Target Dumps Amazon.com, Reboots on E-Commerce

CIO - Amazon.com has been down this road before: Like one-time Amazon e-commerce "partners" Toys R Us and Borders before them, Target executives announced last week that the world's second-largest retailer plans to say adios to Amazon.com and "build and manage its own platform for Target.com," with an expected launch date before the 2011 holiday season.

In case you weren't aware, Amazon had been running all of Target.com's e-commerce technology operations since 2001.

Amazon had similar, long-term outsourcing arrangements with Toys R Us and Borders through the years. The Toys R Us partnership ended acrimoniously, with a nasty lawsuit to boot.

The Borders-Amazon separation was less cantankerous when Borders execs privately decided to split in 2006 and publicly announced it in 2007. But everything since has gone horribly for Borders, already struggling when it debuted its brand-new Borders.com in May 2008. (See Inside the E-Commerce Strategy That Could Save Borders, Part 1 and Part 2.)

Borders.com's first holiday season with the revamped website lacked any good cheer: Sales declined 12 percent year over year; comparable store sales at Borders superstores, a key retail metric, showed a decline of 14.4 percent; and to top it off, Borders heard from the New York Stock Exchange that it was closer to being delisted. A house cleaning in the upper ranks followed in early 2009: Among the high-level positions eliminated were the CIO and SVP of e-business.

As executives at Target have likely realized, the e-commerce arrangement with Amazon was heavily tilted in Amazon's favor. As I wrote in the Borders profile:

In retrospect, the "partnership" with Amazon.com seems like anything but. Amazon did everything for Borders-inventory management, content development, back-end fulfillment and customer service-and grew its business into the juggernaut it is today. The wealth of intellectual capital and hard-earned lessons that Amazon realized over the years from selling to Borders' online customers stayed inside Amazon's Seattle headquarters. All Borders got out of the deal was a percentage of sales.

Target will now have to spend millions (if not billions) to build out its new e-commerce infrastructure during the next two years-integrating the various ERP, customer relationship, retail analytics and supply chain systems. And, of course, one of its chief competitors-besides Wal-Mart-will be Amazon.com, which continues to dominate all comers online.

In a 2002 interview with CIO.com, Amazon's then-VP of business development, Owen Van Natta, said that his company's e-commerce partnering strategy was highly selective. Name-brand companies "that are really committed to the customer experience," Van Natta noted, "those are also the partners that tend to really appreciate."

In retrospect, one has to appreciate that the strategy has been nothing short of brilliant-on Amazon's part.

For Amazon's early partners-such as Toys R Us, Borders and now Target-the e-commerce future looks pretty dull.

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