May 27, 2010, 2:03 PM

Amazon bids to become a bigger e-commerce technology provider to retailers

Amazon's revamped WebStore will be appealing to smaller e-retailers and manufacturers, experts say.

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Already by far the biggest online retailer, Amazon.com Inc. is bidding to become a bigger supplier of e-commerce technology to other retailers and consumer goods manufacturers. With its release this week of its new version of Amazon WebStore, experts say, Amazon has come up with a compelling offering that lets other e-retailers take advantage of Amazon’s services and strong reputation.

“Sellers that adopt this platform are not just leveraging the technology, they’re also leveraging Amazon’s reputation and the guarantees Amazon provides to consumers related to the online shopping experience,” says Eric Best, CEO of Mercent Corp., an online marketing services firm.

Amazon has for several years provided services to other retailers, including operating the e-commerce platforms at times for such major retail chains as Toys ‘R’ Us, Borders and Target, all of which have now moved to their own systems. But the new version of WebStore appears more geared to smaller players. Compared to past version of WebStore, the new release is easier to use—there’s a simple, five-step signup process, Best says—offers more flexibility for merchants to customize the design of their sites and provides several built-in personalization widgets.

But the biggest difference from past versions may be the tight integration with other Amazon services and the financial incentives offered to merchants that take advantage of them. A retailer that just uses the WebStore technology will pay $24.99 per month plus 2.0% of sales. But if the retailer also sells through the Amazon marketplace, the price goes down to $14.99 per month and 1.0%, and those that sell on Amazon.com and use the Fulfillment by Amazon service pay only $9.99 plus 0.7%. Retailers that use Fulfillment by Amazon provide Amazon with inventory and Amazon delivers goods to consumers.

“Amazon has made a brilliant move by bundling these services together and providing significant financial incentives to merchants who adopt all these programs,” Best says. It’s part of Amazon’s strategy of earning revenue from as many online transactions as possible, even in categories where Amazon chooses not to stock inventory and sell directly, he says.

Amazon WebStore is offered in a software-as-a-service model, which means retailers connect to the Amazon e-commerce software via the web. As part of the offering, Amazon also offers retailers its payment processing services, with rates as low as 1.9% of the transaction amount plus 30 cents. Many online consumers will be familiar with Amazon’s checkout process and reassured by knowing their payment is being handled by Amazon, Best says.

The Amazon offering is “very well priced and well positioned for online retailers under $5 million in annual online retail sales,” says analyst Brian Walker of research and consulting firm Forrester Research Inc. He says it may also be a good fit for retailers in the $5-20 million and range, but less compelling for larger retailers both because of limitations in WebStore’s offering and because bigger e-retailers are more likely to be competing with Amazon, which is No. 1 in the <a href="http://www.internetretailer.com/top500/">Internet Retailer Top 500 Guide</a>, and a direct rival to retailers in many categories.

Walker also notes WebStore may be of interest to manufacturers that are beginning to sell directly to consumers via the web and need the fulfillment services Amazon offers. “For them, this is a very well priced and well-positioned solution,” he says. In fact, several of the customers Amazon announced this week are consumer goods manufacturers, including Timex, Black and Decker and Samsonite.

The main concern for manufacturers may be fear of giving Amazon too much information, says Scot Wingo, president and CEO of online marketing services firm ChannelAdvisor Corp. “I’m not sure how many manufacturers are going to want Amazon knowing so much about their direct-to-consumer strategy and results,” Wingo says. “However, they do have a growing list of name brand names that don’t seem to be concerned.”

Mercent’s Best raises another issue that may give some retailers pause about working with Amazon, and particularly about using the Fulfillment by Amazon service: does putting inventory in Amazon warehouses around the country mean retailers using that service have established a presence in all those states and thus must collect sales tax? “No one has a definitive answer,” he says, “but there is some risk associated with that.” That’s particularly true now that several states are considering legislation aimed at taxing online sales to make up for revenue shortfalls.

Amazon WebStore will compete in a fragmented arena. The leading provider of e-commerce platform technology to retailers in the 2010 edition of the <a href="http://www.internetretailer.com/top500/">Internet Retailer Top 500 Guide</a>, all of which have annual online sales of at least $10 million, is ATG with 43 of the Top 500 retailers, followed by GSI Commerce (30), IBM WebSphere (27), Yahoo Stores (25) and Escalate Retail (23).  But the biggest rival for Amazon and all e-commerce technology providers is homegrown technology: 258 of the Top 500 retailers say their e-commerce platform has been developed at least in part in-house.

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