The shortest distance between two points? At UPS, it’s complicated

@FortuneMagazine

July 25, 2014, 10:38 AM EDT

The number of possible routes that a UPS driver could take on any given day is enormous.

Strike that—the number of possible routes that a UPS driver could take on any given day defies comprehension. That’s not an exaggeration.

A driver for the delivery company typically makes between 120 and 175 “drops” per day. Between any two of those, there are a number of available paths to take. It is, of course, in the best interest of the driver and UPS to find the most efficient route. And that is where things get complicated.

According to UPS, the number to describe the complete set of possibilities in the scenario outlined above, as calculated using combinatorial mathematics, would have 199 digits. The number of possible options would exceed the number of nanoseconds that the Earth has existed.

“It’s huge—unimaginably large,” said Jack Levis, the company’s senior director of process management. “This is as high as you can get in analytics.”

For UPS, it was nothing if not a daunting optimization challenge. But the motivation was powerful: a reduction of just one mile a day per driver would save the company as much as $50 million.

The Atlanta-based company’s answer? A system called Orion, short for On-Road Integrated Optimization and Navigation, named after the hunter in Greek mythology, and a big data analytics effort if there ever was one. Orion—whose algorithm was developed in the early 2000s and piloted through 2009—uses 1,000 pages of code to analyze 200,000 possibilities for each route in real time to deliver the optimal route in about three seconds’ time.

“At first, the mathematicians thought it was going to take about 15 minutes to run,” Levis said. “They were pleased.”

UPS is working to deploy the system to all of its 55,000 North American delivery routes. By the end of 2013—after being applied to just 10,000 routes so far—Orion had already saved 1.5 million gallons of fuel and 14,000 metric tonnes of CO2 emissions. The company expects to complete the rollout by 2017.

There are two “rather inconspicuous” industries that are being disrupted by big data, according to Svetlana Sicular: transportation—which includes a logistics company like UPS—and agriculture.

Sicular, a Gartner analyst, believes that disruption is happening on a broad scale. Consider the commercial shipping industry: the Australian Maritime Safety Authority provides information about port activity in real time so that ships can vary their speed to save fuel and minimize port fees, Sicular said. The authority also uses geofencing—dynamic, location-based digital zones—to trigger and automate those fees, “and this is all transparent through open data,” she said.

It’s not just big data technologies that are causing this transformation, Sicular said. The convergence of mobile devices and cloud computing also play a major role.

“Mobility is important in collecting information and providing live connection to the drivers,” she explained. “Mobility is not just about mobile devices but also about sensors in trucks, planes and ships.”

Feeling pressure to make its operations more efficient, UPS introduced handheld devices for its drivers in the 1990s. “We had to create smartphones and communications online before they existed,” Levis said. In 2008, the company installed GPS tracking equipment on its delivery trucks. Orion is layered on top of this foundation.

Though there’s no easy replacement for a continent-spanning fleet of vehicles—until Amazon’s delivery drones materialize, anyway—the rise of cloud computing has made it easier for startup companies to access the sophisticated technology that only the largest enterprises previously enjoyed. It behooves UPS to stay ahead.

“To me, that’s the future of analytics and big data—not just telling you what has happened, but telling you what should happen and how to correct it in real time,” Levis said. “If a system is so smart that it predicts you’ll have a problem and solves it before it happens, it’s like Sherlock Holmes. It looks clairvoyant, but it’s not.

“It will take a while. But that’s the vision.”

Correction, July 25, 2014: An earlier version of this article misstated the fuel savings of the Orion system. It is 1.5 million gallons, not 1.5.

It’s an Amazon.com economy, now

@FortuneMagazine

June 12, 2014, 5:29 AM EDT

We may all work for Amazon.com someday.

On Monday, Reuters reported that the the giant online retailer plans to launch an online marketplace for local services where people can find everything from haircuts to handymen. It will be modeled after Amazon Fresh, the grocery delivery service that Amazon has been slowly rolling out. And Amazon also looks like it’s set to launch a streaming music service as well.

Recent jobs numbers reinforce that we are in an Amazon.com AMZN economy now: More and more of the economy’s actively hiring employers are in retailing or in the business of getting goods to stores or your home.

The government calls this employment category trade, transportation and utilities. The utility sector isn’t adding any jobs these days. So take that out. The other two categories, trade and transportation, added nearly 576,000 jobs to the economy in the past year. That’s a little over 20% of the nearly 2.4 million total jobs employers added over the past 12 months.

And the hiring trend looks set to continue. On Tuesday, the government released its monthly report on job openings. Of the just over 4 million job openings that companies reported in April, 854,000 were in the trade, transportation and utilities industry. That’s the most of any of the sectors the government tracks. Trade, transportation and utilities also had the highest number of openings a year ago. But it has widened its lead over the No. 2 sector, which a year ago was education and health services. Last year, that sector had 712,000 job openings. In April 2014, there were 720,000 openings in education and health services, which makes it now No. 3 in terms of openings, dropping behind business services, which is right behind trade and transportation.

