To Go Beyond Your Core Business - Or Not?

Should you pursue a new direction or stick with your core business? How do you decide?

The November 13, 2006 issue of BusinessWeek featured a cover story about Amazon.com’s new web services. These services exhilarated thousands of potential customers even while Wall Street analysts gave it a thumbs down.

Amazon is now leveraging 12 years and billions of dollars of investment in building one of the most sophisticated Internet platforms by making parts of it available for others to use for their own businesses.

The new services are very popular with large (Microsoft) and small (numerous start-ups) customers alike. Says BusinessWeek: “Amazon CEO Jeff Bezos, says he wants Amazon to run your business, at least the messy technical and logistical parts of it, using those same technologies and operations that power his $10 billion online store.”

One executive expects his startup to save $500,000 a year with these new tools and, not surprisingly, VC’s are urging their portfolio companies to take advantage wherever they can.

But Wall Street analysts complain that competition is increasing in online retailing, Amazon’s core business, and they fear these new tangents will simply distract management.

To me, the “core business” argument is nebulous. Sticking to one’s core business should never stand as so central a consideration.

These are the key questions a company must initially ask itself before deciding to go beyond its core competency:

1. Do we love this business? Does it fit with our passion? (Passion.)

2. Who cares and will they pay enough to make it profitable? (Strategy.)

3. Can we do this better than anyone else? Do we have the people, skills, talent and infrastructure to make this work? (Competency and Execution.)

From Jeff Bezos on down, Amazon.com is passionate about continually improving their online software platform – which is certainly one of the best in the world. They’ve been doing this for years in a variety of ways. In fact, one of the company’s directors argues that Amazon’s core business is in fact managing complexity, more so than online retailing. “Core business” or not, internet technology is certainly Amazon’s driving force.

There certainly seems to be a market for Amazon’s web services based on the enthusiastic response. If a small startup will save half a million dollars a year, that’s a service worth paying for.

The final question comes down to one of execution. Can they maintain the dual focus on growing their retail business while growing their new services?

This question is harder to answer from such a distance and therefore I won’t try to. Yet their record is good and many successful companies have various product lines serving different markets. Their track record seems to indicate they can do it. Until we see evidence to the contrary, this looks like a good move.