I watched Amazon’s acquisition of Zappos with some interest last week. I am certainly not the first one to blog about this, and I am no doubt one of thousands of armchair pedants on the subject, but here’s my take: Amazon is becoming the new EDI for online retail, and will continue to acquire front-end retailers– the real money is on the back-end (the real money is always on the back-end, it seems). Amazon is becoming the new EDI.
For those of you who may not be familiar with EDI, it’s a system for all those coal-burning AS-400 mainframes and other legacy computers to share data with each other in a standard format. Through a series of arcanely formatted pre-set protocols, computers send invoices, inventory levels, sales requests to each other, and then send back all the acknowledgement messages. It’s efficient, but klunky. I would bet that Amazon sees this klunkiness, and thinks it can do better, and make a little bit of cash by providing a better service.
Retailers will come and go, but they’ll always need to do a few things: store their data securely, talk to vendors, track customers, and sell stuff. Look at Amazon’s trajectory: they offer all of these things either freely, or for a small percentage-type handling fee. They have the A9 search/merchandising platform, a cloud computing offering, most of their sales comes in from vendors, they have millions and millions of customers tracked in real-time, and they offer a method for small vendors to sell goods fairly easily. Prediction: Amazon.com will continue to be a front-end website, but more and more, we’ll see Amazon showing up as the “retail platform” for other branded websites (like Zappos.com).
The ice is getting thinner for conglomerated pure-play online retailers. If they don’t offer something uniquely value-add, customers will simply go directly to the brand’s own website to buy their stuff. Where would you buy your Adidas? Zappos.com, Shoes.com, or Adidas.com? It depends on what you need and what each one offers, right? The end product is the exact same, so it comes down to the free shipping, the search engine, and the eye-candy on the website. Amazon was never that glamorous a website to start with– a very utilitarian look and feel (but very information-rich) experience overall. We all know that Amazon does usability research, so all that data must be worth something, right?
Zappos has built a great base of user loyalty through its mix of customer-centric activities and transparency. Their back-end has always been first-rate, but also probably very expensive (call centers are pricey). If all that IT development and warehouse operations can be folded into the larger Amazonian Empire, then Zappos can concentrate on giving away free pizzas to the customers, or tweeting about Tony’s sushi dinner, or whatever.
Amazon will pick up a few more “major” retailers. My short list of predictions includes: NewEgg.com, Overstock.com (hostile takeover likely), Etsy.com, and maybe even Target retail to finally “go cross-channel”. They’ll likely buy out BillMeLater or even Mastercard to get the financial end covered. Afterall, Amazon needs to watch out for Walmart.