Amazon’s Lovely Mortar

There are times when a warehouse can look awfully good.

For Amazon.com, this is one of those times. That’s because outfits like CDnow and Peapod are learning (to their chagrin) that the biggest problem in e-commerce is picking, packing and shipping the stuff at the lowest possible cost. (Soon, I predict, this is a lesson that will hit home with Kozmo.com.)

Amazon chairman Jeff Bezos realized this back in 1998, and his two-year head-start toward solving the problem may prove more decisive in building the company than the customer database he’s so known for. (You don’t become “Time Person of the Year” by being dumb.)

The New Yorker, which is so old-fashioned it doesn’t even reprint its stories on its web site, features Amazon’s warehouses this week.

The article by James Surowiecki has a drawing of a small man trying on a big shoe surrounded by a defense of Amazon’s bookkeeping. Surowiecki says Amazon has lost “only” $60 million (not the $900 million critics charge, which is mostly goodwill from acquisitions) and now has the infrastructure to become the next Wal-Mart.

You know you’re a visionary when even other visionaries are clueless about what you’ve done.

FedEx chairman Frederick Smith, for instance, tells The Standard the web is just a form of catalog shopping, and says most e-commerce outfits will fail by underestimating delivery costs. But there’s another layer of costs storing, picking and packing that even FedEx can’t yet deal with. Amazon has dealt with it.

Its rivals have not dealt with it. Take Costco, for instance. According to a recent New York Times article, it doesn’t have a clue about this vital element of the business .

Instead the Issaquah, Wash.-based retailer is fobbing this off on its suppliers, insisting that they pick, pack and ship orders off its web site. The problem with that is shoppers get a bunch of packages from a bunch of places, and a bunch of separate shipping charges tacked onto them. When they figure that out, they’re also likely to figure out they don’t need Costco, either.

About the only rain I could find on this parade was a statement by Bezos himself. He told a Goldman Sachs investment conference in Las Vegas this week he’s thinking of spinning off that distribution advantage.

The analogy Bezos chose in describing the spin-off in The Financial Times is the relationship between Coca-Cola and its bottlers. Someone needs to tell Bezos that Coke has spent the last 20 years reversing that course through Coca-Cola Enterprises, separately traded but controlled by Atlanta.

On the other hand, perhaps I shouldn’t worry. “Today, a huge competitive advantage for us is that we can do distribution centers purpose-built for e-commerce better than anybody else,” he said. But if that’s shared too early, “you may give up your competitive advantage.”

The lesson of Amazon remains what it’s always been. The key isn’t being there first. The key is solving next year’s problems last year and staying focused on (ahem) the road ahead.

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