IT HAS 40 MILLION SUBSCRIBERS. NOW AMAZON PRIME IS EYEING THE COMPETITION

AMAZON PRIME IS GOING STRONG, BUT ISN'T ABOUT TO LOOK PAST GROWING COMPETITION FROM WALMART, EBAY, AND A NEW COMPANY CALLED JET.COM.

BY NEAL UNGERLEIDER

This month, Amazon is getting ready to celebrate its 20th anniversary. By all accounts, it’s been a good year for them: Despite the high-profile failure of their Fire phone, there are over 40 million reputed Amazon Prime subscribers, the Kindle is a best seller, and the company just completed a massive expansion into Mexico. However, Amazon headquarters has a persistent worry… the fear of losing market share to a new wave of Amazon Prime competitors.

WHERE PRIME STANDS NOW

Although Amazon hasn’t shared Prime subscriber numbers in the past, the service is doing well by nearly all accounts. Earlier this year, outside firm Consumer Intelligence Research Partners estimated more than 40 million domestic Amazon Prime subscribers, which puts them on par with Netflix for subscriber numbers.

Since its launch in 2005, the price of Amazon Prime has eventually climbed to $99 a year. For that price, customers get a host of benefits. Although most subscribe for free two-day shipping, there’s also the popular streaming service Prime Instant Video, streaming music, a Kindle sharing library, and the ability to share Prime subscriptions with household members.

And now, they're even getting their own "Black Friday."

Amazon declared July 15 "Amazon Prime Day" in an effort to retain subscribers and build brand loyalty (as well as to celebrate its 20th anniversary). The move is perhaps a little bit of overcompensation and may ultimately prove unnecessary. The savings, judging from press materials, seem to center around big-ticket items like televisions and computers. However, most Prime customers buy more everyday things using the service, and this has been, arguably, the service's biggest stroke of genius.

Instead of shopping for high-value items online, Amazon successfully convinced customers to buy everyday items like washing detergent, paper towels, and pet food through the web. Jeff Bezos’ not-so-secret goal was to convince customers to buy from Amazon instead of journeying to their local supermarket or big-box store.

Speaking of which…

ENTER WALMART

This past May, Walmart announced plans for a $50-a-year Amazon Prime competitor. The project, called Shipping Pass, is currently in pilot mode and includes three-day shipping of more than a million products from their online catalog, with none of the extra bells and whistles Amazon offers.

Walmart has been trying extremely hard to up their ecommerce game in recent years: They run a large research and development center in Silicon Valley (which Fast Company visited in 2012) and have poured immense resources into bulking up their ecommerce division. But they face an uphill climb: Walmart’s online sales are less than one sixth of Amazon’s.

EBAY’S ALL-YOU-CAN-SHIP OPTION

Ebay also rolled out a Prime competitor of their own in May. But unlike Walmart, they went straight to the foreign market to test it. The ecommerce site is offering a new service called eBay+ in Germany that offers speedy delivery and free, no-hassle returns. Selected vendors are participating in the program, and it’s aimed at the site’sheaviest German users.

However, as Fast Company’s David Lumb has noted, there is an issue. Unlike Amazon and Walmart, eBay doesn’t have control over its own inventory. This is one reason why the speedy delivery offer is more open-ended than Amazon’s two-day delivery; in order to assure quality, eBay is only having top-rated business sellers participate.

Judging from the business model, it seems that eBay is hoping their most frequent shoppers will sign up for the service. But there are fewer incentives for eBay compared to Walmart or Amazon: It’s a marketplace you use to buy a new pair of jeans or a vintage poster, not your next month’s groceries.

THE UPSTART

Jet.com is the new "shopping club" startup from onetime Diapers.com CEO Marc Lore, and the currently invite-only ecommerce site has a business plan that’s a slight tweak on Amazon Prime: In exchange for paying $50 a year, customers have access to steeply discounted products.

The company requires $35 purchases to offer free shipping and has a steep $5.99 shipping fee for orders below that price point, and a limited selection of products compared to Amazon. But both are aiming for the same demographic: the tech-savvy mass market.

Most intriguingly, Jet has some initial strengths it can use to compete with Amazon. Jet offers speedy delivery in one or two days for essential items like diapers and toilet paper. They also have a unique discount structure, where customers can receive discounts for forfeiting the rights to return an item or by using specific credit cards.

THE END VISION

There’s a huge, huge market for Amazon Prime and similar services. In exchange for paying an annual fee, Amazon offers enough bonuses (such as a robust rival to Netflix) that users feel invested in using their service. Once they spend those hundred dollars each year on membership, shoppers then spend a lot more at Amazon. According to RBC Capital Markets, an outside firm, Prime members spend almost twice as much as other Amazon members.

Costco learned this lesson a long time ago: If you charge customers a membership fee and—crucially—get them to feel the membership fee is worth it, they’ll spend much more money at your business. Now eBay, Jet.com, Walmart, and Amazon’s other rivals have to figure out just how to make their core customers feel a membership fee is money worth spending.