John Paczkowski

Recent Posts by John Paczkowski

Amazon Optimus Prime

optimus_amazon_primeHow many Amazon customers subscribe to the company’s Prime service, a $79 yearly membership program that offers free two-day shipping on eligible orders, along with unlimited movie and TV streaming via Amazon Instant Video?

The tightlipped retailer won’t say. But according to some new research from Consumer Intelligence Research Partners (CIRP) and Morningstar, Amazon’s Prime subscribers number more than 10 million.

That’s at least double the number of Prime members Amazon had a little over year ago. Great news for the retailer, since Prime subscribers purchase far more from it than the typical consumer. Prime members spend about twice as much annually as non-Prime members — about $1,200 (excluding the $79 Prime membership fee). More importantly, they make most of their online purchases at Amazon.

Amazon_prime_spendAccounting for cost of sales, shipping, marketing, technology, etc., CIRP and Morningstar figure Amazon made about $78 per Prime subscriber last year. In other words, that $79 annual Prime fee is almost entirely profit. Not bad. Particularly since the research firms expect Prime membership to reach nearly 25 million by the end of 2017.

And there’s more upside to that spike in membership than just the $78-per-subscriber profit Amazon’s reportedly collecting here.

For one thing, Prime members have little reason to shop elsewhere for anything they don’t need immediately. So, with Prime, Amazon is creating a community of dedicated customers, and building a moat around them in the process. Note that CIRP found that more than 95 percent of current Prime members plan to renew their memberships.

For another, Prime is helping to build an audience for Amazon’s digital content offerings; one third of Prime members use Amazon Instant Video weekly. This bodes well for Amazon’s retail business. Said Morningstar analyst R.J. Hottovy, “We believe that as more members take advantage of the Prime content offerings, this will have a halo effect on other digital media purchases and should become an increasing meaningful free cash flow contributor in the periods to come.”

Prime was responsible for about a third of Amazon’s consolidated segment operating income in 2012. How much will it be responsible for in 2017?

Amazon_prime_membership


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— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google