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Amazon May Increase the Cost of Prime by $20 to $40

The profit-starved company could certainly use the extra revenue, but will Amazon be able to deliver extra value as well?
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Amazon's incredibly popular streaming and shipping program, Amazon Prime, may soon see a price hike of $20 to $40. Amazon CFO Tom Szkutak mentioned increasing the subscription cost (currently $79 per year) during the company's fourth quarter earnings call, according to The Verge. While it's important to note that nothing has been finalized, a price increase would obviously have serious implications for the rumored 20 million Prime members (Amazon has never officially confirmed the number of subscribers).

How Amazon Is Making Billions, But Barely Scraping By

Should the price hike go into effect, then those 20 million people would be giving Amazon (at worst) $119 per year to pay for unlimited 2-day shipping. Shipping costs have been haunting Amazon lately; non-Prime members saw a rate hike last year, and now must buy $35 worth of stuff to qualify for free shipping. And everyone must spend at least $25 to offset the shipping costs of the smaller "Add-on" items. Looking at this trend, the Prime rate hike has been a long time coming.

Amazon's free shipping and super-low prices have made it popular with customers (and therefore investors), but these practices have caused the mega-merchant to operate at a loss more often than not. Although Amazon announced $274 million in income this past year — after its first profitable quarter in ages — that number pales in comparison to its $74.45 billion in revenue for 2013.

"While $274 million in profits is nothing to sneeze at for most companies, for one with nearly $75 billion in revenue, it's surprisingly little," Forbes explained, noting that bookseller Barnes & Noble posted a 7.7% profit margin this past year, as opposed to Amazon's 0.4%. "Not only does Barnes & Noble's profit margin blow Amazon's out of the water, its overall profit in dollars is nearly double Amazon's — and on less than 10% of the revenue. In one way of looking at it, it's better to be an owner of beleaguered Barnes & Noble than of high-flying Amazon."

Can Amazon Hang On to Prime Members at a Higher Rate?

When DealNews first shared the news about the possible Prime rate hike on Facebook and Twitter, many commenters wondered if there would be a corresponding boost to Prime's value, such as a wider selection of streaming options for TV shows and movies. As we've previously mentioned, Amazon has recently pledged to film all of its original content in 4K, though it remains to be seen if that change will add value for the average customer. In addition, Amazon's fourth quarter press release notes that the "Prime Instant Video selection increased from 33,000 to more than 40,000 movies and TV episodes in 2013," so the company is obviously interested in increasing this content. However, logic dictates that Amazon would continue to build this catalog, whether or not a rate hike occurs.

A massive price increase applied with seeming capriciousness could do a lot to hurt Amazon's already razor-thin margins. The e-commerce leviathan needs to look no further than its main streaming competitor, Netflix, to learn that lesson. When Netflix tried to split its DVD rental and streaming subscriptions into two separate services in 2011, it was "effectively jacking up [its prices] by 60%," according to CNET. "Netflix lost 800,000 subscribers and its stock price dropped 77% in four months." Clearly, if Amazon plans to go through with this Prime cost increase, the company needs to convince subscribers that they'll see a corresponding bump in value.

What do you think, readers? What would Amazon have to do to make you accept a Prime price hike? Or was $79 already too rich for your blood? Share your thoughts in the comments below!


Features Writer

Marcy pens consumer news stories of all sorts, in addition to adding pithy prose to many of the roundups you see every day. Her work for DealNews has appeared on sites like Lifehacker, the Huffington Post, and MSN Money. She is by far the most metal member of the DealNews staff, and you can see why by following her on Twitter @ThatBonebright.
Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).
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37 comments
GrandPixel
I don't care about the the 2-day shipping, I care about the $35 minimum. I would not mind if they took away the 2-day benefit to save costs, but gave free standard shipping with no minimum.
A-M-R
Amazon has slipped over the past 16 or so months. Prime has been falling onto 3 or more days with Amazon saying oh-well. Also, many times you can find the item cheaper on Amazon WITHOUT using prime. So when you factor in the triple cost: 1) paying more for a prime item sales price, 2) paying for prime ($79), and 3) Sales tax - Amazon is no longer attractive in the market. eBay and Local retailers are more attractive.
dtl717
My original use case for Prime was the 2-day shipping and the tax benefit. Increasingly, "2-day shipping" has in reality become 3+ day delivery. Additionally, some non-prime items have been delivered in 2-days when ordering with standard shipping. To further devalue Prime membership, the Tax benefit has been removed. Finally, the only way Amazon can get anybody to "subscribe" to Instant Prime is to give it away with Prime membership.

