Amazon's new monthly option for Prime could bring new customers to the e-commerce giant.

By Leena Rao
April 18, 2016
April 18, 2016

Amazon’s wildly popular subscription service, Prime, is going monthly. The e-commerce is potentially primed to gain many more users who want to access free shipping through the service, but on a month-to-month basis.

For the past few years, Prime has emerged as a key pillar of Amazon’s e-commerce and streaming business. For $99 per year, Prime members can access streamed movies, TV shows, and Amazon’s original productions in addition to free two-day shipping and one-hour delivery on certain orders.

With Monday’s news, customers now have the option to sign on to a standalone version of Amazon’s streaming video service for $8.99 a month, placing Amazon squarely in competition with Netflix. They can also sign up for the full version of Amazon Prime by the month for $10.99 a month, which includes access to free shipping.

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By breaking out the ability to access faster shipping and delivery, Amazon is courting buyers who may want to pay by the month during peak shopping times, such as during the holiday shopping season or around the birth of a child, explains James Cakmak, an analyst with brokerage firm Monness Crespi Hardt. It also gives shoppers the ability to try the service without having to invest $99 for the entire year.

“It lowers the hurdle to become a Prime customer,” says Cakmak. “Prime is a very stick service, so this should really serve as a benefit to getting more customers.”

Amazon’s other benefit to more Prime customers is increased spending.

According to the Wall Street Journal, Prime customers spend as much as double on purchases on Amazon.com to what non-Prime customers spend in a year. A recent Consumer Intelligence Research Partners report cited Prime has 54 million subscribers in the United States, up 35% from 2014. Furthermore, approximately 38% of American households are members, says research from investment bank Cowen.

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Giving users a monthly option for Prime could also be bad news for competitors, including Walmart.com. Last year, Walmart started testing a new unlimited shipping service, aimed at Prime, that costs $50 per year—half of the yearly fee for Amazon’s service. Walmart’s service, which is still in testing and is rolling out slowly for users, promises shipping within three days, compared to Amazon’s two-day promise.

Cakmak believes that Monday’s news is also a signal of where Amazon’s business is heading when it comes to e-commerce.

“Longer term, Amazon will become a membership-based business, similar to the Costco model,” predicts Cakmak. “Amazon will have low margins on the e-commerce site with much of the profits coming from membership fees.”

In the meantime, Amazon should be prepared for a potential rush of new Prime customers around the holiday shopping season. The company recently to lease 20 Boeing planes to transport products and get them to customer homes more quickly.

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