Amazon, as I've written several times before, is a company that fundamentally does not believe in securing profits. This has become a minor challenge lately as the growth of high-margin Amazon Web Services has threatened to make the company consistently profitable in a way that is at odds with CEO Jeff Bezos's basic theory of how he wants to run his business.
His goal is for Amazon to become "the everything store," which means that every dime of cash flow generated by any of its successful businesses gets plowed into growing the company. He doesn't want Amazon to amass a stockpile of corporate cash the way Facebook and Google do, because he doesn't want to face investor pressure to use that cash to pay dividends the way Microsoft and Facebook do.
Amazon isn't a particularly new company in the scheme of things, but it's run with the spirit of a startup — grow, grow, grow, not profit, profit, profit — so AWS's incredible success at making money means it's time to try new things. And over the weekend, the Wall Street Journal reported on two new initiatives to help bring those margins back down:
Amazon.com Inc. is firing a shot across the bow of Netflix Inc. by attempting to become a primary destination for streaming video. The Seattle online retailer said Sunday it will begin offering its video-streaming service as a stand-alone option for the first time. A monthly subscription will cost $8.99, a dollar less than the most popular plan from Netflix.
Amazon has been offering its video service as a perk for subscribers of its $99 annual Prime shipping service. Prime membership also will be offered monthly for the first time to all U.S. customers for $10.99, Amazon said Sunday. An Amazon spokeswoman said the new monthly option could be turned off or on as customers wished, a possible benefit for shoppers during the busy holiday season.
Prime's subscription pricing structure makes it a great dial to turn up or down according to the company's larger desire to target relentless sales growth and zero profits. Here we see Bezos turning the dial down, especially during the crucial holiday season.
Temporary Prime could cost Amazon money at Christmas
Obviously if you compare month-to-month Prime to traditional year-long Prime, it doesn't really make sense: $10.99 times 12 equals $131.88, which is a lot more than $99.
A great deal for people who can't do math. https://t.co/YgNcVLHXu1— daveweigel (@daveweigel) April 18, 2016
But the real value proposition of month-to-month Prime is that you might turn it on for a brief window of opportunity, engage in a spurt of shopping, and then turn it off. As Ben Thompson writes at Stratechery, the risk is that "a monthly option could leave Amazon with big shipping bills every Christmas" that aren't canceled out by more profits at lower-demand times elsewhere in the season.
My guess is Amazon simply doesn't care. The holiday season is when the company is at the highest risk of accidentally turning in a giant profit, and it is committed to trying to avoid that outcome. Month-to-month Prime will help increase Amazon's share of Christmas sales, will introduce some people to the Prime product in a way that may eventually inspire them to sign up for it year-round, but most of all it opens up a new sinkhole into which AWS's profits can be poured.
If $10.99 doesn't leave the company holding the bag with a giant shipping bill in Christmas 2016, then it can try $9.99 next year. Or it can make the Prime Video even cheaper and squeeze Netflix harder.
Either way, the quest for world domination will continue unencumbered by anything as burdensome as a fat profit margin that the government wants to tax or activist investors want to kick out as dividends.