Amazon CEO Jeff Bezos famously talks about the company’s Prime subscription service as an important part of its “flywheel” strategy, through which customers become increasingly tied into Amazon’s ecosystem and end up becoming more loyal and higher spending customers. The chief benefit of the Prime subscription has always been sold as free two-day shipping, but of course, the list of features the service offers has long since grown beyond that to include video and music streaming, access to books and magazines, photo storage and more. Now, it’s even being used as a foundation for selling additional third party subscriptions like TV bundles. It’s increasingly clear that, though the primary purpose of Prime may be selling more goods on Amazon.com, it’s becoming a very powerful platform for selling other things too.
Amazon’s Growing Share in Streaming Music
Though I think the Prime perk that’s most often talked about beyond shipping is video, it’s fascinating to see what Amazon has been able to achieve in music, in large part by offering a limited selection of music for streaming as part of the Prime subscription. Though other streaming music services offer 30-40 million songs, Amazon offers a subset of two million through its Prime Music service, and that’s been a popular option. Media recently reported that Amazon now has the number three position in streaming music behind Spotify and Apple Music globally, through a combination of the limited Prime Music service and its separate Music Unlimited service. My own recent surveys suggest roughly one in six Prime subscribers in the US use the music feature at least monthly, and I would bet that Echo adoption plays a role in that, given that Prime Music is integrated into the Alexa function. That’s roughly half the rate of adoption of its video service after a much shorter time in the market.
In Video, Expanding Beyond Competing with Netflix
Speaking of Prime Video, Amazon has invested heavily in the service in recent years, upping its original content spending and competing with Netflix in the catalog-based streaming space. It’s even expanded in Netflix-like fashion to many other countries around the world, though in practice its catalog remains very limited outside of a few key markets. But the more interesting part of its recent video strategy has been its creation of the Amazon Channels service, which allows Prime subscribers to bolt on monthly subscriptions to various channels, from premium networks like HBO and Showtime to niche and foreign content. Recent figures reported by BTIG Research suggest that Amazon alone may be responsible for a significant chunk of the subscribers for standalone streaming services like HBO Now through this channel. The combination of its own video service and these third party services into a bundle creates a pretty unique offering in the market, something really only matched indirectly by the subscription model offered by Apple’s App Store, albeit without a first party subscription as part of the bundle.
Other Features Also Get Usage From Smaller Segments
Though video and music are the most popular features beyond free shipping, others such as the free access to books and magazines through Prime Reading and the Photo Storage offerings are also used by 10% or more of Prime subscribers in the US. Applied to the likely 80 million plus subscribers Amazon now has globally, that means Amazon is becoming a meaningful player in a number of secondary markets almost incidentally, threatening standalone players who make their whole businesses out of providing similar offerings. Most importantly, Amazon doesn’t need to make any money directly from any of these services – indeed, it likely loses quite a bit of money on its video and music offerings in particular, simply because the benefits of increased stickiness on spending on Amazon.com outweigh any costs.
Implications in Messaging, Healthcare, and Beyond
This week, Amazon was reported to have created a secret group to work on healthcare projects including electronic medical records and telemedicine, while Amazon also recently created calling and messaging apps for its Echo devices and the accompanying Alexa apps. Though it would be tempting to write Amazon off as having no basis on which to build either of these businesses – after all, it’s historically served households rather than providing personalized services to individuals – the businesses it’s built in video, music, and beyond suggest that we should never underestimate Amazon to build new businesses off the back of its Prime subscription base. That doesn’t mean it will always be successful – its Fire Phone was a huge flop, after all – but it does mean that in the right business segments it has a decent shot at building a meaningful subscriber base for new services as a side effect of its investment in the Prime flywheel.