10 Million people use Amazon Prime, accounts for a third of total income

Amazon's 'Prime' service, a premium service costing $79 annually which offers free two-day shipping and unlimited movie streaming, has reportedly hit 10 million subscribers.

Morningstar analyst R.J.Hottovy reports via a video that the service currently holds over 10m users, accounting for a third of Amazon's total operating income. The data was interpreted by Morningstar from a Consumer Intelligence Research Partners (CIRP) survey conducted in November 2012.

From Amazon's perspective, Prime members are their most valued customers, spending double the amount normal customers do ($1,224 yearly compared to $505). In 2012, whilst Prime members accounted for only 4% of the company's 182 million-strong user base, they made 10% of total purchases.

Hottovy calculates that Amazon makes around $78 per Prime customer, a margin that makes the service almost pure profit for the company. Huge margins such as this would usually bring about much joy with shareholders, but Jeff Bezos, Amazon's CEO, has in the past reinvested the company's profits directly into product development and decreasing the cost of products for consumers. The Kindle, for example, sells for a mere $69. Bezos confirmed in 2012 that Amazon makes no profit through hardware sales of Kindles, instead turning to online content sales to draw a profit.

Via: Business Insider | Source: MorningstarImage: Amazon

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How can Amazon make $78 per Prime customer when they're paying $79?
Surely 2-day shipping must cost something over standard shipping, and the TV and movie licensing must cost them something, too. There is no way they're profiting $78 on the $79 subscription fee.

mrp04 said,
How can Amazon make $78 per Prime customer when they're paying $79?
Surely 2-day shipping must cost something over standard shipping, and the TV and movie licensing must cost them something, too. There is no way they're profiting $78 on the $79 subscription fee.

And credit card processing fees are about 3% so it would cost them over $2 just to process the transaction. These figures don't seem to add up.

The figures are sound. It doesn't work like that - Amazon aren't charged per-customer for providing shipping services - the contractual cost with a courier in whichever country divided by the total Prime users in that country would be pretty minimal.
Credit card fees don't apply if you're using a VISA debit or paying via PayPal - so the $78 is an average figure.

Additionally, these are just the words of an 'analyst', and we know that their views are often erratic.

benbuffone said,
The figures are sound. It doesn't work like that - Amazon aren't charged per-customer for providing shipping services - the contractual cost with a courier in whichever country divided by the total Prime users in that country would be pretty minimal.
Credit card fees don't apply if you're using a VISA debit or paying via PayPal - so the $78 is an average figure.

Additionally, these are just the words of an 'analyst', and we know that their views are often erratic.

PayPal usually don't charge for transfers.

Try taking a payment (usually eBay) and see the charges rack up,

But I wasn't talking about that, most CC Merchant providers will be looking for 3% of the transaction, even 2% would drop the figure below $78, it really doesn't add up,

It might be better if you could actually write and look at the data better.

Morningstar analyst R.J.Hottovy reports via a video that the service currently holds over 10m users, accounting for a third of Amazon's total operating income. The data was interpreted by Morningstar from a Consumer Intelligence Research Partners (CIRP) survey conducted in November 2012.

Via business insider:

Now Morningstar analyst R.J. Hottovy has come out with a report that pegs membership at more than 10 million, and suggests that the program contributes about a third of Amazon's operating income.

Read more: http://www.businessinsider.com...ngstar-2013-3#ixzz2NS5mk8J2

Key word here is suggests. No where does it states that it actually account for 1/3 of the income. Try some actual writing skills.

Good for you. If you've got a problem with any news posted on Neowin, that's what the 'report issue' feature is for.

What you've argued here is semantics - the salient and important facts are stated. Early in the article it is referenced that this is all according to one analyst. Readers can take this point of view as they choose. The source is also stated so readers can acquire further clarification if needed.

"Morningstart analyst R.J.Hottvoy REPORTS...." - anything after that initialisation is effectively a paraphrased quote from the source. "Suggests" is just a pre-modifier used by Business Insider.

BoDEAN said,
Only if newegg offered this

They are partnered with ShopRunner which offers the same shipping bonuses. You don't get the TV streaming though.

Fritzly said,

True although I find Newegg prices worth the waiting.

Very often I find Amazon pricing better than NewEgg and with Prime it makes it a no brainer. Two day (max, usually over night) shipping and super easy returns. NewEgg I find is slow to ship when using their free shipping and their CS isn't as great.

Case in point, I pre-ordered the new Sim City (yea I'm crying a little inside) and NewEgg shipped it out on release day and it got to me three days later. Had I used Amazon I would have had it ON release day... I let NewEgg's coupon discount win me over and I regretted it (though not really since Sim City wasn't playable for the first week...)

I built my last Gaming rig through Amazon, only thing I didn't get a better price on was 2100 RAM, which Amazon didn't carry. As luck would have it, the RAM had a problem and had to go through Newegg returns, which wasn't bad, but took about a week to get replacement over Amazon's 2nd day.

Fritzly said,

True although I find Newegg prices worth the waiting.
Newegg has become my online best buy. I use their tools to research and compare. The copy paste the part number into Amazon. Amazon is almost always as good if not better on price and they will take other peoples credit cards on my account...something Newegg quit allowing a while ago.

xendrome said,
2 Day is good, but the $3.99 per item for overnight is even better

I'm so cheap I've only used that once or twice in all of my Prime history. No biggie since it is extremely rare for me not to get a prime order the next day. Living in a major city is great

Just spent $350 with my prime account. I can't imagine not having it again. Sure, $80 may sound like a good chunk of change, but for the year it's not much, the shipping pays for itself, AND you get movies and tv shows with it, even if they aren't necessarily the best (I've been watching Star Trek TNG from the start, hehe).

I suggested it to my mom the other day and she said that she doesn't shop online much, I told her that might change when she gets free 2 day shipping, I know it did for me. I finally signed up around Christmas time last year, ordered gifts for everyone on Wednesday, they were all there Friday. Easiest Christmas shopping ever.

Now I find myself ordering just about anything off of Amazon. With free 2 day shipping, I can think of something I need, order it, and probably get it faster than if I wrote it down on a list somewhere. Anything but groceries, and even some of those can come from Amazon and at usually very competitive prices, especially compared to brick and mortar stores. It's rare that I don't have a package headed my way. I have 4 packages on the way right now from Amazon, haha.

Worth every penny. I get most preorders on day of release; Free 2-day delivery; and I can stream movies to my Xbox 360 all for a low price.

MDboyz said,
If you order a lot of stuff from Amazon often, Amazon Prime is awesome service.
More importantly if you buy prime, you'll order a lot of stuff from Amazon. Happened to me.

MDboyz said,
If you order a lot of stuff from Amazon often, Amazon Prime is awesome service.

Yep, I spent over $6000 in 2012 on Amazon. I buy everything from soap, lotion, shavers, and of course, computer parts.

JHBrown said,

Yep, I spent over $6000 in 2012 on Amazon. I buy everything from soap, lotion, shavers, and of course, computer parts.

I don't even want to look at how much I spend on Amazon...

Prime is a major win for Amazon and for the consumer. Though it would be nice to see them offer some extra perks over the base that I use so often.

^This. I buy everything possible through Amazon for myself and my business. Haven't been to a mall in years. Arrives in 2 days, usually better price than anywhere else, free TV etc...oh and the free shipping is nice.