Ask HN - How is Amazon able to afford the 79$ price point for Prime? | Hacker News Reader

Ask HN - How is Amazon able to afford the 79$ price point for Prime?

3 pointsvijayr6 comments

What is stopping one from ordering some little thing every single day, in which case Amazon would be paying a good amount on shipping?

May be they can absorb this cost from increased business, but retail margins are thin, correct?

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As people have suggested, on some people they probably make money off prime (the small time users), and on others they make it up in quantity of stuff purchased. For instance, Amazon Prime (Student) was free for a year last year, now it's free for 6 months. From this we can guess that a year was overly generous and they didn't make enough money off of that through the increase in purchase volume.

Additionally, Amazon has significant deals with their shipping carrier for the mass quantity of things they ship out. This reduces their shipping costs.

The other component that reduces their shipping cost is the warehouse locations. Newegg used to (still does?) aim to get their packages delivered in 2 days. Their warehouses were strategically set up for that, and even if you ordered 3 day shipping you could get it in 2 days, it just wasn't guaranteed. I'm sure Amazon's warehouse layout is similar where most items reasonably get to their location in 2 days via cheaper shipping, and they can just pay for the extra SLA for the packages that might not.

I've had two types of free prime memberships for two years now and I buy tiny things like a $1.55 audio cable or a $1.99 grill lighter every week (sometimes every day.)

Ups actually offers insane bulk shipping discounts with huge retailers like amazon and newegg. The amount basically ends up looking like a quarterly fee on the balance sheets.

Then amazon uses fixed shipping costs for all their 'amazon fulfilled' items with few maxing out the base cost, this means that they may net anywhere from 0% to 90% profit on their shipping of each item depending on where it's going.

I'm fairly sure that at the $79 price point was chosen so that if every single customer switched to prime, they would still run a positive balance on shipping.

They have probably never made money on Amazon Prime but observed that Prime members buy more goods from Amazon because of the two-day shipping. Simply put, the money Prime brings in is based on the increased volume of your purchases and has little to do with the membership fee.

I bet they make money on some people, who just don't buy much from them. But even if they lose money on Prime, they'll make it up on their margins, as you suggest.

There's also a TOS, maybe they have some loopholes - http://www.amazon.com/gp/help/customer/display.html/ref=hp_p...

They don't guarantee squat, and not everything is eligible. Also, they can terminate the contract and give you a refund.

I'm guessing that it's pretty rare though. Most people will either buy lots of stuff (Amazon's happy), or not buy lots of stuff (Amazon's happy).

It's worth considering that they may not be making money on Prime. They might be losing a ton of money, just to get consumers hooked on the Amazon "ecosystem".

Prime has certainly changed my buying habits. My wife and I tend to buy a lot of small items that we wouldn't have otherwise bought. Things like a bottle of vitamins or bag of artificial sweetener. And I'll have it in 2 days which has worked well for us.

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