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Innovation Economy

Kiva, the warehouse robot company, has its eye on the biggest e-commerce retailers

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By Scott Kirsner
Globe Correspondent / November 28, 2010

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Starting your online holiday shopping when you return to work tomorrow is by now an old tradition: “Cyber Monday,’’ the day when American productivity sinks to its yearly low.

But behind the scenes, there’s a new tradition starting: E-commerce companies are increasingly relying on autonomous robots, made in Massachusetts, to help fill your online orders. The squat, orange bots, designed by Woburn-based Kiva Systems Inc., can shoulder a load of up to 3,000 pounds and work around-the-clock with only the occasional break to recharge their batteries. Kiva chief executive Mick Mountz says that Kiva’s customers include about 10 of the 100 biggest e-commerce companies, including Gap, Saks Fifth Avenue, Staples, Office Depot, and Crate & Barrel.

Kiva’s annual revenues are approaching $100 million, and recently, Amazon.com — the biggest online retailer of all — acquired two companies that employ Kiva’s robots in their warehouses. Could Amazon, which operates distribution centers in 18 states and nine foreign countries, be Kiva’s next customer?

Mountz is a former denizen of Silicon Valley who worked at Apple Inc. and Webvan Group, the failed online grocery site. In thinking about how e-commerce companies could fill orders faster and more efficiently — without spending millions on Rube Goldberg-like conveyor contraptions, which aren’t very adaptable as a company grows — he came up with the idea of mobile robots that could move racks of merchandise. He initially funded the company using his own savings and then persuaded some friends and relatives to invest. In 2004, he showed a rough prototype of the system to Ajay Agarwal, an investor at Boston-based Bain Capital Ventures, and Agarwal agreed to invest. Mountz has since raised $33 million for Kiva, and says the company is now operating in the black.

When I last visited Kiva two years ago, the company had 75 employees. It has since doubled in size, and is preparing to move into a new facility in North Reading that will quadruple the company’s space, with a 120,000-square-foot warehouse in which to test robots and conduct demonstrations for potential customers.

I got a chance to play warehouse worker inside Kiva’s unfinished new facility last week. Standing at a “pick station,’’ I had the job of filling an empty cardboard box with a half-dozen items representing a typical e-commerce order.

First, a printer spit out a label that I was supposed to affix to the box. Then, a conga line of robots started heading toward my station from the floor of the warehouse, each one carrying a tall rack full of merchandise. A red pinpoint of laser light shone on the cubby that held the item I was supposed to grab — a striped silk tie, for instance. I scanned the tie’s bar code to let the system know I’d picked the right thing from the rack, put it in the box for shipping, and hit a button to let the system know I was ready to get the next item.

The first robot rolled away, and the next robot in line moved into place. When all the products were in the box, a display flashed “Done,’’ and the last step was to seal up the box and send it off to the FedEx truck. After filling two orders with no training in advance, I was pretty sure I could beat someone walking the warehouse aisles with a cart who is doing the same job.

Mountz believes that online shoppers are getting pickier about who they’ll do business with. “Same-day order fulfillment and next-day delivery are becoming the ante for being in the e-commerce business,’’ he says. “And you want to be able to do that with orders that come in by 5 or 6 p.m., not just orders placed by noon.’’

Mountz explains that a basic Kiva system starts at $1 million to $2 million, but that customers can add robots and other equipment as they need to. Next year, Kiva will even start leasing extra robots for busy times like the holidays.

“That’s very different from the old world of designing distribution centers,’’ he says, “because you could never buy a conveyor belt and send it back when you didn’t need it.’’

All of Kiva’s robots are assembled in its Massachusetts facility by a crew of about a dozen employees.

One of the e-commerce sites that relies on Kiva’s robots is Gilt Groupe Inc., based in New York. Gilt offers high-end merchandise in limited quantities, for a limited time — what are typically called “flash sales.’’ The company has Kiva robots at two of its three warehouses, in Kentucky and Massachusetts, and is planning to purchase more robots and related gear from Kiva.

“The real trick to any efficient distribution center is to keep your order pickers actually picking orders, and not walking around,’’ says Chris Halkyard, vice president of operations at Gilt.

Last November, Amazon paid $1.2 billion to buy Zappos.com, a Las Vegas-based seller of shoes and clothing that had been using Kiva bots at one of its warehouses to fill apparel orders. (Amazon has since taken that system offline, Mountz says, as part of a warehouse reorganization.) Then earlier this month, Amazon paid $545 million for Quidsi Inc., a New Jersey company that runs Diapers.com and Soap.com and was also a Kiva customer.

What’s the impact for Kiva? Mountz says that his company has been in discussions with Amazon for a while, and that “we’re both interested in working with each other.’’ As for the Zappos and Quidsi acquisitions, that “just accelerates the conversation with Amazon, if nothing else. Everywhere Amazon looks, they’re buying a Kiva system.’’

One individual close to the discussions between Kiva and Amazon says that the Seattle e-commerce pioneer may want to own a chunk of Kiva before agreeing to work with the company, or buy Kiva outright. Amazon is also apparently interested in having access to the software code that runs Kiva’s system and its robots, to better integrate with its order fulfillment processes, which Kiva considers proprietary. (Amazon didn’t return calls seeking comment.)

Steve Banker, an analyst at Dedham-based ARC Advisory Group, says that in addition to Amazon, Wal-Mart is an important potential customer for Kiva. “This market is going to explode,’’ Banker says. “The question is when. One key to making it happen sooner is that you need a big, well-known company that publicly talks about it.’’

Mountz doesn’t seem as if he’s panting after either Amazon or Wal-Mart. “It’s great if we get ’em, and fine if we don’t,’’ he says. “Part of our story is that we can provide ‘Amazon in a bottle,’ helping all these other players compete with Amazon.’’ In his office, there is a stack of blueprints for warehouses that are in the midst of installing Kiva systems.

What’s next? Mountz says he doesn’t necessarily need to raise any more venture capital funding for the company. “The next stop for us is a public offering — though we don’t really talk about that.’’

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.