Amazon – Prime target

Amazon needs to restructure Amazon Prime.

• Amazon has announced that its sales of Kindle products this year were the best ever but given last year’s shipments, that is not saying very much.
• Amazon’s latest move to drive adoption of the Amazon Kindle Fire series is to allow payment by instalments.
• Users pay 25% up front and the rest over a 90 day period interest free.
• If users don’t pay, Amazon can semi-brick the tablet and render it almost useless as far as Amazon services are concerned.
• I would assume that there is nothing to stop the device being re-flashed with standard Android but that would remove all of the functionality that makes the tablet interesting.
• Amazon is clearly hoping that this will drive adoption but I think that Amazon is attacking the wrong problem.
• Shipments of tablets are stronger than ever and Amazon is already at the cheap end of the spectrum. Price is not the problem.
• The real problem as I see it is the way that Amazon Prime is structured.
• The Amazon Prime service includes free shipping on all your shopping as well as access to a wide range of music, movies and TV shows via streaming.
• This service costs $79 a year which for many users is quite a hefty price tag.
• The only thing that sets the Amazon Kindle Fire series apart from the competition is the Amazon Prime services.
• Hence, an Amazon Kindle Fire is really only a must have for an Amazon Prime customer.
• I think that this is incredibly limiting as Amazon Prime only makes sense to the Amazon hard-core shoppers thanks to the free shipping that’s included in the package.
• My latest estimate is that Amazon has around 17m Prime subscribers which is up about 70% YoY.
• This is good growth, but in the ecosystem scheme of thing it is nothing.
• Google is closing on 400m, Apple on 300m and even Microsoft is somewhere around 60m.
• If Amazon wants to become a proper ecosystem, it needs to have a minimum of 100m subscribers and at this rate it will never get there before the race is done.
• The problem as I see it is the tying together of free shipping and video streaming.
• The free shipping forces Amazon to charge a high price and this is what keeps the user number low.
• If it were to split the services into two separate packs (with maybe a small discount if one takes both), then the service that makes the Kindle Fire worth having could become much cheaper.
• This I believe would be a much bigger driver for adoption than an instalment plan of payments.
• Shipment volumes from the other players have shown that price is not the problem.
• If Amazon were to offer a cheap media streaming service (without the free shipping) then I suspect that the shipments of the device would be much greater.
• Until this happens, Amazon Kindle Fire is likely to continue disappointing, leaving the architects of Amazon’s strategy scratching their heads.
• I like Amazon as an up comer in the ecosystem space but its valuation is already asking for way too much in terms of profitability that seems never to materialise.
• I prefer Yahoo! or Microsoft.