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Amazon Prime: Scaling A Subscription Billing Service

Amazon Prime has quietly become one of the larger 'membership' based subscription services in the industry.

While Amazon does not break out its Prime revenue, a recent research report estimates that it has about 10 million subscribers and that the subscriber number apparently doubled in the past year.

For frequent purchasers the lure of free shipping has always been very compelling, but what Amazon has done right is to increase the value of the service over time. This axiom should be true for any subscription service, whether you're in the SaaS business like ourselves or in the fulfillment/platform business like Amazon. Specifically, Amazon has added the ability to watch streamed movies and also offers Prime members the ability borrow books from the Kindle Lending Library, currently at about 150,000 titles and counting. For a Kindle-owning family like ours, subsidizing our reading habits for $80 a year seems well worth the cost of the membership, let alone all the ancillary benefits.

Of course, Amazon has the luxury of driving incremental revenue from subscribers who purchase additional goods and services. The analysis would be how much additional revenue Prime Members generate (beyond the annual $79 fee) to make up for the subsidized shipping and the streaming/storage costs associated with its video and book libraries. Even if the company is losing money on each subscriber, as some research indicates, has that loss has diminished over time? In other words, can Amazon creating economies of scale with the Prime Service at constant costs.

Subscription billing is a wonderful business model if done right, and Amazon is well on its way to building a large scale model around this. For more information on the key elements of customer retention associated with subscription billing, view our webinar that discusses this topic at length.

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Gaming, Platform Diversity and Online Business Models

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