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.

1 2 Page 2
Page 2 of 2

"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.

When Bezos has an idea he wants to act on, no matter how controversial, whether it's a free shipping service or welcoming third-party sellers whose prices are cheaper than Amazon's, his customer service instincts often prove to be right. Amazon Prime, the free shipping service Amazon.com offers to customers who pay an annual $79 fee, is a case in point. Skeptics thought offering such a deep discount on shipping to so many customers would hurt the company's bottom line. In fact, it bolstered it. Amazon Prime has tied customers to the company in a way that few other loyalty programs have, says customer service author and expert Patricia Seybold. Whenever an Amazon Prime subscriber needs to purchase something on the Web, he looks to Amazon.com first because he doesn't have to pay shipping. Amazon Prime has successfully changed consumers' shopping behavior, says Seybold. And now that Amazon.com offers so many more products, customers have even more reason to subscribe to Prime and shop with Amazon.

Of course, not every idea has stuck to the bull's-eye. Devitt and Forrester's Johnson say that Amazon Enterprise Solutions, Amazon.com's e-commerce services business for retailers, has not been very successful. "Large retailers decided that Amazon was a competitor and moved away. Others looking for solutions went with GSI Commerce," says Devitt, referring to an e-commerce outsourcing vendor. In fact, one of Amazon.com's earliest customers, Borders, announced last April that it would be launching its own proprietary e-commerce site and thus parting ways with Amazon.com. Johnson says Amazon.com is no longer aggressively pursuing large deals in this space, though last July it debuted a new website for apparel designer Lacoste.

The venture funding the company received in its early days has also enabled Amazon to be a first-mover and take risks that other companies wouldn't dare consider, according to Devitt.

"This company would not be as successful as it is today if it had not been appropriately funded at a time when capital was so cheap," says Devitt. "The funding gave them the capacity to scale. Since that point in time it's been a very deep understanding of what works on the Internet."

Sanford C. Bernstein's Lindsay notes Amazon.com's ability to recognize and capitalize on product categories such as nonperishable groceries, beauty products and jewelry that are poised for growth online. "They're getting into categories people find strange like auto parts, jewelry, apparel and watches. These are mature, slow-growing sectors in the offline world, but online they're growing rapidly. It's this online switching effect that Amazon has identified and that is driving a lot of growth for the company."

Amazon.com's Innovations at a Glance

1995

User-generated product reviews: Registered customers play tastemaker.

1997

1-Click shopping: Registered users click on one button when they find an item they want to purchase and bam! Their order is placed and processed. The customer doesn't have to fill out page upon page of shipping and credit card information to buy a book.

Personalized recommendations: Amazon.com suggests books that registered users might enjoy, based on their past purchases, customer ratings and other authors they like. User-generated reviews of books. 1999

Wish List: Customers can make lists of all the products they'd like to buy or have other people buy for them.

Amazon.com Anywhere: Customers can now shop on Amazon.com using their wireless devices.

Purchase Circles: These are lists of the most popular items being purchased by customers in a given zip code.

2001

Look Inside the Book: Shopper can browse pages of books.

Instant Order Update: Amazon.com warns customers when they're about to purchase a book they previously bought on Amazon.com so that they don't inadvertently buy a book they don't need. 2002

Web Services: This platform lets website developers incorporate content and features from Amazon.com onto their websites.

2003

Search Inside the Book: Customers can search the text inside books for specific keywords.

2004

A9 Search Engine: Stores registered users' search history and offers search results from different sources including Google and the Internet Movie Database, which is owned by Amazon.com.

2005

Mechanical Turk: Named for the chess-playing robot designed by Wolfgang von Kempelen, the service provides businesses and software engineers with a marketplace of temporary workers to work on projects such as identifying objects in a photo or transcribing audio records. Mechanical Turk application programming interfaces then integrate that work into the customer's business processes and systems.

2006

Elastic Compute Cloud: This Web service gives users access to Amazon.com's computing capacity.

Simple Storage Service: This Web services interface can be used to store any amount of data, at any time, from anywhere on the Web, on Amazon.com's data storage infrastructure.

Amazon.com's Online Prowess a Blessing (and a Curse) for Retailers

Amazon.com is a boon to Internet shoppers around the world. It's brought them convenience, choice, discounted prices and quality service. In so doing, Amazon.com made selling more complicated and competitive for retailers. Every retailer now has to have an e-commerce site, and it has to measure up to the high standards Seybold says Amazon.com has established for usability, personalization, and the rapid fulfillment and delivery of orders. And that's not easy for competitors to match, says Lindsay.

Forrester Research's Johnson notes that Amazon.com changed consumers' expectations of how much product information retailers should give them. The product ratings and reviews, which Amazon.com had on its site first, made consumers more informed, discerning and price sensitive, and that pushed retailers back on their heels. "Many retailers say consumers walked into their stores with a huge amount of knowledge and guessed it came from Amazon," says Johnson. "Their win-all strategy has put every merchant selling online on the defensive."

In reaction, says Seybold, some brick-and-mortar retailers have shot back by integrating their sales channels and letting consumers check local store inventories online, and pick up and return items they purchased online in stores. The seamless cross-channel retail experience that some merchants offer brings convenience to another level with which Amazon.com, with only one channel, can't compete. "The cross-channel experience is the industry's one competitive advantage," says Seybold.

What's Ahead

If the past is any indication of Amazon.com's future, the company will continue to expand and innovate. But how will its seemingly boundless capacity for technological innovation be affected by CIO Dalzell's departure? How will Dalzell's absence impact the company moving forward?

Wall Street analysts Devitt and Lindsay aren't quite sure, but they don't seem too worried, either. Lindsay notes that Dalzell has been "a major part of the value contribution" at Amazon.com, but that his company hasn't examined how the CIO's departure might affect the technology giant.

"Anytime you lose a talent like that, it's meaningful in one regard or another, but I really don't have a strong opinion on its impact on the business," says Devitt. "I assume they have a very deep bench."

That bench strength makes Forrester's Johnson believe that Amazon.com will carry on just fine without Dalzell. "Not to downplay his contribution, but such smart individual contributors are working there, especially on technology innovation, that I would be surprised if there was any impact," she says. "If you watch Amazon's history of executives coming and going, no move has impacted the company materially. Amazon is not heavily influenced by any single person save Jeff Bezos."

And it looks like Bezos is going to stick around for a while, according to Lindsay. "It's becoming clear that his vision is being realized," he says. "It's taken 10 years, but he's rebuilt top-line growth back up to 38 percent. Investors and stakeholders are very pleased with his performance."

Copyright © 2007 IDG Communications, Inc.

1 2 Page 2
Page 2 of 2
Security vs. innovation: IT's trickiest balancing act