Amazon: Yet Another Expansion into a New Market
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As Bloomberg reports, Amazon is considering selling its artificial intelligence chips, called Trainium, directly to other companies.
So far, these chips have primarily been used within AWS, Amazon’s cloud division.
The idea stems from the growing demand for AI computing power and from many companies’ efforts to find alternatives to the suppliers that currently dominate the market (source: "Amazon in Talks to Sell AI Chips Competing With Nvidia to Other Companies," Bloomberg).
What Entrepreneurs Can Learn from This News
Amazon's Expansion Strategy Starts with Existing Strengths
If we look at Amazon's history, we can see that it started by selling books online, then became a massive general e-commerce company, later expanded into cloud computing and video streaming, and is now considering entering the artificial intelligence chip market.
At this point, an entrepreneur might reasonably wonder whether Amazon risks losing focus on its core business.
The answer is yes, that risk certainly exists, and losing focus on your mission and USP is one of the main reasons many companies never manage to grow and, in more serious but very common cases, ultimately fail.
The key point, however, is that Amazon has not expanded in the same way many small businesses do.
When "normal" entrepreneurs spot an attractive opportunity, they immediately jump on it and add a new business to the one they already have.
Then another...
Then another...
The result is that, after a few years, they find themselves operating in an absurd number of different markets without achieving excellence in any of them, while struggling to deal with all the problems that each customer segment inevitably brings.
This is called uncontrolled expansion, and it is a mistake, whereas diversification is what Amazon has done correctly.
Historically, Amazon's expansions have always originated from capabilities the company already possessed:
- AWS was created because Amazon needed massive computing infrastructure to run its e-commerce platform.
- Prime Video was launched to make the Prime subscription more valuable and attractive.
- Amazon Business leverages the same logistics network and sales capabilities the company had already developed.
Trainium chips follow the same logic.
Amazon did not wake up one morning and decide to manufacture semiconductors simply because they were fashionable or because it wanted to compete with Nvidia, the global leader in the chip industry, just for the sake of competition.
The project began because Amazon started developing these chips to improve its own cloud infrastructure.
Only after gaining experience and expertise did the company begin considering the possibility of selling them to others.
Although it may seem otherwise, Amazon is not constantly jumping into completely new industries.
Instead, it looks for new ways to leverage capabilities it already possesses.
Diversification can be valuable, but first you need to build a solid competitive advantage in a specific industry.
Once that advantage has been firmly established, you can use it to expand into adjacent businesses.
For example, if a real estate agency has to spend days searching for renovation contractors and comparing quotes, creating its own renovation company to serve its clients - and generate additional revenue from that business - does not represent misguided expansion.
The agency first developed expertise in selling homes, then expanded into the complementary renovation business, an additional and profitable service it can offer every time it sells a property.
If you fail to understand this principle and therefore fail to recognize that Amazon expanded only after developing deep expertise, trying to imitate its current structure becomes an economically unsustainable mistake for anyone who does not have billions of dollars to invest.