STREAMING NOW: Watch Now

Amazon made Prime indispensable - here's how

Just weeks before Amazon was set to report earnings results in February 2005, Jeff Bezos asked a group of employees t...

Posted: Apr 28, 2018 11:04 AM
Updated: Apr 28, 2018 11:04 AM

Just weeks before Amazon was set to report earnings results in February 2005, Jeff Bezos asked a group of employees to meet him one Saturday at the boathouse behind his home.

Amazon employees had been batting around an idea for a new membership club that would focus on providing expedited shipping to customers. Eventually, it came to the attention of the CEO.

"This is a big idea," Bezos told the Amazon staff at the boathouse, according to Brad Stone's book "The Everything Store," the definitive account of the rise of Bezos and Amazon. He urged them to rush to put it together.

When Amazon announced Amazon Prime with its earnings report that February, the initial press coverage was muted. Publications focused on how much it might cost Amazon to provide two-day shipping to customers for just $79 a year rather than how much that perk might shift consumer shopping behavior online.

"Though expensive for the company in the short-term," Bezos said in a statement at the time, "it's a significant benefit and more convenient for customers."

Bezos, as is often the case, was proven right.

Last week, Bezos revealed that Prime now has more than 100 million members around the world, lured by the promise of a frictionless experience for all their shopping needs online and, increasingly, offline too.

Now Amazon wants you to pay more for it. Amazon announced Thursday that it will raise the annual price of Prime from $99 to $119 to help offset the rising costs of providing the service.

While there is certain to be an outcry over the price hike, analysts expect consumers to loosen their purse strings precisely because Prime has become indispensable for so many households.

"Despite the price hike, we continue to view Prime as an essential service for many consumers around the world," Michael Pachter, an analyst with Wedbush, wrote in an investor note Friday.

Related: Amazon is raising the price of Prime to $119

In 2005, the main selling point of Prime was two-day shipping on purchases. Today, the service offers same-day and even two-hour delivery on a range of products, including groceries from Whole Foods, which it acquired last year.

As Amazon manages to narrow the window of time for Prime deliveries, it's able to burrow deeper into household budgets. No longer just for books and music, Amazon has used Prime to cater to customers looking for restaurant deliveries, daily groceries and items once grabbed from a convenience store on the way home from work.

And then there are the digital benefits: unlimited photo storage, access to ebook rentals and perhaps most importantly, a growing slate of original TV shows and movies to rival Netflix.

Even at the higher price tag, the annual cost of Prime is still less than the annual cost of the standard plan for Netfli.

"The value of Prime to customers has never been greater," Brian Olsavsky, Amazon's CFO, said on a conference call with analysts Thursday. "And the cost is also high... especially with shipping options and digital benefits."

Like Netflix, Amazon is spending lavishly to acquire original content. The company is rumored to be willing to spend $1 billion on a single TV series. It also spent untold sums to build up its logistics network to support the faster deliveries -- not to mention buying Whole Foods for $13.7 billion to further entice people to sign up for Prime benefits.

The original price of Prime was set somewhat arbitrarily, as there was little research available at the time on how many customers might sign up for such a service, or how much those customers might actually use it.

According to Stone's book, "Bezos decided on $79 per year, saying it needed to be large enough to matter to consumers but small enough that they would be willing to try it out."

More than a decade later, Amazon knows it's got us hooked. Now it needs to ensure Prime is financially viable while continuing to invest in the costly features that underpin the service.

In his investor note, Pachter estimates that the price hike will boost Amazon's sales by about $1.4 billion. This, he says, will help boost Prime's "long-term profitability potential."

Huntsville
Scattered Clouds
89° wxIcon
Hi: 92° Lo: 65°
Feels Like: 97°
Florence
Few Clouds
91° wxIcon
Hi: 93° Lo: 67°
Feels Like: 100°
Fayetteville
Few Clouds
88° wxIcon
Hi: 92° Lo: 64°
Feels Like: 88°
Decatur
Few Clouds
89° wxIcon
Hi: 91° Lo: 65°
Feels Like: 99°
Scottsboro
Broken Clouds
90° wxIcon
Hi: 93° Lo: 69°
Feels Like: 100°
WAAY Radar
WAAY WAAY-TV Cam
WAAY Temperatures

Alabama Coronavirus Cases

Confirmed Cases: 49892

Reported Deaths: 1077
CountyConfirmedDeaths
Jefferson6030162
Mobile4418137
Montgomery4339109
Tuscaloosa254448
Madison19078
Marshall186611
Shelby150924
Lee149437
Morgan12205
Baldwin111410
Walker105127
Elmore98919
Dallas9639
Franklin92216
Etowah88214
DeKalb8416
Chambers65727
Russell6570
Autauga65313
Butler64328
Tallapoosa61669
Unassigned58626
Limestone5741
Houston5526
Cullman5395
Lauderdale5376
Lowndes48022
St. Clair4692
Colbert4656
Pike4595
Escambia4528
Calhoun4365
Coffee4074
Covington39911
Jackson3742
Bullock37010
Barbour3672
Dale3621
Talladega3497
Hale33722
Marengo33011
Wilcox2968
Clarke2946
Winston2893
Chilton2872
Sumter28512
Blount2731
Pickens2556
Monroe2492
Marion24514
Randolph2449
Conecuh2277
Perry2091
Bibb2081
Macon2069
Choctaw20212
Greene1928
Henry1433
Crenshaw1273
Washington1277
Lawrence1170
Cherokee1127
Geneva920
Lamar811
Fayette781
Clay742
Coosa621
Cleburne411
Out of AL00

Tennessee Coronavirus Cases

Confirmed Cases: 57591

Reported Deaths: 710
CountyConfirmedDeaths
Shelby12842214
Davidson12549138
Rutherford332638
Hamilton308837
Sumner180256
Williamson159115
Trousdale15055
Knox14719
Out of TN125610
Wilson109917
Putnam9897
Bradley8894
Robertson88213
Sevier8633
Unassigned8372
Lake6970
Tipton6746
Montgomery6587
Bledsoe6251
Bedford5959
Macon5466
Hamblen4224
Maury4203
Hardeman3814
Fayette3463
Madison3402
Loudon3081
Rhea2940
Blount2803
Dyer2743
McMinn25718
Cheatham2522
Dickson2430
Washington2120
Lawrence2026
Cumberland1964
Anderson1782
Sullivan1782
Lauderdale1723
Gibson1581
Jefferson1571
Monroe1466
Smith1392
Coffee1340
Cocke1260
Greene1232
Hardin1207
Obion1182
Haywood1112
Warren1060
Franklin1043
Marshall1042
Wayne990
Hickman980
McNairy911
Marion904
Giles801
Lincoln800
White803
Hawkins792
Carter771
DeKalb760
Roane750
Weakley691
Overton681
Campbell651
Grundy652
Henderson620
Claiborne610
Unicoi560
Chester530
Carroll511
Polk510
Grainger500
Crockett483
Henry480
Cannon450
Johnson440
Sequatchie430
Jackson410
Humphreys382
Meigs350
Perry350
Morgan291
Decatur280
Stewart260
Fentress250
Scott220
Union200
Houston190
Clay180
Moore170
Benton151
Hancock100
Lewis100
Pickett70
Van Buren70

 

 

Community Events