Amazon’s holiday success and UPS’ holiday fail highlight the internet economy’s problems

Shipping giant UPS failed millions of customers this holiday season, missing the delivery of “a small percentage of its packages” on the Christmas Eve, according to a statement it released on Tuesday. Meanwhile on the day after the Christmas Day, e-tailing giant Amazon is crowing about signing up more than one million Amazon Prime members last week and that it registered record number of orders. Later Amazon said it would offer shipping refunds on packages affected by the UPS delays. Both events are linked, and here is why.

The reality check

Amazon’s great success doesn’t have to be UPS’ failure, but in this case the culture and expectations of the web met the real world, and the real world experienced what the web kids call a “fail.” There are some obvious reasons for this, such as UPS’ decision to let its workers take Christmas day off or people’s general tendency to wait until the last minute to order a gift online. The physical world is no different, as anyone who hits a mall on Dec. 23 or 24 could see.

Perhaps sometime in the near future, with drone delivery Amazon can solve this problem, but the situation illustrates two big problems we’re going to keep bumping up against as we transact more of our business and lives online. The internet has turned us into slaves of instant gratification. When we want to listen to a song, we click and stream. When we want to read the latest book, there’s another click and it’s on our tablet. However, this is creating an expectation that is challenged by the physicality of the real world.

So the first problem is that the gap between the online expectations where everything moves pretty much instantly (or at least within tens of milliseconds) and the real world, where crossing thousands of miles means actually crossing thousands of miles over increasingly congested and crumbling infrastructure is going to seem ever larger.

Making the real world elastic involves tradeoffs

The second is that you can’t prepare the real world people or infrastructure for peak demand. Most of our roads are literally set in stone. Our workforce is not as fluid as a flexible internet-like network needs to be and it’s not clear if that’s the society we want or should want to build. We are shifting to the web economy faster than the real world can keep up.

Yet, the internet and digital mediums reward and even encourage peak demand — be it a viral video or hundred of thousands of people downloading BeyoncĂ©’s new album overnight. To bridge the gap between real-world limits and internet demands we need to have a more accurate understanding of the real world, perhaps through sensors and data for incredibly accurate predictions.

There will be a need for intelligence — even in the dumbest of machines. Until then, we need businesses and governments to consider how to manage the internet expectations in the real world. For example during last week’s peak demand Amazon cut off some people’s ability to sign up for Prime to avoid crushing the system for its existing members.

On the UPS side, more data and insights about the health of its fleet and workers might have helped it establish its own limits and set a stopping point after which it would have to declare the system overloaded. At that point, its management could make a cost benefit analysis associated with staffing up or buying more trucks to meet the peak. Unfortunately for employees, this sort of elasticity tends to lead to contract work, unless we radically rethink how we employ people.

Also helping “solve” the problem of employees and peak demand will be robots. Amazon’s delivery drones or warehouse robots are an example of how these can help. Unlike UPS employees, robots don’t need Christmas Day off.

The combination of the expectation gap and the conflict between the internet’s encouragement of sudden peak demand and the physical world’s inability to deal with that demand economically will be one of the defining business and technical challenges of the next decade. Robotics, data and the internet of things will help, but we’re going to have to adapt societal institutions to make it work.

Or we can just accept a few late Christmas presents.