AMZN Amazon.com Inc

By Greg Bensinger 

Amazon.com Inc. is joining the "gig" economy.

The Seattle online retailer in recent weeks has quietly rolled out a program in its hometown to ferry merchandise to customers' homes using a network of independent contractors, similar to so-called on-demand services such as Uber Technologies Inc. and Postmates Inc.

Under the new service, called Amazon Flex, people sign up for shifts through an app that prompts them to fetch packages from mini-warehouses and take them to customers' homes in as little as one hour. Amazon pays the drivers about $20 an hour to make the deliveries.

The Wall Street Journal in June reported Amazon was considering a similar service known internally as "On My Way."

"There is a tremendous population of people who want to work in an on-demand fashion," said Dave Clark, senior vice president of world-wide operations. "This is another opportunity for people to work with the company."

It is also the latest move by Amazon in its perpetual drive to lower shipping costs and pare delivery times as it seeks to become the central commercial hub for all shoppers. As part of those efforts, Amazon is building out its own last-mile network and has turned to a widening variety of couriers and delivery workers. to shuttle goods to their destinations--not to mention its goal of delivery by drone.

The new service would give Amazon more control over the delivery experience, including proprietary mobile routing and tracking software, and help contain shipping costs that grew 31% last year, faster than revenue.

But by relying on an on-demand workforce, Amazon also risks plunging itself into the center of a contentious debate roiling Silicon Valley over whether such laborers deserve full benefits and pay.

Amazon Flex, for now, is part of the Prime Now service available in 13 cities that promises deliveries as quickly as one hour for $8, or free for two hours or more. Prime Now is available only to members of the $99-a-year Prime unlimited shipping program.

The Flex service will initially be only in Seattle, though Mr. Clark said he expected to expand it to other Prime Now areas. He said Amazon will route Prime Now merchandise using either Flex drivers or one of several courier companies it relies on.

Amazon says tens of thousands of items are available for delivery under Prime Now including, in Seattle, alcohol. Gene Munster, a Piper Jaffray analyst, said as Prime Now expands, Amazon is becoming a greater threat to brick-and-mortar retailers.

"Same-day and same-hour delivery have the potential to open an entirely new retail segment to Amazon--the instant gratification market," he said. Traditional retailers have historically enjoyed in-store pickup as a competitive advantage over Amazon--that advantage is slowly going away."

However the Flex program opens up Amazon to new risks as well. Like countless other on-demand delivery services, Amazon is shifting to Flex workers expenses like car insurance, fuel and health care, which helps keep costs low. Amazon said that many workers enjoy the flexibility that being a contractor, rather than an employee, affords them.

But that distinction is at the heart of several lawsuits against Uber, grocery delivery startup Instacart, Postmates and others over whether contract workers were misclassified and should be entitled to back pay and benefits.

In Seattle, the City Council is considering a bill that would allow for-hire drivers to unionize.

Two drivers for Uber in recent months were found to deserve back wages and a California judge this month granted some of them class-action status.

Amid the raft of suits threatening to reclassify contractors as employees, some startups aren't waiting for the legal system to play out, choosing instead to convert their contract workers to employees.

"We feel very confident in our approach," said Mr. Clark. He said he expected as applicants "serious people who want to do a good job."

Amazon said the company generally assumes liability for the products Flex drivers deliver, but will also closely monitor workers' performance and could suspend them from the program if multiple problems occur.

The company will typically pay between $18 and $20 an hour to drivers, said Mr. Clark. Drivers can make more if they deliver more packages quickly because many customers also pay tips.

Amazon will conduct background checks on applicants using an Irvine, Calif., firm called Accurate Background Inc.

The company declined to say which cities it would roll out Flex to after Seattle, though a screenshot of the app it provided showed a map and address of Miami, a Prime Now city.

Write to Greg Bensinger at greg.bensinger@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

September 29, 2015 00:15 ET (04:15 GMT)

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