Don't get me wrong, Amazon is a fantastic shopping reference database to assist in the decision making process but the shrinking benefits no longer justify the expense. A sizable percentage of my purchase $$$ have already been moved away from Amazon and I will be canceling my Prime membership when the current year expires. Even at the current rate...
isilveus
Divyadmg - Completely agree on attrition and subsequent surge.

The way I look at it, the sales tax thing was inevitable anyway and it's not that an inappropriate tax is now being levied, but that I skated by without having to pay it for so long. Also, because of Subscribe and Save, I've been able to ditch my wholesale club membership with the additional benefit that they keep track of the frequency of my purchases and deliver them to my front door, which is something BJ's Wholesale never did.

I'm the cheapest person in the world, but I also recognize that businesses do have to eventually turn a profit. Amazon's crazy generous return policies and out-of-the-park customer service contribute to high costs. Because I like the business model, I'm willing to support it with my dollars.
boidsonly
Amazon has started collecting taxes so an increase in Prime would be a double whammy for me. I called customer service and canceled my automatic renewal. My cancellation will not hurt the retail giant in the least but it is my money and I will decide what to do with it...
doug3176
Perhaps a smaller increase would make more sense. Some people, slapped with a 25-50% increase, can become offended. Why risk the the same type of revolt that Netflix had? How about a 5 dollar increase. Most people who have the service - love the service. For a 5 dollar increase (paid only one time a year), I think it's safe to say that most people wouldn't change their buying habits. As far as Amazon goes, they get an additional 100 million in revenue. Everyone wins.
BB Crisp
I get their issues and they definitely need to make changes to increase their profit margin. Having said that, I personally won't pay more than $79 for Prime. I rarely use their streaming options, since Netflix and Hulu have much better libraries, and the shipping benefit is more of a convenience than a necessity. It's already difficult to justify at the current price.
TonyL2000
The video offerings, I hardly use as they're not as good as Netflix. The kindle renting does nothing for me as I don't have a kindle but an iPad. The only thing I liked was the shipping. If they raise the price I'll go back to ordering at times when I hit the free shipping minimum.
gatemac
This is a ploy to get back some of the monies that have been lost since more states are now collecting state sales tax....not as competitive as they used to be ....Ill be going elsewhere...
vwoom
In addition, $79 Amazon Prime membership is well worth it...if you shop no other, and I mean NO OTHER website to shop for. Im not that fanatically "jihad" on Amazon (though I end up nearly always on Amazon, if item is unavailable anywhere else and "to-my-door" price is the best value for my time, money, gas/mileage), to spend an extra $79 annually...I can practically use that money on something else.
Divyangmd
But I'm just one of 20 million. That one voice will not be important for Amazon. I'm sure they are already anticipating an initial 10-20% dropout of Prime rate. Taking note from Netflix, who 2 years later has gained subscriber rates and stock prices beyond initial losses, Amazon will see no downside to this increase.
Divyangmd
I will not renew Prime if rates increase. Although I enjoy receiving items in 2-4 days after ordering, I would be willing to wait 5-7 days and would wait till I had more than $35 to order. If I really need an item soon, BestBuy and Target price match Amazon. At the extra cost of 7% tax for items i might need so quickly, the annual cumulative cost would still be less than a $99 membership. I don't own a Kindle, so book renting or sharing doesn't do anything for me. I did enjoy Prime video for free viewing of 'The Closer', which was not available on Netflix. I finished watching that series a year ago. I do not find that Prime video has anything else that is not already on Netflix. For my taste in entertainment anyway. For me, the cost to benefit ratio is already borderline. Any increase in cost without increase in what I would conceive as benefit would not be worth it.
isilveus
I would pay. Amazon Prime is an amazing service with great feedback loops and excellent accountability. It's only fair that we pay reasonably for it. Prime would be a steal at twice the price.
xterra
Amazon not making money? That's funny.
vwoom
I'm a consistent Amazon shopper, and I have no Amazon Prime membership...and I will keep it that way. Nothing more to contend to. I shop only when items is/are imperatively needed and with Camelcamelcamel.com (plus sites like Dealnews.com) around, I can monitor with the best price and combine shop items to get free shipping. Besides, $7.99 Netflix 1080p resolution runs perfectly on my wired (and WiFi) $30/mo 3Mbps DSL connection...if I get A Prime Instant, I'll be forced to bump my internet speed, thus spending. Amazon Prime is a cascading "cause and effect" on spending (in my case).
GLVegas
Like a lot of others here, I dropped Amazon when they started collecting taxes and go straight to the manufacturer whenever possible. I basically use them as a shopping database now.
kc5wmm
Goodbye Prime! Especially since I have to now pay Georgia taxes when I purchase stuff on Amazon. I have found myself purchasing everything I want now directly from the company rather than purchasing through Amazon, like I had before, due to the tax issue. I would be interested to see a study of how Amazon has seen a change in the # of orders from states before and after initiating charging taxes?
lindacrosby
i don't think i would stay at a price hike,the movie deal sucks there are no new movies they are all old ones and the perks for prime are not that great.
zv300
Not sure who to blame, Amazon, the shipping companies or myself? Amazon is not making money, but neither are the shipping companies. One problem amazon has is shipping small things in larger boxes, thus keeping the shipping companies from shipping a lot more items, robbing them of profit. They need to find out how to ship in the appropriate size boxes.
Bobwojo48
Will have to think about this. have to consider that you can share your prime membership with 4 other family members. I share mine with my 2 kids and sister....and I watch a lot of Prime video....
jd316b
I would definitely terminate my prime account if they were to raise the ante another $20. The perks are slowly being taken away. Their video service sucks! The only good thing about prime is 2 day shipping and they just started using the usps, which is no bargain.
vrsick
I've been a prime member for 3 yrs.Ever since Amazon began collecting tax in Ct, I've been looking else where to shop online. There's no way I'm going to pay more to renew my membership. Plus, I have never taken advantage of the prime video.My membership is up for re-newel this Feb 2014, no way I see myself paying more.
dealnews-Somogyi
I'm optimistic that this won't happen.
Optimistic about Prime.
Optimist Prime.

