Amazon.com's IT Leader Leaving Huge Customer Service Infrastructure as Legacy

CIO Rick Dalzell is leaving Amazon.com after 10 years of constant change, inventions in personalization, product and service offerings. Here's a look at Amazon.com's evolution during Dalzell's tenure.

As senior vice president and CIO of Amazon.com, Rick Dalzell is the visionary behind the company's legendary e-commerce platform and personalization engine.

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Dalzell has overseen $2 billion worth of technology investment during his decade-long tenure with the Seattle-based e-commerce and technology company. On his watch, the company's IT infrastructure has scaled to support $10.7 billion in sales, more than 69 million active customer accounts, 42 product lines from apparel to video games, more than 1.1 million third-party sellers, and a growing contingent of software engineers who are tapping into the computing prowess and Web services the company has developed over the years. Then there are all the technological innovations the company's legion of software engineers have brought to market, many under Dalzell's leadership, to make shopping online a piece of cake for consumers: 1-Click ordering, the A9 search engine, product recommendations, wish lists and order updates, among others.

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Amazon's Approach to Systems Integration

The IT platform Dalzell has overseen is viewed as Amazon.com's core competency, a competitive differentiator and a monumental achievement. CIO.com visitors voted it a wonder of the IT world. Jeffrey Lindsay, a senior analyst with the research arm of investment bank Sanford C. Bernstein, says it's the world's leading online retail platform and calls out its ability to tailor the e-commerce site to each individual customer who logs in. "It delivers a unique user experience in real time to everyone who uses it. It extends to lots of product categories and seamlessly integrates third-party sellers," says Lindsay. "What they're doing [with IT] is extremely difficult and very complicated."

In an interview with CIO in 2001, Dalzell noted that personalization was a way for Amazon.com to achieve its vision of being a customer-centric company. "Very early on, we recognized that we were really in business to help the customer find anything they wanted to buy," he said. "The key was that we were going to need to build a unique store, one that changed all the time, for each individual customer."

Dalzell, a 50-year-old West Point graduate, is now preparing to end a chapter in his career. After 10 whirlwind years, the CIO has decided it's time to pass the baton to someone else, though the company has not yet publicly named a successor. On Aug. 31, 2007, the company quietly announced to its investor community that Dalzell—who joined the fledgling online bookseller in 1997, the year of its initial public offering, from Wal-Mart Stores, where he spent seven years in its information systems division—would be retiring by the end of the year. Dalzell, who maintains a low profile, declined to be interviewed for this story. His retirement presents an opportunity to examine how Amazon.com has changed over the past 10 years, how it executed on its vision, and how it beat investors' skepticism and changed retailing.

The Only Constant Is Change

What we've been able to do, and what I expect we'll do in the future, is we'll continue to build and innovate like crazy.

— Rick Dalzell, from 2001
CIO interview

Since day one, Amazon.com has been expanding and innovating, with a view toward bringing more products to customers and making the site easier, more convenient and more fun for them to shop through features such as user-generated reviews, product recommendations and the ability to read book excerpts. The company has evolved from a startup bookstore to an established general merchandise retailer on the Web. It began diversifying its product offerings in 1998 with the introduction of its music store in April and movie store seven months later. The website now boasts 42 product categories including auto parts, mechanical components and pet supplies. Last year, it ventured where previous Internet companies met their demise—into groceries.

Amazon.com is also aggressively moving into the sale of digital goods as more consumers trade in physical media like CDs for MP3s. In a bid to compete with iTunes, Amazon.com launched downloadable music and video services. The company won a high-profile contract with NBC to distribute the network's TV shows in September, after NBC decided to pull its programming from iTunes due to a pricing disagreement. To further cement its position as the place for consumers to find all forms of media on the Web, Amazon.com is betting on e-books. It also owns a self-publishing service so that writers, musicians and movie makers can publish their work and distribute it through Amazon.com.

Besides expanding its offerings of hard goods, soft goods and digital media, Amazon.com has morphed by finding ways to monetize its vast IT infrastructure. In 2000, the company embarked on a new strategy that built upon its traditional e-commerce business. It sought partnerships with traditional brick-and-mortar retailers, starting with Toys "R" Us, that were struggling to establish e-commerce presences. Amazon.com offered its e-commerce, customer service and fulfillment infrastructure to retailers such as Borders and Target that didn't want to spend millions of dollars reinventing the e-commerce wheel. This business is now known as Amazon Enterprise Solutions.

