Competitive Advantage

Each semester in my Management 451 class we spend at least a week talking about competitive advantage – what it is, how one obtains it and how is it defended. Sometimes I think the students think this is a bit of over-intellectual sophistry. But then they come across an article like one the other day about Amazon and their building spree and they realize that this is real big boy stuff.

Here’s the background: as of Saturday, Amazon will be forced to charge sales tax in California wiping out twenty years of a huge seven point something percent price advantage over their brick-and-mortar competition. Amazon has publicly acknowledged in their SEC filings that collecting the tax could, indeed, hurt them. And, as you might expect, they are challenging the ruling in court, but until then they will be collecting the state sales tax.

So, how are they fighting back? What is their new competitive advantage? For one, they don’t, obviously, have just one advantage, per se. Students in my class yesterday came up with a few: one-click ordering: their wide variety of products; and their ubiquity were just three. But Amazon, according the article cited above, is not resting there. The goal ultimately is to “super-serve” their customer base by ultimately offering same-day delivery. 

To that end, they have embarked on a construction binge that rivals the pharaohs in ancient Egypt; building seven 1 million square foot warehouses on the outskirts of major metropolitan areas (including one outside of the Bay Area and another outside off LA) with initial goal of cutting their normal two day delivery down to one. 

So that’s a huge start. What do you think? Is the extra service going to be enough to overcome the loss of their tax-free advantage?