Amazon's deal with the USPS for Sunday deliveries is weird. Here's why.November 12, 2013: 7:00 PM ET
The U.S. Postal Service, though independent and self-financing, is still an arm of the federal government. Is it odd for a private company to contract it out? Yes, but it won't stay that way.
FORTUNE -- Why does Amazon's (AMZN) new deal with the U.S. Postal Service to provide Sunday deliveries to Amazon Prime customers seem so unsettling? I can think of three reasons: the exclusivity (we'll get mail on Sundays, but only mail from Amazon); the dynamic of a private enterprise hiring out a government agency as a contractor; and the fact that, as the Wall Street Journal put it, the deal is a "marriage of one of the country's most successful enterprises with one of its most troubled."
Amazon and the Postal Service are both mum on the deal's details, so it's difficult to answer many of the questions that it raises. Such as: How much will it help shore up the USPS's losses, estimated to be $3.9 billion so far this year? Will other companies be able to make similar deals? If so, will smaller companies also be able to get in on the action? What will the deal do for Amazon's bottom line as investors increasingly clamor for better results? Why didn't Amazon choose a private delivery service to partner with?
On that last question, a spokesperson told the Journal that Amazon's technology works best with that of the USPS, but declined to explain how. Just as likely: The cash-strapped agency was able to offer the best deal.
If the USPS does open up the service to other organizations, the discomfort around the Amazon deal will dissipate, and it will no longer seem like Jeff Bezos is Postmaster General for one day per week. That's likely to happen: The Postal Service has a program offering "negotiated service agreements" to private companies as a way to boost revenues, which have dwindled as daily mail volume has decreased. The Amazon deal is, by a significant margin, the biggest such agreement to date.
Which means we should look for other companies to sign similar deals -- not just with the Postal Service, but potentially also with the likes of UPS (UPS) and FedEx (FDX). Soon enough, Sunday deliveries won't seem so odd anymore.
With the deal, Amazon gets a bit of a jump on its competitors for the upcoming holiday season. (Sunday delivery will be available only in Los Angeles and New York this year, with more cities to be added later.) The closer Amazon gets to the customer's doorstep, the more it chips away at competition from brick-and-mortar retailers like Wal-Mart (WMT). For now, Sunday delivery service is restricted to Prime customers, who as part of their $79 membership get free, two-day delivery on their purchases.
Amazon has always shown a willingness to lose money in the name of increasing market share and cementing customer loyalty. It also seeks as much control as possible over its supply chain. It is not so far-fetched to imagine a fleet of trucks -- eventually -- bearing the Amazon logo delivering products to doorsteps. Indeed, the company's trucks already deliver groceries under the AmazonFresh brand in Seattle and Los Angeles.