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The Cult of Amazon Prime

14 January 2012

From Jason Calacanis at Launch:

There are two types of people in the world: those with Amazon Prime and those without.

How you think about consumption, commerce and your personal time is radically different depending on if you’ve join the cult — yet.

And to be clear, Prime is a cult you will be joining.

At dinner parties and business meetings, I’ll frequently ask who has Prime and what they think of it. The number has grown from one or two in seven to three or four out of seven folks over the past five years. My circles tend to be people like you, which is to say more technically sophisticated (and good looking).

Prime is at a tipping point.

Amazon is doing so well with Prime it will not say how many Prime members it has acquired since the program launched in 2005. Prime launched in three other countries — the U.K., Japan and Germany — in 2007.

It’s around 5M according to the folks debating the issue on the interwebs. My guess is it doubles every 18 months or so.

One in three American households will have Amazon Prime (or have access to Prime) in the next four years.

. . . .

Like all great cults it’s enormously uplifting to be a member, provided you’re willing to throw away all free will and blindly accept the chosen one’s world view.

Our leader is Bezos.

His, and our, worldview is that consumption is a tyrannical and meaningless chore, and that life begins after you give your consumption to a third party you can trust.

. . . .

When you take the $79 leap into Prime, Amazon has you for life.

Once you’re in the cult you’re not leaving because leaving means you have the drudgery of having to drive to the store, finding the item you want, seeing if it’s in stock and then dealing with the most horrifying experience of all: retail employees.

According to most Prime members I’ve talked to, one of the greatest joys of the cult membership is never again having to deal with an apathetic teenager or bitter baby boomer forced to work in retail.

Ten years ago, a normal American would make two trips to the grocery store a week, as well as weekly or so visits to a drugstore and Blockbuster. Throw in a couple of monthly visits to some combination of Circuit City, Barnes & Noble, Kmart, Walmart, Create & Barrel, TowerRecords, ComputerLand, Frys, Costco and Bed, Bath & Beyond.

Add to that quarterly or semiannual visits to clothing stores like Old Navy, Gap, Saks or Barneys.

Let’s call it four to six hours of retail experiences a week, or 20 to 25 hours a month per household. Including holiday shopping you’re looking at 250 hours a year you’re inside a retail location experiencing some combination of time-regret, stress, boredom and/or annoyance.

. . . .

If you’re part of the cult, brands like Netflix, UPS, USPS, Paypal, Walmart, iTunes, Barnes & Noble, iPad, HTC, Target, Targus, Logitech, Best Buy, Dell, Belkin, Random House, Harper Collins are all becoming meaningless.

These are brands that will, in the near future, be largely if not completely replaced by the Amazon brand.

The list of areas where Amazon doesn’t compete keeps dwindling.

The only area I’d expect them to be where they’re not is in drugs — as in a pharmacy. Also, wines and spirits seem like a no-brainer, but I’m sure that has something to do with taxes and cross-state delivery.

Recently I bought a half-dozen of Amazon’s private-label products on my Kindle Fire including a Digital SLR backpack, a Kindle Fire case and a dual USB car charger.

All were awesomely priced, instantly delivered and provided satisfying experiences.

I didn’t have to think about these, I just one-clicked them into my life. And my life is now better.

I put my Listerine on automatic delivery every 60 days, and Amazon gave me 15% while taking it off my list of things to do and carry. Life is better.

Link to the rest at Launch

 

From YCharts:

I love free shipping as much as the next person, and also find the level of service at Amazon to be fabulous, so I read with great interest Jason Calacanis’ latest post on the Launch blog, “The Cult of Amazon Prime.”

. . . .

Estimating Amazon has 5 million Prime members and that the total will double every 18 months or so – Calacanis’ Law? – he expects one in four American households to have Prime in the next four years, or between 30 and 40 million households (using 20 million accounts).

