Amazon Can Now Deliver in 2 Hours. Is This a Big Deal or DOA?

If you are in one of a select few Manhattan zip codes, today is your lucky day: Amazon has begun free, two-hour delivery for its Prime customers. It's the latest audacious move by the e-tailer which doesn't so much break the rules as make them up as it goes along.

Call this one of CEO Jeff Bezos' experiments — the kind of initiative he thinks don't have to actually pay off to make perfect sense. The plan is to launch in more cities next year — in a bit of brilliant ancillary marketing, you can be alerted when you city is next if you install the Amazon app. But for now we're talking about an ultra convenience for a pampered few hundred thousand in a part of the city where you are probably a five-minute walk from anything you want anyway.

So is this a great thing? Absolutely. Someone has to test the limits of the demand economy, and there is no baron better positioned than Bezos for that. Amazon shareholders might be getting a little grumpy over the fact that the company has essentially never reported a meaningful profit, but they aren't leaving in droves because Bezos has enormous street cred.

And where else would you try this out but the streets of New York since, as Frank Sinatra reminds us, if you can make it there you can make it anywhere? In a city where people expect food delivered in minutes at any time of the day — even fresh-baked cookies in the middle of the night — and where there actually still is a vibrant bike messenger industry, instant gratification isn't a tough sell.

A good fulfillment experience is one of the least appreciated and most expected aspects of buying things. This isn't about the quality of the products, or even if they are available. It's about web sites that fight you and long cash-register lines and expensive shipping making you think twice about handing over any cash. Amazon's 1-click online buying experience (yes, they own the patent and trademark) is as fast as you get online. Apple's retail establishments ripped out the cash registers and made every employee a point of sale that came to you. A couple of decades ago LL Bean distinguished itself among big retailers by offering free shipping all the time. They stopped, it was bad for business, and now they offer it again.

Amazon Prime had an enormous impact on buying habits. I can speak for myself and anecdotally for any other Prime customer I have ever spoken to about this: Two-day free shipping is a key building block in effortless — perhaps even mindless — shopping. Combine that with 1-click on a mobile app and friction approaches zero.

There is a special magic about wanting it now and getting it in an hour or so. eBay is already trying to crack the code in New York (and elsewhere) with what it now calls eBay Now. But it has scaled back for what sounds like logistical reasons.

Why? The logistics are insane, and worsen with increased demand. Even if you limit offerings (Amazon will start with about 25,000 items) reducing delivery time from two days to two hours requires a significantly less efficient delivery — i.e. more expensive — delivery system. Amazon is eating that, because Amazon can (it is charging $8 for one-hour delivery).

So, two questions:

• Who else can do this? Why do people keep going after this market? Is it going to crack or keep dashing the hopes of tech dreamers?
• Who are are the customers Amazon is trying to woo or keep with this loss leader?

On the first question: One thing Amazon can do is drive every other retailer crazy, especially the older big box companies the whole online-shipping thing is already threatening.

At one end of the spectrum consider Sears, once venerable and now a big question mark. It flubbed a curiously-flawed hybrid of instant gratification a few years ago with MyGofer, which required customers to order from a console at a physical location and drive 'round back to pick it up. In other words, the worst of both worlds: You have to go out, but you can't browse the store.

At the other end is WalMart, battling Amazon in the Need for Speed sweepstakes as a proponent of "omnichannel," an internal supply-chain improvement that seeks to fulfil all orders — in-store to online — with logistical improvements in inventory management.

On the second question: I'm having a difficult time quantifying the non-novelty demand. Sure, it'll be fun to get something delivered to your door minutes after you ask for it. And if someone makes that kind of service available, why not take advantage? But would we depend on this level of service except for a few obvious applications, like food and flowers?

I'll try this out for sure — by sheer luck, the Amazon fulfillment center is across the street from where I work, so I could actually walk there and get it faster than they could get it to me, if they'd allow.

But my gut feeling is that Amazon isn't trying to crack the code of a paradigm shift customers are demanding. Same-day delivery for a wide variety of goods isn't a disruption that will change everything, like an EV battery with a range of 1,000 miles.

So apart from making competitors squirm, is this a big deal? Can you see yourself changing your buying habits — more stuff, different things — if you could get it in two hours instead of two days?

? Also, check out Dennis Berman's post: Who Needs Wal-Mart or Amazon Anymore? for a look at the threat Amazon faces in non-local delivery.