It looks like incremental news, but the fact that Amazon now lets you subscribe to Amazon Prime Video separately from the rest of Amazon Prime signals a bigger shift. Amazon wants to turn the company into a subscription business, one subscription at a time.
Amazon remains the dominant e-commerce platform in the U.S., but the company has been looking at ways to diversify its core business with more products and services.
For instance, Jeff Bezos recently told investors that Amazon Web Services is reaching $10 billion in annual sales — not bad for a side project. But the cloud hosting platform is just one element of the subscription puzzle. The company is also targeting end consumers with another kind of subscriptions.
Amazon Prime started as an expedited shipping option for regular Amazon customers. Instead of paying for deliveries, you can pay an annual subscription and get your packages a bit faster.
It also quickly became an all-you-can-eat library for all sorts of digital content. Amazon added the confusingly named the Kindle Owners’ Lending Library, music, photo storage, movies and TV shows. Once you pay $99 per year, you can access all these services.
The strategy was clear — once you try Amazon Prime for 30 days because you’re impatiently waiting for your scary white rabbit costume, chances are you’re going to watch a video or two, and maybe start a book from the Lending Library. Once you’re hooked, you won’t cancel your trial and you’re stuck with Amazon Prime.
And yet, there’s been a significant shift over the past few years with an identifiable pattern. Amazon is spinning out subscriptions from Amazon Prime by creating more generous subscription offerings.
You can subscribe to Kindle Unlimited for $9.99 per month if you want to read more recent books. You can store an unlimited amount of data on Amazon Cloud Drive (and not just photos) for $59.99 per year.
And now, you can subscribe to Amazon Prime Video for $8.99 per month. For now, there isn’t any difference for Prime Video subscribers and regular subscribers. Arguably, Amazon Prime Video is the most interesting part of Amazon Prime besides expedited shipping. So Amazon is treading carefully as it doesn’t want to remove Prime Video from the good old Prime subscription overnight.
But you can be sure that at some point Amazon will want to decouple Amazon Prime from Amazon Prime Video. If you want expedited shipping and Woody Allen’s latest movie, you’ll have to pay for two subscriptions. For instance, Amazon could create a two-tier system. The company could restrict original content to standalone subscribers and Prime subscribers could still watch the (older and less interesting) movie and TV library.
Even more important, it looks like Amazon has built a subscription launchpad with Prime. The company can try out new services and see if they work. From day one, these new services will have millions of subscribers. And Amazon certainly spends a lot of time tracking what its users do with these new services.
Amazon loooves data and analytics. I’m sure the company knows everything about your viewing habits on Prime Video. If you stopped watching Transparent after episode 6, Amazon knows that. If you couldn’t go past the first episode of Downton Abbey, the company knows that and can now consider stopping paying for the distribution rights.
And if you’re a Prime subscriber who rarely orders stuff but spends a lot of time watching videos, Amazon also knows that. A data-driven company like Amazon can greatly benefit from these insights. And once the stars are aligned, the company can create standalone subscriptions and ramp up its recurring revenue streams.
Slowly but surely, Amazon could turn its razor-thin margins on e-commerce products into substantial subscription revenue. And this would be Amazon’s smartest business trick.