How Amazon Prime Took Over Online Shopping

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In April, Amazon CEO Jeff Bezos announced in a letter to shareholders that Amazon Prime, the flat-rate free shipping subscription, had surpassed 100 million subscribers. Bezos has always been extremely tight-lipped about the number of Amazon Prime subscribers, and with the announcement, Bezos added that “Amazon shipped more than five billion items with Prime worldwide, and more new members joined Prime than in any previous year — both worldwide and in the U.S.”

These days, Prime doesn’t just come with free shipping. The Seattle giant has a whole slew of perks, which has helped subscribers flock to the service. But it was the basics of the program that helped Prime become Amazon’s most powerful weapon in the online shopping game.

A brief history of Amazon Prime

Back in 2005, when it had only been around for 10 years, Amazon launched a flat-fee shipping program called Amazon Prime. On its website, Bezos wrote that the program was meant to “take the effort out of ordering.”

“No minimum purchase and no consolidating orders. Two-day shipping becomes an everyday experience rather than an occasional indulgence,” Bezos wrote. “We expect Amazon Prime to be expensive for Amazon.com in the short term. “In the long term, we hope to earn even more of your business, which will make it good for us too.”

The launch of Amazon Prime came at a time when Amazon was trying to persuade investors that it could strengthen customer loyalty, the tech site CNet reported at the time. Amazon was battling competing sites like eBay and already had suited up with incentives like its “Super Saver program,” which gave shoppers free shipping on $25 or more.

Initially, Amazon Prime had plenty of skeptics. Though the Seattle Times wrote that it could give the Seattle giant “a competitive advantage,” Wall Street also worried Amazon would be taking a huge hit. There were enormous expenses with the program, like the cost of free shopping and fulfilling orders, especially when the total amount of those orders would far surpass the annual membership fee of $79 (which Amazon eventually increased to $99 in 2011, and then again this year to $156 if customers are paying monthly).

“Skeptics thought we were crazy,” Amazon Prime vice president Greg Greeley later told the paper, 10 years after launch. “At the time, they said, ‘Why would anybody want to spend that much for shipping?’ and ‘How the heck are they going to be able to afford it?’”

When it first launched, “tens of thousands” of people signed up for Amazon Prime. Over the next five years, Amazon Prime had a “healthy growth” rate, as Greely told the Washington Post. In 2011, the service hit a pivotal moment: Amazon sweetened the deal by adding other perks to free shipping, like a lending library for those who had Amazon’s Fire Tablets and Kindles, as well as access to its own Netflix of sorts, Prime Instant Video.

Today, with its more than 100 million subscribers, Amazon Prime is seemingly unstoppable. Prime membership now comes with way more perks than it did when Amazon enhanced the subscription in 2011: It now offers members access to exclusive in-house fashion labels, discounts to Whole Foods, which it bought in 2017, and access to content from Amazon Studios, including award-winning shows like Transparent. With all its perks, Amazon Prime has helped Amazon become nothing short of a cash cow: In 2016, the company pulled in a cool $178 billion in revenue.

The real reason Amazon Prime is so valuable

What is it about Amazon Prime that makes the subscription service so valuable? A competing subscription service like Costco, which offers discounts just as steep as Amazon, has 50.4 million memberships — an honorable number but still half of Amazon Prime’s. Walmart, Amazon’s biggest rival has a membership service too: Sam’s Club, which charges $45 annually for shoppers to access wholesale deals. In January, Walmart abruptly shuttered ten percent of Sam’s Clubs locations, citing difficulties in the real estate market.

Both Costco and Sam’s Club had more than a decade head start on Amazon Prime, so why is it that Amazon Prime continues to reign supreme? Brad Stone, the author of The Everything Store: Jeff Bezos and the Age of Amazon, chalks it up to its ability to completely alter shopping behavior. To put it bluntly, it turns shoppers into Amazon addicts.

“Amazon Prime is the engine that drives Amazon,” he explained to Racked last year. “It capitalizes on irrational human behavior, where people are maximizing their membership. The whole point of getting people to sign up is for them to always be on the Amazon site, buying more.”

To Amazon, it doesn’t matter that your measly $150 will come nowhere near helping the company cover its costs. Instead, it’s banking on you spending more time on the site, making it your No. 1 shopping destination, which Amazon is quickly becoming — just ask Oprah, who’s decided her eponymous Favorite Things list should now live on the site.

According to Consumer Intelligence Research Partners, which tracks data on Amazon, Prime members spend 2.5 times more money than those who don’t belong to the program. The research firm told the Seattle Times that “once a customer signs up for Prime, they start to behave differently.” It added that it strongly suspects “that an Amazon Prime member spends their first year trying to justify the $99 cost, mostly in terms of free shipping, and spends to that level.”

Amazon Prime has become so powerful it created its own holiday in 2015: Prime Day, Amazon’s very own Christmas in July. Cited as a shopping day that’s completely decimating events like Black Friday, Prime Day last summer had its sales jump a record 60 percent in the 30-hour window Amazon ran the shopping bonanza.

As Amazon marches on through the land of e-commerce, its most powerful weapon is helping it become the most forceful company in shopping. According to CNBC’s All-America Economic Survey, more than 75 percent of the country shops on Amazon “most of the time.” Amazon’s biggest competitors, like department stores and big-box chains, have even realized they can’t compete and are bowing to Bezos instead. Kohl’s now sells Amazon gadgets in stores and will even process shoppers’ Amazon returns. Best Buy, which used to be Amazon’s adversary in the tech space, announced it would sell Amazon’s smart TVs.

Now it seems that no one, not even the president, try as he might, can slow Amazon down.