07/27/2010 11:25 am ET | Updated May 25, 2011

Beneath the Surface: A Business Lesson From Amazon

The river is rising.

No, I don't mean rain-swollen waterways, but instead.

Economic recession? Not for this global online giant. Last year, sales grew an impressive 28 percent year-over-year to $24.51 billion. This year sales are growing even faster. In Q1, sales jumped 46 percent to $7.13 billion.

If you shop at Amazon, you certainly appreciate some of the reasons why the company continues to defy the economy and even the law of large numbers. Its product selection is virtually unmatched, and its prices are often comparable to WalMart's. Moreover, the company provides free domestic shipping on orders $25 or more, and customized product recommendations. Little wonder that Amazon ranks among the leaders in customer satisfaction surveys.

But a compelling customer experience is only part of what fuels Amazon's growth. Another component is the support the company provides to its nearly 2 million business partners who rely on Amazon for wide variety of services.

More than a million sellers, for example, turn to Amazon for help with demand generation, order processing and those notoriously labor-intensive returns. Amazon will store partners' inventory in its warehouses, and then pick, pack and ship it anywhere in the world.

In addition to its ecommerce services, Amazon also courts partners that can benefit from its advanced computing capabilities. Companies such as ESPN and eHarmony rely on Amazon not to sell products but to store business data and provision applications to their customers. NetSuite, for example, has signed a deal that will allow it to store customers' online accounting data on Amazon's network.

Why does Amazon goes to great lengths to recruit and retain partners? CEO Jeff Bezos says partners help the company fulfill its long-term goal of creating "a place where you can buy anything and everything." To achieve that dream, Amazon's leadership team made a conscious decision to recruit partners with a variety of products and business models.

In addition to the direct benefits these partners provide in the way of fees, Amazon also enjoys indirect benefits. The sellers that list products for sale on Amazon provide customers a richer shopping experience than what Amazon could otherwise offer. This attracts more customers to, which leads to greater sales for all. In addition, the sellers that maintain their own sites but use Amazon's shopping-cart and check-out technology help grow the business by subtly reassuring Internet users that Amazon is a trustworthy and convenient shopping site.

This self-perpetuating cycle produces a flywheel effect that translates into billions of dollars of additional revenue per year for Amazon and its partners. Third-party sellers account for nearly one-third of Amazon's unit sales today. And they are growing as a percentage of revenue each year.

So why don't more companies cater to their customers and partners with this kind of vigor? Because doing both is very difficult. The importance of catering to customers is obvious to most companies because they see immediate benefits from these efforts. But helping partners doesn't always produce an instant or obvious return. Furthermore, partners can be difficult to manage, expensive to support, and hard to retain.

Not surprisingly, many companies struggle balancing the profitability of partners with the satisfaction of customers. For this reason alone, many business leaders give up trying to please both constituents.

Amazon however, demonstrates that there is a better way. And so do others. Take the auto industry, for example.

In recent years, Lexus has gone to great lengths to increase the quality of its cars and the experience of its independent dealers. Lexus has even helped fund food counters and golf games inside dealer showrooms. Why? Because 50 percent of all new car buyers say the dealership experience greatly influences their purchase decision. By helping dealers improve the end customer experience, Lexus not only increases the loyalty of its business partners but also the sales of its products.

Rather than view customers and partners as opposing forces competing for internal resources or financial advantages, smart companies go to great lengths to satisfy each equally -- and uniquely. Though the work requires tenacity and dedication, doing both creates significant momentum -- like a mighty river that keeps on flowing.

Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profits and Drives Tomorrow's Growth. Follow Inder on Twitter at @indersidhu.