Target's Divorce From Amazon Says More About Differentiation Than Maturation

When Target announced (Aug. 7) that it was taking its E-Commerce operation back from Amazon, speculation ranged from "this means E-Commerce is maturing" to "Target now wants to compete more directly against Amazon." Although both thoughts are true to varying degrees, the reason for the split—which follows similar moves away from Amazon by Borders and Toys R Us--has more to do with Target wanting to create a unique identity.

At a practical level, there were various specific capabilities that Target wanted to add that Amazon either couldn't deliver (unlikely) or wouldn't deliver (more likely) or (most likely) that Amazon could deliver but at an unacceptable price.

Target spokesperson Kelly Basgen said areas that Target wanted to improve once the Amazon divorce is final in August 2011 were search, checkout, cart features, better branding control and differentiated experiences within different categories. She gave an example—while stressing that it was only a hypothetical example—that Target might want a consumer's experience within apparel pages to be very different than within home goods.

Economics played a minor—but definite—role in the divorce, with one Target financial person saying that the original contract provided a wide range of costs to Target, well beyond a commission on sales generated because of the large number of services Amazon was offering. That Amazon contract—signed back in 2001—also had a confidentiality restriction as to its terms.

Although Target wouldn't detail numbers, it's clear that the Amazon deal allowed Target to have a dramatically smaller E-Commerce headcount compared with its similarly-sized rivals. In the two years it has before the divorce is complete, Target is "going to staff up by moving people around" within the company as well as hiring. "We're looking at financial benefits in the long term following a significant short-term investment," Basgen said.

There are several reasons that did not play a significant role in the divorce. Competing with Amazon, for example, existed before the 2001 partnership began and has continued throughout. Although Target would like to have more freedom to compete, Amazon is not that direct a rival and it was already competing with them in a handful of areas. That wasn't a key cause.

A couple of years ago, there might have been the fear that Amazon could host true Target rivals, which could be uncomfortable. But today, Amazon has lost several major retail partners, with only the U.K.'s Marks & Spencer mentioned as a major retailer still using Amazon's E-Commerce service. (Note: Amazon hasn't announced all its customers so it's unclear if any major retailers are still quietly being hosted by Amazon.) Amazon still hosts some consumer goods manufacturers who dabble in E-Commerce, including Timex, Bebe, Lacoste and Sony, said Amazon spokesperson Andrew Herdener.

That all said, Target might be concerned about sharing with anyone the vast amount of internal information that Amazon has had access to. There's no telling who Amazon might partner with down the road and Target would have stronger control of its internal E-Commerce details.

Amazon also could only offer limited customization and if Target wanted to get creative, it's easier to deliver on its own.

But this is not likely a move that foreshadows a dramatic Target repositioning. A two-year transition is a slow one and an awful lot in E-Commerce can change in 24 months. If Target was truly unhappy with Amazon, it's reasonable to assume that a much faster breakup would have been arranged.

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