Amazon’s Strategy: Achieving Advantage by Competing Differently
Amazon was launched in 1995 by Jeff Bezos as an online retailer of books. Bezos chose to offer value to
customers in a way that involved competing differently than established book retailers such as Barnes &
Noble, Waldenbooks, Borders, and Books-A-Million. At the time of Amazon’s launch, its established
rivals relied on brick-and-mortar locations with extensive inventories to attract customers. For example,
Barnes & Noble and Waldenbooks both operated approximately 1,300 store locations in the early-
1990s. Amazon’s online retailing approach was keyed to an emerging market segment that was not
crowded with strong rivals, and its business model utilized a very different cost structure than traditional
book sellers. Amazon’s cost was much lower than that of rivals as it did not have the vast fixed and
variable costs associated with building, leasing, and operating physical locations. In addition to offering
book sales exclusively through its website, Amazon stocked only about 2,000 book titles. The company
offered 2.5 million book titles on its website by 1996, but the vast majority of its orders were fulfilled by
third-party partners that would ship books to customers placing orders at [Link].
Amazon began to build its own network of warehouses in 1997 to accelerate and control deliveries to
customers, which allowed it to expand into new product categories such as electronics, housewares,
toys, and other frequently purchased consumer goods. Amazon’s key differentiating features evolved to
focus on an exhaustive product line, prompt delivery and superior customer service—all of which
required actions to build best-in-world IT and logistics capabilities. Amazon’s approach to achieving
advantage bore little resemblance to the moves and approaches of its rivals who were primarily focused
on merchandising and inventory management for brick-and-mortar stores. By the mid-2000s, Amazon
had commercialized it’s highly refined IT and cloud application capabilities with the launch of Amazon
Web Services (AWS). AWS offered these services to business and governmental customers needing
reliable cloud services. Also, Amazon had launched an Order Fulfillment Network division by the mid-
2000s to provide order fulfillment services to nearly any type of merchant.
Key elements of Amazon’s distinctive strategy include:
Online Retailing. Amazon boasted the largest selection of merchandise available through an online
retailer. The company held inventory purchased for resale and sold products offered by third-party
sellers. The company recorded gross revenue from items sold from its inventory as product sales and
recognized its net share of revenue of items sold by third-party sellers as service sales. The company
intended to maintain its advantage in online retailing by expanding product selection across numerous
product categories and providing prompt delivery and hassle-free returns.
International online retailing sales. Amazon’s international sales increased 22 percent from 2020 to
2021, as revenues from both inventory purchased for resale and sales by third-party sellers grew. The
company’s strategy to drive increases in international unit sales includes efforts to reduce prices for
international customers, including low-price shipping offers. The company is working to improve
fulfillment network efficiency and supply chain shortcomings to further reduce prices in international
markets.
Fulfillment by Amazon. In the early 2000s, it took Amazon an average of 18 hours to process an order
and have it placed on a truck for delivery. The company had reduced order-processing time to two hours
by 2022. This service was made available to third-party merchants and supported with a network of 253
fulfillment centers, 110 sortation centers, and 467 delivery stations in North America, with an additional
157 fulfillment centers, 58 sortation centers, and 588 delivery stations across the globe. Amazon’s
delivery network also included more than 260,000 drivers worldwide, and an air cargo fleet with more
than 100 aircraft. By 2022, Amazon had invested more than $100 billion in its order fulfillment network.
Outsourcing fulfillment to Amazon could save vendors up to 72 percent on shipping costs relative to
two-day shipping offered by FedEx or UPS.
Amazon Web Services. Amazon understood how web hosting and cloud services could become a
differentiated service since cloud computing needs varied greatly among various types of customers.
Examples of distinctive differences in providing value to customers were related to server configurations
optimized for storage, memory, high-performance computing, graphics rendering, machine learning,
and a host of differing networking capabilities. Amazon’s investment in AWS included the development
of its own Graviton microprocessor series, which provided up to 40 percent better price performance
than the comparable latest generation x86 processors. Also, the company’s AWS cloud services utilized
an iterative innovation process to provide customers with more functionality that is available through
other cloud hosting services.
Devices. Amazon had sold hundreds of millions of Alexa-enabled devices for use in homes, offices, cars,
and third-party manufacturer devices. Alexa allowed users to listen to music, watch videos, control
lighting and home automation, and provide useful information such as customized news, weather
forecasts or current traffic information. In 2023, Amazon was developing several other personal
assistance devices, including new models of Kindle, FireTV, Alexa/Echo, Ring, Blink, or Astro home
robots.
Amazon Prime Video and Prime Music. In 2011, Amazon began including over 5,000 streaming movies
and television programs as a part of the Amazon Prime subscription. The company expanded its lineup
of programming to include Amazon Original movies and series such as Reacher, Jack Ryan, Outer Range,
and Night Sky. The company also expanded its sports programming with Thursday Night Football in
2022. Prime Music allowed Amazon Prime members to stream millions of songs.
