Amazon Prime with its growing Instant Video library, special offers, the addition of music streaming and low shipping costs is the most profitable service that the retail giant provides. However, still there is a lot of room left to grow.
Despite Amazon had not told us how many people were registered as Prime members, now is estimated that the company has acquired over 80 million. They all will generate $104 billion in top-line revenue.
How Amazon will make it
Amazon Prime membership contains many exclusive offers. However, for all of it you need to pay. It has several fixed costs and several variable costs that go along with it.
Fixed costs mostly include the price of content for Prime Instant Video. If you choose to be charged on a monthly basis, your membership will cost $10.99. If you choose to be charged on an annual basis, you will be charged $99. Prime Video membership is $8.99 a month. Variable costs cover things like music streaming and exclusive content, but this depends on your needs.
It is clear that loyal Amazon users would be among the first to sign up for Prime anyway. However, new Prime members are likely looking for basic cheaper benefits, such as two days shipping acting or video streaming. So that, new members will bring more profit in fixed fees and older ones – variable fees.
Consumer Intelligence Research Partners (CIRP) reported last Monday that 26 per cent of Amazon Prime members pay monthly for their memberships instead of annually. Retention is estimated to be 85 per cent for Prime members, after the first year. Each of them is spending an average of $1,300 per year. By comparison, non-Prime Amazon shoppers spend roughly $700 per year, according to the retail giant.
Amazon now has roughly 80 million US Prime members in total. That is up from an estimated 65 million last October and 58 million in 2015. This Prime’s growth has helped fuel the company’s rapid success in the US e-commerce sector with a 43% market share.
Each new Prime member brings with them some amount of revenue that practically goes straight to Amazon’s bottom line. And with Prime memberships growing at a clip of 51 per cent year over year, it seems Amazon’s retail operations will become even more profitable.
If the figure below is accurate, Amazon Prime members will generate $104 billion in top-line revenues for Amazon on an annualized basis. In contrast, non-Prime members will drive $37 billion in revenue for the company.
It is striking how successful Prime has been for Amazon in multiple ways. Prime members are likely to be more loyal to Amazon than non-Prime members because they get the shipping cost advantages and many other privileges.
There is room to improve
Despite remarkable numbers above, it is the area where the company should make a push. Last year Amazon Prime has seen slow adoption in other countries, making Amazon’s retail business very reliant on its home market.
Amazon Prime is now available in a number of markets around the world, including Canada, India, Japan, the UK, and Germany — yet all of these combined only account for a fraction of Prime subscribers. The company has tried to use Prime to gain more market share and revenue in these countries, but the US still accounts for two-thirds of its retail sales.
E-commerce has been on the rise in the last several years, thanks in large part to titans in the industry such as Amazon and Alibaba. E-commerce will truly become the future of retail, as nearly all of the growth in the retail sector now takes place in the digital space.
However, Amazon needs to drive Prime adoption to diversify its revenue outside the US, and will likely need to experiment with new things and services to attract Prime members in international markets.