From free two-day shipping to free movies and music, Amazon Prime offers subscribers quite a lot for its $99.99/year fee. It offers so much, in fact, that Amazon should be losing money for every Prime subscriber it has, so why does the company keep pushing the service so aggressively? Unfortunately, that’s closely guarded secret at Amazon but many expect that it’s because Prime users spend much more on average than regular users, enough to cover the cost that Amazon pays for Prime and then some.
Ten years ago this month, Jeff Bezos announced Amazon Prime to the world. “It’s simple,” he wrote in a letter posted to Amazon.com. “For a flat annual membership fee, you get unlimited two-day shipping for free.” It’s funny to look back and see how Bezos baked a little marketing sleight-of-hand right into the product launch—the shipping is not really free, after all, if you’re paying a fee. But one piece of what Bezos promised has held true for the past decade: For customers, Prime turns out to be dead simple. But if Prime is simple, it’s also weird. For the first six years, Prime was about shipping. Then, in 2011, Amazon decided to add a service that had nothing whatsoever to do with shipping: unlimited streaming video became another perk of Prime. At least “perk” was how I thought about it at the time, a little bit of icing to make the 2-day-shipping cake taste even better. But it also seemed random—another experiment in Amazon’s workshop of “misfit toys.”