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March 22, 2012

Amazon Purchases Kiva Systems for $775 million

By Patrick Lambert, TMCnet Contributing Writer

Amazon has always been seen as an innovative company when it comes to online storefronts, but they have also been pioneers behind the scenes as well. As the largest online retailer, the company has to run massive warehouses and delivery centers. It used to be that all Amazon employees, from management on down, would go to the floors and help packaging goods whenever the holidays were coming. Now however, a lot of physical employees have been replaced in recent years by highly technological robots, and the company's acquisition of Kiva Systems for $775 million is proof that they are intending to keep going in that direction.

In fact, it's almost a surprise that they didn't buy them earlier. Kiva makes a very efficient, highly coordinated robotics system to make warehouses into fully automated machines. Amazon spent over $4.6 billion last year on warehouses alone, so this acquisition is really a no brainer. Here we're not talking about sci-fi robots that walk and talk, but advanced forklifts, that can gather packages and bring them to the right people, and saves a lot of time so that employees don't have to run around trying to find particular boxes or packages. Each robot is tracked constantly through a central computer system which scans every piece of machinery as they navigate the floor, so that they all take efficient routes, and don't collide. It's a fairly straightforward concept, but hard to put into practice, which is why Kiva's technology is so worthwhile.

Amazon is known to buy brands that it finds useful. In fact in the past they bought Zappos, Soap.com and Diapers.com. In this case however, it's a company that makes useful warehouse systems that competitors might be interested in, and it's still unknown whether or not the firm will offer these robots to other brands. With up to 69 different warehouses run by Amazon at the end of the year, the robots will have their claws full. Upgrading just one of these warehouses with Kiva robots can cost up to $20 million, but is worth it in savings over the long term. The most interesting part however is how Amazon, well known for its research and innovation, might improve Kiva and help them create even smarter, more efficient robots. In the past, most robots in factories were fairly stationary, but now we have fully mobile ones. As these more able robots start filling up factories and warehouses, one can wonder what will happen to the employees.

While this deal will clearly benefit Amazon's bottom line, it may also help bring us smarter robots in the end, which means the whole industry would benefit, at least from a profit and efficiency standpoint. Already the online sales giant is known for having very fast shipping dates, but this could be improved even more with smarter robots. While the initial investment for robots is higher than for employees, over the long run it's more economical, and already Foxconn hopes to replace 500,000 jobs with 1 million robots in three years.




Edited by Jamie Epstein
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