What is Amazon's Product Differentiator?

There are (well, used to be) two types of organization attributes: Cost leaders and benefit leaders. To be successful, economist Michael Porter argues that a business must choose one; to try to do both means poor performance. However, recent thoughts are leaning away from that thought. Studying the relationship between product differentiation, market share, and low costs is doable, and some firms have learned to manage the best of both worlds.

We have already established that Amazon is most definitely a cost leader (see previous blog post). But, let's move the conversation further -- Has Amazon simultaneously led a low-cost strategy and a product differentiation strategy? In one way, you can see that one leads to the other: Product differentiation can lead to high market share and low costs.

Let's look at what products Amazon is known for: The Kinde and Other (let's use this bucket to include the sellers' products, which make up a majority of Amazon's sales).

One, the Kindle. Amazon introduced the Kindle to compete with Apple's iPad, and even Apple's e-book prices. Amazon is already at a disadvantage here, adding a new product to an already-existing market. While the iPad was generally for web-browsing, the Kindle would be more beneficial for book-readers. However, the market needed more web-browsing than book-reading, making the iPad remain a higher-seller. Additionally, true to the low-cost leader it is, Amazon sold the Kindle Fire for $199 even though it costs $202 to make, the Kindle for $79... And sold e-books at $9.99, making another monetary loss. (This seems silly, but when you're big, you can do things like push out the paper-book market.)

Two, others' products. Amazon has evolved on e-commerce and selling others' goods at a low cost. In fact, Amazon sells products that span over 25 categories There is nothing differentiated about these products. For fun, check out a detailed infographic here.

The answer is no; Amazon is simply a cost leader and does not have a sustained advantage via a differentiated product. Amazon tried this via the Kindle, but they never found a delicate balance between the two strategies. Which is fine - there is an art to the implementation, and I have no doubt that Amazon could master it.. If they wanted and needed to. With such a strong cost leadership, do they really need to enter into the differentiated product market? Even with lower margins, stockholders still appreciate the market share Amazon has, thanks to its low-cost strategy.

Sources:

• Gaining and Sustaining Competitive Advantage by Jay B. Barney [textbook]
• The Two Business Strategies: Cost Leadership and Benefit Leadership (And Where Michael Porter Missed The Mark) by Jake Nielson [http://www.theinnovativemanager.com/the-two-business-strategies-cost-leadership-and-benefit-leadership-and-where-michael-porter-missed-the-mark/]
• Exactly How Many Products Does Amazon Sell? by 360pi [http://360pi.com/many-products-amazon-really-sell/]
• Benefit Advantage and Product Differentiation (iPad vs. Kindle) by Mattman [http://mbanotebook.blogspot.com/2010/04/benefit-advantage-and-product.html]
• $9.99 Ebook Price To Cost Apple $252 Million by Peter Cohan [http://www.forbes.com/sites/petercohan/2012/04/12/9-99-e-book-price-to-cost-apple-252-million/2/]