Partnering with Giants; Amazon as Startup Incubator

As I have been thinking about, studying, researching, and participating in the entrepreneurial economy for almost 10 years now, there is one thing I came to realize a few years ago. It is not about Big vs. Small Business or Small Businesses replacing Big Businesses (though that always happens as part of industry and economic cycles); the relationship is symbiotic.

For firms like FedEx and United Airlines to Microsoft and Costco, small businesses play a crucial role as customers and partners for large firms. Certain changes in the economy have given small businesses more tools than ever before, but large corporate firms do things for and with small firms that they could never do on their own.

The Wall Street Journal has an interesting piece by Mylene Mangalindan on Amazon.com’s Web Services Unit which provides a whole variety of services to small firms. From the article,

Started in July 2002, Web Services is part of Amazon’s move to position itself as more of a technology company, even though its biggest business involves selling books, music and movies. According to comments from Amazon Chief Executive Jeff Bezos, the company is aiming to cater to three types of customers: individual consumers, merchants and software developers.

The Web Services unit is seen by many as a way for Amazon to amortize and use its immense computer infrastructure, which runs heaviest during the fourth quarter. The company has invested about $571 million in the past three years in capital expenditures on mostly internal-use software and Web-site development. By allowing other developers to tap its vast computing resources, it can generate some extra revenue.

“Amazon is a highly seasonal business,” says Sucharita Mulpuru, a Forrester Research analyst. “They have a lot of servers. In the off-peak, it’s a way to make use of assets that are underutilized.”

Web Services also allows Amazon to nurture entrepreneurs creating programs that might grow into small businesses, which eventually might sell products on Amazon’s marketplace, say analysts. It also allows the company to stay close to technology shifts as companies like Google Inc. and Microsoft Corp. produce more programs and services that users can access on the Web.

Partnering with large, established firms can lower risk in many ways, though flexibility and customer service may be more difficult.

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