The trouble is, Prime costs Amazon a lot of money. And unless users become so loyal that they’ll tolerate less than the cheapest price on the web, it’s hard to see how the growth of the service won’t continue to suppress Amazon profits. As one sees here, awesome revenue growth hasn’t yet led to awesome profits.

Amazon.com Revenues Chart

. . . .

The problem, or at least one big problem, is all that free shipping. Annually at least, Amazon, which is tight with financial data, discloses its shipping costs, and thanks to Prime they’re rising faster than sales. For 2010, net shipping costs – total shipping costs minus what Amazon collects from dummies who aren’t in the Prime cult – was $1.39 billion. That was up 63% from the prior year. And sales in 2010 grew by only 40%.

. . . .

As we noted in a recent post on Amazon, the Prime cult may be creating the sort of moat that Warren Buffett likes to see. But does the moat encircle Amazon protectively, or is it instead a moat encircling bricks-and-mortar retailers into a market-share-losing ghetto?

Even if Best Buy and other competitors are forced out of business, it seems unlikely that others wanting to sell appliances or other stuff won’t replace them. At some point, Amazon will be forced to either raise product prices or raise shipping revenues. And that will disturb the cult. But, while it lasts, it’s beautiful.

Link to the rest at YCharts

Amazon

18 Comments to “The Cult of Amazon Prime”

  1. Evil Amazon ensnared me in its cult! Where is a deprogrammer?! On Thursday, I ordered a dvd. I got it on Friday. This is a bad thing, why?

    Do these people make as big a fuss about Rev Sun Yung Moon as they do about making a purchase at Amazon?

  2. I wish I hadn’t read this. Canadians aren’t allowed to join the cult.

    • asrai – That will mean Canadians will be the last sensible people in North American. Which probably would have happened even without Amazon.

  3. I find this article a little perplexing.

    All those conveniences? You have them whether you’re a member of Prime or not. And you can get free shipping for most items if you just order $25 or more.

    He seems to be talking about the cult of Amazon, not the cult of Prime.

    I am a prime member. I joined during one of their free trials and forgot to cancel. I find there are only two differences from when I didn’t have Prime.

    1.) If there is a $3 widget I need, I don’t wait until I need something else before I buy it. If I didn’t have Prime, I’d still buy the widget. Sometimes I’d pay for it and sometimes not.

    2.) I’ll watch an occasional Prime Instant Video for free.

    The two of those combined make canceling Prime a non-urgent matter. I probably will remain a Prime member, even though I’m not sure I get my $79 out of it. One day, maybe I’ll borrow a book.

    • For me, the Prime urge is a little stronger, Camille.

      I’ve sometimes driven past an office supply store and ordered paperclips from Amazon rather than taking 5 minutes to walk in to the store and pick them up.

  4. I’ve been a happy member of the cult of Prime since its inception. Better (or worse, depending on your viewpoint), since I live in the land of Amazon, I am in the subcult of AmazonFresh, the local grocery delivery program Amazon is operating here. I now do my grocery shopping from my computer at night, and my groceries are on my doorstep the next morning.

  5. Mr Calacanis would, it seems like to have me concerned about the darker side of my tendency to stream old TV shows and enjoy the benefits of free two-day shipping.

    It ain’t workin’ so far.

  6. Hollister Ann Grant

    I acknowledge all the good and wonderful things about shopping online. There’s still something creepy about never leaving the couch. That’s what people stuck in hospitals and nursing homes miss the most: interaction with other people, going to stores, feeling the sun on their skin, walking outside their own four walls.

    • Maybe that’s why it took someone in the Pacific Northwest to come up with the concept – we only get sun a couple of months a year!

    • I agree that never leaving one’s couch would be problematical if that’s what was happening, but it doesn’t necessarily follow from the evidence. Lots of us Prime cultists have jobs and families, a sizable society of friends and acquaintances, and lots of activities that take us out of the house. Of course, as Sherri points out, where we live our outdoor days are slightly fewer.

    • I can see your point, Hollister, but interacting with others at retail falls fairly low on my pleasure of interaction scale even when the retail employees where I shop are almost invariably cheerful.

