Strange bedfellows: Amazon sets up shop on Alibaba site

Amazon.com has opened an online presence on rival Alibaba’s Tmall superstore, according to Reuters and other outlets citing an Alibaba spokesman.

[company]Amazon[/company] and [company]Alibaba[/company] are both prodigious online retailers and rivals and both are eying the other’s turf. Earlier this week Aliyun, Alibaba’s online services arm, opened a cloud data center in Silicon Valley, its first presence in the U.S. Aliyun is seen as a competitor to cloud giant Amazon Web Services.

I’ve reached out to both Alibaba and Amazon for further comment and will update this story as needed.

Other western companies, including Costco, Burberry and Zara parent company Inditex, have also set up shop on Tmall, which runs the ecommerce sites and provides the associated payment-processing operations.

Amazon.com offers its own ecommerce site in China, but Alibaba is the 800-pound gorilla there and it makes sense for Amazon to set up shop on Alibaba’s Tmall if it wants to sell more stuff to Chinese citizens.  Long live co-opetition I guess.

If you thought cloud competition couldn’t get hotter, think again

Chinese e-commerce giant Alibaba has opened a data center hub in Silicon Valley, adding yet another gigantic player to a growing, but already hotly-contested cloud computing market.

Aliyun, Alibaba’s cloud computing arm, has been likened to Amazon.com’s Amazon Web Services unit and you can bet that [company]Amazon[/company], as well as [company]Google[/company] and [company]Microsoft[/company], are watching this development closely. Those American cloud giants are focused on boosting business and operations outside the U.S. — Microsoft and Amazon have presence in China, for example, and now Aliyun will return the favor with its first US-based data center.

The initial plan is for the Aliyun data center, the exact location of which was not disclosed, to target Chinese companies based in the U.S. and to expand from that base. In a statement Aliyun VP Ethan Sicheng Yu said:

… the ultimate objective of Aliyun is to bring cost-efficient and cutting-edge cloud computing services to benefit more clients outside China to boost their business development.

The U.S. expansion comes at an interesting time politically as well — relations are tense between the Chinese and U.S. governments and both sides have accused the other of spying on each other and using native tech companies to help in this effort.

Aliyun’s current data centers are in Hangzhou, Qingdao, Beijing, Shenzhen and Hong Kong.

OpenStack comes up huge for Walmart

For those skeptics who still think OpenStack isn’t ready for prime time, here’s a tidbit: @WalmartLabs is now running in excess of 100,000 cores of OpenStack on its compute layer. And that’s growing by the day.

It’s also the technology that ran parent company Walmart’s prodigious Cyber Monday and holiday season sales operations. If that’s not production, I’m not sure what is.

San Bruno, California–based @WalmartLabs, which is the e-commerce innovation and development arm for the [company]Walmart[/company] retail colossus, started working with OpenStack about a year and a half ago, at first relying heavily on the usual vendors but increasingly building up its in-house talent pool, Amandeep Singh Juneja, senior director of cloud operations and engineering, said in an interview.

Building a private cloud at public cloud scale

@WalmartLabs has about 3,600 employees worldwide, 1,500 of whom are in the Bay Area. Juneja estimated the organization has hired about 1,000 engineers in the last year or so — no mean feat given that there are lots of companies, including the OpenStack vendors, in the market for this expertise.

“Traditionally, Walmart is vendor-heavy in its big technology investments — name a vendor and we’ve worked with it and that was also true with OpenStack,” Juneja noted. “We started about one and a half years ago with all the leading distribution vendors involved … we did our first release with Havana and [company]Rackspace[/company]. But then we invested internally in building our own engineering muscle. We attended all the meet-ups and summits.” Havana is the code name for the eighth OpenStack code release.

Amandeep Singh Juneja, @WalmartLabs

Amandeep Singh Juneja, @WalmartLabs

Nothing says big like Walmart. It has around $480 billion in annual revenue, more than 2 million employees, and more than 11,000 retail locations worldwide (including Sam’s Club and Walmart International venues). Walmart.com claims more than 140 million weekly visitors. So scale was clearly an issue from the get-go.

What @WalmartLabs loved about OpenStack was that it could be molded and modified to fit its specifications, without vendor lock-in.

AWS need not apply

This is a massive private cloud built on a public cloud scale. There are also some macro issues at play here. Since parent company Walmart competes tooth and nail with [company]Amazon.com[/company], the chances of Walmart using Amazon Web Services public cloud are nil. (I asked Juneja whether Walmart would ever use any public cloud capabilities and he politely responded that this question was above his pay grade.)

The beauty of open-source projects like OpenStack is that new capabilities continually come on line and there is a community of deeply technical people working on the code. Going forward, Juneja is particularly interested in Ironic, an OpenStack project to enable provisioning of bare metal (as opposed to virtual) machines, and in the Trove database-as-a-service project. Trove, he noted, has matured a bit and Walmart will be using more DbaaS going forward.

Another work in progress is the construction of a multi-petabyte object store using the OpenStack Swift technology, but there are also plans to bring more block storage in-house, possibly using OpenStack Cinder. And the team is looking at Neutron for software-defined network projects.

