Amazon to Raise Fees as Revenue Disappoints

http://www.nytimes.com/2014/01/31/technology/amazons-shares-fall-as-revenue-disappoints.html?nl=todaysheadlines&emc=edit_th_20140131&_r=0

by lukeqsee • 12 years ago

73 100 12 years ago

nytimes.com

CompleteMoron2• 12 years ago

Aww. Just as I started watching their expensive TV shows! Alpha House season one was really good.

I also liked the shipping - but now that I have seen Paris at $75 will I want it at $110?

acmiller• 12 years ago

Alpha House was really, really good. Even so, I wouldn't sign up for Prime just for Alpha House. If Amazon is serious about it's own content, bundling it with a free 2-day shipping subscription probably doesn't make sense.

jader201• 12 years ago

“They don’t think they will lose customers,” Mr. Munster said. “They are doing this from a position of strength.”

I don't see how they think going from $80 to $120 per year for Prime will not cost them customers. We just subscribed last year (after being customers for several years), and I was still hesitant to do it then, because we only take advantage of it when we spend < $25 (we rarely use Prime video).

I'm thinking there are many in the same boat, and those are the customers they will lose.

notatoad• 12 years ago

I think amazon knows perfectly well that they will lose customers by this. They're doing it so that at the next shareholder meeting, they can point at their declining revenues from prime and say "hey, look you idiots. We know what we're doing. leave us alone".

Amazon has always been very careful to make exactly as much profit as they choose to. Their sales volume is huge enough that they could probably raise an extra $500mm by tweaking their pricing algorithm without anybody even noticing, instead they have increased prices in the most visible way possible. This has to be about sending a message, not about making money.

toomuchtodo4• 12 years ago

They should call it, "Demonstrating The Stupidity Of Analysts" maneuver.

weichi• 12 years ago

Do you really think that Amazon is doing something that they believe will lose customers so that they can make a point to about how they are smarter than stock analysts?

I have a very, very hard time believing that the people running Amazon would do that.

eyeareque3• 12 years ago

Amazon's advantage in this space is not what is once was: You have to factor in that we now get charged sales tax in California. Also, no-hassle and no time limit return policies at Lowes, Costco, Bed bath and Beyond, etc, and internet price matching, Amazon purchases are not as appealing to me as they once were.

Example: I can buy Nest Protect on Amazon for exactly the same price as it is from my local Lowes. However, with Lowes I get the ability to return it at any time for any reason, in person, without the return shipping price or hassle. I'm going to buy it from Lowes, where in the past I would have just used my Prime account to buy it from Amazon.

jmspring• 12 years ago

I've had prime for many years now -- seven or eight. We order enough that it is well worth it, plus we actually take advantage of Amazon Prime Videos. So, for me, an increase for the first time after so many years isn't really a concern.

It reminds me of a deli that was quite popular in Mountain View years ago. Incredible food, great employees, very loyal following. Around the time he was finally considering retirement, the prices went up from at or below Togos/Subway prices to what you would see these days at any of the popular New York Jewish delis. He justified it in -- "I can and it was about time." People still kept coming, it was a much loved institution.

Like the deli, there are many Amazon Prime users that love the convenience and will probably not really bat an eye at the increase. Those who joined more recently or do not use things like Prime Video, may feel otherwise.

digikata• 12 years ago

Yup, I debate renewing at $80, at $120 I would likely be pushed over the edge to canceling.

But I wonder if this is intentional beyond increasing fees. Maybe Amazon is trying to reduce their growth rate a little bit to help ease the rate you need to scale support infrastructure. e.g. something with slow real-world constraints like acquiring leases or real estate for warehouse space.

canweriotnow• 12 years ago

I'd actually be okay with this if they also stopped using LaserShip. They're part of the reason packages take "significantly longer than the advertised two days" to arrive.

toomuchtodo4• 12 years ago

Build more warehouses, partner directly with USPS. USPS delivers every day, to almost everyone. Just get your shipments to those sorting centers by 2-4am, and next day delivery for vast swaths of the US becomes easier.

donavanm• 12 years ago

If youre a Prime member and a package misses it's promised delivery date you should contact customer support. SOP is to increase your prime subscription by one month.

nknighthb2• 12 years ago

They really should have started more modest price increases a couple years ago.