  7. Anybody here good at reading financials? I’m a complete dunce when it comes to the info that companies make public.

    I don’t know if the second part of the post was accurate in saying that Amazon loses money on Prime. How can that be? It has upped my Amazon purchases tremendously, and someone at UPS told me they signed a deal with Amazon that drastically reduces Amazon’s shipping costs. Could the shipping costs included in the report have anything to do with the pack and ship warehouse operations Amazon runs through third parties and the purchase of packaging materials used in shipping?

    Something I wish Jeff would do to make Prime even better is to have a second level of Prime — one that costs a bit more, but adds a single $3.99 charge (or a bit more) for the overnight delivery of a multi-item order. Right now, if you want three items that can fit into one box and you want them delivered overnight, you pay an extra $3.99 per item. I’d pay $100 a year for Prime if I could gain that multi-item deal.

    Lately I’ve run into delays that make the 2-day deal with Prime meaningless. It works fine if you order something on Monday or Tuesday, or early enough on Wednesday, but a late night order on Wednesday might pushed the “2-days” to the following Tuesday or Wednesday for delivery. That just happened to me this week on a shoe order. I canceled the order when I saw that the delivery date would be a week later. I then went back to the search function, found the same pair of shoes (also available via Prime), but for a price that was more than $10 lower. I put through the order to see when the shoes would arrive and saw that I’d get them on Saturday (which would have been two days). Instead Amazon got them to me a day early, on Friday.

    Also, does the revenue part of the report take into consideration that Amazon’s selling new Kindles at a loss in order to own the future, and that they’re on a warehouse buying binge to prepare for the future business?

    • I’ve had the same experience with two days sometimes stretching longer, Patricia, but never quite so long as you report.

      I’ve seen this type of financial analysis of Prime elsewhere, so I think it’s correct, even though I have no doubt Amazon has the lowest rates on the planet for UPS.

      With Prime, I’ll buy items for $3.99 all by themselves, which I would never do if I had to pay for individual shipping. I’m sure my total annual shipping charges would be many multiples of the $79 if I were buying the same items without Prime.

  8. I must confess I don’t really get Amazon Prime. The German version is basically just free shipping for 29.99 EUR a year and it’s pretty much useless, because I get free shipping on any purchase over 20 Euros and one book purchases in general. 99 percent of what I buy at Amazon are books and for the remaining one percent I wait until my order tops 20 EUR.

    And while I may occasionally check Amazon’s prices for household items, electronics, etc… I hardly ever buy there, because the electronics chains are often cheaper and have the advantage of letting me examine the product in person. I’d never buy groceries or clothing over the internet anyway, because I need to try on the clothes and check the material. And all the free Amazon shipping in the world doesn’t help me, if I’ve run out of milk and need some right now, while a quick stop at the grocery store after work easily solves that problem.

    I can understand why people would like the streaming video service, though it probably wouldn’t work for me, since those services never have what I want. Besides, the video service is not available in Germany anyway, so it’s just the free shipping and I can get that anyway, if I’m willing to wait.

    • Cora – One thing that often pushes me to buy items on Amazon I would ordinarily purchase in person is free, no-hassle returns.

      Amazon makes it incredibly simple to return anything and I drive past both a post office and a UPS drop-off almost daily.

      • That’s probably a cultural thing, because I’ve never had issues returning something to a German brick and mortar store. Indeed, they mostly go out of the way to accommodate customers, provided you have kept the receipt.

  9. I would not trust Amazon with anything but books; the last time the credit card number got stolen, the only proximate risk was that I’d ordered something (clothing, as a gift) from an Amazon-found company. I hadn’t thought Amazon gave the credit card number to the vendor, but… that’s really the only thing that got done differently, and the next thing I know, someone’s ordering Girls Gone Wild DVDs. (Which, amusingly, got delivered to the Billing Address on the credit card, and not the thief’s.)

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