After some early growing pains, Amazon Prime is becoming a promising source of growth for Amazon.com (NASDAQ: AMZN).
Don’t look now but it appears that Amazon (Nasdaq: AMZN) Prime is finally taking off.
Amazon Prime is a subscription-based service that gives customers access to free two-day shipping and Amazon’s rapidly growing streaming library of movies, music and more. When Amazon Prime first came out I was somewhat skeptical of its usefulness. At the time the only real benefit was free two-day shipping, something I thought might only appeal to Amazon’s heaviest shoppers.
But Amazon had bigger plans for its subscription service. And I think those plans are finally paying off.
The company announced in March that it would increase the annual price for Amazon Prime. I wrote then why I believed the annual increase from $79 to $99 would be good for Amazon, even if the short-term customer reaction was negative.
A month later Amazon unveiled the Fire TV, an Internet-connected TV set-top-box that incorporates content from the Amazon Prime streaming library. The product is quite similar to the Apple (Nasdaq: AAPL) TV, a device that plugs into a user’s existing TV and allows them to access Netflix (Nasdaq: NFLX), YouTube, content stored on their Apple devices and more. Apple TV does not, however, allow users to access the Amazon Prime library.
The Fire TV was just another step in the grand plan for Amazon Prime. Where Apple has created an ecosystem with a relatively seamless user experience across devices, Amazon is creating an ecosystem with relatively seamless access to its online shopping marketplace and Prime library across devices.
Apple uses its ecosystem to get users to stay with the company and spend money on apps and other content, purchases for which it takes a commission. Amazon is using its ecosystem to get users hooked on its Prime library and shopping on its website.
The Fire Phone was next, a product released in June that was, by many accounts, a failure. Still, the product was an important part of the ecosystem. Now Amazon has a tablet, a phone and a TV set-top-box, all designed to get you hooked on content provided to you by Amazon for the low annual fee of $99.
Did I mention that Amazon Prime members spend significantly more than non-Prime members?
RBC data reveals that 40% of Amazon members have spent $200 on the site in the last month, compared to only 13% of non-members.
The chart below illustrates the rapidly growing number of Amazon Prime members. Since Amazon doesn’t publish this data, this chart is based on best estimates from Business Insider and a number of other sources.
If this illustration is indeed accurate, and if what we know about Amazon Prime customers spending significantly more money on the website remains true, Amazon Prime appears to be setting Amazon up for major growth. This chart points to a huge holiday shopping season for Amazon, as well as continued dominance over eCommerce and retail in America and beyond.
With the stock down 25% this year, investors could see a big upside surprise if Amazon Prime members drive holiday sales the way I think they will.
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