(Bloomberg) -- Amazon.com Inc. is looking to squeeze more money out of monthly subscribers to its free two-day shipping service, which could persuade many of them to sign up for annual subscriptions.
Monthly subscribers to Amazon Prime now have to pay $12.99 each month, an 18 percent jump, according to Amazon’s website. At that rate, monthly customers would pay $156 a year.
Being a Prime member gives consumers free two-day shipping as well as same-day delivery and access to Amazon’s media services, including Prime Video and music streaming. Combining these benefits helps turn casual Amazon shoppers into devotees of the e-commerce platform.
The price increase makes the $99 annual membership -- whose price is unchanged -- seem like a bargain. Amazon doesn’t provide exact membership numbers or break down the share of monthly versus annual subscribers. But it’s clear that Prime is the backbone of Amazon’s e-commerce engine and it’s being forced to carry ever more weight.
Cowen and Co. analyst John Blackledge estimated earlier this month that Amazon ended 2017 with about 60 million Prime subscribers in the U.S. He said consumers with Prime memberships now make up about 65 percent of all purchases, compared with 57 percent in December of 2016. This means that Amazon is eating the cost of free shipping for many more orders, which increases the company’s expenses in its already low-margin business.
Amazon doubled the number of items eligible for its free two-day shipping benefit to 100 million and shipped more than 5 billion items to Prime members in 2017. It’s also expanded its faster delivery service to more cities, which requires spending money to build out the infrastructure and hire the employees to make those shipments.
Amazon added the monthly Prime service about two years ago as a way to rope in holiday shoppers or those who couldn’t afford the $99 fee all at once.
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