Amazon Buying Warehouse Tech Company Kiva Systems for $775M

3/19/12Follow @curtwoodward

Updated 3:30 pm Pacific
Amazon.com is calling on armies of robots to help it get the most out of a rapidly expanding national distribution system—and those robots already work for some other well-known names in retail.

The Seattle e-commerce pioneer (NASDAQ: AMZN) announced Monday that it plans to buy Kiva Systems, a supplier of planning software and warehouse robots that streamline the often tedious business of moving physical packages.

As we’ve previously reported, Kiva Systems’ service revolves around teams of boxy little orange robots that pick up and move racks of merchandise.

They’re guided along the floor by a system of barcode stickers that lay out a sort of “highway” for the robots to follow.

In its statement on the deal, Amazon said it is acquiring all outstanding shares of the privately held company for about $775 million in cash. Amazon says all of Kiva Systems’ shareholders have approved the deal, and that its headquarters will remain in North Reading, MA.

Kiva Systems’ investors include Bain Capital Ventures and Meakem Becker Venture Capital. It looks like the company’s last announced venture financing was a $10 million Series C round in 2006, led by Bain. At that time, Kiva Systems said it had raised about $18 million in total. The company was ranked sixth overall on the Inc. 500 list of fast-growing companies in 2009, when it reported 2008 revenue of $21.4 million. I don’t have a newer revenue figure, but we reported at the end of last year that Kiva Systems had been profitable for some time and was closing in on about 300 employees.

This seems like a bit of a no-brainer for Amazon, which is rapidly growing its network of warehouse and shipping centers around the U.S. to keep pace with customer demand. As this Associated Press story notes, Amazon announced in October that it was going to build another 17 distribution centers, on top of the 52 it had at the end of 2010.

Amazon also is legendarily obsessed with efficiency, which founder and CEO Jeff Bezos described in this recent cover story in Wired magazine:

“There are two ways to build a successful company. One is to work very, very hard to convince customers to pay high margins. The other is to work very, very hard to be able to afford to offer customers low margins. They both work. We’re firmly in the second camp. It’s difficult-you have to eliminate defects and be very efficient. But it’s also a point of view. We’d rather have a very large customer base and low margins than a smaller customer base and higher margins.”

Kiva Systems’ software and robot networks could definitely help with that approach. And it’s not Amazon’s first go-round with the technology: As this BusinessWeek story noted, Kiva Systems’ technology was used in warehouses for Quidsi and Zappos, which are both owned by Amazon. Interestingly, part of Kiva Systems’ sales pitch (from that same article) was that its technology allowed smaller players in e-commerce to compete with the Seattle-based giant’s logistics prowess.

Could that go away now that Kiva Systems’ robots are controlled by The Man? It’s not a sure thing.

Amazon does have a history of providing some of its internal systems (including fulfillment and cloud computing) as external products. In the Amazon release, Kiva Systems CEO Mick Mountz says he is “delighted that Amazon is supporting our growth so that we can provide even more valuable solutions in the coming years,” which sounds like there could be a commercial future for the service.

That could become very interesting for some of Kiva Systems’ existing customers, including Gap, Saks, and Gilt Groupe—all of whom have to consider Amazon a competitor of some sort because of its dominance in online shopping. “Kiva customers will continue to receive service and support after the transaction,” Amazon spokeswoman Mary Osako says via e-mail.

In any case, it looks like our Wade Roush will have even more interesting stuff to discuss with Mountz next month at Xconomy San Francisco’s Future of Robotics event.

If you want to see what they look like in action, check out this quick demo video from a recent trade show.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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