And the government data might not actually be capturing all of the hiring being done by Amazon. The government doesn’t say where it puts Amazon in its monthly jobs figures. And it says it actually doesn’t assign companies an industry. The companies get to choose themselves. A government economist said they will recategorize companies only when the grouping that a company has chosen is clearly wrong. Also, not all companies report their jobs numbers to the government. The Bureau of Labor Statistics monthly jobs report is based on a statistical sampling of all companies.

Still, Amazon most likely falls into a government category called non-store retailers. As of May, the government said there were just under 500,000 people employed in that category. Amazon itself says it has 124,600 employees, up from 91,300 a year ago, or about 1 out of every 4 workers in the category, though not all of Amazon’s employees are based in the U.S.

That seems like a large chunk even for Amazon, which ranks at No. 35 on the Fortune 500, up from No. 49 a year ago. So it’s possible that the online retailer’s employees are accounted for elsewhere, like in wholesale trade, or information technology, where other Internet businesses are categorized.

According to the government, the non-store retailing companies have boosted their employee ranks by just 17,000. But Amazon alone has added 33,300 workers in the past year, again not all in the U.S.

And that’s just Amazon’s direct employees. There’s the whole business of getting the things you order on Amazon to you, which is done by humans, at least for now. The government says there are now 4.6 million people who work in the transportation and warehousing industry. That’s up by 120,000 in the past year.

Of course, you could argue that Amazon is destroying more jobs that it is creating by putting retailers out of business. But the number of workers in the retail business is up significantly in the past year and continues to grow. So it’s hard to see how Amazon is putting a large amount of people out of work.

One thing you could ask, though, is whether these are good paying jobs that Amazon is creating.

The government doesn’t give wage figures for the non-store retail sub-category. In May, the average weekly salary for a retail worker was $429, which comes to about $22,308 a year. Transportation workers got nearly double that, at $793 a week, and $41,236 annually. Workers in the information industry, which includes telecommunications, were paid an average of $1,036 a week in May, or $53,872 a year.

More and more, it’s an Amazon economy. We’re all just working in it.

These are the venture firms celebrating Uber’s massive $18B valuation

by
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@FortuneMagazine

June 6, 2014, 4:52 PM EDT

How did Benchmark Capital justify a $49 million valuation for Uber?

The question was posted on the website Quora back in 2011. No one is asking Benchmark to justify its investment today. Uber closed a $1.2 billion round of financing at a pre-money valuation of $17 billion (more than $18 billion post-money), which as my colleague Dan Primack noted, makes Uber significantly more valuable than Hertz.

The eye-popping financing, one of the largest private venture rounds ever, is a huge win for Uber CEO Travis Kalanick, who confirmed the financing Friday. But it also represent a massive win—admittedly on paper—for a handful of venture capitalists who bet on the company at valuations that each time before seemed, well, rather pricey.

“The opportunity that we took many years ago to work with Travis has proven to be very fruitful,” said Benchmark partner Bill Gurley, who sits on Uber’s board. “What he has done with the company is the key point.” Noting that VCs don’t typically celebrate until they distribute gains to their investors, he said that the new financing “is just another data point along that path.”

So how big are Benchmark’s paper gains? In February 2011, the firm led Uber’s Series A $11 million round, which valued the company at $60 million, post-money. That should have given Benchmark an ownership stake of roughly 18%, now worth north of $3 billion. That’s more than 280 times its initial investment.

“If you look at the history of Silicon Valley, we’ve seen that something starts to work, it can work for a long time,” Gurley said.

Later that year, Menlo Ventures led Uber’s next investment round of about $37.5 million, which valued the company at $330 million. That investment, which also included funds from Goldman Sachs and Jeff Bezos, has now gone up about 55 times. Menlo Ventures declined to comment.

The other huge winner is Google Ventures, which last year raised eyebrows when it bet about 85% of its $300 million fund on Uber. The $258 million investment, valued the company at $3.5 billion. The value of that investment now? About $1.2 billion, or 5X. Not bad for 10 months. Along with the firm’s sale of thermostat maker Nest to Google for $3.2 billion, the Uber investment cements Google Venture’s emergence as one of the Valley’s hottest firms. Google Ventures, which invested again in Uber’s current round, declined to comment. (Private equity firm TPG invested $90 million in Uber’s August 2013 round.)

Uber has given Valley VCs (and a list of illustrious angels) plenty of reason to cheer. Well, at least for now. The same Quora page that raised eyebrows about the 2011 Benchmark investment had another relevant question on its margins: How much money did Benchmark Capital lose on Webvan? As Gurley said, you can’t really count your winnings until you cash them in.

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