Tech

Amazon opens up Prime delivery service to other retailers in its latest move to compete with FedEx and UPS

Key Points
  • Buy with Prime enables third-party retailers to take advantage of Amazon's vast shipping and fulfillment network for orders placed on their own site.
  • Prime members can order items on other retailers' websites using payment and shipping information stored in their Amazon account.
  • To start, the service is only available by invitation to some Amazon merchants, but the company plans to make it more widely available in the future.

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Leon Neal | Getty Images News | Getty Images

Amazon will let other online merchants piggyback on its Prime service to deliver goods quickly to their customers.

The company on Thursday launched a new service, Buy with Prime, that lets third-party merchants use Amazon's vast shipping and logistics network to fulfill orders on their own sites, while also appealing to Amazon's 200 million-plus Prime customers.

These web sites will be able to put the Prime badge on their websites next to items that are eligible for free two-day or next-day delivery. Prime members will use the payment and shipping information stored on their Amazon accounts to place an order.

Buy with Prime won't be free for sellers, and pricing will vary depending on payment processing, fulfillment, storage and other fees.

To start, the service will only be available by invitation to sellers who use Fulfillment by Amazon, or FBA. With that service, merchants pay to have their inventory stored in Amazon's warehouses and to make use of the company's supply chain and shipping operations. Eventually, it will be extended to other merchants, including those not selling on Amazon.

Amazon has long set its sights on being the fastest in the online delivery race. For years, the company has plowed profits back into physical expansion, growing its fulfillment centers and shipping partnerships across the country in order to offer two- and same-day delivery in more markets. It has amassed a hefty fleet of its own delivery drivers, trucks and planes to speed packages to customers' doorsteps.

Inside the rapid growth of Amazon Logistics and how it's taking on third-party shipping
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How Amazon is shipping for outside customers to compete with FedEx and UPS

Industry watchers have paid close attention to Amazon's growing in-house logistics operations, speculating it aims to directly compete with major carriers like UPS, FedEx and the U.S. Postal Service. Indeed, Dave Clark, Amazon's CEO of worldwide consumer, told CNBC last year that Amazon was on track to become the nation's largest delivery service by early 2022.

The company already handles orders for products sold on some other websites. It offers a program called Multi-Channel Fulfillment, which lets sellers store and ship products using Amazon's services regardless of whether they're selling on the home site.

Amazon previously offered a service where its drivers picked up packages from retailers and delivered them to consumers, but it was paused at the beginning of the coronavirus pandemic as Amazon became overwhelmed with online orders.

While Buy with Prime is likely to remain small at launch, it could grow into a lucrative service for Amazon over time, said Bob O'Donnell, founder and chief analyst at Technalysis Research.

"If you think about it, one of Amazon's most successful businesses was started as an internal tool," he said. "That being AWS [Amazon Web Services], of course.

"They've built this huge logistics business initially for their own purposes and now what they're starting to do is leverage that as its own service," O'Donnell added.

In some ways, Amazon has already turned its massive shipping and logistics operations into a cash machine. The company reported that third-party seller services, which includes commissions, fulfillment and shipping fees, along with other services, grew 11% year over year to $30.3 billion in the latest quarter.