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Amazon Increasing Prime to $99 Because of Shipping? Not Likely says Analyst

March 13, 2014 - Written By Nick Sutrich

Amazon’s Prime service has been an incredibly successful one for the online shopping giant, so much so that they announced they’ll be increasing the price by 25% to $99.  That’s up from the $79 that the service has traditionally been since its inception a few years ago, which is a pretty substantial increase any way you cut it.  Amazon is blaming the increase on the cost of shipping vs what it was years ago, but let’s be honest with ourselves; shipping has increased but FedEx, UPS or whoever Amazon has partnered with in a given region would be insane to increase their cost by 25% given the volume Amazon ships.  While prices have likely increased over the past few years the real reason is hidden inside the other stuff Amazon offers for its Prime subscribers; the streaming and borrowing services.  Right now Amazon boasts over 40,000 movies and TV episodes you can stream for free if you have Prime, and you can also borrow over 500,000 books in Amazon’s Prime library for free too.  Then there’s also that new music streaming service that’s been rumored forever, and is thought to actually be included as part of Prime instead of being a separate service like Google Play Music or Spotify are.  Couple all these services with the free 2-day shipping and you can pretty easily see where the money is actually going, especially as Amazon ads subscribers and its content licensing fees increase.

Continuing on this train of thought Jan Dawson, Chief Analyst at Jackdaw Research notes that Prime Video alone accounts for $60-80 per customer in licensing fees per year, completely nullifying what customers pay for the service, much less talking about shipping costs per order.  Amazon also subsidizes shipping as much as it pays for traditional marketing, making free shipping one of its biggest ways of marketing itself as a company.  In fact Jackdaw Research goes on to talk about how Amazon’s cost of shipping dropped dramatically after introducing Prime, and their only decrease in shipping revenue came once Prime Video was introduced, cutting into the money they received for Prime shipping.  Trying to take on Netflix and RedBox is one thing, but if they try to take on Pandora, Google Play Music, Spotify and iTunes they’ve got to do something to offset the costs of their services.  Let’s put it in perspective though; Prime being $99 per year makes it $8.25 per month.  With that $8.25 you’re getting 2-day shipping for free and a streaming service equivalent to Netflix, albeit having different content quite a bit of the time.  If the rumors are true and they are adding a music streaming service, you could theoretically cancel what other service you have and save that money every month, making Amazon Prime quite possibly the best deal on the planet.  Overall Prime is an amazing service that could get better, but it would be nice to hear them say the real reason for the cost increase rather than trying to play it off as a matter of things out of their control, especially when they are trying to sell you on streaming being included for free with Prime.