Launched in 2005, Amazon Prime has become the leading purveyor of convenience in modern-day living.
But what is it about the Amazon Prime business model that gives it an edge in an industry rife with disruption and intense competition? If you’d like to find out, keep reading!
What is Amazon Prime’s Business Model in 2022?
The Amazon Prime business model entails an annual subscription that unlocks all the perks of Amazon plus. Moreover, it offers free, fast delivery (2 days max) on purchases and access to Prime Video, Prime Music, Prime Reading, and Gaming. These services intend to lock in customers into the Amazon ecosphere.
If you want to gain more information on the Amazon Prime business model, how it makes money, and much more, keep reading for more useful facts!
What is the Main Amazon Prime Business Model?
Amazon Prime’s main business model is a subscription-based model where customers have to pay renewable fees (either monthly or annually) to unlock a wide variety of services by Amazon.
Amazon Prime itself is an element of Amazon’s business strategy as it offers convenient services to keep customers from leaving the Amazon ecosystem.
Once consumers make payments for the Amazon Prime membership, they gain access to several benefits that are not available to non-Amazon Prime users.
These benefits include access to exclusive Amazon deals, expedited 2-day shipping access, streaming, e-reading, shopping, unlimited photo storage, and other Amazon-centric benefits.
What is Amazon Prime’s Business Strategy?
The business strategy of Amazon Prime is to help Amazon retain its customers in a bid to create Amazon’s long-term success.
Although Amazon Prime gives customers access to several benefits, the subscription model presents itself as a hook to customers who would revert to physical retailers.
Thus, Amazon’s net revenue is mainly dependent on Amazon Prime’s business model yields.
With several perks on offer, Amazon Prime reduces the chances of customers reverting to traditional brick-and-mortar retailing since the model provides free delivery services.
In addition to the free delivery services, customers are guaranteed fast delivery, making Amazon the most sought-after online retailer.
As a result, Amazon Prime has been likened as a key driver to Amazon’s long-term success.
Through Amazon Prime’s subscription-based model, Amazon is guaranteed the following:
- Higher spending by members of Amazon Prime
- An increased repeat of Amazon’s customer base
- Customer loyalty and retention
- Increased sustainability of Amazon’s customer base
What Strategies Does Amazon Prime Use to Make Money?
Amazon Prime makes money from its diverse business segments that provide exclusive members with many benefits.
Among the revenue sources for Amazon Prime include the following:
Amazon Prime Video
Amazon Prime Video allows customers to gain access to unlimited streaming of TV episodes and movies as well as generate revenue for its parent company, Amazon.
However, the benefit is not restricted to Prime members only, but is accessible to other Amazon customers who want to take advantage of the streaming service.
Due to its offering for Prime and non- Prime members, Amazon Prime Video earns the parent company some revenue through SVOD, TVOD, and the AVOD model.
In SVOD (Subscription Video on Demand), Amazon Prime earns revenue through the money paid by subscribers to view content available on the platform.
The Prime Video Subscription option is available in more than 200 countries and requires users to have non-Prime members to have an Amazon account or a Prime Video subscription.
In TVOD (Transaction Video On Demand), Prime Video offers great content for pre-order, rental, purchase, download, and streaming, and allows customers to choose their preferences.
In AVOD (Advertising Video on Demand), Prime Video generates revenue through its Ad revenue model, where companies and brands can advertise and pay advertising fees to Amazon.
As a result of these revenue streams, Amazon Prime Video held a market hold of 60 million subscribers, resulting in approximately $2 billion annual revenue in the US market.
Amazon’s Kindle platform earns Amazon Prime some revenue while providing customers with a platform to read books, magazines, and comics, among other materials.
While the platform was initially meant for books, it currently combines with Kindle Fire to provide a platform for selling Amazon’s digital media.
Through Kindle, authors and publishers of different materials can trade and interact safely with readers and, in return, pay sales commissions and delivery fees to Amazon Prime.
Amazon charges $0.15 per megabyte (MB) for each book sold, priced between $2.99 and $9.99, with no charges for books below $2.99 or above $9.99.
Amazon Prime also requires authors and publishers to pay sales commissions unless they sell the eBooks directly to readers.
The sales commission is based on individual royalty rates, where authors with 35% royalty pay 65% sales commission for books priced below $2.99 and above $9.99.
For authors with 70% royalties they have to pay a 30% sales commission for books priced between $2.99 and $9.99
Amazon Prime Channels generate revenue for Prime due to paid subscriptions made to third-party premium networks and other streaming entertainment channels through Prime Video.
To access Prime Channels, customers have to subscribe to Amazon Prime and pay an additional $4.99 – $14.99 per month to watch movies and TV shows on HBO, STARZ, and SHOWTIME.
Thus, Amazon Channels hook customers to subscribe to Amazon Prime and contribute to the company’s revenue.
Amazon Prime Day
Amazon Prime Day is a shopping event similar to Black Friday, created by Amazon every year. Typically, the event lasts for forty-eight hours.
Amazon Prime displays numerous deals and discounted items to its subscribers at this shopping event.
Since the event will last for only two days, most subscribers will rush to shop while the items are at discounted prices.
As a result, Amazon yields billions of dollars on Amazon Prime Day. Additionally, it’s essential to note that the Amazon Prime Day offers are only available to Amazon Prime subscribers.
How Successful is the Amazon Prime Business Model?
Amazon Prime’s success is attributed to its new subscriptions rather than old members.
Although the company doesn’t reveal the actual figures generated from subscriptions and streaming content, it’s evident that more subscribers increase sales and profits.
Thus, in these two ways, Amazon Prime contributes to its parent company’s success.
Moreover, the platform has become one of the world’s largest instant entertainment libraries, with thousands of movies and millions of songs available in different languages.
As a result, the platform is currently competing with giant streaming platforms globally, with remarkable new entertainment content continually attracting new members.
Amazon Prime’s business model relies on a subscription model that attracts customers with many benefits, including free delivery, streaming services and e-reading services, among others.