Amazon.com Inc. is an e-commerce business organization that initially specialized in online retail, but has since expanded to offer various online and brick-and-mortar services. A VRIO analysis of Amazon helps explain how the business manages to grow and sustain its industry position. The VRIO model is based on Jay B. Barney’s system of internal analysis for understanding the competitive advantages of firms. Amazon.com’s competitive advantages are based on various resources and business capabilities. Nonetheless, information technology assets and related resources and capabilities are at the core of the company. The VRIO analytical model empowers the company’s decision makers in taking optimal strategic plans and strategic objectives to compete against players like Walmart, Costco, Target, Macy’s, and Nordstrom, as well as Google, Apple, and Microsoft. Amazon reaps the benefits of its core competencies, although the company needs to develop new core competencies and strengthen existing ones to minimize disruptions in the growth of its multinational business.
VRIO Analysis Table – Amazon.com Inc.
Amazon’s core competencies are based on organizational capabilities and business resources that satisfy all of the VRIO criteria (value, rarity, inimitability, and organization). Many of the company’s resources and capabilities satisfy only one or some of these criteria, but support business growth, nonetheless. The following VRIO table provides an outline of Amazon’s non-core and core competencies:
|Amazon’s Organizational Resources & Capabilities||V||R||I||O|
|– Growing brick-and-mortar presence||✔|
|– Growing diversity of online services||✔|
|– Growing portfolio of private label products||✔|
|– Extensive delivery network involving domestic, regional, and international partnerships||✔||✔|
|– Expertise based on a considerable history of e-commerce||✔||✔|
|– Strategic warehouses and distribution hubs||✔||✔|
|Sustained Competitive Advantage(s):|
|– High global brand equity||✔||✔||✔||✔|
|– High market capitalization||✔||✔||✔||✔|
|– International network of affiliates that expand international market reach||✔||✔||✔||✔|
|– Artificial intelligence capabilities||✔||✔||✔||✔|
* This VRIO table is best viewed using HTML5-compatible browsers.
Non-core Competencies. In the VRIO table above, Amazon.com’s non-core competencies include the company’s growing brick-and-mortar presence. This capability is valuable and contributes competitive advantage, but it is imitable and not rare, considering that major firms like Walmart have strong brick-and-mortar presences. Also, Amazon’s growing diversity of online services is valuable in terms of adding revenue sources, but not rare and inimitable, because other technology firms offer similar services. In addition, the VRIO table shows that the growing portfolio of private label products diversifies the company’s offerings, boosts market presence, and increases profits. For example, AmazonBasics is a private label that enables the company to directly compete against other online and non-online sellers. Although private labeling is valuable to the business, it is not rare and not inimitable. Even small businesses can implement private labeling.
Other non-core competencies include the company’s extensive delivery network, which involves partnerships with various third-party service providers, such as courier/delivery firms. This VRIO analysis illustrates that such a resource increases Amazon’s competitive advantages, but does not serve as a core competency, as other firms can develop similar strategic arrangements to support the delivery of their products to target customers. Moreover, the company’s expertise in e-commerce is a non-core competency that helps build competitive advantage. It is valuable and rare, especially among new firms. However, other firms may take similar business development paths to develop their own e-commerce expertise. In relation, Amazon’s strategic warehouses and distribution hubs are valuable and rare. They are the result of the company’s long-term strategic planning and experimentation on various strategies and tactics. However, based on the VRIO table above, competitors can imitate this strategic approach to develop their own distribution network. These resources and capabilities are contributors to the company’s competitive advantages, but they are not sustainable or applicable in the long-term strategic development of the business.
Amazon’s Core Competencies (Long-Term Competitive Advantages). The sustainable competitive advantages of Amazon are derived from the core competencies of the business organization. In this VRIO analysis case, there are four resources or capabilities that form the foundation of long-term competitive advantages. For instance, the Amazon.com brand has high equity in the global market. Through this brand, the company attracts customers to its current and emerging products. This brand equity is valuable and rare in the market. This high brand equity is also extremely difficult to imitate, especially in markets where the company already has a strong presence. Amazon maximizes the benefits of this core competency by organizing its business around it and by using the brand for various products.
