How Amazon Works

The massive technology core that keeps Amazon running is entirely Linux-based. As of 2005, Amazon has the world's three largest Linux databases, with a total capacity of 7.8 terabytes (TB), 18.5 TB and 24.7 TB respectively [ref]. The central Amazon data warehouse is made up of 28 Hewlett Packard servers, with four CPUs per node, running Oracle 9i database software.

The data warehouse is roughly divided into three functions: query, historical data and ETL (extract, transform, and load -- a primary database function that pulls data from one source and integrates it into another). The query servers (24.7 TB capacity) contain 15 TB of raw data in 2005; the click history servers (18.5 TB capacity) hold 14 TB of raw data; and the ETL cluster (7.8 TB capacity) contains 5 TB of raw data. Amazon's technology architecture handles millions of back-end operations every day as well as queries from more than half a million third-party sellers. According to a report released by Oracle after it helped migrate Amazon's data warehouse to Linux in 2003 and 2004, the central task process looks something like this:

­ In the 2003 holiday season, Amazon processed a top-end 1 million shipments and 20 million inventory updates in one day. Amazon's sales volume means that hundreds of thousands of people send their credit card numbers to Amazon's servers every day, and security is a major concern. In addition to automatically encrypting credit card numbers during the checkout process, Amazon lets users choose to encrypt every piece of information they enter, like their name, address and gender.

­ Amazon employs the Netscape Secure Commerce Server using the SSL (secure socket layer) protocol (see How Encryption Works to learn about SSL). It stores all credit card numbers in a separate database that's not Internet-accessible, cutting off that possible entry point for hackers. Customers who are particularly cautious can choose to enter only a partial credit card number over the Internet and then provide the rest by phone once the online order is submitted. Aside from the usual security concerns regarding online credit-card purchases, Amazon suffers from the same phishing problem that has plagued eBay and PayPal, so watch out for fake e-mails asking for your Amazon.com account information. Check out Anti-Phishing Working Group: Amazon.com for details on how to recognize a fake.

Now let's get back to the business of selling stuff. Amazon's approach to e-commerce is one that leaves no stone unturned.

Amazon.com has always sold goods out of its own warehouses. It started as a bookseller, pure and simple, and over the last decade has branched out into additional product areas and the third-party sales that now represent a good chunk of its revenue (some estimates put it at 25 percent).

Both retailers and individual sellers utilize the Amazon.com platform to sell goods. Large retailers like Nordstrom, Land's End, and Target use Amazon.com to sell their products in addition to selling them through their own Web sites. The sales go through Amazon.com and end up at Nordstrom.com, Land's End.com or Target.com for processing and order fulfillment. Amazon essentially leases space to these retailers, who use Amazon.com as a supplemental outlet for their online sales.

Small sellers of used and new goods go to Amazon Marketplace, Amazon zShops or Amazon Auctions. At Marketplace, sellers offer goods at a fixed price, and at Auctions they sell their stuff to the highest bidder. Amazon zShops features only used goods at fixed prices. If an item listed on zShops, Marketplace or Auctions is also sold on the main Amazon.com, it appears in a box beside the Amazon.com item so buyers can see if someone else is selling the product for less in one of the other sales channels.

The level of integration that occurs on Amazon is a programming feat that few (if any) online sales sites can match.

Another sales channel called Amazon Advantage is a place where people can sell new books, music and movies directly from the Amazon warehouse instead of from their home or store. Sellers ship a number of units to Amazon, and Amazon handles the entire sales transaction from start to finish. In all of these programs, Amazon gets a cut of each sale (usually about 10 percent to 15 percent) and sometimes charges additional listing or subscription fees; in the case of Amazon Advantage, the company takes a 55 percent commission on each sale. The Advantage channel is something like a consignment setup, a sales avenue for people who create their own music CDs or have self-published a book and are simply looking for a way to get it out there.

One of the latest additions to Amazon's repertoire is a subsidiary company called Amazon Services. Through Amazon Services, Amazon sells its sales platform, providing complete Amazon e-commerce packages to companies looking to establish or revamp their e-commerce business. Amazon sets up complete Web sites and technology backbones for other e-commerce companies using Amazon software and technology. Target, for instance, in addition to having a store on Amazon.com, also uses Amazon Services to build and manage its own e-commerce site, Target.com.

