Have you heard the news? Target has decided to end its partnership with Amazon when it expires in 2011, opting to build its own proprietary platform in-house.
According to Target.com President Steve Eastman:
“Amazon has been an important strategic partner since we re-launched Target.com in 2001, and the strength of Amazon’s technology and fulfillment services has been a contributing factor in Target.com’s success. However, to deliver a customized multi-channel experience for Target’s guests, we believe it is in Target’s best interest going forward to assume full control over the design and management of Target’s e-commerce technology platform, fulfillment and guest services operations.”
What are some of the ways Target can benefit from the break up?
Despite sacrificing fulfillment efficiencies, Amazon’s customer service and the ability for customers to log in to Target.com with an Amazon account, building its own platform will give Target the ability to catch up with its competition, considering consumers’ affinity for research-online-purchase-offline and the popularity of Walmart’s ship-to-store feature. Target could also incorporate a local store inventory lookup feature. Since Amazon is an ecommerce pure-play (no retail stores), it has less motive to build these tools itself for its multi-channel partners.
More Payment Options
In addition, Target can now accept multiple payment options not available on the Amazon platform (like PayPal, for example), and could even use installment pricing, pay-with-Target-points and other custom payment types.
Target can now match in-store promotions like BOGO (buy one, get one) and quantity discounts without waiting for Amazon to add the feature. This is huge in department store retailing. And it can leverage bundling like Walmart.
Better Targeted Selling
Though Amazon is famous for its personalization technology, Target can build out its own targeted selling rules based on its own business objectives, not just the crowdsourced “most people who look at this also like that.”
Target can also build out comparison matrices and other decision tools that make sites like Best Buy and Crutchfield.com best-of-breed.
With a custom build, Target can sync any multichannel storefronts like mobile commerce, in-store kiosks, digital signage, free-standing kiosks and Internet-enabled television with its own systems. This is important, not only to give the customer a consistent experience across channels, with access to all store features, cart, registry and wishlist contents, order history, personalization and loyalty perks — but also for Target to have a holistic view of customer information and site usage/analytics.
There’s also opportunity to build widgets for social networks and affiliate partners as extensions of the platform.
Community / Social Media
Though Amazon has invested a lot into its on-site community — it’s pioneered customer reviews, discussions and tagging tools, it hasn’t been active off-site. Target, Walmart, JCPenney and Sears are all active in social media and frequently use social media for seasonal campaigns like Back To School on Facebook. We’ve yet to see what Social Web 3.0 will look like in late 2011, but having its own platform allows Target to bring transactional capabilities to any community 5, 10 and 15 years down the road.
There’s also opportunity to build transactional social tools right into the site, like room decorator tools or outfit builders like Wet Seal’s Runway.
Build or Leverage?
Target has 2 years to gather its requirements, plan its integration strategy with ERP, CRM, web analytics, retail analytics and supply chain systems and build its technology to successfully launch its ecommerce project.
Target’s requirements for uniqueness, the strategic importance of the ecommerce channel, the high need for systems integration, complexity of its solution and relatively generous lead time make the “Build” delivery model for its ecommerce platform a good fit.
But Build requires a high commitment of budget, IT resources and ecommerce expertise. The challenge for Target will be building out its own IT development team, along with the salary commitments that come along with top-notch technical talent. An alternative to build-from-scratch would be to leverage an ecommerce framework or platform that is easily modified to fit unique requirements. Target could leverage the features already built in such licensed software to get a jumpstart on development and customize and add to the features as required. Target could even leverage the professional services of the vendor, bringing as much or as little of the development work it wants in-house.
This could get the project off the ground faster with more time to test and tweak before the 2011 holiday rush. However, evaluating software vendors can take 9 months to a year which may offset the time-to-market advantage (but 6 weeks or less is possible). On the other hand, hiring great folks can take just as long.
Whatever delivery model Target ends up choosing, it will be interesting to see the big reveal in 2 years time.