However, I'm not sure you're the target audience for Prime. I place a very high value on fast shipping. Before Prime, I frequently paid for 2-day shipping anyway, and occasionally full-price overnight shipping. Their free shipping over $25 is way too slow for me, it's not a viable alternative.

RandallBrown• 12 years ago

I'm not sure if I've ever actually paid $80 for prime.

I got it originally for free as a college student, then they kept giving me half off discounts when it was time to renew. I don't know what I paid last time I renewed.

Even at $120 I'll still pay for it. It's an awesome service and I get way more than $120 value out of it. I never watched their videos either, but Betas and Alpha House are actually pretty good.

eyeareque3• 12 years ago

I've been doing the same thing (Student discount for prime). If it went to $80 bucks for me I am not sure if I would renew. If it was $120 I highly doubt I would.

canvia• 12 years ago

Now that Amazon is branching into original content production (loved Betas!) it makes me think that Netflix is doomed. Amazon Prime has a large % of the Netflix library, plus Amazon will sell you digital copies of most of what Netflix is missing. They capture far more revenue per customer because of this. I will still subscribe to both but if Netflix doesn't keep up with the original programming Amazon will eat them alive IMO.

Rimpinths• 12 years ago

They boasted that they signed up 1 million new Prime members in the 3rd week of December. I wonder how many of those people signed up for the free trial with the intention of cancelling before the end of the free month? I know that's exactly what I did last year when I still needed to buy a few more presents a couple of weeks before Christmas.

l0c0b0x• 12 years ago

Dito... I already have hesitation about the $80/year. I don't care about the 'free online movies' piece at all.

lighthazard• 12 years ago

You're not their target market. I'm a Prime user with over $20,000 in yearly purchases, certainly, I enjoy the benefits of Prime a lot more than you.

d23• 12 years ago

Then you aren't their target market. They don't make their money off of people that are high-usage customers. They make it off of people who buy it and use lower then the predicted average.

encoderer2• 12 years ago

Well, even when you spend over $25, you're getting Prime benefit of 2 day shipping instead of super saver. For me it's worth it.

jawns2• 12 years ago

I am not a Prime subscriber, but do buy from Amazon a lot (usually orders are over $35 so qualify for free shipping anyway).

One thing I'd like to say about Amazon's position of strength is that if you look at a competing service like ShopRunner -- to which I was given a complimentary one-year membership, which just ended -- Amazon is a beast in comparison.

I mean, even with the free ShopRunner subscription, I was still buying from Amazon more than from ShopRunner merchants, simply because Amazon is a huge department store with practically every retail category well represented, whereas ShopRunner is largely a collection of specialty stores.

Is this necessarily a good thing, though? I mean, the more power Amazon has, the less competitive it needs to be, right? That's why I have mixed feelings about using Amazon for most of my online shopping needs; I don't want to be contributing to a situation where all of the "little guys" are edged out.

leobelle• 12 years ago

Shoprunner is not even remotely the same kind of site as Amazon. Comparing the too seems like comparing Walmart with a tiny boutique.

smackfu2• 12 years ago

Well, Shoprunner is trying to be "Amazon Prime for the rest of the internet". It's even priced the same, $79. It's a natural comparison.

encoderer2• 12 years ago

All Amex card holders get free ShopRunner now. I've tried using it a couple times -- most recently at Tiger Direct. It's awful. There are so few items that qualify for the free shipping that it was an exercise in futility and frustration.

naner• 12 years ago

I signed up for the free prime trial during the Christmas season this year and let it lapse (didn't cancel it) out of apathy. Granted, I use Amazon enough where it probably makes sense. Without prime I would often purchase additional items to qualify for "free" shipping. With prime, however, I make more impulse buys.

I don't use any of the other prime benefits besides shipping.

Anyways, I probably can't justify $120 a year even though it is not really much more than the $80 I am paying now. I believe when prime first came out it was $50.

greyfade• 12 years ago

When I signed up for Prime 6+ years ago, I felt the same way. I was hesitant to do it, and I expected to cancel it after my free trial.

