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June 09, 2009

How Amazon develops 'products'/offerings...

On the recent Piper call with Gene Munster, I started to think about a generalized framework for helping to describe and articulate how Amazon seems to develop new offerings.


Once I whiteboarded out how several offerings have progressed based on our experiences at ChannelAdvisor, I was able to see the forest for the trees and a clear 'pattern' emerged. 

Amazon Offering Framework (AOF)

Amazon seems to put offerings out that move through the following roadmap.  At any point in the roadmap, it seems like things can materially accelerate, decelerate or products can get stopped if they don't seem to be making it to the 'next level'
  • Beta - Offering is not announced, available to a very closed, NDA list of partners/customers.
  • 1.0 product - Offering is available either in a closed program or somewhat hidden/not promoted on the site.  Generally the offering is under the radar. 
  • 2.0 product - The offering is available in an open fashion, easily found on the site, but still not heavily promoted.  
  • 3.0 product - At this point the offering is tested, works and is ready to 'ramp'. Ramp in the Amazon world can mean a variety of things such as: 
    • Increased site 'customer' exposure 
    • Increased site 'buyer traffic' exposure
    • Increased category adoption (e.g. started in Cat1 and is now in Cat1-X) 
    • Actual promotional exposure
  •   4.0 product/ platform - This is the most recent, and in my mind most interesting, stage where Amazon is starting to take on-site offerings, technologies, etc. and then opening them up as a platform.  
  The last phase is very interesting because it allows Amazon to not only open up the technology to outside developers who can inject a ton of innovation, but also Amazon frequently 'unbundles' the technology to off-Amazon companies as well.

Platform examples
Amazon has three examples now, that I'm aware of that while aren't directly applicable to retailer-readers of this blog, they bear watching as I suspect Amazon will apply the model to it's more retailer-focused offerings.
  • Amazon S3 - Simple Storage Service - S3 essentially takes Amazon's internal digital asset storage mechanism and opens it up to any third party.  Thus the same Amazon technology that hosts their product images and what-not is open to the World.
  • Amazon EC2 - Elastic Computing - Amazon has some amazing cloud/datacenter technology and  they have opened this up to the World.  We are starting to use this at ChannelAdvisor with some great results.
There are others out there, but my point is this:  Think about everything Amazon does as being a little Lego building block that at first is part of the bigger Amazon Lego creation.  But then Amazon can selectively take those little building blocks and 'patform-ize' them.

The implications can be pretty amazing if you think about it:
  • What if Amazon platform-ized Prime?  Any retailer could offer prime to their buyers and there could be scheme for rewarding retailers/associates that drive Prime signups.  Prime could go from a great Amazon idea, to a near-internet-wide free shipping subscription program.
  • Amazon payments - What if Amazon decouples payments in a more meaningful way?  Over night they could have the number 2 payment system behind PayPal and take a serious run at those guys. 
  • What about the review and recommendation systems? Retailers would LOVE to be able to integrate those systems, and maybe even the content, onto their sites. 
Ok enough dreaming for now, now that we've established the AOF let's review the offerings we're tracking on the blog here and put a stake in the ground of where we think these offerings are today.

Later this week we'll update you on the trade-in programs and some interesting things we've seen/noted with Prime.  As we update these programs we'll track their status in the AOF and let you know if there is any movement - up, down or sideways.

Applying the AOF to existing Amazon offerings.

With this new AOF model in mind, let's go through the exercise of applying the model to the various phases of the framework (note these are in order of least to most mature by our reckoning).

 Offering  Status  Comments
Vitamin C  Beta Product  Not announced/available - rumored at this point
Payments/Checkout  1.0 Product  Very under the radar
Private Label products  1.0 Product  Definitely under the radar
Trade-In (post coming soon)  1.5 Product  Exapnding categories, not quite a 2.0 offering yet, but heading there
FBA - Fulfillment by Amazon  2.0 Product  Ramping nicely
ProductAds  2.0 Product  Starting to really ramp thanks to increased on-Amazon exposure
Prime  2.5 Product  Starting to promote - (blog post coming)
Pro merchants / Merchants@  3.0 product  Mature - on Amazon only - offering


SeekingAlpha Disclosure - I am long Amazon+Google, eBay is an investor in ChannelAdvisor.

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