Assessing Amazon's Sustainable Competitive Advantage

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Over the last decades, Amazon emerged as the biggest e-commerce platform with a revenue of 230 Billion USD in 2018 (Nasdaq 2019), staying ahead of its competition. Such a position is often referred to as competitive advantage (CA), defined as the implementation of a value-creating strategy which cannot simultaneously be copied by any competitor. Sustainable competitive advantage (SCA) occurs when a firm is able to maintain that advantage over a long period of time without being copied (Barney 1991). Based on current resources and innovative power, this essay will discuss if Amazon has SCA and argue that combining different theories will allow drawing the conclusion that Amazon does.

According to the resource-based definition of Barney, being copied by competition nullifies SCA. Applying Barney’s VRIN criteria to Amazon reveals that no resource individually fulfills all four criteria. Accordingly, Amazon doesn’t have SCA, as every resource could be imitated by competition in the long-term. Exemplarily, two of Amazon’s most prominent resources, product variety and customer base, are assessed, albeit the analysis could be extended to any other resource. These resources are value-creating resources and rare as only very few other companies like Walmart possess them. Product variety and customer base also seem to be non-substitutable. However, non-imitability of these resources is questionable, as other firms could theoretically obtain them as well, although it might be very difficult and costly.

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It may be argued that Amazon has developed its key resources due to unique historical conditions, such as surviving the dot.com bust, although this might be rather driven by different actions they took, e.g. IPO or structuring operations. Social complexity might be another reason for non-imitability. Yet it seems more likely that customers prefer Amazon due to lower prices and/or differentiation. Casual ambiguity can also be neglected.

A critique of Barney’s framework is that SCA only occurs if firms don’t completely understand the linkage between their resources and the resulting CA. Nonetheless, it seems more likely that Amazon does understand and hence adjusts its actions to it. One limitation of Barney’s definition is that it focuses solely on not being copied since SCA can only be vanished by Schumpeterian Shocks which cannot be anticipated anyway. Thus, in a dynamically changing environment, SCA should also comprise a firm’s ability to react against being made obsolete either by competition or fundamental environmental changes. Otherwise, SCA according to Barney may never be achieved as increasing innovation and technological progress make a position ahead of competition only temporary or even redundant. In this regard, Amazon possesses SCA as the firm can adapt to changing environments by continuously creating new markets and opportunities.

As a prerequisite, Amazon is able to apply all three generic strategies identified by Porter (1980) simultaneously. Amazon applies cost-leadership due to operational efficiency, e.g. through global fulfillment facilities and process automation. Minimized costs allow offering the same quality at lower prices which further increases sales. Differentiation is largely based on Prime as customers are willing to spend more for faster delivery and additional offers like Prime Video. Lastly, Amazon also runs focus strategies as it tailors its offers individualized for each customer based on interest, last purchases, and personal information.

By combining cost leadership and differentiation strategy, Amazon can use Blue Ocean Strategies (BOS). Unlike Porter (2008), Kim & Mauborngne (2005) see the source of CA not on the supply side in competition but rather in the ability to unlock new demand and hence value for the firm. Based on their Four Actions Framework, several examples of BOS within Amazon’s history can be derived, e.g. the market entry 1994 as an online bookstore. By selling online to eliminate the existing industry-standard and reducing the overdesign of the value chain, the cost structure could be cut. Simultaneously creating new services and raising delivery time and selection over industry-standard further enabled Amazon to increase customer value and generate new demand. Among others, recent BOS examples include Kindle, Webservice, Prime, and Amazon Fresh.

Applying BOS is not only an essential foundation for Amazon’s position today, but also demonstrates adaptability to change and proactively taking measures against being made obsolete. As Barney’s definition is thereby expanded, BOS seem to be a source of SCA. As competition is made irrelevant by entering new markets, BOS theory suggests that the current position cannot be copied. Also, Amazon itself failing in trying to copy competitors’ BOS (e.g. Fire Phone 2014), supports this argument. However, one drawback of BOS is that it remains unsure how long competition is unable to enter. To prevent blue oceans from turning red, Kim & Mauborngne (2005) argue that a whole-system approach aligning all activities is the only way to create sustainable BOS. This is in line with Porter (1996) who states that CA is driven by how activities fit and reinforce each other and that congruence is therefore fundamental to SCA. Prime, for example, increases sales significantly as members spend four times more. Amazon Marketplace increases product variety, accounting for more than half of all units sold (Wells, Danskin & Ellsworth 2018). At the same time, Amazon Fresh offers prime-members a grocery-delivery function, which is further enhanced by the acquisition of Whole Foods in 2017, which further increases Amazon’s engagement in physical stores besides Amazon Go. As the example could be extended, it becomes evident that all activities are designed not only to complement but reinforce each other, hence maximizing differentiation while minimizing costs. Taken this into consideration, Amazon’s SCA can be even supported by applying VRIN criteria.

Assessing all resources of Amazon together rather than looking at them individually, the interaction of different activities, services, and resources make it almost impossible to be copied. In conclusion, by combining both a strategic and resource-based perspective, Amazon does have SCA due to the integration of its different (strategic) actions and resources. By constantly seeking to create new markets and fitting them to the existing activities, Amazon is further likely to cope with potential shocks, ensuring that their current CA will continue in the future.

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