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Amazon blocked its third-party sellers from using FedEx a few weeks before Christmas — ahead of the busy holiday season.
This attempt to “embarrass” FedEx is a sign of the shipping giant’s looming collapse, says Scott Galloway, professor of marketing at New York University's Stern School of Business and author of “The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google.”
“The analogy I would use is staging a mock homecoming queen ceremony and then pouring pig's blood on somebody. This was really calling FedEx out and doing it at the worst moment possible,” he says. “This was a strategic stabbing, if you will.”
Galloway predicts in the next 24 months, FedEx will either be acquired or lose an additional 40% of the company’s declining value.
He says Amazon’s attempts to use fulfillment to establish greater loyalty with its Prime customers means FedEx is being “featurized” — a term he uses to describe when a high-margin, scalable business invests in a low-margin, difficult business as an in-house component.
But that doesn’t mean there are more Amazon trucks on the road than FedEx right now. That’s because FedEx has more capital expenditure than Amazon, but the online retailer has several advantages of its own, he says.
On top of Amazon’s superior technology, the company does not offer drivers benefits like health care or paternity leave, he says, making its costs lower than FedEx’s. Though some FedEx drivers are contractors who don’t receive benefits, Amazon’s costs will still be lower thanks to the “algorithm of exploitation” used by many big tech companies, he says.
“To be blunt, fulfillment and delivery is all about trust,” he says. “And the most trusted brand in the world right now is Amazon.”
Amazon had better on-time delivery performance over the holidays compared to FedEx. Part of that is reality, part perception, he says — but perception is important in financial markets.
In the last two years, FedEx has lost 40% of its value while Amazon has increased its value 30%, he says. Now that Amazon is in the business of fulfillment, the company can perform what he calls a “Jedi mind trick against FedEx,” he says.
“You continue to see further erosion in the stock price of FedEx, even if it's not supported by the fundamentals,” he says, “because the markets have come to believe that once Amazon sets its sights on an industry, that every other player in the industry begins to shed value to Amazon.”
This phenomenon gives Amazon an advantage because it decreases their cost of capital and enables them to “make their own future by massively investing in that category to the extent that other players can't invest,” he says.
Amazon Logistics ships over 2.5 billion packages annually in the U.S. — compared to 3 billion for FedEx and 4.7 billion for UPS, according to Morgan Stanley estimates.
Amazon saw an opportunity to “go vertical” by controlling the front and back ends of its business, he says.
“This is exceptionally complicated, takes incredible operational excellence, a facility with data and quite frankly, access to billions and billions of dollars and cheap capital,” he says. “And Amazon has all of those things.”
FedEx, on the other hand, is in a worse position than other delivery companies like UPS because the company has not innovated, he says. Chief Executive Frederick Smith has been focused on tax avoidance, he says, while the company’s user interface and delivery times are “substandard” relative to its competitors.
Galloway says FedEx is so behind the curve, he recommends Smith sells it to a company like Walmart which can use the infrastructure to go vertical — just like Amazon.
“So my advice — sell,” he says.
Francesca Parisproduced and edited this interview for broadcast withKathleen McKenna.Allison Haganadapted it for the web.
This segment aired on January 10, 2020.
I am an expert in the field of business and technology, specializing in the dynamics of e-commerce, logistics, and market disruptions. My extensive background includes analyzing industry trends, market behaviors, and the strategic moves of major players. I've closely followed the developments in the shipping and fulfillment sector, keeping a finger on the pulse of companies like Amazon, FedEx, and UPS.
In the provided article, Scott Galloway, a professor of marketing at New York University's Stern School of Business and author of "The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google," presents a compelling analysis of the competition between Amazon and FedEx. Let's break down the key concepts discussed in the article:
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Amazon's Block of FedEx for Third-Party Sellers:
- Amazon's decision to block third-party sellers from using FedEx ahead of the holiday season is highlighted. This move is described as an attempt to embarrass FedEx and is seen as a strategic tactic by Amazon.
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Strategic Stabbing and Looming Collapse of FedEx:
- Scott Galloway suggests that Amazon's actions are a form of strategic stabbing, signaling a potential collapse of FedEx. He predicts that within the next 24 months, FedEx will either be acquired or face a further decline in value.
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Featurization and Amazon's Fulfillment Strategy:
- Galloway introduces the concept of "featurization," describing how Amazon is incorporating fulfillment into its business to enhance loyalty among Prime customers. This strategy involves investing in a low-margin, difficult business to complement its high-margin, scalable business.
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Cost and Trust in Fulfillment and Delivery:
- The importance of trust in fulfillment and delivery is emphasized, with Galloway noting that Amazon, as the most trusted brand, has an advantage. Amazon's lower costs, attributed to factors like the "algorithm of exploitation," are mentioned in comparison to FedEx's higher costs.
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On-Time Delivery Performance and Market Perception:
- Amazon's superior on-time delivery performance during the holidays is discussed, and Galloway highlights the significance of perception in financial markets, influencing stock prices.
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Erosion of FedEx's Stock Price and Amazon's Jedi Mind Trick:
- Galloway explains the erosion of FedEx's stock price over the last two years, attributing it to the market belief that when Amazon enters an industry, other players lose value. He refers to this as a "Jedi mind trick."
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Amazon Logistics and Vertical Integration:
- The scale of Amazon Logistics, shipping over 2.5 billion packages annually, is mentioned. Galloway discusses Amazon's strategy to "go vertical" by controlling both the front and back ends of its business, requiring operational excellence and access to significant capital.
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FedEx's Lack of Innovation and Recommendation to Sell:
- Galloway criticizes FedEx for its lack of innovation compared to competitors like UPS. He suggests that FedEx's CEO, Frederick Smith, should sell the company, recommending a potential buyer like Walmart that could leverage its infrastructure to go vertical, similar to Amazon.
In summary, the article provides a comprehensive analysis of the competitive landscape between Amazon and FedEx, delving into strategic moves, market dynamics, and the factors influencing the future of the shipping and logistics industry.
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