259-Amazon’s Blockbuster Innovation

In 2005, Amazon introduced its Prime Free Shipping program. This yearly subscription program promised free two-day shipping on any purchase the subscriber made from Amazon. Five years later, 13% of Amazon’s 130 million active users are Prime members. More significantly, 20% of the subscribers who purchased products from Amazon in the last twelve months are Prime subscribers. These Prime subscribers purchase two to three times as much as non-Prime subscribers over the course of a year.  These are Large and Very Large customers, see HERE. This Performance innovation removes an impediment to purchasing on Amazon. In fact, it increases the odds greatly that online purchases will be made on Amazon rather than on a competitive site. This has been a blockbuster innovation for Amazon. The innovation holds a special appeal to the larger customers in the market.

The Prime subscribers may also offer Amazon an entry into a business that it has longed to enter for several years, subscription video rentals. It appears that Amazon will introduce a streaming video product for its Prime subscribers. This new product will not cost the Prime subscribers any more than their normal subscription. Netflix’s Watch Instantly service cost about $96 a year so Amazon may have a price advantage on Netflix. Of course, Convenience and Price are only important provided Amazon offers equivalent Function, that is, streaming video content. We don’t know about that yet.

Still, Amazon has proven to be an innovative company who can find ways to build a business in non-traditional ways. It continues to grab market share in the retail business.

Posted 3/30/11


Amazon Prime has been one of the most successful product innovations of all time. Introduced in 2005 at a cost of $79 per year, Amazon Prime has improved markedly over the years. It began life by promising free shipping with two day delivery on orders of $25 or more. Over the years, Amazon has cut many delivery times to 1 day or less on selected products.  Here is a personal example. On December 21, I ordered a bottle of supplement pills around 11 o’clock in the morning. Amazon estimated that my package would arrive between 4 and 8 AM on December 22. Sure enough, the package was on my doorstep before 8 o’clock on the morning of December 22. I still shake my head at that speed. These short delivery times have been very successful Convenience improvements.

Ever shorter delivery times on more products are just the beginning of the story.  Amazon developed even more Function benefits, largely cost free, for its Prime subscribers. It’s Prime Video streaming service offers original content at no additional cost. Prime subscribers can read more than a thousand books and magazines for free if they have a Kindle app. Amazon’s Prime Music offers free streaming access to more than 3 million songs. Amazon’s Prime Gaming product offers prime members free access to some games and discounted access to others. Other benefits offered to Prime subscribers include unlimited photo storage, up to 5 GB of video storage and access to special coupons and deals through Amazon Elements and Amazon Family. Each year, Amazon’s Prime Day and Prime Early Access offers special discounted deals to its Prime subscribers, extraordinarily popular benefits.  Competition has been unable or unwilling to duplicate all of these benefits under one fixed charge. See HERE for perspective on Function innovations.

In 2022, and Amazon Prime Membership costs $139 a year, a significant increase over the original price of $79 from 17 years ago.  Still, this price is less than an average Netflix subscription, which covers only video streaming.

The Prime Membership program started off slowly. It began to take off in 2011 and has grown at a rapid rate since then. In 2022, Amazon Prime had more than 150 million subscribers in the US and more than 200 million worldwide.  More than 75% of the consumers in the consumer cohort born between 1980 and 1996 are already Amazon Prime subscribers.

See HERE and HERE for more perspective on product innovation.




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