Amazon.Com Announces Launch Of New Services Subsidiary, Amazon Services

Amazon.Com's new Web commerce program involves creation of a new services division to provide e-commerce and fulfillment outsourcing.

According to the Delphi Group, what is most notable about this announcement is the realization of an objective (should Amazon be successful) shared by an increasing number of CEOs and feared by an even larger number of CIOs -- the transformation of IT from a cost center to a profit center.

In this move, Amazon furthers its role as a technology innovator first, retailer second. The online retailer-cum-outsourcer is said to have spent $1 billion to date and spends $200 million annually on technology. This places its IT budget in a class with the largest firms in the world, and rivals what any firm spends specifically on Web commerce capabilities.

One of the few successful role models here is AMR's 1996 spin-off of Sabre (the dominant IT platform for the travel industry). Similar to AMR/Sabre, Amazon is seeking to monetize existing infrastructure and expertise that otherwise faces diminishing returns within its primary business model. Yet where the two examples diverge is in regards to entry points.

Where Sabre held the advantage of technology lock-in with its proprietary travel network, Amazon is leveraging the ubiquitous connectivity of the Web and standardization vis-a-vis Web services -- resources within close reach of the outsourcing giants Amazon just gained as competitors.

Going forward, Amazon's greatest opportunity for competitive advantage will not be technology innovation alone, but specifically the ability to focus this on shaping the customer experience (an area where few outsourcing leaders have excelled).

Details:

This move that combines two notable, but otherwise distinct initiatives seen in the last year: Amazon's acting as the technology partner to brick-and-mortal 'big box' stores threatened by Web-savvy competitors (e.g., Target vs. Wal-Mart); and the exposing of Amazon's merchant services through a SOAP interface.

New with this announcement is the spin-out of Amazon Services Inc. as a unique subsidiary, rather than simply partnering with offline retailers as its parent Amazon.com Inc has already done. Existing partnerships include Toys 'R Us and Target, for whom Amazon hosts their customer-facing websites.

The goal of Amazon Services is to provide retailers a turnkey, outsourced e-commerce solution that incorporates Amazon.com's widely recognized shopping features and technology, while still allowing retailers to control the look-and-feel of their Web sites. This report comes from the Delphi Group, Boston, MA, www.delphigroup.com.

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