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When should a retailer work with Amazon Web Services?
In February it was announced that Best Buy chose Amazon Web Services (AWS) as its preferred Cloud technology partner.
This would not be so newsworthy If not for the many retailers either shunning AWS or keeping investments in the cloud service to a minimum. Anyone in the retail industry has at some point felt conflicted about AWS as it provides fuel for Amazon retail.
Is this paranoia or sound strategy? Retailers in overlapping categories may be reasonably leery of working with AWS. Others, where competition is less clear, might not, especially when there’s a favorable cost/benefit. In either case, even knowing there are technical and legal barriers between AWS and Amazon retail may not matter when both are part of the same company.
Businesses in every industry are hedging bets by working with many providers. This has led to the problem of “spaghetti architecture.”
Even when claiming a primary relationship with a single partner, there will be investments in others. Avoiding AWS only gives more power to Microsoft, Google and others at contract or renewal time.
It makes sense to shift course when it’s financially advantageous in a world where commodity cloud services come with relatively low switching costs.
What about capabilities with distinct value, however, that are worth stitching into your business at a deeper level?
Two compelling public examples for Amazon are its Go technology and a new way to forecast demand developed by Amazon for its 400 million products. Automation, labor scarcity, margins and supply chain are subjects most retail CEOs are dealing with right now.
Go technology is available from Amazon retail, not AWS, and appears to have customer appeal beyond retailing where any form of zero friction check-in or check-out experience adds value.
Meanwhile, the forecasting example stands as a terrific showcase of Amazon’s data science expertise leveraging AWS Cloud services. To unlock similar value in your company probably requires outside help.
Is it possible to architect the same solutions using other clouds? Perhaps, but it’s possible that sourcing the underlying services from Amazon or AWS represents the fastest path to value. It ultimately depends on what is unique, differentiated and can be consumed by your company given its expertise, resources and priorities.
I suspect the decision hinges on how confident a retailer’s executives are that they hold a unique and defensible position with their customers. That is a rare but aspirational state today for many retailers.
- In blow to Google Cloud, Best Buy picks AWS as preferred provider, will shift from on-premises data centers – DCD
- Best Buy to Accelerate Cloud Tech Implementation – RIS News
- Report: Target to leave AWS after Amazon buys Whole Foods – DCD
- Reconciling multi-cloud strategy with data gravity and the value of AI at scale – Medium
- Amazon is now selling its cashierless store technology to other retailers – TechCrunch
- Predicting The Future Of Demand: How Amazon Is Reinventing Forecasting With Machine Learning – Forbes
- Just Walk Out Technology – Amazon.com
Discussion Questions
DISCUSSION QUESTIONS: Do retail executives have the knowledge and expertise to make cloud partner decisions in the best interests of their companies? What should executives consider when evaluating their cloud options?
Poll
Loading …BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Zel Bianco
President, founder and CEO Interactive Edge
Do retail executives have the knowledge and expertise to make cloud partner decisions in the best interests of their companies?
Many do not. However, if their Chief Digital Officers do not, then that is a different story. Everything is cloud now.
What should executives consider when evaluating their cloud options?
TCO, data science, AI, talent/expertise they can hire for are some of the big ones. All the big providers (Google, MS, AWS) have advantages and at the core there is not a lot of differentiation. Google and Amazon are both leaders in AI-based services with Microsoft not far behind.
At some level, you can literally accomplish similar things on the various platforms so it comes down to comfort of your development team first and foremost. For some retailers, it could come down to the old “UPS vs FedEx” discussions, whatever you can get the best long-term strategic deal on.
Anti-trust laws were established to prevent abuse of marketplace power. When a retailer is caught between using the exceptional AWS services and the reality that profits from their payments to AWS will be used to sell goods at a loss (once all costs are accounted for), we have entered a place where anti-trust enforcement is needed.
I don’t know what to advise an individual retailer — AWS is a uniquely potent service. Yet it is also an abuse of power given the connection to subsidizing competition for any retailer who uses it.
It would be a poor mangement decison to use highly profitale AWS to support considerably less profitable Amazon Retail.
Yet that’s exactly what seems to be happening and it’s been that way for years. Although perhaps their cash flow game can allow the below-cost selling of retail like online goods.
