Should Amazon offer “Amazon Prime Lite,” which offers just a few perks of Amazon Prime at a fraction of the cost? If the answer is yes, what would you include in Prime Lite, and how much should it cost?

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Should Amazon offer “Amazon Prime Lite,” which offers just a few perks of Amazon Prime at a fraction of the cost? If the answer is yes, what would you include in Prime Lite, and how much should it cost?

Asked at Amazon over a year ago

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Amit J · Answer 1 · 2022-01-31T19:08:27+0000

Should Amazon offer “Amazon Prime Lite,” which offers just a few perks of Amazon Prime at a fraction of the cost? If the answer is yes, what would you include in Prime Lite, and how much should it cost?

Before Answering this question, I would like to provide my understanding of current feature of "Amazon Prime", How many users are there around the world, current cost and features it provides.

Users:

Amazon Prime has 200M subscriptions around the world. It has 150M subscriptions in US alone and 50M subscriptions in RoW which is majorly Germany, UK, Japan, India

Cost:

Amazon prime costs $119 per year plus taxes or $12.99 plus taxes monthly in US. Amazon Prime video subscriptions costs $8.99 monthly.

Services:

Amazon prime provides Free and faster shipping with no boundation of minimum shopping cart of $25, plus Amazon video subscription, plus reading and other subscriptions.

before Answering the question on product, Lets see the following:

Total Available Market and Share of Addresable TAM- Amazon gets majority of revenue from US, followed by mid to high single digit revenue from UK, Germany, Japan and India and RoW. Overall Amazon sells in 20 Countries.

Who will be buying from Amazon? Assuming per family an Amazon account.

US - 330M population , assuming a family of 3 and Business Account - I see 150M prime subscribers in US is already reached to a saturation point.

ROW (19 other countries) - Excluding China: Assuming 8B global population, minus 1.5B China and 0.33B US population = 6.2B, Assuming around 30% reach for Amazon in those countries = 2B.

Assuming an Average family of 4 = 500M

Assuming Family shares an account with 1 other family in RoW, that leaves total Available SAM at 250M

amazon already have 50M of prime subscribers in RoW. Hence, there is a opportunity for another 200M prime subscribers who are not joining either because they use competitive products or Prime cost is high.

Before coming up what features should be there in Amazon Lite, lets come up with Mission:

Amazon is a customer obsessed company and want Customers to find the best selection possible at lowest price possible. As i understand Amazon has changed its model from being direct seller to e-infrastrucre platform provider. Amazon earns its proit only through 3rd party seller services (apart from prime, AWS, Advertising etc). In order to grow revenue and provide customer reach to Amazon platform. I am brianstorming below features on Amzon Lite have:

1) Free Shipping (Instead of 1 -day shipping , offer 2or3-day shipping)

2) Reading (e-books)

3) Free Amazon Video with Advertising

I understand Amazon already provides separate video subscription at $8.99 in US. Hence i am proposing to offer same price $8.99 for Amazo Lite which will have all the 3 features available. Through this, customer can qualify for free shipping but instead of 1-day, it will be 2or 3 day free shipping, which is competitive, and Reading and Video subscription with Ads like Hulu. Through This, Aamzon can grow its advertising revenue, tap to additional customers to serve their need on Amazon platform and continue with reading subscription.

There are couple of risks that we should understand with this:

1) Competition - if Competition offers similar services at lower prices (vs earlier), it will put pressure on parent Amazon prime product.

2) Cannabalization - There is a possibility that some customers who dont want video content but want Amazon free shipping only can lower down their subscription from Amazon prime to Amazon prime-Lite.

Lets come up with Revenue and decide whether its a go or no go:

Go :

1) Increase in Customer base (engagement)

2) Increase in prime subscription

3) Increase in Revenue (Advertising, Prime Revenue, 3rd party Seller revenue)

No-Go

1) Decrease in Prime Revenue

2) Higher Cannabalization from Prime to Prime-Lite.

Revenue Model:

1) lets assume, Amazon Lite taps, 50% of Addressable SAM (200M) over next 5 years. That means 100M Additional primelite-customer. (Assuming linearity over next 5 years)

2) Assuming there is 20% Cannabalization from current Prime to Prime-Lite users (hence 40M subscribers move to Lite feature)

3) Assume Prime-lite brings 2% bump in Advertising Revenue every year. Assuming Advertising Revenue at $20B as of today. Hence a bump of $0.4B revenue every year.

With Above 3 Assumption, I clearly see incremental revenue gains of around ~6-7B Revenue over next 5 years, increase in cutomer engagement led to more gains in 3rd party seller revenue.