215 logistics partners affi liates fulfi llment it infrastructure & software development & maintenance online retail shop fulfi llment by amazon amazon web services: s3, ec2, sqs, other web services customized online profi les & recommendations global consumer market (north america, europe, asia) developers & companies individuals & companies that need fulfi llment it infrastructure & software global fulfi llment infrastructure amazon.com (& countries) affi liates aPIs marketing technology & content fulfi llment sales margin utility computing fees fulfi llment handling fees VP CR CH CS KP KA KR R$ C$ In 2006 Amazon.com focused on two new initiatives that satisfi ed the above require- ments and which promised to powerfully extend the existing business model. The fi rst was a service called Fulfi llment by Amazon, and the second was a series of new Amazon Web Services. Both initiatives built on the company’s core strengths—order fulfi llment and Web IT expertise—and both addressed underserved markets. What’s more, both initiatives promised higher margins than the company’s core online retailing business. Fulfi llment by Amazon allows individuals and companies to use Amazon.com’s fulfi llment infrastructure for their own businesses in exchange for a fee. Amazon.com stores a seller’s inventory in its warehouses, then picks, packs, and ships on the seller’s behalf when an order is received. Sellers can sell through Amazon.com, their own Chan- nels, or a combination of both. Amazon Web Services targets software developers and any party requiring high- performance server capability by offering on-demand storage and computing capacity. Amazon Simple Storage Systems (Amazon S3) allows developers to use Amazon.com’s massive data center infrastructure for their own data storage needs. Similarly, Amazon Elastic Compute Cloud (EC2), allows developers to “rent” servers on which to run their own applications. Thanks to its deep expertise and unprecedented experience scaling an online shopping site, the company can offer both at cutthroat prices, yet still earn higher margins compared to its online retail operations. Investors and investment analysts were initially skeptical about these new long-term growth strategies. Unconvinced that the diversifi cation made sense, they contested Amazon.com’s investments in even more IT infrastructure. Eventually, Amazon.com overcame their skepticism. Nonetheless, the true returns from this long-term strategy may not be known for several more years—and after even more investment in the new business model. Opportunities Amazon.com explored in 2006: synergies in the use of activities and resources for new offers two totally new customer segments which are underserved as to the proposed offer new revenue streams with higher margins than retail bmgen_final.indd 215 6/15/10 5:44 PM