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Amazon's Blockbuster Innovation

In 2005, Amazon introduced its Prime Free Shipping program. This yearly subscription program promised free two-day shipping on any purchase the subscriber made from Amazon. Five years later, 13% of Amazon’s 130 million active users are Prime members. More significantly, 20% of the subscribers who purchased products from Amazon in the last twelve months are Prime subscribers. These Prime subscribers purchase two to three times as much as non-Prime subscribers over the course of a year. This Performance innovation removes an impediment to purchasing on Amazon. In fact, it increases the odds greatly that online purchases will be made on Amazon rather than on a competitive site. This has been a blockbuster innovation for Amazon. The innovation holds a special appeal to the larger customers in the market.

The Prime subscribers may also offer Amazon an entry into a business that it has longed to gain, for several years, subscription video rentals. It appears that Amazon will introduce a streaming video product for its Prime subscribers. This new product will not cost the Prime subscribers any more than their normal subscription. Netflix’s Watch Instantly service cost about $96 a year so Amazon may have a price advantage on Netflix. Of course, Convenience and Price are only important provided Amazon offers equivalent Function, that is, streaming video content. We don’t know about that yet.

Still, Amazon has proven to be an innovative company who can find ways to build a business in non-traditional ways. It continues to grab market share in the retail business.

Posted 3/30/11

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