Richard Dalzell: First click at Amazon.com

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By Susannah Patton

(IDG) -- Richard Dalzell has been Amazon.com's CIO for the past four years, overseeing a large, pace-setting IT department, and working to keep the online retailer on the leading edge of technological innovation.

Amazon.com, known for features such as its 1-Click technology, has suffered along with the rest of the dot-com world. And its most recent effort in fiscal adjustment -- the introduction of free standard shipping (for two or more items) and a rollback of some discounts -- set off a new round of criticism last week.

Many customers say the free-shipping offer simply masks the pullback on discounts. Barnes&Noble.com has quickly followed suit with the same offer.

And investors have been watching closely as Amazon struggles to post its first "pro forma" operating profit in the fourth quarter of this year. On Monday, the company's stock is posting a rise in afternoon trading (AMZN, Nasdaq).

But even as Amazon tightens its belt -- and weighs the response of customers to its free-shipping, Dalzell has insisted the company will continue to invest heavily in technology. He went to the Seattle startup in 1997 after four years at Wal-Mart Stores Inc., where he held several management positions and helped run a vast data warehousing environment.

QUICKVOTE Do you have the temperament for the tech-chief job Richard Dalzell does at Amazon.com? Yeah, I'd love that job. When the system works, sure. Other days ...? Looks like world-class glitches daily to me. View Results

Today, Dalzell helps run a company with some 30 million customers.

Q: As the CIO of the world's largest online retailer, what are your biggest challenges?

Richard Dalzell: Making sure that we're taking care of our customers is the concern that keeps me up at night. In fact, Amazon.com's primary focus is keeping our customers happy.

We tout ourselves as the most customer-centric company in the world -- at least that's our goal.

We have a couple of different types of customers. First of all, there are the traditional types of retail customer that started with us when we were a bookstore and moved to books, music, video and then to consumer electronics and a broad product assortment. Those customers (we've had over 30 million since our inception) are the backbone of our business.

At the same time, in 1997, we expanded to where we had another set of customers -- a whole series of sellers that use our technology e-commerce platform to be able to sell their goods to Amazon.com customers. They get to take advantage of all the features that we built over the years.

Q: Amazon is known for customer friendliness. How have you been able to use customer relationship management (CRM) and personalization technology to your advantage?

Dalzell: Very early on, we recognized that we were really in business to help the customer find anything they wanted to buy. And the key was that we were going to need to build a unique store, one that changed all the time, for each individual customer. So we started investing in our own personalization technology within the first year of the company's existence.

Q: Amazon is saying it will post a pro-forma operating profit in the fourth quarter. How is information technology (IT) supporting this campaign?

Dalzell: Our first job here at Amazon.com in the technology division is to support top-line growth and productivity. What that means for us is that we're going to invest in technologies such as personalization technologies, community technologies and what we call inside-the-company "Customer Relationship Merchandising."

By that I mean actually building a real-time environment that knows who the customer is and helps them to find or discover whatever they want to buy on the Internet. That means you use a lot of data, including data that our customers put in to help us understand what products they already own and what they think about those products.

Q: Amazon has the image of being on the bleeding edge of technology. In the push for profitability, is it hard to keep up the pace of development?

Dalzell: The real goal here is to speed up. This is where you get the impact of investing early and learning a lot of lessons. This is where our first-mover advantage helped us. Over the last six years, we've spent a great deal of money building out an e-commerce infrastructure. The infrastructure gives us a foundation from which to innovate or to build, so it actually helps us. We're not saddled with any bad stuff, we're saddled with a bunch of good stuff.

Q: Given that you have this infrastructure, does this mean that you can cut costs in IT or do you need to keep investing at a high level to remain on the cutting edge?

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Dalzell: What we've been able to do, and what I expect we'll do in the future, is we'll continue to build and innovate like crazy. That does imply that you'll continue to invest in technology, both hardware and software developed inside the company. So the investment continues.

But what you'll find is that we're reaping the benefits and leveraging what we've built, so on an ongoing basis, as sales increase, IT costs as a percentage of worldwide sales will continue to go down. But we're a technology company and we'll continue to invest heavily in technology.

We also believe you've got to invest in people. We've spent a lot of time hiring world-class people. I think we have one of the top engineering teams around, made up of people who are smart, passionate about what they do and most importantly, they're builders who like to create and add value to the bottom line.

One of the great things about this company is that Jeff (Bezos, CEO) in the early days set up a culture of "we can do anything" because everyone in the company had to do every job. So the people who were writing software back in 1995 were also fulfilling orders.

Q: Amazon is famous for innovative features including 1-Click technology and its ability to launch new services. What percentage of your applications are created in-house as opposed to being bought in packaged form?

Dalzell: Most all of our technology is built inside the company. Now, that said, what we tend to do is build anything we view as strategically important to the customer experience. But we do have some very good, important partners such as Oracle from the database perspective.

So I'm not telling you that we sit here and create everything. We create the stuff that we view as strategically important to the company.

We're a technology company and we're building a platform that other people will use. We like to think we've built a world-class, complete, highly integrated e-commerce platform, so that means we have to continue to make investments. (Partner) like Toys 'R' Us and, in the future, Borders, will reap some benefits from that platform.

Q: Amazon now has stores in Japan, England, France, Germany and Austria as well as a Spanish-language site. What have been the major technology challenges involved with international expansion?

Dalzell: A core piece of our strategy has been to have one software and engineering team and one infrastructure team that are centrally located here in Seattle. The intent is that we build the software in Seattle. But the real challenge is that we have to be sensitive to our customers in those local markets, like the U.K., Germany and Japan.

The Internet makes the world borderless and time really has no bearing anymore, so you can't run in a batch world. Probably most importantly, you have to make the software work in a way that's sensitive to local markets, taking to mind not just language and currencies but also cultures. We have to have local content creation teams that absolutely influence the way the site is presented and the information that it has.

Q: You were at Wal-Mart before you came to Amazon. Now, Amazon is being called "the Wal-Mart of the Web." Are there any similarities between the two organizations?

Dalzell: We're in totally different businesses. I believe I'm in a position to have an opinion about that. We operate differently and we have different types of data that we run off of.

At Amazon, we want to help people discover things that excite them. And that's something that you can only do through the Internet, because you have a ton of data and information and you have this partnership with the customer where you're actually going to help introduce them to new things.

They may not have been able to find them in a world where there's a limited selection contained by both geography and time. So you can take a lot of information and technology and help make the best recommendations for that individual customer. And that means you've got to know the customer pretty well and you have to have great search technology that can handle millions of items.

Q: What can other CIOs in e-commerce learn from your experience over the past four years?

Dalzell: Primarily, that customer experience matters. Second of all, you have to invest in the future, not just for the moment. You have to actually lay some foundations that will enable you to take care of the customer in the future. Thirdly, you've got to hire a great, world-class engineering team that's far smarter than the CIO. In our case, I think that's true.