Amazon Web Services revolutionized the way that companies run their business online, allowing them to pay for as much compute power as needed without having to own or operate physical infrastructure.
Seattle startup Flexe sees itself playing a similar innovative role in the supply chain industry, giving retailers a way to purchase warehousing space on an on-demand basis and turn what was traditionally a fixed expenditure into a variable cost.
Flexe CEO Karl Siebrecht and his investors alluded to this analogy several times during a roundtable discussion with GeekWire at Flexe’s new 24,000 square-foot office in Seattle’s Pioneer Square neighborhood. It was a glimpse at how bullish the company and its backers are about an opportunity to ride the wave of e-commerce growth and maximize existing — and expensive — warehouse real estate.
The 6-year-old startup is coming off a fresh $43 million investment round that will help Flexe meet demand from a growing number of companies needing “pop-up” storage space.
Flexe operates much like Airbnb — instead of using technology to match travelers with open homes and apartments, it matches retailers with warehouses that have excess capacity.
Companies such as Staples, Toms, Ace Hardware, and others use Flexe to help support their online businesses and reduce the costly “last mile” delivery expense. Giant brands including Walmart and P&G are also customers.
Flexe also benefits warehouse owners who make revenue on space that would have otherwise sat empty, which Flexe estimates is 20-to-30 percent of a given warehouse. More than 1,000 of them across the U.S. and Canada use Flexe’s software to bid on various offers, up from 370 warehouses three years ago.
While the Airbnb comparison helps describe what Flexe does, it’s the AWS analogy that gets the company’s investors excited.
Amazon’s cloud computing arm was a first-mover when it debuted more than a decade ago and now produces more than $25 billion in annual revenue, helping drive profits for the e-commerce giant.
As a category inventor, AWS launched with a basic set of tools and online services. Initial customers used it for certain parts of their business.
But now AWS offers hundreds of products tailored to various needs. Some companies, including publicly-traded entities, run most if not all of their entire cloud operations with services such as AWS.
Investors see the Flexe model as an early version of AWS, replacing cloud computing with warehouse capacity.
“Right now, large corporations are using Flexe for pieces of their business,” said Ryan Sarver, partner at Silicon Valley venture capital firm Redpoint Ventures and an early Flexe backer. “With this model, whether it’s Flexe or someone else, it will become the way they run their [whole] business in an entirely dynamic environment.”
Consumer expectations for fast shipping, largely driven by Amazon, have forced retailers to invest in their delivery networks. But if a company wants to sell a product and deliver it next-day, they’d need 16 warehouses spread across the country in order to reach 98 percent of the U.S. population.
“In a world where each of those 16 nodes has fixed costs associated with it, that’s crazy expensive,” said Siebrecht, who just won EY’s Entrepreneur of the Year award. “In a world where all of that is available as a service, it completely fundamentally changes what you can do.”
Flexe offers customers pay-as-you-go flexibility; merchants don’t need to sign long-term leases for warehouse space — only when they know how much capacity is required, as well as where and when.
“We needed space in the northeast U.S., the Midwest, and on the West Coast,” Justin Schuhardt, a supply chain executive with Walmart, said at a recent industry event. “So, what ended up happening was Flexe was able to, through their marketplace approach, give us a selection of different providers from coast to coast with different size buildings and different available capacity.”
The capacity that Flexe enables is important for a company such as Walmart that is trying to keep up with Amazon in the e-commerce fight.
It doesn’t make financial sense for most companies to build out their own cloud computing and data storage infrastructure — that’s why AWS and other services such as Microsoft Azure and Google Cloud have become so valuable.
In the same vein, retailers trying to move product or companies that need temporary warehouse capacity shouldn’t “build a core competence in supply chain logistics,” said Scott Jacobson, managing director at Seattle-based Madrona Venture Group. That’s especially true for the rising number of direct-to-consumer startups that are changing the way people shop online by removing the middleman.
“That’s not what they want to be good at. They don’t even want to spend any time thinking about it,” Jacobson said. “Maybe in some ways, it has been a core competence historically. But as platforms like Flexe become better, I think more and more people ask questions like, ‘I’m never going to be as good as this, or get fulfillment costs as cheap as this.'”
As Flexe looks to mimic AWS and benefits from how the Seattle e-commerce giant has changed consumer expectation, it is also somewhat of a competitor to Amazon.
Instead of selling with Amazon’s fulfillment business, Flexe offers retailers an alternative that lets them ship products with their own branded boxes and existing shopping software. The third-party warehouses, meanwhile, handle labor and administrative work. It also keeps retailers from having to share any data with Amazon.
Amazon recently pledged to make one-day shipping its new standard for Prime members. But Flexe can offer its customers similar delivery speeds given how many warehouses are on its marketplace. The startup began offering overnight delivery service two years ago.
Flexe has approximately 30 million square feet of available warehouse space on its platform. That’s a far cry from Amazon, which owns 150 million square feet. However, Amazon is limited to 110 fulfillment centers in North America, while Flexe has access to more than 1,000 warehouses.
Amazon is also trying to take more control of its supply chain, investing heavily in its own cargo jets, trailer trucks, and related infrastructure to help support the Prime fast-shipping program. By controlling more of its shipping process and infrastructure, the company is not only able to reduce costs but is also opening up opportunity to offer shipping capabilities as a service for other retailers, somewhat akin to the AWS business model — and putting it in direct competition with a company such as Flexe.
But Siebrecht doesn’t consider Amazon as a competitor. He said that Flexe helps customers sell products through or to Amazon.
Siebrecht, a former executive at aQuantive and AdReady, added that “our model can add a lot of value to Amazon and for Amazon as well.”
“Ultimately what they care about is fast and cheap consumer delivery,” he said. “They use lots of partners and lots of vendors. They pick and choose areas where they want to build. We see ourselves as part of that broader ecosystem. We can be helpful in providing them better consumer experiences and providing the merchants better experiences as well, in a way that Amazon doesn’t have to directly use their assets.”
Other Flexe competitors include Darkstore, Stord, Clutter, and Flowspace.
Siebrecht co-founded Flexe with Edmond Yue and Francis Duong after they attended a housewarming party and met an entrepreneur who complained about finding warehouse space for his barware company. He estimates that $1.6 trillion is spent annually to move product from origin to destination.
As e-commerce continues grow — holiday sales reached $126 billion in 2018, up 16.5 percent year-over-year — the CEO sees no ceiling for Flexe if it does indeed become the AWS of this new “warehousing-as-a-service” industry.
“We believe this will be a very, very large category and we aspire to be the leader of it,” he said.
Flexe employs 103 people and expects to hire up to 70 by the end of this year. It was a finalist for the Next Tech Titan category at the 2019 GeekWire Awards. The company is No. 73 on the GeekWire 200, our ranking of top Pacific Northwest startups.