Since its beginning in 1994, Amazon has evolved into an e-commerce giant expanding far beyond its original online bookstore platform. Today, Amazon dominates by holding market share of about 68 percent in the e-retail industry. This is a result of the company’s wide product selection and the launch of Amazon Prime, where members pay an annual fee to receive free shipping on a variety of items and can stream content. As a market leader, Amazon stands powerfully against its competitors. With the introduction of the Amazon Kindle and new Amazon Echo, the company continues innovation and dominance.
Amazon’s Competitive Advantage: Amazon has several competitive advantages that keep them ahead. To begin, the company has many fulfillment centers to promote rapid delivery and diminish shipping costs. For Amazon Prime members, this allows Amazon to provide free two-day delivery. Amazon Prime has evolved into a profitable platform for Amazon that competitors cannot match. Prime subscription fees alone account for about $5 billion annually in the U.S. and creates a growing revenue source for Amazon. Attached to an Amazon Prime membership is free streaming of digital media services that add to the many benefits of a subscription that competitors find difficult to match. The result of this unmatched service has led to the rapid growth of Prime’s subscriber base and Amazon’s customer loyalty.
Walmart as a Competitor: One of Amazon’s biggest competitors, Walmart, also known for its large selection of products, recently announced the elimination of its $49-per-year ShippingPass service, which launched in mid-2015 and provided free shipping on various items to its members. This service was similar to Amazon Prime, and its removal reveals the challenge for Walmart to face Amazon head on. While it is unlikely that Amazon Prime can be effectively replicated, due to Amazon’s heavy investments in the platform, Walmart can still be a strong competitor.
Walmart operates as a superstore, selling a large range of products with high inventory volumes. With an Every Day Low Pricing (EDLP) model, Walmart provides a variety of goods for the lowest prices in the industry. Therefore, Walmart likely can negotiate lower prices from suppliers and in turn price products lower than Amazon. With high inventory volumes and a large presence of retail stores, Walmart is well-positioned to sell products online with relatively low fulfillment costs. Additionally, Walmart can leverage their acquisition of e-commerce startup Jet.com to improve their online presence and utilize algorithms to track factors, such as shipping distance and order size, to boost efficiency.
Amazon’s Success: Ultimately, Amazon customers do not chose to buy from Amazon solely for economic reasons, as they do not tend to offer the lowest prices in the industry. Instead, Amazon has sustained a business that provides shoppers with reliability, convenience, and outstanding customer service. Competitors like Walmart, may succeed in e-commerce platforms and grow market share. But, Amazon and its various platforms, such as Amazon Prime, continue to soar to new heights.