The alliances with brick-and-mortar retailers, though they've contributed a negligible amount to Amazon.com's net sales, allowed the company to put its stake in the ground as a technology services provider.

"At its core, Amazon is a technology company," says Carrie Johnson, a vice president and research director with Forrester. "Amazon continues to invest in technology and acquire companies that complete its technology platform."

Online Giant

Amazon.com, Then and Now

Amazon.com CIO Rick Dalzell is leaving the company after a decade of leading its IT operations. Here's a look back at what was going on at Amazon.com in 1997, compared to today.

1997 2007
Customers served 1 million-plus More than 69 million
Product categories 1 (books) 42
Key financial move Files for IPO in March; begins trading on NASDAQ in May. Raises financial guidance for the year during the second quarter.
Strategic partnerships Inks multimillion-dollar advertising contracts with AOL and Excite in July; strikes agreements to be exclusive bookseller for Geocities, AltaVista, Yahoo and Prodigy Partners with TiVo to offer access to digital movies and TV shows on Amazon Unbox; acquires audio books publisher Brilliance Audio in May; Chinese online bookselling partner Joyo becomes Joyo Amazon; signs deal to offer NBC programs on Amazon Unbox in September.
Technological innovations Introduces 1-Click shopping and debuts product recommendations in September. New version of Amazon's Alexa Web Search service released to developers; releases widgets for bloggers, social networkers and website owners in September.
Strategic moves Cuts book prices, repeatedly. Opens grocery store in May and digital music store in September.
Source: Amazon.com.

How Google Influenced Amazon.com’s Strategy

Amazon.com as a technology services provider took a turn in 2002 when the company began offering its own features and content to a new set of customers, website developers, so that they could incorporate those features onto their sites. This new service called Web Services was intended to tie developers to the Amazon.com brand and drive traffic to the site. Today, Amazon.com offers a variety of Web services to more than 240,000 developers, entrepreneurs and established companies. These Web services include the Elastic Compute Cloud, which gives users access to Amazon.com's computing capacity in a virtual computing environment on a pay-per-usage basis, and the Simple Storage Service, which lets users store data in Amazon's data centers and pay only for the amount of storage they need. The company essentially provides "on-demand" computing to customers through these Web services interfaces.

Scott Devitt, a managing director with Stifel Nicolaus who has covered Amazon.com for six years, says Amazon.com's willingness to open up its technology to external users was a strategic move and partially driven by Google's capacity to "unbundle and fragment the Internet." Even though Amazon.com is charging customers for computing and storage capacity, the short-term financial gain is questionable, says Devitt. "It's a long-term investment," he says. "To succeed in technology or on the Internet long term, companies need to focus on running their businesses with open platforms." The companies that work with open platforms today are succeeding, he adds, while the ones that have remained closed, like Yahoo and eBay, are struggling.

Devitt's nonchalant attitude toward the questionable short-term return on Amazon.com's Web services business represents Wall Street's confidence in the company. Revenue has grown year over year, and even though net income declined from 2004 to 2006 due to increases in income tax expenses, the stock averages an outperform rating, which means analysts expect shares of Amazon.com to outperform the broader market averages. Indeed, the average target price for the stock, which was trading around $91 when this story was reported, is $100 a share—just $13 under the all-time high the stock hit at the height of the Internet boom in 1999. Investors' confidence in Amazon.com today is founded on the company's ability to execute its strategy and understanding of what works on the Internet, and not some irrational exuberance over a New Economy business plan, as was once the case.

"The company has executed on its strategy as planned when it was just a books, music and DVD website," says Devitt.

"Investors are very excited about this company because it has rebuilt its growth and improved its margins," says Sanford C. Bernstein's Lindsay.

Cash + Willingness to Experiment + Stable Leadership = Success

Lindsay says Amazon.com has been able to execute on so many different ideas because it generates a lot of cash and because the founder, Jeff Bezos, remains at the helm as CEO. "He's a visionary and very single minded. If he wants to do something, he can get it done," says Lindsay.

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