One thing Walmart must deal with is its brick-and-mortar roots. The ability to order online and pick up in the store means that what @WalmartLabs builds must interact with inventory and other systems already running the Walmart/Sam’s Club storefronts. Non-e-commerce-related IT projects are run by Walmart’s Information Services Division at the company’s Bentonville, Arkansas headquarters.

So the ability of the shiny new OpenStack systems to interface with infrastructure that’s been in place for decades or so — some for as much as 50 years — is critical. It also spells the full employment act for all those @WalmartLabs engineers.

Note: this story was updated at 11:30 a.m. PST to reflect that Walmart is running 100K+ cores, not nodes, of OpenStack

Braintree’s bitcoin API is now available to merchants in beta

PayPal’s developer arm Braintree has finished its initial integration work with Coinbase, and is opening up a beta program to its online merchants and mobile developers who want to start accepting bitcoin payments. No word yet on specific companies that have signed up for the beta, but Braintree has an impressive customer base of e-commerce and mobile app startups, including Airbnb and Uber. PayPal has made bitcoin an option for certain transactions to its various sellers, but, as my colleague Biz Carson points out, the payments giant is moving cautiously when it comes to cryptocurrency.

On the way to $220M in funding, Instacart quietly changed its business model

In its early days, grocery store delivery startup Instacart made its money two ways: Through delivery fees and product markups. It charged customers more for individual groceries than their in-store price.

But in the last year, the company shifted its revenue strategy. It is allowing some grocery store partners to price their own goods on Instacart. In return, the grocers pay Instacart a fee to service their locations.  It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more (or, confusingly, less).

“We don’t want to be in the pricing game,” Instacart’s head of business Nilam Ganenthiran told me. “There’s exceptions, but that’s generally true. Retailers outsource their e-commerce to us for a fee.”

Although there’s variations in how each partnership is structured, Ganenthiran said the fee, charged to grocery store retailers, is now the company’s “primary model.”

Instacart never made any official announcements about its change in business strategy. I didn’t find out until questioning Ganenthiran about its profit margins. As a result, earlier this week when Instacart received its spate of news coverage over its $220 million funding and reported $2 billion valuation, some outlets misreported Instacart’s business model.

“There has been a perception of the markup model being our primary economic engine due to how we started 2.5 years ago,” Ganenthiran told me. “Our model actually has been evolving.”

Most publications didn’t realize that. The Wall Street Journal went so far as to write an additional story, separate from its funding brief, breaking down a potential Instacart profit on a typical grocery store transaction. The numbers didn’t look good, suggesting Instacart might make as low as $1.40 on an order of 15 basic items.

But since Instacart’s revenue isn’t primarily tied to product markups anymore, that may not be representative of its profit margins.

Instacart wouldn’t tell me whether its grocery store partner fee is calculated per item, per order, per customer, per month, or some other variant. It also wouldn’t disclose how much that fee is. Neither would Whole Foods when I reached out to them for comment, and Safeway didn’t respond. Without knowing what grocery stores are paying Instacart, it’s hard to deduce the company’s potential profit margins on each delivery. “There’s different strategies with different partners,” Ganenthiran explained.

In theory, it’s much smarter for Instacart to charge grocery stores a fee than for it to eke out profits on product markups. That kind of partnership makes grocery stores more amenable to improving Instacart’s efficiency (like offering the company its own personal checkout line). It also shields Instacart from the risk of variable food prices. Ganenthiran said, “Most grocers are past the tipping point where they understand consumers want this service.”

Kickstarter dumps Amazon Payments in favor of Stripe

Crowdfunding powerhouse Kickstarter is taking its $529 million in annual pledges and moving them to a different payment processor. In a blog post Tuesday, Kickstarter revealed it is ditching Amazon Payments and has selected online and mobile payments specialist Stripe to handle its global credit card payments.

The move means that both making a Kickstarter pledge and running a crowdfunding campaign will be easier since Stripe’s tools will be integrated directly into the Kickstarter site. Project creators will no longer have to create an Amazon Payments business account or wait several days to register. Instead they’ll just enter their bank account details into their Kickstarter profiles, and payments will be deposited directly into their accounts once a project is successfully funded.

Project backers, meanwhile, won’t be redirected to Amazon’s portal or required to log into or create an Amazon account. They’ll just enter their payment details on the project pledge page or call up saved credit card information from their Kickstarter accounts.

Amazon processed U.S. projects only, while Kickstarter relied on other payment processors ] to handle its international traffic. Stripe, however, will become Kickstarter’s global processor. The U.S. card transaction fees will stay the same – between 3 and 5 percent – though international Kickstarter users may see their fee structures change when Stripe’s payments engine goes live for all new projects.

Kickstarter said in the blog post that Amazon has discontinued the version of its Payments platform that it used (Amazon has moved to a new payments system and Kickstarter didn’t make the transition) so it began looking for a new partner. It’s a blow for Amazon because Kickstarter was one of its most high-profile payments customers.

