Amazon dives into technology services

Online retailer Inc. formally has become a technology services company, providing an array of e-commerce services for leading U.S. retailers.

The launch of Amazon Services, a new subsidiary, was unveiled last week at the Retail Systems 2003 show in Chicago by Amazon CEO Jeff Bezos. He told an audience of several hundred IT professionals that Amazon Services already provides 20 per cent of the company’s unit sales volume – the number of books, robot lawnmowers, men’s suits and other items bought online at the Web site. And, he said, it’s the company’s fastest growing business.

“I think there’s a possibility this could become our majority business in a few years,” Bezos said.

Amazon already handles some or all of the entire online buying and shipping services for Toys ‘R’ Us Inc., Borders Bookstores, discount department store retailer Target Corp.,, and others.

“What they’re building is an outsourcing application service provider for the e-commerce retail world,” says Kent Allen, e-business research director The Aberdeen Group Inc., a technology research company headquartered in Cambridge, Mass.

The new subsidiary, headed by Mark Stabingas, can offer retailers a complete, turnkey e-commerce service, or any part of that service: access to Amazon’s 30 million active customers, the Web front end for online buying and other customer activities, order fulfillment (packaging and shipping), and customer service for e-mail and phone inquiries. The retailers keep full control over the look and feel of the Web site, and can use the Amazon services without having to alter internal business processes.

The fulfillment services involve the retailer’s inventory being moved to Amazon’s massive distribution centres, which together handle peak loads of 1.5 million units daily, Bezos said. Adding the shipments for its services customers is a “few more drops of water in the bucket,” Bezos said.

Amazon spends about US$200 million a year on technology, the lion’s share of that for software development, especially creating and refining the complex algorithms that underlie so much of the Amazon online experience. All of Amazon’s e-commerce software was written by its own software engineers. The figure also includes spending on HP’s line of servers that process the flood of orders and maintain huge databases of inventory and customer information.

All this is exploited in the new service, along with Amazon’s potent reputation as an easy-to-use, efficient Web site. Bezos said the most recent survey for the American Customer Satisfaction Index rated at 88, the highest score every recorded in any service industry, whether online or offline.

Pricing for the specific services varies. In some cases, retailers will pay a fee for initial setup or installation. In other case, they’ll pay recurring fee based on the number of items sold.

In an interview, Bezos admitted that at first he was worried that Amazon would be giving away its “crown jewels” – the technology platform that makes possible. “I was surprised at how comfortable we became about doing this,” he said.

There are no plans to change the Amazon e-commerce software into a shrink-wrapped, license software product. Bezos said that such a move was simply too complicated. It’s unlikely that Amazon will move into B2B applications, according to Bezos. These transactions typically involve highly specialized data, experience and technology. “There’s still so much ‘greenfield’ business in consumer markets,” he said.

Bezos deflected questions about Amazon’s possible competitors in this area. “We obsess about our customers, not our competition,” he said.

But Aberdeen’s Kent Allen said the move means that Amazon will start poaching on the huge e-commerce systems integration business for IBM Global Services and big software vendors like SAP AG. “That’s a move into IBM’s world,” Allen said. “Are they ready to be a technology supplier? That’s an issue.”

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