*bow*
icon_st
What I noticed from last couple of months is that even with prime membership you have to meet the free shipping threshold of tons of items and everyday they are removing items from prime and adding it to what they call "Add on item". So the only difference now a days is you get 2 day shipping. And with their warehouses everywhere even normal shipping comes in 2 days. I don't see any benefit as it is.
And yes about the streaming service, most of the stuff for streaming is age old, and like "add on item" they keep removing stuff from prime instant.
rbockman
I stopped ordering from Amazon and Woot when the became tax collectors for the state
thenewguy123
I checked my order history and I ordered 61 things on amazon in 2013. I'm also on the $8 a month plan not the annual subscription at $79. So I pay per year $96 / 61 items = $1.57 average shipping charge for each item. if they added $20 it would come out to $1.90 each item. Still worth it to me for 2 day shipping. sometimes I get it next day.
KenF
I find it hard to justify the $79 now. Any increase at all and I will revert to waiting until I have enough items to meet the free shipping threshold. We don't even use the streaming video.
good2014
I have never streamed any video from Amazon & never care to, but am a Prime member for shipping. So a higher prime fee would not justify what I buy from them & I'd either shop elsewhere like Newegg for example, wait the extra time or wait til my order reaches a free shipping amount.
Separating content delivery and shipping might be the way to keep customers.
COMPUTIAC
Today they sent me an email informing me a "Subscribe and Save" (which included free shipping) item I have been getting for a year and a half was no longer available.

I checked the price for this item and it had increased by almost $2.00, plus the shipping charge for this item is now $11.42, unless I spend $35. or more.

Now I see they are going to increase the price for Prime. I will look closer to home from now on.

Unless I have a big purchase or a lot of small ones I really need, I will not be using Amazon anymore.
bigone
well its a great deal any way you look at it i use the heck out of it . the problem is most people dont calculate services of its annual costs just think Netflix costs $108 dollar a year cell phones average 720 ti 1300 a year most movie subscriptions add up over $110 with prime you get 2 day shipping movies and books it is one heck of a deal at $79 and the service is top notch mabe people should statrt comparing to other services and you will rethink 20 or 40 added would still be a steal
duce55
I would definitely cancel if price goes up $20.
kabj
If there's an increase in price, I'm definitely dropping Prime. I barely justify the cost as it is right now. That would be the deciding factor for me...hands down!
HeyTiger
I already struggle to see the value of Prime. I can wait an extra day or two for my items and spend those 79 dollars on things I want. At an extra $20-40, I don't think I'd even consider it. Patience is a virtue, and in this case, one that saves you money.

That said, if prime was same day for some items, I'd reconsider.
just me
Instant gratification has its price - and now it's $20 more. I can wait 5 days for whatever stuff I get. If their other services (streaming, etc) create a decent bang for the buck - fine - but just for stuff to get here a few days sooner? Nah. Keep it. I like my $20 more - besides, there's always Ebay!
shocker
I have thought about prime for sometime, but have not signed up. My reasoning has been that since i purchase from amazon 6-8 times a year, and tempted to purchase even more, I cannot justify the $79 upfront. An increase would turn me off completely.
thenewguy123
I use amazon to purchase items and the 2 day shipping is great. I wouldn't mind if they separated the streaming service since I use netflix and hulu. When you break the increase down to monthly payments it's only a few dollars more than what you pay now. I would keep my subscription it's still worth it to me.
Don M
I would probably cancel if there is a $20 dollar increase. I don't see the value at a higher rate.
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