Talking tech since 2003

When it comes to online shopping, one of the most well-known online retailers is, Inc.  Amazon, a company that started as an online store in 1994, has grown to become a huge multi-million dollar corporation that dominates the Internet.  One of the things that really intrigues me about Amazon is the fact that they are able to not only make money by selling products as a traditional online store, but are also able to make money as the store back-end for sites that use Amazon for their storefronts.  Moreover, services such as Amazon Web Services show that the company is able to “shoehorn” themselves into other sub-industries in order to become a “big player.”  But how could Amazon take this market dominance to the next step and cut their costs while doing so?

To answer this question, we have to look at the business practices of eBay, Inc. and evaluate their wise business ventures in the past.  You see, in October of 2002 eBay bought PayPal, an online payment processor.  The implementation of PayPal into eBay has allowed people to buy and sell goods without the level of hassle seen before.

Personally, I think that had eBay not acquired PayPal, they would have surely gone belly-up or at very least not have succeeded at the same level that they have today.  PayPal did more than simply make it easier for eBay users to exchange payments.  In a revolutionary sense, PayPal created a financial environment where money could change hands efficiently and without the same cost as traditional payment processing services.

So how could Amazon learn and benefit from eBay and PayPal?  First off, I think that in order to maintain their cutting edge, Amazon needs to cut their payment processing costs and handle their transactions “in-house” as much as possible.  By creating a PayPal-like environment for money to be transferred in to, out of, and within, Amazon would create a miniature economy of their own; one that they had a greater amount of control over.  Further, by allowing people to earn and spend money through this economy, Amazon would diminish their dependence on outside banks and would thus benefit from the decreased transaction fees.  By doing this, Amazon would be able to lower their overhead – potentially to the point that they could offer incentives for end-users to purchase goods or services from Amazon.

Perhaps most importantly, Amazon would dig their heels into the ground in the sense that even if someone were to purchase goods or services from a non-Amazon store (or a store that did not utilize the Amazon storefront), the company would still have a chance at making money by acting as the payment processor.  In the long run, this would ensure that the company would still have a leg to stand on if their direct sales venture were ever to fail.

At the end of the day, Amazon is already a one-stop-shop form consumers.  After all, the company sells just about everything.  I honestly believe that end-users would be willing to trust Amazon as a financial service, and that Amazon could very well build themselves to be a PayPal competitor, not only helping their current business, but potentially generating a great deal of additional business as well.

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