Amazon's strategic advantage isn't really its inventory, its recommendation engine, or its consumer technology. The advantage is in its infrastructure.
In the global race to build a fast-as-possible service for delivering the things you order online, no one in the world is further along than Amazon, and it will be very hard for even a deep-pocketed competitor like Walmart to catch up as long as Bezos has permission from investors to spend every dollar his company earns on new fulfillment centers.
Amazon Prime, the subscription service launched in 2005 at $79 that makes most two-day shipping free, is a clever way to monetize this infrastructure advantage. Amazon can afford to sell its most popular stuff near cost if tens of millions of its customers are paying $79 on top of it, no matter what. Prime has served a couple other purposes, as well. For consumers, it's an entertainment bundle, giving us free access to Kindle Owners’ Lending Library, Amazon Video, and (allegedly) a forthcoming digital radio service. For investors, Prime represents a key lever for generating profits in the future. Many of the analysts I spoke to for my business column last year on Amazon said they didn't think it could raise prices dramatically on most of its merchandise. Instead, they said Amazon could always raise the price of Prime on its most passionate customers and add hundreds of millions of dollars to its bottom line just like that.