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Newegg went through the same bifurcation when it introduced third-party sellers in 2010. It turned a largely hassle-free shopping experience into one where extr
by niftich 9y ago
Newegg went through the same bifurcation when it introduced third-party sellers in 2010. It turned a largely hassle-free shopping experience into one where extra care had to be taken to filter out results that weren't sold by Newegg itself.
I'd argue that Newegg was more hurt by this than Amazon, because customers were trusting Newegg to deliver a consistent experience at the expense of fewer categories of inventory, while Amazon's offerings were already diluted by a smattering of tiered experiences and bundling with tangentially-related services, of which the Prime/not Prime distinction became increasingly more intrusive.
Though many people use Amazon to find quirky, oddball, one-off products, it does tend to work best when used as an online-only warehouse club -- for repurchasing the same mainstream product over and over; with the added benefit that then you largely avoid having to wade through the filters of 'Sold by Amazon' and 'Eligible for Amazon Prime'. And since they pushed Prime on so many people, they can branch out into eBay's territory with little worries about the health of their customer-facing bottom line.
- emodendroket 9y agoDidn't I read that Prime loses them money most of the time? I don't think the membership fee is a real replacement for regular revenue streams; it seems to me like the point is more to encourage people to "get their money's worth" by buying from Amazon more.
- kristianc 9y agoPeople do really get their money's worth from Prime: "40% of Amazon Prime members spend over $1,000 a year on Amazon, while only 8% of non-Prime shoppers do so." I'd be really interested to see what Amazon's numbers as a whole would look like if Prime didn't exist, clearly it is profitable enough for Amazon to be able to keep bundling "free" stuff into the package like video / music, file storage etc.
- emodendroket 9y agoI think a similar effect is at work with Costco memberships.
- fma 9y agoNope, you must be thinking about hotdogs. Hotdogs are a loss leader for Costco. Memberships make them money. "The most important factor about membership fees is that they go straight to the company's bottom lines. Costco operates its warehouses on essentially a breakeven basis, making its profits on memberships instead of merchandise. " https://www.fool.com/investing/2016/08/18/what-do-membership-fees-mean-to-costco.aspx https://www.fool.com/investing/2016/08/18/what-do-membership...
- emodendroket 9y agoNot that they lose money (they hardly give you anything besides the right to shop at the store) but that they cause people to buy more than they otherwise would because they feel like they've made an investment and would otherwise be wasting the money they spent on the membership.
- LgWoodenBadger 9y agoI haven't done the math, but I don't know how accurate this is given that 2/3 of their sales are to members who receive 2% cash back ($110 executive members). The executive membership would need to average $5500 in purchases to wipe out any Costco profit on their memberships. $8250 average to wipe out ALL membership profit. I'll have to come up with a formula based on the numbers in your article. It'll be interesting to see how accurate that "profit from memberships" statement really is.
- fma 9y agoPlease post if you figure it out :) I've heard the statement for a while and am curious as well.
- in_cahoots 9y ago82% of households making more than $112,000 a year have a Prime account (https://www.thebillfold.com/2017/06/at-what-age-do-teens-get-their-own-amazon-accounts/ https://www.thebillfold.com/2017/06/at-what-age-do-teens-get...). Once you take that into consideration your numbers aren't that surprising.