Competitive Advantage

Competitive advantage has to do with a company's ability to outdo competitors, either by improving upon what competitors are currently doing or by doing something completely different in a way that proves successful. Being able to implement an e-commerce plan that improves sales or cuts costs might give one retailer a competitive advantage over another. At the same time, being the first to come up with a new e-commerce business model, or a unique twist on an existing model, might also allow an up-start to gain an early competitive advantage.

According to Dena Waggoner, in the Encyclopedia of Management, "The strongest competitive advantage is a strategy that cannot be imitated by other companies. Competitive advantage can also be viewed as any activity that creates superior value above its rivals."

A prime example of an upstart gaining an early competitive advantage by being first-to-market with a new business model is eBay.com, the world's largest online auction site, with more than 22 million registered users and roughly 8,000 product categories. Although rivals like Yahoo! and Amazon.com attempted to gain market share from eBay by launching their own auction sites, eBay's ability to gain critical mass gave it the competitive edge it needed to stave off its rivals. Despite Amazon's attempt to lure customers with guarantees of product quality and Yahoo!'s offering of commission-free auctions, eBay attracted more sellers than any other auction site simply because it had the most buyers.

Dell Computer Corp. was able to use the Internet to trim costs and boost sales, both of which were becoming increasingly difficult to do in the nearly saturated personal computer (PC) market of the late 1990s. Hoping to gain a competitive advantage, the firm started to sell PCs via the Internet in 1996. It became possible for customers who previously had placed custom orders via the telephone to place them on Dell's Web site. Customers could select configuration options, get price quotes, and order both single and multiple systems. The site also allowed purchasers to view their order status, and it offered support services to Dell owners. Within a year, Dell was selling roughly $1 million worth of computers a day via the Internet. Even more importantly, nearly 80 percent of the online clients were new to Dell. With the more automated Web-based PC purchasing process, Dell found itself able to handle the growing sales volume without having to drastically increase staff. Cost savings also were achieved as the firm's phone bill began shrinking. Dell's business model, which allowed for easy tracking of customer purchases, also allowed the firm to keep inventory at a minimum. In 2001, Dell usurped Compaq Computer Corp. as the world's largest PC maker.