Amazon is trying to lure retailers to its cloud platform with the promise of making them more like Amazon.com
- Amazon is pitching Amazon Web Services as a way to enable retailers to become more like Amazon.com's own retail operation.
- It's in the face of stiff competition from competing cloud providers Google and Microsoft, which have beefed up their offerings.
- AWS will still likely lose at least some of its retail business, as retailers move to what they see as more neutral platforms that can offer the same benefits.
On January 11, Phil Thompson, industry CTO for retail at Amazon Web Services, stood in front of an assembled group of retail professionals at the National Retail Federation's Big Show in Manhattan.
His pitch: let us help you.
"This is the industry I believe that really needs to take advantage of it," he told the retailers, referring to AWS' technological prowess.
It was Amazon's only official appearance at the event, apart from the AWS booth on the expo floor itself.
Amazon Web Services is still the largest and most complete cloud services provider for most industries, including retail. It generated more than $25.6 billion in revenue in 2018, a 47% increase year over year, according to Amazon's most recent earnings report.
Amazon is also the largest online retailer in the US, estimated to account for half of all online sales, Emarketer data shows.
AWS can't ignore the retail part of its parent company's business. Amazon.com is listed as the top case study for the retail industry on the AWS website, before it lists customers like Under Armour, Brooks Brothers, and Lululemon.
"They really can't pretend that they're not hosting their own retail site," Dave Bartoletti, vice president and principal analyst at Forrester, said to Business Insider. "I don't think it's unholy. I think they're saying why not use the best platform like we do? And maybe we can help you be like us."
Making other companies more like Amazon
Instead of downplaying the AWS-Amazon.com connection, Amazon's pitch is that AWS gives retailers the tools to sell like Amazon. It recently revealed two new tools aimed at retailers: Amazon Forecast and Amazon Personalize.
Forecast is "based on the same technology used at Amazon.com," according to the AWS website, and it uses machine learning to attempt to deliver predictions for how much demand there will be for a retailer's product.
Personalize is something most Amazon.com customers already know: it is the same technology that enables personalized recommendations for products. Amazon is now making it available for other retailers to use.
Earlier in 2018, Amazon also added Connect, which is an AWS tool based off of the structure Amazon built for its own customer call center.
"We took it, all of those algorithms, all those machine-learning things that we've been learning over the last 20 years, that we've been fine-tuning and refining," Thompson said of the two new offerings while on stage at the NRF conference. "We took that and said we're going to make that available as a service to AWS users."
"Many retailers choose AWS for the same reasons that customers across all industries do: they want their builders to have the most functionality, access to the largest partner ecosystem, and the strongest security and operational performance," a spokesperson for AWS told Business Insider.
"But, many of these retailers have also asked AWS to help them leverage Amazon's decades of experience serving retail customers around the world, which is why we've built services like Amazon Personalize, Amazon Forecast, and Amazon Connect - all of which incorporate Amazon.com innovations and technology to help AWS's retail customers operate more efficiently and deliver better customer experiences at lower cost."
An 'existential threat'
Making a retailer more like Amazon could prove a compelling pitch to retailers struggling to adapt to a rapidly changing business environment.
But as Amazon becomes a larger company and broader retailer with its large number of private labels and expanding physical store footprint, retailers may become more wary of hosting all of their data on an Amazon server farm.
That's not because their data is in danger. According to Amazon's own rules, it can't use customers' content for any unauthorized purposes. Amazon has nothing to gain from using its customers' data for nefarious purposes, but it has everything to lose, Bartoletti notes.
"If they started using data that they're hosting for people to learn about their businesses, they'd be out of business so fast," he said. "They have such a Chinese wall up between these businesses, the retail business at Amazon is not learning anything from what retail customers are doing with AWS."
But just because Amazon says it won't peek into the data doesn't mean large retailers are apt to trust it.
Walmart, by far the US' largest retailer, is working on integrating its cloud services with Microsoft's Azure platform, Walmart CTO Jeremy King said during a separate panel at the NRF's conference. But Walmart doesn't want its partners and vendors to use AWS either, according to a report in the WSJ from 2017.
At the time, a Walmart spokesperson told the WSJ: "It shouldn't be a big surprise that there are cases in which we'd prefer our most sensitive data isn't sitting on a competitor's platform."
AWS likely realizes it will never hook these large retailers who sell a wide variety of goods like Amazon does. Instead, it's likely that other retail players who already partner with Amazon to sell their goods - or don't directly compete in categories like luxury goods - are prepared to partner with AWS.
Over time, Amazon's bold moves may eventually scare off even these retailers, however.
"I do think more and more retailers might find it easier to work with a company that they don't see existential threat competition from down the road," Bartoletti said.
AWS had a large head start in cloud computing, but now other players like Microsoft and Google are catching up in their offerings, if not yet in market share. It is now completely possible to build a retail platform using these services, unlike five years ago, Bartoletti said.
"The good thing for retailers is the options keep getting better," he said. "And the difference between the cloud platforms keeps getting smaller."
Many retailers are happy with Amazon's suite of cloud services. But Bartoletti said he expects to continue to see retailers move off of AWS and onto competitors' platforms.
"I think it would be crazy if we didn't see that just because of [retailers] feeling an existential threat," Bartoletti said.