I still have it, and I've never let the service lapse, because I now do the majority of my shopping on Amazon. I buy everything from cat food to toilet paper, and I buy a lot of things (like DVD/Blu-ray) that I never previously had the motivation to go to a store to buy or that I don't have the ability to transport (like shelving units and chairs). It's supercharged my hobbies (electronics and 3d printing), and saved me days in back-and-forth to stores.

So I suppose I'm one of those customers that can easily justify the $120, and would be more than happy to pay more, especially if it means that Amazon will put a little more effort into faster delivery.

Pxtl• 12 years ago

Honestly, they so thoroughly trounce their competition in so many ways I can't imagine this will hurt them too much. The "Prime" price-cut will cost them new subscribers, but I think most of its existing users are married to the service now. Jumping the minimum-free-shipping to $35 is unsurprising - it used to be that value here in Canada.

falcolas2• 12 years ago

$6.67 to $10 a month... I think this will still be worthwhile to me. The video access alone is worth that to me, and the free 2 day shipping is just a bonus.

I can completely understand why some people might not feel it's worth it, but IMHO $10 a month for a sizeable video library isn't out of whack with the rest of the industry.

jawns2• 12 years ago

It seems like most of the people I know who use Prime fall into two categories:

1) Those who use it for the free shipping

2) Those who use it for the non-shipping services, like the video offerings and the Kindle lending library.

There is probably a healthy percentage that use it for both, but I wouldn't be surprised if it's below the majority.

I think the people in Category 2 are more likely to be willing to accept the higher fees than those in Category 1, for the reason you mention. Compared to, say, Netflix, this is still a decent deal.

xur172• 12 years ago

I'm in category 1, and separately pay for a Netflix subscription. I'd be a lot more likely to try their video offerings if it actually worked on my devices (Android and Chromecast). They've been purposefully NOT releasing an android app to promote their Kindle devices, which seems like a bad long term move to me...

xzel• 12 years ago

I would say shipping on most items is about 5 to 10 dollars. So averaging a little less than two packages a month and you break even. Not too bad. For me, the holidays shipping season will easily cover any month I didn't average 1 package from amazon.

Consultant32452• 12 years ago

I subscribe to Netflix, Hulu+, and Amazon Prime. I find I rarely ever watch video on Amazon. I value it primarily for the free shipping and the video service is a bonus. $120/yr is a LOT of shipping. Especially when you actually look at how Amazon Prime products are clearly priced to include the shipping fees compared to the non-Prime versions of the same product.

falcolas2• 12 years ago

Interesting thought, can you please show an example of an Amazon sold item that offers two different prices for prime and non-prime?

Unless sold by a third party vendor, I've not seen anything to that effect, and Amazon is still cheaper with its prime items than buying locally (or even from other online shops, frequently).

aresant• 12 years ago

Prime to me means "Free 2-day shipping"

I am a heavy Prime user.

I understand and accept the price raise, but as the article quotes "The more expensive Prime is, the more they are going to have to live up to their promises."

One promise that I feel is broken every day is on display with the "Add-On Items"

These are just annoying.

They show up in "Prime Only" searches and are typically <$5.

Which I understand Amazon really can't ship for free.

But there is literally no way to check out with just that item until you add up to $25, and it's typically stuff I actually need quickly.

Take thumb tacks.

They show the first result as $2.48 "add-on" for 100 of them.

Or you can select another package of 100 for $6.05 that IS actual Prime and shipped in 2-days.

The "add-on item" is just a confusing concept, that makes me - as a consumer - feel like Amazon's "2-day free shipping" promise is broken on a daily basis when I see these results.

Hide the results from me, show me how to hide the results, or charge me $2.00 extra to ship "Add-On Items" and problem solved.

But otherwise it's a constant reminder that Amazon hasn't kept their promise that I originally signed up for, even though I believe their intent is to offer more selection to consumers.

toomuchtodo4• 12 years ago

This 100%. Every time I see an add on item I need and can't pay extra to have shipped separately, its a time I have to go to a store, and makes me consider keeping Prime a little less.

res0nat0r2• 12 years ago

Add on items wouldn't even exist if it were not in fact for the add-on program, so having them listed is actually giving you more selection than you would get without it.

ingenium• 12 years ago

I complete agree. More and more items are showing up as Add-on Items, even things that didn't used to be (at the same price too). At least give me the option to explicitly pay for the shipping.

bloblaw• 12 years ago

Maybe this is a "Show HN" item, but I created http://www.shippingfiller.com to scratch my own itch of finding filler items to meet Amazon's free shipping minimum with items I might actually want. And I'm too cheap to buy prime.

rschmitty• 12 years ago

And I'm too cheap to buy prime.

