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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."

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 468498

Reported Deaths: 9100
CountyCasesDeaths
Harrison31907468
Hinds30552569
DeSoto29532342
Jackson22868335
Rankin21016355
Lee14393214
Madison13961263
Jones13053215
Forrest12879231
Lauderdale11244292
Lowndes10148171
Lamar9972122
Pearl River8569208
Lafayette8008136
Hancock7110107
Oktibbeha6764117
Washington6756146
Neshoba6350200
Monroe6304156
Warren6267159
Panola6036122
Pontotoc599292
Bolivar5960143
Marshall5917115
Union558885
Pike5424133
Lincoln5192127
Alcorn509388
George454766
Scott447392
Leflore4377138
Tippah431780
Itawamba429192
Prentiss429074
Copiah423883
Simpson4238108
Wayne419663
Tate418999
Adams4174109
Yazoo411486
Sunflower4057104
Covington404891
Marion399699
Leake389784
Coahoma385996
Newton360273
Grenada3489100
Stone342657
Tishomingo320987
Attala318285
Jasper308261
Winston298191
Clay282672
Chickasaw277464
Clarke271784
Holmes257685
Calhoun256939
Smith241546
Yalobusha215447
Tallahatchie213849
Walthall203457
Lawrence202431
Greene202045
Perry195053
Amite191251
Webster191141
Noxubee173437
Montgomery168652
Jefferson Davis164041
Carroll158936
Tunica146533
Benton137531
Kemper136538
Claiborne124134
Choctaw123824
Humphreys122036
Franklin114127
Quitman100925
Wilkinson98335
Jefferson85832
Sharkey61620
Issaquena1916
Unassigned00

Alabama Coronavirus Cases

Cases: 757893

Reported Deaths: 12784
CountyCasesDeaths
Jefferson1082301712
Mobile694251158
Madison47738562
Baldwin35347420
Shelby34758281
Tuscaloosa32576495
Montgomery32249645
Lee21576200
Calhoun19621363
Morgan19061307
Etowah18363413
Marshall17028252
Houston15881337
St. Clair14724270
Limestone13908178
Elmore13812239
Cullman13756228
Lauderdale12909263
Talladega12124200
DeKalb11705220
Walker10047303
Autauga9371119
Blount9272146
Jackson8970132
Coffee8550150
Colbert8229160
Dale8162142
Escambia632298
Tallapoosa6255165
Covington6214153
Chilton6152128
Russell586753
Franklin558292
Chambers5155127
Dallas4569173
Marion4490114
Clarke447070
Pike439188
Geneva415999
Lawrence4002101
Winston399982
Bibb388975
Barbour334667
Marengo317778
Monroe306844
Butler305878
Pickens296166
Henry288550
Randolph288255
Hale282981
Cherokee275649
Fayette268569
Washington241844
Crenshaw226962
Clay219260
Macon211154
Cleburne205746
Lamar184638
Conecuh173337
Lowndes167856
Coosa160031
Wilcox153033
Bullock145642
Perry132430
Sumter122635
Greene117941
Choctaw71925
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