If you are a current Amazon Prime subscriber, you probably received an email this morning from Amazon informing you that the price of your subscription would be increasing by 20%.
Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years. Since 2005, the number of items eligible for unlimited free Two-Day Shipping has grown from one million to over 20 million. We also added unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and a selection of over 500,000 books to borrow from the Kindle Owners’ Lending Library.
For years, Amazon’s razor-thin profit margins seemed simultaneously impregnable and unsustainable. Nevertheless, Wall Street helped drive the company’s stock to record highs. During Amazon’s most recent quarterly earnings report though, it finally appeared that the tide was shifting against Amazon. Confronted by escalating costs, Amazon warned of a potential price hike to its Prime service to combat rising shipping costs. Having bumped up the minimum order price for free shipping from $25 to $35 in October 2013, that prediction seemed less speculative than portentous.
That day has finally arrived. The new price change will officially go into effect April 17 – renewals and new signups before that date are still eligible to pay for the original $79 price for a final year.
Looking towards the horizon
Back in 2012, I posed the question “Is Amazon Prime worth it?” For subscribers, there were three primary offerings:
- Free two-day shipping
- Prime Instant Video
- Kindle Owner’s Lending Library
If you regularly purchased things from Amazon, Prime was a steal. Throw in the ability to share the shipping benefits with up to 4 people, that value quickly multiplied. Netflix subscribers though had few reasons to cancel their subscription in favor of Instant Video. Similarly, the Kindle Lending Library had a dearth of great titles. In terms of value, Instant Video and the Lending Library were struggling to break out of the long tail for most subscribers.
In the 16 months since I published that article, there are promising signs to look forward to and some concerns as well.
Amazon vs. Netflix (Round 2)
Instant Video is still far from reaching parity with the likes of Netflix and Hulu. However, recent additions like How I Met Your Mother, Sherlock, and Parks and Recreation have made it a more attractive option. After Netflix’s successful bet on producing original series like the Emmy-nominated House of Cards and Orange is The New Black, Amazon followed suit with their own.
The verdict so far? I can’t say I’ve bothered tuning in.
For years, online streaming seemed like the panacea for the entertainment industry’s woes. While people’s viewing habits have shifted dramatically in recent years, the industry has been slow to adapt.
It’s easy to forget that it took Netflix years to build the selection of movies and tv shows it now offers (for streaming that is). However, content isn’t cheap. More importantly, they can prove to be ephemeral and vanish before you even had a chance to watch it. Which probably explains Netflix’s efforts to double-down on producing original content to secure full control of its destiny.
As Amazon goes tit for tat with Netflix, one’s things for certain: it’s going to be an expensive, bloody battle.
Fast, free shipping: Amazon’s Bread and Butter
While Instant Video is making some strides, the real value of Prime is still with two-day shipping.
Ahem, or could that be free 30-minute shipping courtesy of your friendly neighborhood drone?
News first leaked in December from an interview CEO Jeff Bezos conducted with Charlie Rose in which Bezos shared the company’s plan for the future: delivery by drones. Suddenly, the controversy over the increasing use of drones and its prospects of a rapidly descending Orwellian future seemed inevitable.
With drones delivering our packages, who wants two-day shipping anymore? Granted, you probably can’t buy that piano or refrigerator and expect a drone to drop it off at your door. I’m guilty (as probably many others as well) of exploiting Prime’s shipping benefits to purchase menial items that probably cost more to ship than to sell.
Should I drive over to Office Depot to buy some binder pockets now or wait two days for Amazon to ship it to me? Hmmmmmm….
Despite today’s news, it’s almost a sure thing to expect faster shipping times in the future. Amazon is already experimenting in the crowded grocery delivery service market, joining juggernauts like Safeway, Google as well as upstarts like Instacart.
The sheer scale of Amazon’s ecommerce business has already brought rumors of it looking to either buy the US Postal Service or become one itself. As unlikely as that may sound, hockey stick growth shouldn’t be a reason to slow down and play it safe. Its numerous warehouses around the world already provide a huge competitive advantage for the company. And because this is Amazon, they have the deep pockets to afford this type of investment.
While drones are more likely to complement than displace traditional means of shipping in the near future, it has huge potentials for radically disrupting our perception of a “fast-enough” shipping time. It wasn’t so long ago before Amazon became a household name that people were patient enough to wait weeks for something they bought online to arrive at their home.
Could Amazon add a drone shipping option to Prime in the near future? With the company’s penchant for delivering high value at low prices, I think it’s a pretty safe bet to make.
Amazon cited increasing shipping costs as the primary reason for the higher $99 price for Prime. In states like California and New York where recent legislation which has forced Amazon to collect sales tax however, a Prime subscription would actually move above $100.
In its nearly ten years of existence, Prime has been a huge success for Amazon. While the company has not disclosed how many people have signed up to date, Prime members tend to spend twice as much.
It’s no surprise then that Prime is critical to Amazon’s future. As Netflix learned the hard way several years ago, price increases is not something to be taken likely. There will be people who cancel their Prime subscription today but also others who will remain. For me, I still believe that Prime is an incredible value as a regular Amazon customer. The next nine years could see drone delivery, a music streaming service, a gradually improving video library, and who knows what else being added as a part of Prime. This is something to look forward to.