You are not too cheap to buy Prime, you just don't purchase enough from Amazon to make Prime worth it. A "cheap" person who uses Amazon a lot always has Prime, otherwise they are just throwing away money on shipping.

Once you start buying many items from Amazon, Prime easily pays for itself at the current level. And will pay for itself at the next level too after a certain use

desireco422• 12 years ago

Another prime member here, totally worth it even if they double it. Most of the time, I get things next day as it seems that distribution center is nearby.

The reason you are annoyed by add-ons, is because you came to rely on Amazon for things you can and probably should by in neigbourhood store. I would buy thumbtacks and such things in dollar store acros the street.

I am similar in that I buy common things from Amazon, I like how it is organized and it makes sense to me when I order.

wiredfool3• 12 years ago

Right.

That bottle of melatonin, $7 on Amazon, prime add on.

$15 at the localish drug store that's a 5 mile drive each way. Yes, that's the closest store.

It's incredibly annoying.

Also, smya 107 helicopter tail booms w/motor, $4.00 prime add on, $4.00 shipped free from HK with a 3-4 week delivery time. Kid wants it fixed. Might as well just buy it, and another copter just to have spares around and to hit prime shipping.

Just let me pay shipping. It's worth it. Anything else is just a big fu. They've got the item, I've got the cash. Let me use it.

bjitty• 12 years ago

I completely agree. I emailed Amazon a while back because there was an add on item I really needed but could not buy. I understand they can't ship it free. That's fine, but like you said there was literally no way for me to purchase it and pay shipping. That's insane. They should make sure there's always a way for the customer to purchase something.

I also feel the SmartPost shipping is a broken promise. SmartPost almost always turns out to be 3 day shipping. 2 days from Amazon to the post office, then 1 day from post office to me.

GauntletWizard• 12 years ago

What Amazon needs to do is arrange for weekly shipments. I love prime, but I pre-order a lot of stuff, and often I'll have a week where I receive shipments three or four days in a row; One impulse buy I bought right then, two things I placed orders for months ago and months apart from each other, that just happen to come out at the same time.

Imagine if I could have them consolidate those shipments; Get a weekly shipment for most items, or get it via normal prime when it's something I really need fast.

pkulak• 12 years ago

They are probably coming from different parts of the country too, though.

smokey_the_bear2• 12 years ago

I have a strange problem that my garbagemen in Berkeley won't collect boxes. They're supposed to collect them if they are neatly stacked next to the bin, but they don't. If Amazon would consolidate into as little cardboard as possible it would have huge value to me.

rahimnathwani• 12 years ago

I've noticed that Prime members can still opt for the slower (super saver) delivery option. Although there's not much reason to select slower shipping over faster shipping, if both are free, choosing the slower shipping option should increase the opportunity for Amazon to ship different orders in the same box.

saurik• 12 years ago

Doesn't the scheduled shipments feature so this package combining automatically?

guiambros• 12 years ago

Couldn't agree more. I try to leave stuff in my shopping cart for some time, to avoid getting individual shipments. It'd be great if I can just 'add to the weekly queue'.

prostoalex• 12 years ago

They already kinda do that for Subscribe & Save items, the dates for those shipments are never predictable, and items tend to arrive packaged together.

deltaqueue• 12 years ago

The flipside of this is that Walmart does not charge extra for small, individual items, and I suspect they're losing a lot of money by doing so. I'm a heavy Amazon user, but as an experiment (and because I needed some individual toiletries) I ordered ~15 items from Walmart.com. Walmart's answer to this shipment request was to send 5 separate packages from different places and taking anywhere from 1 day to 10 days. Shipping transit estimations were all off. One shipment was just a single loofah. Just a very annoying process altogether.

