Severing Amazon Deal, Target Opts to Build, Not Buy
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Friday, 14 August 2009
By Cara Garretson
Retail giant Target announced last week that it will end its e-commerce partnership with Amazon.com in favor of building and managing its own back-end Web site operations.
Target partnered with Amazon in 2001, when the Target online shop was part of Amazon.com. The following year Target developed a Web site that was independent of Amazon's, but the retailer continued to leverage Amazon's technology for functions such as order processing, checkout and other e-commerce features.
While Target attributes much of its online success to Amazon, the company has decided to take both the design and maintenance of the site in-house.
In order 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," said Target.com president Steve Eastman in a prepared statement.
The retailer's decision weighs in on the 'build' side of the build vs. buy argument that large corporate IT departments grapple with regularly. In Target's case, the benefits of being able to add greater customization to its Web site and better control customer experience appear to have trumped the advantages of outsourcing technology and support to a third-party vendor. And while Amazon was born an e-retailer and lays claim to extensive technology experience, IT is not core to Target's business. The retailer risks losing online customers while it transitions to its own Web architecture and works out the kinks.
However, Target's move is not usual these days, underlining the importance that retailers are placing on controlling their Web presence. Target follows in the footsteps of retailers Toys-R-Us and Borders, which both severed similar e-commerce arrangements with Amazon.
"We are grateful to have been able to work with Target for the last eight years, and we wish Target the very best as they go forward," Sebastian Gunningham, senior vice president of seller services for Amazon.com, said in a statement.
Target's announcement came despite the fact that the two companies had previously extended their e-commerce agreement -- set to expire in 2008 -- through 2011. Target says it will continue to work with Amazon over the next two years to "optimize performance of the existing platform and fulfillment services."
According to e-commerce commentary site StorefrontBacktalk, Target's move shows the retailer's interest in establishing a unique online identity. Amazon offers limited customization in its e-commerce services; if Target wants to add greater customization to different areas of its site, the company is better off building its own platform, says StorefrontBacktalk.
The new Target platform is slated for launch before the 2011 holiday season, according to company officials.
For Amazon, Target's decision dwindles the number of retailers who rely on it to provide Web site back-end functions, leaving U.K.-based Marks & Spencer as Amazon's only major retailer customer.
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