But selling goods isn't the only way to make money with Amazon.com. The Web site's affiliate program is one of the most famous on the Web. Through Amazon's Associate Program, anyone with a Web site can post a link to Amazon.com and earn some money. The link can display a single product chosen by the associate, or it can list several "best seller" products in a particular genre, in which case Amazon updates the list automatically at preset intervals. The associate gets a cut of any sale made directly through that link. The cut ranges from 4 percent to 7.5 percent depending on which fee structure the associate signs up for (see Amazon Associates for complete program details). The associate can also take advantage of Amazon Web Services, which is the program that lets people use Amazon's utilities for their own purposes. The Amazon Web Services API (application programming interface) lets developers access the Amazon technology infrastructure to build their own applications for their own Web sites. All product sales generated by those Web sites have to go through Amazon.com, and the associate gets a small commission on each sale.

Check out Amazon Web Services to learn more about what you can do with Amazon's e-commerce platform.

In the next section, we'll take a look at how all of these programs and channels come together to create a sales and marketing powerhouse.

The goal is pretty straightforward: "To be Earth's most customer-centric company where people can find and discover anything they want to buy online." The implementation is complex, massive and dynamic. Amazon's marketing structure is a lesson in cost-efficiency and brilliant self-promotion. Amazon's associates link to Amazon products in order to add value to their own Web sites, sending people to Amazon to make their purchases. It costs Amazon practically nothing. Some associates create mini-Amazons -- satellite sites that do new things with Amazon data and send people to the mothership when they're ready to buy. Amazon Light, built and maintained by software developer Alan Taylor, is one of those satellite sites.

The level of customer tracking at Amazon.com is another best-of-breed system. Using the data it collects on every registered user during every visit to the Web site, Amazon points users to products they might actually be glad to discover -- and buy. Amazon recommends products that are:

You can even customize the recommendations by giving Amazon more information about yourself and your interests and rating the products you've already purchased.

­ A recent development in customer tracking actually collects information on people who may have never visited Amazon.com. Amazon's gift-giving recommendations collect data on the stuff you buy for other people. For instance, if you buy a toy train set in December and ship it to your nephew, Amazon knows you give gifts to a boy aged four to 10 who lives in Ohio and likes trains. Might your nephew enjoy the latest addition to that train series? Might he also have an interest in RC cars? Amazon will give you all sorts of ideas about what to get your nephew when the next holiday season rolls around.

This type of information gathering has generated a fair amount of controversy. Some say Amazon gathers too much information for comfort, and the Electronic Privacy Information Center reports that in 2000, Amazon started sharing its customer data with its partners and subsidiaries. The concern has increased with the tracking of "gift-giving habits," because the gift-giving information Amazon collects could be about minors, which is against the law, and because the gift receivers don't even know that their name, age, gender, location and interests may be stored in Amazon's database of customer information.

Despite concerns about Big Brother Amazon, tons of people love the personalized experience Amazon offers. It's not just sales offers -- there's a community on Amazon.com that's based on people providing even more information about themselves to other Amazon users. People write their own reviews, recommendations, "So You'd Like To..." guides and "Listmania" lists based on Amazon's product offerings and share them with all of Amazon.com. One Listmania list, "The Top 25 Weirdest Items You Can Purchase Through Amazon!" by Sheila Chilcote-Collins of Van Wert, Ohio, includes a jar of S.E.P. (Stop Eating Poop) that should make your dog stop eating its own feces; bird feed in the form of live caterpillars shipped to your doorstep; and a book entitled "Owl Puke" that comes complete with a genuine pellet of regurgitated owl meal. You can make any sort of list you want, and any Amazon member can view it and rate it. (Click here to view the Top 100 Listmania lists.)

Beyond e-commerce and its trappings, some of the more recent Amazon endeavors have the company branching out into new realms. Amazon's Mechanical Turk project seeks to combine community, technology and compensation. Using the Mechanical Turk system, software and Web developers can post tasks they need help with, usually tasks related to things computers can't do but humans can, like quickly caption a set of photos. Anyone can post a task, and the person who completes it gets a small amount of money in return. Amazon gets a commission on each completed transaction. In a much more visible trek into the unknown, Amazon has funded the A9 search engine. It has full search capabilities, mapping functions, a toolbar with pop-up blocking and an easily accessible personal search history. A9 also provides a "Diary" where you can makes notes to yourself about specific Web pages and lists of recommended links for you to check out based on your previous searches. In keeping with Amazon's omnipresent marketing techniques, you can sign up to get an Amazon.com discount for using A9 on a regular basis, and when you type in a search term, you'll see a display of Amazon book results related to that term.

From a "Where's Amazon going?" point of view, perhaps the most notable project is the previously mentioned Amazon Services subsidiary. Amazon Services is building complete e-commerce solutions for companies that are potential Amazon competitors, leaving open the possibility that Amazon will ultimately head in the direction of technology service over retail sales.