Why Amazon Dominates E-commerce and Lacks Serious Rivals in the West

Vitamins, repair tape and a jar of mango chutney - just some of what my household bought last month via Amazon's sprawling online shopping platform.

We also shopped at the company's supermarket chain Whole Foods, streamed its TV shows, read books on Kindle e-readers, and browsed countless websites no doubt powered by Amazon Web Services (AWS), its highly profitable cloud-computing business.

And that isn't half of the interconnected products and services offered by the global behemoth, which earlier this year overtook US superstore giant Walmart to become the world's largest company by annual sales.

But why does Amazon, launched by Jeff Bezos in 1995 as an online bookstore out of a rented garage, have so few serious rivals in the West when it comes to e-commerce? Couldn't we consumers benefit from a bit more competition?

First, to be sure, Amazon isn't without competitors in any of the segments it is in, including e-commerce. Major US retailers like Walmart and Target both have broad-based, rapidly-expanding online retail arms, and offer their own versions of Amazon's Prime subscription service.

In the UK, Tesco leads in online groceries, and Zalando is Germany's biggest internet retailer of clothing. When it comes to ultra-cheap products, Chinese websites Temu and Shein are major forces.

Then there is eBay, which earlier this month received a $55.5bn (£41.7bn) takeover offer from video games retailer GameStop. Ebay has a different business model to Amazon, with its focus on auctions, second-hand goods, and collectible items.

And while GameStop says it hopes eBay could one-day become a stronger competitor to Amazon, the latter currently towers over all its rivals when it comes to total e-commerce market share.

In the US, Amazon accounts for 40.5% of all online retail sales, while its nearest rival Walmart has 9.2%, according to figures from last month. Ebay is down at around 3%.

"Amazon is not an undisputed monopolist in e-commerce, but it is the dominant firm," says Annabelle Gawer, director of the Centre of Digital Economy at the University of Surrey. "And the scope of what it sells is unparalleled."

One is a 'first-mover' advantage. Among the earliest to scale online retail – and with a clear vision of how the internet could revolutionise shopping with convenience and speed – it captured market share faster than many rivals.

Just as important was the willingness of its shareholders, for many years, to allow the company to lose money by selling products at a loss, and later to aggressively reinvest early profits back into the business to fuel growth. To this day Amazon has never paid shareholders a dividend.

"[The strategy] constrained the competition," says David Yoffie, a professor emeritus at Harvard Business School (HBS). For traditional companies, pursuing the same approach would have significantly damaged their stock price and angered shareholders, he says.

Today Amazon has a big advantage over retail rivals in that it can use funds from its most lucrative businesses – notably AWS, its main profit engine – to sustain its lower-margin retail operation and invest in new ventures.

Positioning itself as a technology company also helped. Algorithms, automation and data have been central to Amazon's ability to scale, driving efficiency and shaping its customer experience.

Moreover, it has a culture of bold experimentation, says Sunil Gupta, also a professor at HBS, entering areas from cloud computing and consumer devices to own-brand products, original content production and healthcare – and moving on if something fails.

Experts also point to two pivotal business moves. One, instituted in 2000, was to go from being an online retailer to an online platform, allowing third-party sellers to offer their goods in its online store.

The result was a "network effect" explains Gupta. More sellers meant more products, which kept customers from going elsewhere – and in turn attracted even more sellers. "It is very hard for a new player to break that," adds Gupta.

The other was the launch of Amazon Prime, in the US in 2005 and the UK in 2007, offering free and fast delivery in return for an annual subscription fee. This made the platform "very sticky", says Emily West, a professor of communication at the University of Massachusetts Amherst who has studied and written about Amazon.

"You have the free shipping, in which case you may as well just search for your stuff on Amazon," she says.

While Prime itself is not particularly profitable – most of Amazon's e-commerce profits come from advertising and third-party seller fees – what is included with Prime has grown to a broad bundle, from a vast library of movies and shows to stream, including Amazon's own content, to discounts at US Whole Foods, making membership even harder to cancel.

"Amazon is not just a website that sells products," says Gawer. "It's an ecosystem of multiple businesses that are reinforcing each other… which makes it very hard to compete with."

But there could additionally be another reason Amazon lacks rivals - behaviour that some allege violates competition law, preventing existing competitors from growing and new ones from emerging.

In the US, both the Federal Trade Commission (FTC) and the state of California have separate antitrust lawsuits against Amazon set for trial in early 2027, alleging the company uses unlawful practices to maintain its dominance and harm competition, with California last month releasing a trove of evidence.

The FTC case is broad, but a key allegation is that Amazon prevents new or smaller marketplaces from gaining a foothold because it stops them from competing on price.

It is accused of penalising its sellers – for example by lowering their product's visibility in search results or removing their "Buy Box" – if it finds they have lower prices on other websites.

The alleged result is that shoppers have little incentive to leave Amazon because prices are the same and rival platforms' typical strategy of lowering fees for sellers to encourage cheaper prices fails because sellers fear losing sales on Amazon.

One solution some have called for is to break Amazon into multiple stand-alone companies. "It would oxygenate the market," says Stacy Mitchell is co-executive director of the US based non-profit Institute for Local Self-Reliance, which is part of the Athena coalition fighting to change the way Amazon operates.

There is a very different kind of shopping experience on the horizon. E-commerce is starting to be embedded directly in generative AI interfaces like ChatGPT, letting users buy products without leaving the sites – a development that could threaten Amazon's dominance in online retail.