The Service That Added $6.4 Billion to Amazon’s Sales in 2016

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Trends Amazon Prime

SubscriptionTrends_2x_Purple.pngThe holiday season has Black Friday and Cyber Monday as its notable shopping days, from which retailers hope to score big. Black Friday shoppers hit the stores, while Cyber Monday shoppers open up their internet browsers, all in search of a deal.

But the holidays are still a long way off. Fortunately, the summer offers up a new and different day for shoppers seeking significant bargains: Amazon Prime Day, which claims to have “more deals than Black Friday.” The event, starting on July 10th,  offers deals in a wide in virtually every category. Rumors are that this annual event, now in its third year, will span longer than a single day, with some deals lasting as long as a full week. This is undoubtedly to give more shoppers more time to make more purchases (and likely to ease some of the burden on Amazon’s end as well).

The catch of course is that to take advantage of this massive site-wide sale, you have to be an Amazon Prime member! This is obviously Amazon’s point. Amazon launched this subscription service in 2005, giving users access to free two-day shipping (and in some locations, same-day shipping for an extra fee), streaming video and music, and other benefits for a monthly or annual fee. What Amazon gets in return is loyalty and increased revenue.

The numbers tell the story of how critically important this subscription service is to Amazon’s business. According to an article in Business Insider, Prime members spend more than non-Prime members—a lot more. A survey by Morgan Stanley estimated that approximately 40% of Amazon Prime members spend over $1,000 a year on the site, compared to only 8% of non-Prime members. The survey also found that Prime members spend about 4.6 times more money on Amazon than non-Prime members.

And what do these statistics mean in the end, for Amazon’s revenue? According to their latest SEC filing, Amazon generated approximately $6.4 billion in sales last year from their retail subscription service—a newly broken out category that includes revenue from all of Amazon's subscription services including Prime, audiobook, e-book, and digital video and music services.

Morgan Stanley also did some sleuthing and estimated how many subscribers the service has, as Amazon has never disclosed this figure. Based on the revenue figure above and the average annual price of each subscription, the analyst calculated a subscriber base of 65 million Prime members worldwide.

Because of its massive market share, where Amazon goes, strategically-speaking, other retailers follow. Take Canada, for example. Bloomberg reports that Amazon has been steadily ramping up its operations north of the border, and local businesses are investing in online shopping platforms, trying their best to avoid the fate that doomed many businesses here in the U.S. which were not set up adequately to compete with Amazon’s operations or share of market.

“Amazon is pushing a lot of traditional retail in Canada to up their game and offer better online shopping,” said Paul Briggs, an analyst with eMarketer.

Perhaps “better online shopping” means adding a subscription service—one that offers convenience, flexibility, and other perks. Amazon’s investment in Prime and its impressive share of Amazon’s total revenue certainly attests to Amazon’s commitment to the subscription model. Of course, not every e-commerce business will be able to change the face of retail the way Amazon has. But you can take a page from Amazon’s playbook and add a subscription service to your growth strategy!

 

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