On the other hand, high market capitalization is a sustainable competitive advantage considered in this VRIO analysis. The company is one of the most valuable businesses in the world, corresponding to its high market capitalization. This core competency is valuable because it empowers Amazon.com Inc. to fund and invest in business expansion and diversification. Also, this level of market capitalization is uncommon and difficult to imitate for most players in the market. Considering its history of acquisitions and business ventures, Amazon is organized to exploit this competitive advantage, as observed in its acquisition of firms like Twitch and Whole Foods Market.
The company’s affiliate network is also evaluated in this VRIO analysis as a core competency. The Amazon.com Associates program provides incentives to affiliates for sharing links to products sold on the company’s website. The program contributes to overall revenues, while giving revenue shares to affiliates. This core competency provides long-term competitive advantage to Amazon because it is valuable in supporting the e-commerce business, and because its global size is rare and difficult to find. The company is also organized around using this core competency and expanding the affiliate network.
Aside from such competencies, the VRIO table adds that artificial intelligence capabilities are another core competency and source of sustainable competitive advantage for Amazon.com Inc. The corporation’s AI capabilities, inclusive of Alexa, provide product enhancement and improved customer experience, thereby making the company a desirable platform for customers. This condition strengthens the company’s strategic position as a major technology business and influencer in the global market.
Key Points from the VRIO Analysis of Amazon.com Inc.
The strong competitive advantages of Amazon are indicative of core competencies that reinforce each other. For example, among the resources and capabilities outlined in the VRIO table, artificial intelligence capabilities reinforce and intensify the benefits of the company’s brand equity through increased product effectiveness and desirability. Despite these core competencies, Amazon.com has higher potential by improving its non-core competencies. The non-core competencies shown in this VRIO analysis can further bolster the corporation through strategic moves that bring the competencies closer to being sustainable competitive advantages.
Some Recommendations. Artificial intelligence is gaining traction as more customers are utilizing the technology for various purposes. Amazon.com Inc. is already integrating its AI technologies into various products and aspects of the business. Within the framework of this VRIO analysis, continuing such AI integration strengthens the strategic benefits of the company’s non-core competencies. For example, increasing AI integration in Amazon’s online and brick-and-mortar operations can improve product attractiveness and customer satisfaction. Also, the company is in the position to penetrate emerging markets, which present high growth opportunities for the business. For instance, high-efficiency e-commerce services can prove attractive in these markets, in the same way that the company’s e-commerce innovations disrupted the retail and related industries.
- Amazon.com Associates: The Web’s Most Popular and Successful Affiliate Program.
- Amazon.com Inc. – Artificial Intelligence on AWS.
- Amazon.com Inc. – Our Brands.
- Amazon.com Inc.’s Annual Report to the U.S. Securities and Exchange Commission (Form 10-K).
- Andriotis, A., & Stevens, L. (2018). Amazon’s Next Mission: Using Alexa to Help You Pay Friends. The Wall Street Journal.
- Chinese and US tech giants go at it in emerging markets. The Economist.
- Japanese e-commerce giant Rakuten struggles to retake lead from Amazon. The Economist.
- Kim, S. C., Lee, J. S., & Shin, K. I. (2015). The impact of project management assets on the VRIO characteristics of PM process for competitive advantage. International Journal of Productivity and Quality Management, 15(2), 153-168.
- Knott, P. J. (2015). Does VRIO help managers evaluate a firm’s resources? Management Decision, 53(8), 1806-1822.
- Lioukas, C. S., Reuer, J. J., & Zollo, M. (2016). Effects of information technology capabilities on strategic alliances: Implications for the resource-based view. Journal of Management Studies, 53(2), 161-183.
- Mims, C. (2018). The Prime Effect: How Amazon’s Two-Day Shipping Is Disrupting Retail. The Wall Street Journal.
- Pesic, M. A., Milic, V. J., & Stankovic, J. (2013). Application of VRIO framework for analyzing human resources’ role in providing competitive advantage. Tourism & Management Studies, 575-586.