

Ask HN - How is Amazon able to afford the 79$ price point for Prime? - vijayr

What is stopping one from ordering some little thing every single day, in which case Amazon would be paying a good amount on shipping?<p>May be they can absorb this cost from increased business, but retail margins are thin, correct?
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caw
As people have suggested, on some people they probably make money off prime
(the small time users), and on others they make it up in quantity of stuff
purchased. For instance, Amazon Prime (Student) was free for a year last year,
now it's free for 6 months. From this we can guess that a year was overly
generous and they didn't make enough money off of that through the increase in
purchase volume.

Additionally, Amazon has significant deals with their shipping carrier for the
mass quantity of things they ship out. This reduces their shipping costs.

The other component that reduces their shipping cost is the warehouse
locations. Newegg used to (still does?) aim to get their packages delivered in
2 days. Their warehouses were strategically set up for that, and even if you
ordered 3 day shipping you could get it in 2 days, it just wasn't guaranteed.
I'm sure Amazon's warehouse layout is similar where most items reasonably get
to their location in 2 days via cheaper shipping, and they can just pay for
the extra SLA for the packages that might not.

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willpower101
I've had two types of free prime memberships for two years now and I buy tiny
things like a $1.55 audio cable or a $1.99 grill lighter every week (sometimes
every day.)

Ups actually offers insane bulk shipping discounts with huge retailers like
amazon and newegg. The amount basically ends up looking like a quarterly fee
on the balance sheets.

Then amazon uses fixed shipping costs for all their 'amazon fulfilled' items
with few maxing out the base cost, this means that they may net anywhere from
0% to 90% profit on their shipping of each item depending on where it's going.

I'm fairly sure that at the $79 price point was chosen so that if every single
customer switched to prime, they would still run a positive balance on
shipping.

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megaman821
They have probably never made money on Amazon Prime but observed that Prime
members buy more goods from Amazon because of the two-day shipping. Simply
put, the money Prime brings in is based on the increased volume of your
purchases and has little to do with the membership fee.

~~~
wisty
I bet they make money on some people, who just don't buy much from them. But
even if they lose money on Prime, they'll make it up on their margins, as you
suggest.

There's also a TOS, maybe they have some loopholes -
[http://www.amazon.com/gp/help/customer/display.html/ref=hp_p...](http://www.amazon.com/gp/help/customer/display.html/ref=hp_primeland_resources_tc?nodeId=13819201)

They don't guarantee squat, and not everything is eligible. Also, they can
terminate the contract and give you a refund.

I'm guessing that it's pretty rare though. Most people will either buy lots of
stuff (Amazon's happy), or not buy lots of stuff (Amazon's happy).