Here’s where it makes sense: As long as Amazon stock price rises, investors will never question their unprofitable retail like sales. In fact, Amazons reporting carefully makes it impossible to look at the retail like business online. They are masters of PR prestidigitation to drive up stock price.
Retail executives have the knowledge and expertise to make the best cloud partner decisions, however, their choice may be clouded by unfounded fears. Decisions should be made objectively based on the best combinations of capabilities, services and price. Ultimately, the best cloud service will be the one that is most effective and profitable for their company.
I like the way the article says it. Retailers (or brands) who hold a “unique and defensible” position are indeed in a position to enter into all kinds of partnerships without fear of dilution. And what, we don’t think Google won’t be in the retail business sometime soon?
What should executives consider when evaluating their cloud options? That one is easy…pick the one that provides the best service. If it is AWS, choose AWS. If it is Google or Microsoft, choose one of them. Any other decision is shooting yourself in the foot. Lose the paranoia and choose what is best for your company.
Amazon is considerably more interested in building its satellite broadband network than using AWS as a competitive advantage to Amazon retail.
Unfortunately, this tends to be a generational competency issue insofar as what ladder the executive took to the top. The fact is that many retail executives come from sales, marketing, or finance and not from information tech, digital services, etc. So, no, most retail executives don’t understand the long term strategic implications of selecting a cloud partner — hence the aforementioned “spaghetti architecture” or, “when in doubt, hedge your bets.” Not always the soundest strategy in a world of big bets.
If you are an executive and don’t understand digital tech you should surround yourself with people that do and think about getting yourself a little formal education, or at least a sophisticated personal tutorial program, to better filter their input. You’re never too old to learn and, if you are, it’s time to go anyway.
It’s not an exact parallel, but I think about category management — when big mass merchants like Walmart pick a lead vendor to manage an entire category. (For example, Kellogg’s managing the breakfast cereal planogram.) It’s up to the retailer to ensure that the category manager is an honest broker, because self-dealing of shelf space is potentially bad for the entire category.
Despite the concern about sharing data with Amazon’s retail business through some kind of “back door,” AWS is an appropriate choice based on their expertise and capacity. It’s up to the retailer’s data management team to build some sort of firewall preventing proprietary data from escaping through that back door.
The most important criteria is service and support — they are all on a pretty level playing field where some win some battles here and there, but the big three are certainly not going to let themselves fall too far behind each other.
The spaghetti architecture comes when the applications running on the cloud are not compatible. A good application needs to be able to work with any of the big three for the best chance of success.
Each retail exec has their own set of experiences to make this call, and it’s difficult to put all of them into a single grouping. As for AWS as a vendor, the exec must include the “paranoia” in their decision making and weight it accordingly.
There are alternatives such as Google and Azure that are comparable and compatible. Not pointing out AWS alone, but the exec must be comfortable with a vendor that can monitor and store information about their business, slow operations, or even halt transactions.
The vendor may also be subject to third party security breaches inadvertently and in many cases is sharing hardware across multiple customers.
Does this mean no business with them? Maybe not, but like anything else, execs have to factor this potential risk into their decisions. This means weighing it against their trust of the vendor to perform to spec and hold data confidentially. For functions like demand forecasting, etc., there are many 3P vendors that assist and develop solutions that are effective, and they don’t need to be part of the infrastructure.
Amazon is still competition, and just like any other venture, execs cannot just ignore it, especially since the AWS solution is not vastly superior to alternatives and cloud is usually a large scale, ongoing investment.
Great comments from the BrainTrust panel. I wanted to add some more context for the post. When I worked at Salesforce, I saw technology leaders and even CEOs demanding an inventory of tech dependencies on AWS with the intent of migrating away. As I mentioned in the post, I think the answer depends on the strength and defenseability of the retail business, but I would also add also it’s going to depend on the skills and resources available to the retailer. The reason Industry Clouds are in demand is they bring packaged business and industry domain expertise to help companies make a successful migration to the Cloud. Most retailers struggle with technical and analytical resource scarcity, which also drives demand for low or no code tools that expand the pool of talent who can apply advanced analytics like machine learning to priority problems. In the end, I think services organizations and third party solution providers with technical and business expertise are going to be a key bridge to bring any Cloud use case to fruition and improve executive confidence in whatever Cloud provider they choose.