Target Parts Ways With Amazon.com
The move will see the No. 2 U.S. discount retailer striking out on its own for its online platform. — Target (NYSE: TGT) will build and manage its own online platform for Target.com and aims to launch the new Web site in advance of the 2011 holiday season, the company said on Friday.
Context & Ripple Effects
Target has been an outlier among big-box rivals in how little of its e-commerce it owned: Target.com was built and operated under a managed-services arrangement with Amazon, meaning merchandising tools, site features, and customer data flowed through a platform controlled by its most formidable competitor. The company had already shown appetite for digital experimentation on its own terms — turning its 2008 holiday gift cards into digital cameras — while taking flak on the site itself, including reports from blind users in 2007 that Target.com was effectively inaccessible.
First-order effects
- Target regains direct control of Target.com's merchandising, feature roadmap, and shopper data when the new platform launches before the 2011 holiday season, ending a dependence on infrastructure owned by Amazon.
- Amazon loses one of the highest-profile retail clients of its managed e-commerce business, along with the associated hosting and services revenue.
Second-order effects
- Other large retailers still renting their storefronts from Amazon face the same strategic question Target just answered: whether ceding the online channel to a direct competitor is sustainable at scale.
- Amazon's services arm must demonstrate the model works without marquee anchor clients, shifting its pitch toward mid-market merchants who lack Target's option to build in-house.
Third-order effects
- If major chains keep following Target's lead, e-commerce platforms bifurcate into in-house builds for retail giants and outsourced services for everyone else — with the giants' exit removing both revenue and reference customers from the managed-model providers.
- Owning the storefront becomes a precondition for the capabilities Target's history suggests it wants next: curated third-party selling, proprietary fulfillment services, and data-driven personalization that a landlord like Amazon would never hand over.
The trend: Large brick-and-mortar retailers are pulling their online storefronts out of Amazon's managed-services orbit and treating e-commerce as an owned competency rather than rented infrastructure.