Amazon Prime Business Model – How does Amazon Prime Make Money

Undoubtedly, Amazon Prime is the largest subscription or membership model on the earth. million subscribers across the world. Amazon launched Amazon Prime in 2005 as a free two-day shipping service (on all eligible purchases) within the US for a fee of $79/year. It even included discounts on one-day shipping rates. Later, it expanded the program to Germany, Japan, UK, Italy, Canada, Mexico and India. As of 2017, Amazon Prime was introduced to most of the countries over the world. However, it was not the same program you see today on Amazon Prime! Only in 2011, music and video streaming were launched on Amazon Prime.

Within 15 years, as of January 2020, Amazon reported that Prime boasted 150 million users.

Today, Amazon Prime is the largest video library and music streaming platform, or the on-demand OTT platform which also provides additional benefits of exclusive products, same-day and free shipping for Amazon users. Of course, members have to pay an annual fee of $119. However, members have access to unlimited videos (films, TV shows, originals etc), and ad free music. Although there is a tough competition in entertainment industry with tough competitors such Netflix, Hulu, Patreon, Disney+ etc., Amazon Prime Video is the second most popular video streaming platform after Netflix.

Providing unlimited access to exclusive and ad-free entertainment to users, wondering how does Amazon Prime make money?

Well, this article walks you through the short story of Amazon Prime, its business model and finally how Amazon Prime makes money. So, let’s get started…

Short Story of Amazon Prime

After Amazon added videos and music to Amazon Prime in 2014, it revised its membership fee from $70 to $99/year. It started offering free same-day delivery to its Prime members in over 14 metropolitan areas of the US in 2015. After it reached 3 million members in December 2015, Amazon announced the Streaming Partners Program to engage members with additional video services. It included popular shows such as Showtime, Starz, Lifetime Television, Lifetime Movie Network, Qello Concerts, Smithsonian Earth etc. on Amazon Prime.

Many changes happened to Amazon Prime after it gained traction. It launched a restaurant delivery service in London in 2016 for Prime members. In December 2016, it introduced monthly subscription for $10.99 as an alternative payment model. It introduced beverage delivery service in some areas, launched Prime Free One Day delivery for the US users. It had set up mini fulfillment centers in a few US cities to reduce same-day delivery times.

Thus what Amazon had done after launching the Prime program completely changed the way people expect and shop from eCommerce sites.

In fact, Amazon became an economically influential technology company operating as an everything-store as it into technology, software, gaming, hardware, entertainment, fashion and whatnot.

Okay enough said! Let’s get back into the topic. Let us discuss the Amazon Prime business model quickly. Before that have a look at Prime offerings to better understand the ins and out more clearly.

Amazon Prime Offerings (Benefits)

Shipping Benefits

  • Amazon Prime offers free two-day shipping and free same-day delivery on eligible orders and eligible zip codes.
  • Prime members can enjoy free 2-hour delivery in some areas.
  • Also, members can have their hands on items (such as phones or other electronics) the day they are released.
  • It allows members to choose a standard weekly delivery day irrespective of their order day.

Shopping Benefits

  • Amazon offers exclusive discounts for Prime members on orders from select stores such as Whole Foods Market, select book stores etc. 
  • It even pours discounts for select Visa cards, and on  Prime Pantry, Prime Wardrobe and Amazon Fresh.
  • Prime members can enjoy 30-minute early access to lightning deals.

Entertainment Benefits

  • Here comes the interesting part! Amazon Prime Video offers unlimited streaming of TV episodes, movies, instantly on any device without cable connection.
  • Amazon Prime Music lets members access unlimited ad-free music for the members in the US and Puerto Rico.
  • Amazon introduced Prime Gaming where members can enjoy in-game content, free channel subscription on Twitch TV.

Reading Benefits

  • Prime members can borrow books, magazines, etc from the catalog and read them on a Fire tablet or Kindle reading apps or e-reader. 
  • Amazon introduced Amazon First Reads as a program to provide early access to members in the US and free download every month.

Amazon Prime also launched a Membership Sharing program where a member can share Prime benefits with other non-member in the house. Also, members can store unlimited photos securely on Amazon drive for free.

Thus Amazon made “buy anything online” possible on the planet along with delivering the convenience to its customers with Prime. Hence, Prime had over 100 million paying members worldwide in 2020.

Amazon Prime Business Model

Amazon is attracting subscribers, converting them and keeping them using Prime Video, the largest streaming platform. Though the former members were the high-paying customers, it slowly made itself as a program for everyone with its smart strategies, including instant online streaming and ad-free music.

Amazon Prime offers free trials! Does this statement sound useless in this context? It might! But do you know Amazon converts free trials at higher rates? Yes, it does. As you know, the more customers, the more profits for any business, Amazon does it great with its services.

The revenue model of Amazon Prime is broad the same as its subscription program is. Amazon Prime makes a lot of money only by attracting more new customers to it. As you see, it as a largest membership model offers myriad benefits for its members which attracts new users.

Amazon Prime makes profits through streaming TV shows and movies. It acquires new Hollywood shows and movies for low cost, hence it makes more profits if the shows create buzz like “The Man in the High Castle”. Most users become members to watch the shows. However, not every time it makes huge money with a single show.

According to Jeff Bezos, entertainment is an effective way to drive merchandise sales, hence, Amazon Prime makes a lot of money to Amazon. This is the reason why Amazon even launched Originals.

Amazon Prime takes great measures in understanding its members as well as shows. It rates TV shows as “cost per first stream” which is the cost incurred to make a customer stream a show first. It evaluates the number of members streaming the show after signing up.

Thus Amazon Prime runs on effective business strategies and making profits.

Finally, all the profits of Amazon Prime goes to Amazon, its parent company. In fact, it made a revenue of $19.21 billion as of 2019 with over 150 million users.

How Amazon Prime Makes Money?

As you can see above, the brilliant marketing strategies of Amazon to make more sales, it is clear that not Amazon Prime is making money for itself but it is also driving more sales for Amazon.

The platform, also the membership program, is making money from new subscribers and TV shows.

With over 150 million users and offering an annual subscription for $119 and monthly subscription for $12.99, the revenue would translate to $17.8 billion even after eliminating the discounts for students and others. But it has to incur shipping costs for members and other exclusive offerings. Though managing the costs is not a big deal for the company, it is trying to make more profits by releasing the creative and hot content on the platform to attract more subscriptions.

How Successful is Amazon Prime Business Model?

Amazon Prime is making more money from its new subscriptions than old members. Though Amazon doesn’t reveal the numbers of how much it gets from subscriptions and streaming content, it is clear that with more and more new subscribers, it is able to make profits as well as sales to its parent company. Thus in both ways, Amazon Prime is adding value to its parent company.

Moreover, it is the world’s largest instant entertainment library with millions of songs and thousands of movies in different languages. Also, it competes strongly with Netflix, the other popular streaming platform over the world. This simply says, how successful is this Amazon Prime on the earth. Moreover, with amazing new entertainment content, exclusive web shows and Amazon Originals, the platform is attracting more and more members who are its major revenue makers.

It is estimated that by the end of 2020 around 90% of US households will become Prime Members.

Wrapping Up

So, this is how Amazon Prime is making money. Not only it is contributing chunks of money to Amazon, it is also establishing as a one-stop shop for everything, right from diapers, beauty, electronics, books to latest video content.

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