Amazon.com, Inc. (AMZN) has been so protean, and so unrelentingly ambitious over the years of its rise that even a task as simple as defining what sort of company it is has become a huge undertaking.
A March 20 article from FCW, the trade magazine for federal business technology, added another layer of complexity to this hydra-headed business with its report based on unnamed sources that the “online retailer/e-commerce” company would be signing a $600 million, 10-year deal to develop a private cloud infrastructure for none other than the Central Intelligence Agency.
Unsurprisingly, the CIA and Amazon declined to comment on the matter at the time, and have kept more or less silent ever since the Edward Snowden revelations brought great shame to the otherwise freedom-loving tech industry.
The ostensible purpose of the private cloud, however, would be to make it easier for the agency keep up with “emerging technologies like big data in a cost effective manner not possible under the CIA’s previous cloud efforts”.
The overt reason for the deal was cost-cutting: giving the agency the freedom to purchase the newest proprietary software on a pay-as-you go basis rather getting stuck with expensive and unwieldy contracts, as has been the case up until recently.
But the CIA has countless separate subdivisions, whose ability to cooperate and share intelligence and information is rife with serious complications. The assumption was that Amazon will be involved in integrating the agency’s various existing private clouds into the public cloud computing model, except with intelligence-agency grade privacy and security.
Despite public outrage over the cooperation of techs with government spy agencies, however, the deal serves as a good vantage point from which to take a glance back to get a sense of just how far Amazon.com has come in the past few years.
Perhaps one of the best ways to assess the company is to look at it through the lens of its various competitors and rivals.
Brick and Mortar: From Book Stall to Department Store
Consider what the company accomplished at the level of basic retail. Amazon with its quick delivery, vast selection of used and new books, and extremely competitive pricing is already considered to be one of the principal reasons that the Border’s chain filed for bankruptcy back in 2011. With their Kindle and now Kindle Fire book readers, they are threatening to do the same to Barnes & Noble (BKS), the last chain bookstore of any significance still standing.
There are clear indications that even with its Nook e-reader, the store is experiencing significant difficulties as a result of its online competitor. Barnes & Noble has already projected that it will lose even more money this year than the last, and this is to say nothing of how Amazon.com is also taking on the very publishing industry itself by effectively removing the middle-man and allowing writers to distribute their work through the company’s website, a process that has almost no overhead.
This brings up the subject of brick-and-mortar retailers in general. What Amazon has done with books, it has also done with almost any sort of product one can think of. This has led to a practice that is now widely known as “showrooming”, where customers go into stores like Best Buy (BBY) , Target (TGT) and Wal-Mart (WMT) to try out products in which they are interested prior purchasing them from Amazon for cheaper, often with discounted or even free delivery using the company’s Prime service.
Surely, the brick-and-mortars have not taken this lying down. All three of the aforementioned retailers have taken measures against showrooming by, among other things, expanding their online presence, offering price-matching, and placing ever-more emphasis on the increasingly popular mobile and tablet devices.
Furthermore, Amazon.com has spent a good deal of money the last year building more shipping centers around the country to ensure faster and more streamlined product delivery. This happens to be an area where the company’s facility for thinking out of the box, as it were, comes sharply in to focus; they have recently been experimenting with different ways for customers to pick up their orders, for instance with “mailbox” installations in grocery chains such as Albertson’s.
Then there is online commerce. Amazon’s increasing emphasis on third-party sellers has forced Ebay (EBAY) to make significant changes to its business model. Just recently, the company introduced a new fee structure that includes free listings for stores and non-stores on its platform. And while the company has managed an impressive showing of late, putting up strong numbers in its fourth-quarter earnings report with revenue up 18 percent to $4 billion, it still charges users PayPal fees, does not offer free shipping, and does not have the same distribution and supply-chain advantages of its bigger online rival.
Against Entertainment Providers: Streaming Services & Cable
In streaming entertainment as well, Amazon has taken on Netflix (NFLX) . Netflix offers a streaming-only membership for $7.99 per month, but Amazon’s Prime service costs $79 per year, and along with a rapidly expanding catalogue of instantly viewable recordings, in addition to free two-day shipping for a large number of items, as well as one free e-book rental per month.
Upping the ante even further, Amazon.com is gearing up to provide its own original content, with web-only shows slated for this spring starring critically-respected, legitimate starts like John Goodman and Bill Murray. The pilots for the shows will be shown for free to users through Amazon Instant Video, and will either be shelved or continue depending on how well they are received.
Compare this to Netflix’s, albeit impressive and daring, model for its own original content that has produced one critically acclaimed program in “House of Cards”, and one flop with the quirky “Lilyhammer”. Netflix paid large sums of money up front for both shows.
This foray into original content also puts the company in the ring with HBO (TWX) , and other “old-school” channels like Showtime, that were not long ago the birthplace of the original series idea.
So far, this is an incomplete list of Amazon’s competitors. The company has been able to engage each one successfully, forcing them to make serious modifications to their business models.
Tablet & Mobile Products
But the company’s shrewd maneuvers have not of course led unopposed dominance. There are a number of companies like Google (GOOG) , Apple (AAPL) , and Samsung who are adept at variously competing against and cooperating with one another in different combinations and across different markets.
Not only does Amazon.com sell all makes and models of tablets and mobile devices, it also competes against these with its own popular Kindle Fire, and is developing its own smartphone that is due out later in the year. This expands the playing field beyond Apple, Google, and Samsung to Nokia (NOK) , Blackberry (BBRY) , among others.
Emergence of Online Advertising
More interesting still is the company’s launch of its new mobile ad network late in February. Advertisers place ads in mobile apps purchased from Amazon’s app store, ads that will be seen by Kindle users. But these ads will also be seen by Android users who have downloaded apps from Amazon’s app store, essentially giving the company a huge, and free, advertising boost through one of the most popular mobile operating systems out there.
Needless to say, advertising revenue makes up a huge share of Google’s profits, and any encroachment on that territory could take away its piece of the pie. For Amazon, by comparison, this is a relatively untapped revenue stream.
Amazon holds a distinct advantage in that it has access to loads of information on the buying habits of its users, allowing a great deal of opportunity for precision targeting, especially if this can be done by infiltrating Google’s own platform. With Amazon’s database of search and purchasing histories, “wishlists” and, most importantly, credit card numbers with one-click buying, it is probably to be expected that this are will see much more development.
Rise in Cloud Computing
The report of the deal with the CIA rounds out the picture with the addition of cloud computing services. In this arena, Amazon competes consistently with industry giants like Salesforce.com (CRM) , Google, Microsoft (MSFT) , VMware (VMW) , and Rackspace (RAX) .
No surprise then that Amazon.com and the CIA would be interested in one another. Furthermore, Amazon.com would not be the first company to be involved with an organ of U.S. intelligence infrastructure. In fact, in designing a private cloud infrastructure for the CIA, the company is actually just joining a sort of unspoken, unofficial club; Google has already worked with the Central Intelligence Agency on its web-monitoring capabilities.
This recalls the question with which this article began- Amazon may not be the first tech company to work with the CIA for whatever purpose, but they are probably the first online retailer or e-commerce company to do so.
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