How Ancillary Works

By far, the most common context of the word 'ancillary' is in the case of an ancillary business. As you can probably glean from the definition above, an ancillary business is a side business or company that simply supports a larger, main business. In many cases, the goods, products, or services provided by an ancillary business are directly related to those of the main business. Even more so, an ancillary business will almost one-hundred percent of the time provide its parent business with what is known as ancillary revenue.

Ancillary revenue is essentially the profit that is made by the ancillary business. This revenue is normally the main reason why companies develop ancillary businesses in the first place. Ancillary revenue acts as a crutch and catalyst for growth for businesses that are positioned for expansion and/or see an opportunity to invest in a new type of business and line of work. In this way, ancillary businesses, for their parent company, are a source of income, investment, and, in turn, a risk.

Real-World Example of Ancillary

A prime example of a company that has ancillary businesses is Amazon. Just to name a few of these extension businesses, Amazon developed:

  • Twitch, a well-known live gameplay and video streaming app
  • Amazon Web Services (AWS), a cloud-based computing development platform
  • Amazon Pay, an online payment platform
  • Kindle, a portable and desktop eBook reader

These ancillary businesses provide Amazon with funding to make online retail for virtually everything and anything. These extensions become even more important when you realize that, on most of the sales made on Amazon.com, the company loses money in order to provide the best experience to the customer (in terms of delivery time and methods of delivery).

Amazon's ancillary businesses are largely beneficial to the conglomerate as a whole. Not only do these ancillary businesses spread Amazon's name and reputation, but they also allow the company to reach many, many different target audiences. For example, Twitch, mentioned before as a streaming platform, allows Amazon to reach streamers and others that use the app.

Significance of Ancillary

Ancillary provides businesses with options and widens their revenue stream. As written before, one of the main reasons that a business will go to such lengths and take the risk of creating an ancillary business is the ancillary revenue. But beyond money, there are other benefits that come with an ancillary business as well.

For one, if the main business has an outside source of income, it is much easier for them to focus on the main objective of the business. This may involve something along the lines of conducting expensive research to improve the products of the main business or building new facilities for the corporation using ancillary funding. Another reason could be to make the main company more well-known or reach a new target audience, perhaps through a new business model or marketing method.