Amazon is known for selling products online, but it also earns money by helping other businesses sell and ship their products. This shows how a company can grow by finding new uses for things it already does well.
One idea from this week’s reading is related diversification. This means moving into another business that shares skills or resources with the company’s existing business. Amazon is a good example because its experience with online shopping helped it build services for other sellers.
As Amazon grew, it learned how to store products, manage orders and get packages to customers. These skills became core competencies, which are things a company does especially well. In 2006, Amazon launched Fulfillment by Amazon, also called FBA. This service lets sellers pay Amazon to store, pack and ship their products. Amazon explained this move in its announcement of FBA.
For a small business, this can make selling online easier. A seller can send products to Amazon and let it handle the orders. That gives the seller more time to find good products and grow the business. Amazon gains another source of income by offering a service built around skills it already developed.
This also connects to economies of scope. In simple terms, this means saving money by sharing resources across different parts of a company. Amazon can use its fulfillment network to support its retail business and serve outside sellers. Building on that network can cost less than creating a completely separate system for each business.
Still, growth comes with challenges. More sellers and orders require space, workers and careful planning. If Amazon takes on more than it can handle, delivery problems could hurt both sellers and shoppers. The benefits of sharing resources have to be greater than the added costs.
What stands out to me is how Amazon turned an everyday part of its business into a service other companies would pay for. Its experience with storing and shipping products gave it a way to enter another business. This shows why diversification works best when there is a clear reason for the businesses to fit together.
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