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Amazon, the king of e-commerce, gets primed for 2016

Amazon's Prime membership service will help the company continue to dominate online shopping, this holiday season and beyond.

Ben Fox Rubin
Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
4 min read

If it weren't for Prime, Amazon might have been just the name of a river.

The top revenue-maker in online retail worldwide owes much of its success to its Prime membership service, which the Seattle company started in 2005 with an offer of free and speedy shipping.

In the 10 years since then, Amazon has been piling on goodies to lure more customers into the club, after realizing Prime can lock customers into its website and services.

There's good reason for this. Prime benefits are so enticing that once folks plunk down the $99 annual entry fee they usually spend twice as much with Amazon than nonmembers do. With an estimated 47 million US accounts, Prime has become so successful that rivals Walmart and eBay started testing similar membership shipping programs.

Amazon's Prime members have been keeping the e-commerce titan's warehouses busy. And that's just the way Amazon likes it.

Macduff Everton/Corbis

"Prime is doing well and is the key to the retail strategy," said David Mitchell Smith, an analyst for Gartner who researches Amazon. "It builds loyalty and makes it so that people spend more."

Looking to make Prime even bigger, Amazon this year built out a rapid-deliveries network for Prime customers, bolstered its lineup of original shows on its Prime Video streaming service and even invented a sales holiday called Prime Day that -- you guessed it -- offered members-only deals. How all-encompassing is the Prime experience? Enthusiasts can now even deliver packages for Amazon, with a new program that hires regular folks as on-demand drivers.

"We will continue to invest in developing faster shipping methods, expanded selection and incredible content for members to watch, read and listen," Greg Greeley, vice president of Amazon Prime, said in a statement.

As Amazon dives into another holiday-shopping season, expect the company to keep capitalizing on Prime to remain the top dog in Internet retail. Further out, look for Amazon to develop a handful of major projects, including its digital studio, homegrown electronics and delivery drones. It will all be in the service of keeping Prime customers coming back for more.

Ready for prime time

To get a sense of Amazon's growing ambitions, consider its video effort called Amazon Studios.


A promotional image for Amazon's "The Man in the High Castle."


This year was a good one for the company on that front. "Transparent," which follows a Los Angeles family as its patriarch's secret life comes out, brought Amazon's 5-year-old studio its first wins at the Golden Globes and Emmys. Now buzz is growing for another original, "The Man in the High Castle," an alternate-history drama about the conclusion of World War II.

If Amazon can keep up interest in its original shows, Prime Video could become just as strong a pull for new members as no-fee shipping. Creating these kinds of new Prime benefits will be critical to growing the ranks of Prime devotees, analysts say.

Another area of focus recently has been the so-called "Internet of Things," the concept of connecting all kinds of objects to the Web.

Last month, the company's Amazon Web Services division unveiled AWS IoT, a service that has the potential to link cars, medical devices, household appliances and other objects to its software and servers. The announcement added Amazon to a heated race involving tech giants such as Google, Apple and Samsung, all of whom see this technology as the next stage in the industry's growth. The Internet of Things market is expected to be huge, connecting millions of devices and generating spending of $1.7 trillion by 2020, according to researcher IDC.

Amazon isn't just creating software and services. It's also building items that connect to the Internet. For example, there's the Amazon Echo, a personal assistant in the form of a giant cylindrical speaker, and the so-called Dash buttons, which make it easy to reorder a product with a single click of the tiny devices. Expect the company to keep inventing new household devices, especially those that make ordering from its online storefront even easier.

Deliver us from waiting

One of Amazon's biggest projects this year was its expansion of Prime Now, which offers one- and two-hour deliveries of items including toilet paper, TVs and (in some cities) restaurant food and alcohol. The members-only service started in New York City last December and has grown to more than 20 metro areas, mostly in the US.

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The rapid-delivery service should help Amazon become a tougher competitor against local drugstores and big-box retailers, encouraging customers to skip a store visit and spend more with Amazon. The Prime Now service, along with same- and next-day deliveries in some cities, is changing consumers' expectations for how quickly they should receive their packages and sparking a war among retailers to offer fast, low-cost shipping.

"They've set the bar, just like they did with Amazon Prime, to say same-day is the new standard," said Daphne Carmeli, CEO of Deliv, a rapid-delivery service based in Menlo Park, California, that partners with Macy's, Kohl's and other brick-and-mortar retailers.

Amazon has said it plans to continue Prime Now's expansion globally. Further down the line, it hopes to deliver packages using airborne drones, an idea that Walmart is testing out, too. The federal government, though, is still hammering out drone regulations, so don't expect your shampoo to get delivered from the sky just yet.

"It's going to be more than one year," said Gartner's Smith, "for it to mature."