In a nutshell: You can't.
Amazon is the Eveything Store, and the most customer centric company on the planet. They innovate. They have the widest selection. They have the lowest prices. They have unsurpassed customer service. They keep striving to improve.
But that doesn't mean that a savvy startup can't exist in the same publishing sphere and do very well.
I've noticed six areas that Amazon doesn't seem to care about. Crumbs they're leaving on the table. But these crumbs could be worth billions to some smart S-Corp willing to put in some time and money.
1. Ads. Ads make the Internet, and all media, go round. I've got a business plan that would make all ebooks free, funded by ads. I've had this plan for years, and it goes into excruciating detail on how to make it reader-friendly, as well as giving advertisers unprecedented target opportunities. Eventually I'll do it, but right now my focus has been on:
2. Libraries. Amazon doesn't seem interested in this market. I am. And slowly but surely we're figuring out a way to not only get ebooks into libraries, but to do so for free while authors continue to make money. Eventually, both of these ideas will encompass:
3. User aggregated content. Goodreads and Amazon reviews and fan fic are just the tip of what readers can bring to the party. I see global book clubs. I see a hub where readers can connect with authors, get signed ebooks, and ask live questions. I see a community that is as much fun for readers as reading is. Which leads to:
4. The active ebook. In a nutshell, the book becomes the killer app. Each ebook is its own forum, chatroom, review archive, and fan fic collection. It's constantly updating. Ebook 2.0 isn't video, or better font. It's a community.
5. Free. Amazon hasn't figured out how to monetize free. KU seems to be a success, but that's a paid service. In order to offer free books on Amazon an author has to go exclusive with Select and they're only allowed 5 free days every three months. Or they have to jump through hoops to get a book permafree. There is money to be made on free (via ads).
6. Erotica. Amazon treats it like a red-headed stepchild. Selena Kitt's Excitica is picking up the slack there. Readers want this content. If they can get it fast, cheap, and easily, someone is going to make a fortune giving it to them.
Amazon isn't interested in these six things. But any of them, or combinations of them, would attract readers.
If you want an alternative to Amazon, you're not going to gain traction by trying to compete. Focus on the things Amazon isn't doing, rather than try to beat them at what they already do.
Now who wants to give me ten million dollars so I can start hiring people to implement some of these ideas?
Also, I have three ebooks free right now on Kindle. Grab them while they're hot.