement, rather than replace, the likes of UPS and FedEx with its delivery efforts. But the incentives for doing more and more "supplementing" -- lower shipping and FBA costs, faster delivery times during peak periods, greater Prime customer satisfaction and potentially an increase in the number of third-party goods relying on FBA and supporting Prime -- are pretty strong.
And perhaps for the first time, Amazon's sales and warehouse infrastructure are big enough to make such investments on a large scale.
