For a service nobody asked for, Amazon Prime sure is doing well.
That’s the gist of Amazon CEO Jeff Bezos’s letter to shareholders, released Wednesday, in which he explained his now-famous “customer-centric” approach.
“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great,” Bezos wrote. “Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.”
Indeed, Amazon Prime has become a big hit with consumers since it launched in February 2005. The subscription membership, which has at least 66 million users by some third-party estimates, has transformed shoppers’ expectations around delivery. In turn, Prime has spearheaded an all-out arms race for faster shipping — an area other companies such as Google (GOOG, GOOGL), eBay (EBAY) and even Uber itself want a piece of.
Prime, meanwhile, has successfully evolved far beyond its simple roots into an all-inclusive package that also includes streaming entertainment, e-book lending and serves as a tool for acquiring and retaining customers. Prime’s original content has been well-received, with shows such as “Transparent” nabbing awards.
“In our opinion, Amazon continues to define consumer expectations for online shopping,” wrote Neil Doshi, managing director of Americas research for Mizuho Securities, in a recent research report obtained by Yahoo Finance.
But while Amazon Prime has reshaped customers’ expectations, the service has cost Amazon (AMZN) billions of dollars. For Amazon, it means relying upon and constantly expanding the company’s vast infrastructure of fulfillment centers to get items from Point A to Point B as quickly as possible. More recent initiatives like Prime Now, which promise two-hour delivery timeframes to Prime members in over 45 US cities for free, also place added pressure on the company’s growing warehouse infrastructure.
Given Bezos’s penchant for emphasizing long-term “customer-centric” gain over short-term profits, don’t expect Prime to become a moneymaker anytime soon.
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