It’s an e-tailer… No, an e-commerce platform… No, a software platform!

It’s an e-tailer… No, an e-commerce platform… No, a software platform!

Andrei Hagiu

I recently attended a keynote speech given by Jeff Bezos, CEO and founder of Amazon at MIT.

Up until I heard Bezos’ speech, I thought of Amazon as the world’s largest Internet retailer of books and other things—a giant, online marketplace that had managed to successfully evolve its business model from a WalMart-style pure retailer towards an eBay-style, e-commerce platform.

If you recall, in 1999, Bezos launched a “marketplace” initiative to allow some of Amazon’s suppliers to operate their own storefronts on the Amazon.com website, under various contractual arrangements: zShops, Merchants@Amazon.com, Merchants.com. The basic idea was to reduce the amount of inventory and risks that Amazon takes for each individual product and thereby expand the range of products accessible through Amazon.com.

Of course, to do this, Amazon had to build a nifty technological infrastructure that allowed it to manage all the e-commerce functions necessary—for itself and also on behalf of its merchant partners—an investment that some estimate cost upwards of $2 billion.

Then, this past October, Bezos announced that Amazon was not so much an e-commerce company with a sophisticated underlying infrastructure, but rather a technology company using its savvy to conduct e-commerce . . . and now many other things.

In his keynote, Bezos talked about the latest “utility computing” offerings as the company’s crown jewels:

  • Simple Storage Service (S3) to provide cheap access to online storage;
  • Elastic Compute Cloud to allow programmers to rent computing horsepower on Amazon’s systems;
  • Mechanical Turk to connect firms with people who perform small tasks that would otherwise be difficult to automate; and
  • WebStore, which provides access to all of Amazon’s back-end technology.Amazon is just one of many examples of how companies gradually realize and unleash the hidden power of the software platforms lurking beneath the surface of their products and services. As the software platform community grows, companies can move from building or buying products themselves, to enabling their customers to build products—and in the process, creating a sprawling ecosystem of innovators.