Why Did Amazon.com Acquire Kiva Systems?

Back in May 2004, I wrote a commentary titled, “What If UPS Acquires Manhattan Associates?” I used that hypothetical headline to highlight a trend I saw in the industry: the convergence of various business models, namely logistics services, technology, and consulting. And one of my predictions for 2009 was that a leading logistics service provider would acquire a leading logistics software company. That prediction never came true, but the convergence of these business models continues, as evidenced by Amazon.com’s acquisition of Kiva Systems this week.

Why would Amazon.com acquire a materials handling company? Why not just be a customer of Kiva Systems, like Zappos.com and Diapers.com (which are owned by Amazon)?

Here is what Amazon.com said in the press release, which isn’t much, but I believe it offers a small clue:

“Amazon has long used automation in its fulfillment centers, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow,” said Dave Clark, vice president, global customer fulfillment, Amazon.com. “Kiva shares our passion for invention [emphasis mine], and we look forward to supporting their continued growth.”

I believe it’s that passion for invention that drove this acquisition. Specifically, the desire to own and control the innovation cycle — from the front end of its operations (website) to its back end (order fulfillment and DC automation systems) — in a holistic and integrated manner.

In essence, Amazon is taking the same “owning the ecosystem” strategy that Apple took in the computer industry, and that Oracle (with its acquisition of Sun) and Google (with its acquisition of Motorola Mobility) are also adopting.

Here is what Larry Ellison, Oracle’s CEO, said about the Sun acquisition back in 2009:

“Our strategy is to take a lot of separate pieces our customers used to buy as components and to deliver complete working systems. That will make our customers’ lives simpler. It is fast and cost effective.”


“Steve Jobs [Apple’s founder and CEO] is my best friend; I watch very closely what he does over at Apple. If you engineer the hardware and software, the overall product is better.”

Now apply that same philosophy to Amazon and here is what I envision the company saying: “By bringing together our front-end and back-end systems and innovating them in a holistic and integrated manner, we’ll achieve even greater levels of productivity and profitability, and provide even better and more differentiated service to our customers.”

This is part of the reason why some third party logistics (3PL) companies continue to develop their own IT solutions; they want to have full control of the innovation cycle versus being at the mercy of a technology vendor’s innovation roadmap and release schedule. I wrote about this topic last October in “The IT Dilemma for 3PLs,” which sparked some interesting debate. To me, Amazon’s decision to acquire Kiva Systems is another data point in this debate.

Yes, Amazon is investing heavily in distribution centers, and the need to outfit these facilities with automation systems (because adding more labor is not scalable or cost-effective) certainly played a role in the acquisition. But that doesn’t fully explain, at least to me, why they would buy Kiva Systems instead of just growing their relationship as a customer. I believe Amazon’s “passion for invention” and its desire to integrate and own the innovation cycle was a large, if unstated, factor.

What do you think?


  1. With Amazon adding 17 new Warehouses, maybe they needed all of Kiva’s attention focused on them. Is Amazon’s acquisition going to take Kiva off the market for other retailers, especially competitors that currently use Kiva’s robot technology?

  2. Ted,

    According to a WSJ article, Kiva Systems will continue to support and sell its solution to existing and new customers. But I doubt any of Kiva’s customers that compete in any way with Amazon have a warm fuzzy feeling in their bellies today. What happens next with customers is another interesting question that only time will answer. My guess is that some sort of “Chinese wall” or firewall will be implemented organizationally to isolate Kiva’s interactions with existing customers from Amazon (and vice versa).


  3. Owning the innovation cycle makes sense. It does spark curiosity to why Amazon selected what I consider to be a fairly narrow component of their execution-solution. Perhaps it did not need anything bigger? I also think Amazon is analogous to UPS in that Amazon is also fairly unique due its size and like UPS it develops a lot of its core technology in-house that aligns tightly with its primary market offerings and since it basically is leading the pack, it cannot benefit much from what Kiva’s other customers want thus diminishing the value of their previous “customer” relationship to Kiva. And I agree with the other post that indicates that Amazon is likely not tolerable of a release cycle time line that they don’t own, which brings me back to “curiosity” … it would be nice to get a look at the Amazon solution-map that Kiva sits inside of because that would tell the complete story … at lease for me it would.

  4. Adrian,

    Really interesting piece. I am just learning about Kiva systems but I think they’ve got some great ideas. Any time a company can take control over more aspects of its supply chain, I think that is a plus. This will allow Amazon to really focus on complete quality from start to finish which is always a good thing. That is why larger companies like Apple, Walmart or Amazon will always have the advantage. They simply control more of how their product is made, shipped and delivered to the customer which means they can ensure it is exactly what they want the customer to be purchasing. The more hands in the cookie jar, the more likely it is that something will go wrong and the more likely it is by the time you notice it, it will be too late.

  5. I understand your point about mutual passion for invention, but I see this acquisition a little differently. Specifically, I see it more about raising the bar in an Arms Race for distribution efficiency between the large e-retailers and retail distribution companies. Kiva has some very interesting advantages when compared to both standard WMS functionality and more common fixed automation functionality. I have written more about this in my own blog at http://www.tkrconsulting.com/tkr/amazon-ups-the-ante-of-the-distribution-efficiency-arms-race-with-kiva-acquisition/.