Even with these add-on products Amazon is basically forcing you to adopt a Costco / buy-in-bulk model, and I think it's the only profitable and sensible direction.

at-fates-hands2• 12 years ago

>> Walmart's answer to this shipment request was to send 5 separate packages from different places and taking anywhere from 1 day to 10 days

Logically speaking, I would think this would actually be the fastest way to fulfill orders. Find the closest distribution center that has your stuff in stock and ship it.

The ten day delivery is a bit disconcerting for sure though.

sjs382• 12 years ago

Agreed. The add-on thing sits wrong with me. It's weasely.

fr0sty• 12 years ago

At times I am tempted to just order $25 of dead weight so I can get the add-on item and ship everything else back for credit.

I see what they are trying to do, namely get you to cough up $20 more to buy things you 'may' need but not yet (or ever) to increase revenue but it just feels particularly scammy.

smokey_the_bear2• 12 years ago

I've shared my Amazon Prime membership with three other people for years, it is an amazing deal even at 120 for us. If they cracked down on how the family sharing works it would be more of a hit for us.

redorb2• 12 years ago

They should offer(3) packages ... Free shipping prime, video only prime and a package with both

rock8y2• 12 years ago

Video only would be really tough for them to match Netflix on price or content in near future IMO.

redorb2• 12 years ago

beat it in price, if it was $4/mo ... it'd probably work.

xur172• 12 years ago

I'm guessing they are trying to bundle them, so more people try out amazon video.

rock8y2• 12 years ago

I cancelled my Prime membership early this month after being 4 years as a prime member. I took advantage of the 4 year($39/year) offer for Students. Am not eligible any more now. I looked through my orders over last 4 years and its only in the last year, I have really used the Prime to its best.

I was still thinking about getting back Prime for $79 as I enjoyed Alpha house and as a member of Amazon Preview, I have a bit of knowledge about their future productions. But a $40 increase would be too much for me at least. Might consider in Summer again based on how my 6 months without prime will go.

dangrossman• 12 years ago

Quick tangent for those saying they pay for Prime but have never used the Prime Instant Video part --

Seeing as you're here on HN, you might be interested in one of Amazon's two original TV series, "Betas". It's a comedy about a social mobile app startup going through a YC-like incubator, followed by a demo day, attempting to raise funds from VCs and angels, while spurning buyout attempts from a caricature of Zuckerberg and avoiding hit-pieces in Valleyswag.

smackfu2• 12 years ago

They have done a decent job of making the add-ons good enough that I would stick with it if they raised it to $10 a month. When it was originally just $79 for 2-day shipping, and the free shipping threshold was $25 otherwise, it felt like much more of a splurge.

ChikkaChiChi• 12 years ago

Amazon needs to offer Prime for businesses. Amazon slaughters the competition when you need something overnighted, and it was one of the primary reasons we abandoned NewEgg.

jmathai• 12 years ago

  In my experience, a significant portion of the deliveries 
  take more than the advertised two days.

My experience is exactly the opposite. Rarely late, sometimes early.

CWuestefeld2• 12 years ago

It seems to vary based on geography.

I moved last fall from NJ (close to two Amazon warehouses), where I almost always got deliveries the very next day, even for orders placed late in the evening.

In my new home near Austin, TX, it's always two days or even longer.

chestnut-tree• 12 years ago

From the article: "Amazon has 237 million active customers but as a general rule makes almost no profit."

Does Amazon really make no profit? Or do they just have some creative accounting techniques that means they never declare their profits to avoid possible taxes?

Consider the case of the bookdepository.co.uk, purchased by Amazon in 2011. Not only does the bookdepository match most of Amazon's book prices, they offer free worldwide delivery too. Yet, unlike Amazon, they are profitable.

jlgaddis• 12 years ago

They don't make profit because they spend most of it.

jakewalker2• 12 years ago

Lately, my Prime deliveries have been sent via UPS Mail Innovations, which relies on the USPS for last mile delivery. This inevitably turns 2-day delivery into 1 week plus delivery, due to the USPS's incompetence where I live. Complaints to Amazon result in a free one month extension of Prime benefits, but they can't stop the service from being chosen on future orders.

