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Amazon in talks to purchase Zoox: Logistical self-sufficiency would be main goal of acquisition

Amazon is by far the leading ecommerce company globally and the third largest company in the world behind Apple and Microsoft. The company has established a huge subscriber base with its Prime offering, which offers delivery from as soon as the same day for certain products. While luring customers in with one-day deliveries has proven to be a good move by Amazon, it is also expensive. The company’s shipping and fulfillment costs grew by over 34% in the last quarter, compared with the previous year. These costs are growing more quickly than the company’s sales, with net product sales growing by 22% in Q1 2020.

The possibility of autonomous deliveries could significantly push costs down. Essentially, the company could sell goods and deliver them using driverless technology. Shipping costs would plummet and without the need to hire human drivers, the company could also save additional costs. This is a key driver of Amazon’s interest in Zoox. Paying drivers to deliver its goods to customers is one of the biggest costs that Amazon faces. As such the company is willing to make significant investment in automating its business. The company has made a series of acquisitions and advancements within this field but operating autonomous delivery at scale remains out of reach at present. The potential acquisition of Zoox would bring Amazon a step closer to bringing delivery totally in-house and automating its delivery service.

Zoox could also place Amazon firmly in the race for developing commercially viable self-driving technology. Self-driving technology remains out of reach at present and hasn’t come to fruition anywhere near as quickly as was once expected. The capital required for this has been spiraling and accidents have put the technology out of reach of being regulated. In this way acquiring this company presents a risk. However, given that Amazon has already made a number of acquisitions within the auto industry, the company could become a major automotive player if the Zoox purchase goes ahead.

What’s more, buying the company now would mean the ecommerce giant is likely to pay below Zoox’s $3.2bn valuation received in its most recent funding round in 2018. Prior to the COVID-19 pandemic, the company had begun to reach a point where it was in need of new funds. Spiraling costs and settlements with Tesla have taken their toll on Zoox. The company had already begun to reduce the number of employees and as the coronavirus pandemic hit it let go 120 contract workers and reduced its workforce by 10%. With the pandemic putting a halt to the company showcasing its latest technology, it faces a difficult few months. As such, any buyer looking to acquire the company now will likely pay significantly below the $3.2bn valuation.