May 2, 2018
Amazon is raising the price of Prime membership
by Simon Reichley
Amazon Chief Financial Officer Brian T. Olsavsky announced last week that the cost of an annual Amazon Prime membership is going up forty percent, following a fifteen percent increase in the monthly subscription cost earlier this year. The announcement was made during a earnings call with CEO Jeff Bezos and others, which also showcased Amazon’s mind-boggling growth over the last year.
This comes shortly after Amazon revealed for the first time that Prime membership had reached 100 million. For comparison, Germany (the most populous country in the European Union) has about 83 million inhabitants. Make of that what you will.
The surge in pricing is apparently a move to offset rapidly rising fulfillment costs, which, according to analysis by Alana Semuels, writing at the Atlantic, rose sixty-six percent this quarter, compared to a forty-three percent increase in revenue. Robert Heto, a researcher at market analysis firm Gartner, told Semuels that costs of shipping and fulfillment were likely to keep rising and that this could pose “a tremendous risk for Amazon because at some point they will have to make it much more expensive to be a Prime member and at that point lose a major part of the value equation for the customer.”
While it may be true that costs will continue to rise for Amazon, there’s no indication that this will dampen the ardor of the investors, tech evangelists, and municipal leaders who continue to foot the cultural and economic bills for Amazon’s breakneck expansion. As Semuels points out, investors in Amazon have to this point shown a remarkable indifference to the company’s riskiest, most profit-averse behaviors. It seems unlikely that they would jump ship now, when the company’s actually starting to make money — largely on the success of their Amazon Web Services platform.
Most worryingly, this price hike may be the first indication that Amazon is transitioning into a new operational mode. For a long time, investors were happy to stomach cash losses so long as revenues and marketshare were growing. Now that it’s become clear that there is in fact money to be made, Amazon will be put under increasing pressure to advance (or at least maintain) that rate of profit. Raising prices on their biggest loss leader is perhaps a sign that the rubber is hitting the road, which can only be bad news for consumers. As Amazon comes under pressure to keep profits high, they will inevitable begin to wield their monopoly power in order to bully producers and coerce consumers — that’s the whole point of having a monopoly. It will be interesting (read: terrifying) to see how Amazon navigates these new competitive waters, and what kinds of price increases those 100 million Primecitizens are willing to accept in return for two-day delivery on whatever piece of useless fucking junk they’re buying.
For those seeking a sane, useless, and stable alternative, we urge you to remember that another world is possible.
Simon Reichley is the Director of Operations and Rights Manager at Melville House.