Unless this changes soon, I am likely to let my Prime membership expire, as it has become useless to me because it is no longer reliable. Any attempt to raise the fee while still using USPS for last mile delivery will be met absolutely with cancellation.

That said, if they raised the fee and promised to use only reliable (e.g., UPS, FedEx, hell, even Lasership/OnTrac), I'd take the deal.

ck22• 12 years ago

prime? or subscriptions

subscription use that damn innovations to save them 25 cents or whatever from ups coming to your door (which actually I am okay with but it adds a day)

I've never seen a regular prime delivery use innovations.

jakewalker2• 12 years ago

Prime! (Albiet for low priced, but not add-on, items - in the range of $12-$18).

sxcurry• 12 years ago

No kidding - this is happening increasingly to me and I've also complained to Amazon. I live rurally, and USPS takes at least 2 extra days, and up to a week. Also, large items won't fit in my mailbox and I have to drive to the Post Office, vs UPS bringing the item to the door. Plus, the UPS driver always has a biscuit for my dog!

ck22• 12 years ago

Notice how on amazon you cannot search for 3rd party vendors with free shipping.

I have to assume this is so people only use the "prime" checkbox to try to find free shipping.

buckbova• 12 years ago

Classic bait and switch. Get multitudes to sign up for Prime over the holidays and then bump the cost.

rsanders• 12 years ago

That doesn't make any sense. They aren't changing the price on subscriptions you already paid for.

mikestew• 12 years ago

No, classic bait and switch would be "hey, how about some Prime for $10/year?" <user click "buy"> "oh, sorry, we're out of those. Would you like Super Supreme Prime instead for $120/year?" I would think bait-and-switch would really only be effective in a B&M store, though.

What you're looking for is "they raised the price for when you renew next year."

at-fates-hands2• 12 years ago

Didn't we just see an article with a ton of comments about how brick and mortar companies should be more like Amazon?

Considering this about face on some of their more beloved policies, I'm wondering why people are saying this is the way of the future.

bedhead• 12 years ago

Price is a demand indicator. I doubt the price hike will have any impact at all to the number of Prime members or its growth rate.

Btw, keep in mind that Prime also gets the rough equivalent of a FREE Netflix streaming account.

gcb02• 12 years ago

I had student free prime and decided to pay the $79 or so for prime instant video thinking it would be netflix plus 2-day shipping.

Boy I was wrong.

Let's be honest here, Netflix has some series and NO movies. yeah, it has a few, but mostly crap or things i've already seen.

amazon instant prime is 10x worse. and netflix was bad enough already.

And besides no content, the Wii client i use, i take roughly 5min to start to watch something in my playlist! the loading times are Horrible! and the constant interruptions in streaming convinced me to not even look into their cloud services.

HelloMcFly• 12 years ago

If you think Netflix has mostly crap or movies you've already seen then either 1) you've seen a ridiculous amount of movies, 2) you're really not putting much effort into discovering good content or 3) your real problem is with Netflix's content discovery. Probably a combination of #2 and #3.

gcb02• 12 years ago

I tried searching for good movies there. All were dvd only, which defeats the purpose of paying for streaming (i.e. Being more convenient than torrents)

ac292• 12 years ago

Netflix has 6748 movies: http://instantwatcher.com/titles/all?tv_filter=movies+only

I will agree its mostly crap though. I cancelled my subscription a while back, but I think I'd pay $15/month or so easily if they could increase their catalog.

3apo• 12 years ago

I wonder how the drone program is coming along? Or was it just a last minute PR blitz to increase revenues?

jonknee3• 12 years ago

The stock immediately fell as much as 10 percent, or $40. Then came word of the potential Prime increase, the first in the program’s nine years.The stock quickly shaved about half its losses, dropping only 4 percent in after-hours trading. Amazon shares were up sharply in regular trading on Thursday. They rose $18.81, to $403.01, just short of the stock’s record high.

A day later and it's back to being down 10%. Wall Street has had some nutty volatility lately: https://www.google.com/finance?q=amzn

old5chool• 12 years ago

Good, let them raise it; got no problem with that. Opens up room for competitors, maybe even for you and me to make some online business a go. Nice.

Amazon to Raise Fees as Revenue Disappoints

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