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Amazon
TMFJeff and the Honor System

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By albaby1
February 8, 2001

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Much e-ink has been spilled over the Q4 numbers, and the "should we sell" sentiment coming from TMF lately. Now it appears, though, that one of TMFJeff's avowed reasons for wanting to sell Amazon carries a bit of unintentional irony:

Finally, we're beginning to see the company's limitations. I believe that its place has been decided by management and by its customers: It's a retailer of products over the Internet. I thought that it could be more -- more community-based, more large revenue streams. More. Somehow, much more.

I went back and re-read that one day after Amazon kicked off the only side venture that has actually made me think that Amazon might be a good (although vurrry speculative) investment: the Honor System.

See, it's not like Amazon isn't still trying to do non-retail stuff. The Marketplace, which Jeff didn't like, has a far better chance of succeeding against the Mighty EBay than the Auctions whose failure he laments. At least it puts the sellers where the customers actually are, giving them a decent shot to leverage the existing customer base.

So now they launch the Honor System, with little reaction here amongst the Amazon-watchers except a bit of derision ("passing the hat for tips"). Another little side track from the Just-A-Retailer? Not at all.

Take a moment to think of killer apps for the internet. E-mail is the archetype, but instant messaging and file sharing programs (like Napster) have also gained widespread acceptance. But there's one clearly identified killer app that no one's been able to workably develop yet: micropayments (or e-cash).

That's right, micropayments - one of the Grails of commercial exploitation of the web, it can apply to the development of a system that can economically allow small payments to be made electronically in exchange for goods, services, and most importantly content on the web. The ability to collect micropayments (without having the economic value eaten up in fees) could completely re-energize the notion of a content site as a viable business. I'm guessing that more than a few content sites had projected that micropayment technology would be in place by now as part of their business plans.

So what is the Honor System? At its heart, Amazon will now be providing third-party small payment enabling services. See, Amazon has traffic to its website - but lots of sites (a la Yahoo) have traffic and eyeballs. Amazon has a good brand awareness, but so do lots of other sites. What does Amazon have that many, many other websites don't.

Credit card numbers. Lots and lots of credit card numbers. Probably upwards of 20 million active, valid credit card numbers.

For the first time, a content (or digital download site) can collect a fee to let a user get to a particular portion of the site without the user having to give the site operator his/her credit card. Without the user having to enter his/her credit card number again. Without having to set up an "account" with a third party.

Is this the elusive micropayments Grail? Nope - the $1 minimum is too high, and the 30% transaction fee is pretty steep on the minimum payment. But the Honor System and Ebay's services might just be the first commercially viable third-party small payment options presented on the web, apart from credit cards themselves.

Ees stoopid stoopid unseen faith profit dreamies! Perhaps - Amazon's not there yet, they might screw it up, and killer apps don't always make money. But if it is a dream, it is the first dream that Amazon has dared to dream that might actually turn out to be bigger than the retail operations. Amazon's actually got a competitive advantage, in that more web users have given them their credit card numbers than almost anyone else. They're moving into a space that isn't already owned by someone else. Ebay is there, and is the chief competitor - but they won't have a lock on this like they do with auctions.

In short, Amazon is offering a service that could conceivably evolve into a financial payments system used by virtually every for-profit website on the 'net. A wild and crazy dream, to be sure - but I can't believe that Jeff wants to sell because ZShops didn't work out when this is coming down the road.

Albaby
(who might just have lost his Fraternal Order of Bears membership card)