Putting IT into retailing

Amazon: Amazon’s stock knock has become a badge of honour. Skeptics always derided the company as merely a retailer in fancy tech clothing. Yet the company once again turned in another sparkling result in the third quarter, sending its stock up 24 per cent to an all-time high. With former tech darlings trading at fractions of their’s, the critique now looks like a compliment.

Of course, one shouldn’t downplay the company’s research and development skill. Amazon’s best selling item is the Kindle, its newish digital book reader. And the firm continues to invest in things such as web services, where it sells remote computing services to other companies. Yet, Amazon’s success resides more in its ability to use IT as a means to an end rather than a goal in itself. That target is to push lots of goods though its distribution network, upon which it has spent heavily. For example, recommendations based on algorithms result in more items in checkout baskets. Offering its site and logistics to third-party merchants bumps up sales, too. As does continually increasing the number of goods it sells.

Amazon’s success is clear in the numbers. The 27 per cent sales growth it turned in during the quarter wasn’t the result of Amazon taking a hit to its bottom line – instead, margins actually rose. There's little reason for this trend to end soon. Indeed investors have already baked substantial growth in, with the stock now trading at 54 times estimated 2010 earnings. Selling more books, electronics and golfing equipment online never sounded particularly sexy – hence the rap against Amazon. Yet, formerly hot areas such as databases, network storage and routers don’t sound particularly cutting-edge anymore, either. Delivering sharply rising profits, however, will always remain in style.