Tuesday, February 14, 2012

Amazon.com's Prime service has far less subscribers than analyst estimates: report

Amazon Prime has been thought of as Amazon.com's cash cow, but a new report seems to indicate that the cow isn't as big as once thought.

Great pricing on mobile phones!
Although Amazon.com has been secretive with these, and other numbers, three people familiar with the situation told Bloomberg that the service has attracted fewer than half as many members as analysts have estimated.

Amazon Prime is the Internet retailer's $79 per year service, which gives members free two day shipping on items shipped by or fulfilled by Amazon.com, and lower cost one-day shipping upgrades. In addition, Amazon Prime members get access to Amazon's Prime Instant Video service, a subset of the company's Amazon Instant Video selection. Kindle owners also get access to the Kindle Owner's Lending Library, which allows them to "check out" books as often as once a month, with no due date.

Analysts had estimated the current number of subscribers to be 10 million or more. However, the sources said that as of October 2011, only 3 million to 5 million people were subscribed to Prime. Amazon.com is working to increase that number to 7 million to 10 million in the next 12 to 18 months, the people said.

David Spitz, president of ChannelAdvisor Corp., which supplies e-commerce software to retailers said “A Prime customer is much more likely to start and end a search and purchase on Amazon without bothering to check other channels," adding that subscribers spend three to four times more than regular customers. Spitz was among those who thought Amazon.com had a higher number of Prime members, estimating 10 - 12 million.

Fewer Prime subscribers mean there are fewer of Amazon.com's most loyal and dedicated customers.

Many had felt that with the introduction of the Kindle Fire and the addition of Prime Instant Video to the subscription service, Prime growth would accelerate. After all, $79 annually is less than the $92 Netflix users pay per year for streaming video, although Netflix's selection of TV shows and movies is superior. However, the Prime service adds the aforementioned free two-day shipping.

It doesn't appear that significant growth has occurred. If Amazon.com wants that to happen, it needs to increase its video selection.

There have also been recent rumors that Amazon.com would split the Instant Video service away from Prime as a standalone service, but Amazon.com has since denied any such plans.

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