Retailer or Platform?

Over on Publishing Frontier, Joseph J. Esposito offers a provocative reflection on the past, present, and future of in a post entitled, “Decline and Fall.”  Despite the profit woes and nagging doubts that beset the online retailer early on, the company appears to be at the top of its game today.  It recently beat Wall St. earnings predictions, for example, at a time when most other retailers are struggling just to make ends meet.

And yet, Esposito argues, Amazon’s days may well be numbered.  “Empires, by definition, begin their decline at their peak.  Today Amazon bestrides the publishing world like Caesar.”  He continues:

Amazon’s decline will come about because it will not be able to monopolize ebook distribution with the Kindle; because new business models (mostly based on subscription sales of aggregated content to consumers, not unlike Safari Books and similar in form to NetFlix) will challenge Amazon’s operating philosophy; because social networks organized around special interests will help to solve the problem of bringing traffic to a new or series of new online stores; because so many of the pieces necessary for an ecommerce site are available at modest cost from multiple vendors; and because many people are motivated to storm the barricades, whether for profit or just for the hell of it.

I agree in large measure with what Esposito says here.  Though Amazon has been remarkably successful as an e-commerce trend-setter, for books and beyond, it now faces serious challenges to both its business and business model.  The company may have been the paragon of the “dot-economy” a decade ago (recall that CEO Jeff Bezos was Time magazine’s millennial person-of-the-year), but alongside upstarts such as Netflix and Facebook, Amazon is beginning to look, well, kind of late-20th century these days.

But here’s where Esposito and I also part company.  Is an online retailer?  Is that in fact the crux of its business model?  I pose these questions knowing full well that the company still sells “stuff,” and lots of it.  Even so, there’s a great deal more to than meets the eye.  I don’t mean the “Amazon Community,” the company’s ham-fisted attempt at social networking, nor do I mean its recent e-reading venture, Kindle.  Anyone who’s visited the Amazon storefront in the last couple of years knows about them.  Less well known, though, are the company’s efforts to transform itself from an online retailer into a web services provider.

Since 2002, has actively — and until the last year or two, quietly — been making itself over into into a “platform” upon which to construct on- and offline businesses.  As Forbes magazine has put it, Amazon’s “behind-the-scenes data center services” are beginning to emerge center stage.  These include Amazon Web Services’ Elastic Compute Cloud, or EC2, which provides paid-for, on-demand computing capabilities to third-party businesses, and Amazon Simple Storage Service, or S3, in which businesses pay Amazon to store their data on the company’s voluminous servers. The department store Target relies on Amazon Web Services for its e-commerce operations, for instance, as do myriad other companies large and small.  Amazon’s goal with these and other efforts is to monetize any and all of the company’s excess capacity, and to transform idle assets into nonstop, value-producing ones.

So what can this tell us about and its future?  If Amazon is in fact becoming an online platform, then its own e-commerce site is simply the first among many stores to be built using the company’s proprietary digital infrastructure.  Thus the company’s retail operations may be less of an indicator of what the company is than of what it was.  What this also might suggest, then, is that the Amazon “empire” hasn’t yet reached its peak; if anything, it is still actively being built. may seem like a late-20th century relic to some.  Yet, to really understand what the company is — and is becoming — we must look beyond its interface.  And until that happens, competitors and critics will continue to underestimate it.


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