This is a big deal for Stripe, which has been on a tear lately as its easy-to-implement payment tools become the platform of choice for developers and established web brands wanting to get paid. It’s recently landed some high profile-integration work with Twitter, Facebook and Apple Pay as well as a deal to process online transactions for the controversial film The Interview for Sony.

2015: The “college experimentation” year of mobile payments

In November, when Dutchman Martin Wisjeimer became the first man to inject Bitcoin keys inside his hands, he captured the spirit of payments in 2015. Will others be crazy enough to try this? Maybe not, but many are going to try out new ways to pay. 2015 will be the “experimenting in college” years for shoppers.

Merchants will hit shoppers with options they never had before, and shoppers are going to try it all out because … why not? Waving your iPhone 6 in front of a NFC sensor to pay for stuff is entertaining and it makes good conversation during the holidays. If your sister-in-law bought you a bottle of wine with [company]Apple[/company] Pay, I promise you’re going to hear all about it. Personally, I arrived late to a meeting the day Apple Pay launched because I was eager to test it out. When I use Apple Pay at [company]Whole Foods[/company], [company]McDonald’s[/company] and [company]Walgreens[/company], other people in line are curious to see it in action.

2015 is about experimentation because tech companies are trying to displace the old card swipe system that facilitates a huge chunk of commerce in the U.S. These experiments will have ripple effects that change the underlying mechanics, rules and alliances of the payments industry. Here’s what you can look forward to in 2015:

From beacons to payments

Retailers are salivating over beacons, and 2015 will be the year we see them used here and there. Combined with a mobile app, these internet-connected, Bluetooth-enabled devices allow retailers to push location-based offers, collect data about how people navigate their stores, and link data from in-store purchases with online purchases in order to make personalized recommendations — just the way [company]Amazon[/company] does.

If you’re in the dental hygiene aisle, beacons can detect this and send electronic toothbrush discounts right to your phone. If you’re due to renew a prescription, beacons at a pharmacy could send a reminder the moment you walk into the store. If retailers use beacons tactfully, they will boost sales and pave the way for integrating payments into mobile apps. [company]Starbucks[/company] has gone that direction and many retailers will follow.

New checkout methods

Most shoppers with an iPhone 6 will try out Apple Pay, but the experimentation won’t stop there. [company]PayPal[/company] in-store, [company]Google[/company] Wallet, Alibaba’s Alipay, Coin, Current C and dozens of other checkout technologies will be tested (or re-tested) in 2015. Stratos, a company trying to build an all-in-one credit card, found that 30 percent of U.S. smartphone owners plan to use a mobile payment offering during the holidays. Consumers don’t necessarily find mag-strip credit cards inconvenient or lacking, but the sheer variety of payment technologies and accompanying buzz create a “cool” factor that adds social pressure to try them out. Didn’t I say this will be “college” for the payments industry?

“Card not present” rates will converge with card present rates

Visa and MasterCard set the rules on card processing, and currently, they charge a higher rate when consumers buy online. These Card Not Present (CNP) rates face some gray areas now that people can pay online and in-store at the same time. Say a restaurant guest uses [company]OpenTable[/company] to pay for the meal: Should the transaction face a higher rate even if customer is present in the restaurant?

With the lines of CNP blurring, [company]Visa[/company] and [company]MasterCard[/company] will have to somehow address or eliminate the rate disparity in 2015. Otherwise, they will lose ground to Merchant Customer Exchange, a consortium led by Walmart that is trying to fight back against Apple Pay, Visa and MasterCard with its own mobile payment system, CurrentC, which could save retailers billions in transaction fees.

Social payments will find a purpose

Twitter and Facebook are in the process of launching payment services, and in 2015, they will figure out how to make them profitable. Initially, Twitter and Facebook Messenger will feature peer-to-peer payments, but both companies must know that the real jackpot is serving merchants. They could take a “social commerce” approach and let people complete transactions from branded pages, posts and tweets instead of linking people to external websites. Like Visa and MasterCard, [company]Facebook[/company] and [company]Twitter[/company] could take a cut of each transaction. Shortening the gap between discovering and buying products would probably raise conversion rates for merchants and finally give the social networks a chunk of the e-commerce pie.

The upside to “experimenting in college” is that anything can happen in 2015. By the end of the year, I believe we’ll see an even clearer division between a pro-credit card group that partners with Visa and MasterCard, and an anti-credit card camp that tries to overturn their dominance in the payments industry. The current tension between Apple Pay (pro) and CurrentC (anti) is just a taste of what’s to come. Individual merchants, payment technologies and social networks will all have to figure out how to navigate this divide.

Ralph Dangelmaier is the CEO of BlueSnap, which aims to be the payments leader in e-commerce.

Belarus blocks news and commerce websites over currency fears

Fearing a run on banks and shops due to a faltering currency, the authorities in Belarus have blocked several news and e-commerce websites, according to reports. The Belarusian state-controlled economy is closely linked with that of Russia, and the slide of the Russian ruble has spooked the Belarusian authorities, who introduced a 30 percent tax on foreign currency purchases. On Saturday, the authoritarian state reportedly blocked more than a dozen online stores that raised their prices or priced items in U.S. dollars, and also blocked several independent news websites without warning.