With no questions asked, Amazon replaced a $500 PlayStation 3 that New York Times business writer Joe Nocera had purchased as a Christmas present for his son. Tracing the package from the Amazon site, Nocera realized his gift had been delivered and signed for by a neighbor in his apartment building. But the package was misplaced and eventually stolen. He called Amazon’s customer service number, pleaded for mercy, and to his surprise, the agent agreed to send Nocera another one.

This customer-agent interaction with a happy ending is all over the Web-- here, here, and here. In writing about this experience for his column, Nocera reflected on Amazon's business model. It is simple: "to be the most customer-centric company in the world." It is also costly.

Amazon has spent a pile of money on technology. It built from scratch a supply chain fulfillment system that lets Amazon customers instantly learn when an order will arrive and, more amazingly, how many individual packages are involved. It has made a considerable investment in cloud computing and web services. To pay back some of its IT dollars, Amazon now sells access to its cloud to outside companies. Interestingly, one of its service offering is a new kind of distributed support center, which I’ll be writing about in my next post.

But all this computing and network capacity, as Jeff Bezos, Amazon’s CEO, recently pointed out, is just the price of admission to running an on-line retail business. It gives Amazon the capability to deliver the kind of services that customers now expect— like the where’s-my-package query that Nocera needed answered.

But that’s not what makes Amazon special. Amazon differentiates itself with a free shipping program costing hundreds of million dollars per year, a Web 2.0 environment that encourages users to submit book and product review content, and most powerfully, agents with the discretion to replace an expensive gadget without going through a bureaucracy.

The result? Over 59 million active customers, a repeat business that’s the envy of the on-line retail industry, and one new influential promoter. To quote Nocera: “Why would I ever shop anywhere else online?”