Try Quitting Amazon Prime. Bet You Can't

Filed under: Media, Retail, Internet, Publishing, Investing

Pop quiz time! Amazon Prime is like which of the following?

1. The Eagles' "Hotel California," because you can check out anytime you want, but you can never leave.
2. Flypaper.
3. Black Flag's Roach Motel cockroach bait trap because folks check in, but they don't check out.
4. All of the above.

The answer's obvious to anyone who has tried Amazon.com's (AMZN) loyalty shopping program where consumers pay $99 a year for unlimited two-day shipping of Amazon-warehoused merchandise, among other perks. Whether it's a supernatural hold or a mortal adhesive, once you sign up for Amazon Prime, you're pretty much happy to be stuck.

Amazon has never spelled out how many of its customers pay for Prime. All that we know is that it has "tens of millions," and a graph shown during last week's Fire smartphone media event showed that growth itself is accelerating at a freakish pace in recent years. Amazon has made Prime an indispensable service, and the leading online retailer has made it a success in a pretty ingenious way.

Plugging the Leaky Bucket

Before unveiling the e-tailer's first proprietary smartphone last week, Amazon founder and CEO Jeff Bezos talked up Amazon Prime. "You can fill a bucket with an eyedropper, if the bucket doesn't leak," he said before going on to explain that Amazon Prime is the bucket that doesn't leak. Without giving numbers, Bezos made it clear that once folks try Prime, they don't cancel.

It's the sticky nature of Prime that likely made Amazon comfortable in boosting the annual price from $79 to $99 earlier this year. Anymore, it's not just about the two-day shipping at no additional cost. While certainly that's important for a company that ships billions of boxes each year. Yes, billions.

However, in a neat twist, Amazon has made Prime sticky even for people who are starting to wean themselves off physical shipments. Prime also includes access to a growing catalog of streaming videos (40,000 titles), monthly Kindle e-book rentals (350,000 books) and with this month's debut of Prime Music, 1.2 million songs for streaming.

Digital Divide

Amazon is brilliant. It went from being the company that sold books, movies and CDs to one that offers all three of those categories in digital form at no additional cost beyond $99 a year.

It would make it easier to assess Prime if Amazon told us how many people are signed up. However, we still get a strong metric every quarter when Amazon updates the market on its overall financial performance.

Net sales climbed 22 percent to $74.45 billion last year, and analysts see sales climbing another 22 percent to $90.8 billion this year. You don't see retailers ringing up tens of billions in sales growing this quickly, but you don't have any other retailers of this size with a captive hold on tens of millions of shoppers with its sticky Prime program.

Once folks sign up for Prime, every shopping decision begins at Amazon.com. Now that Amazon is building up its digital ecosystem, it's also covered for the future in a way that most traditional retailers can only dream about.

Amazon has you exactly where it wants you in the Prime of its life.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com. Check out what Motley Fool analysts have to say about the next company that will revolutionize the way the world shops and interacts with its favorite brands every day in this new free report.

 

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