Jul 10, 2023 - Economy

Amazon eyes international expansion to grow Prime subscribers

Illustration of the earth on a large pile of money

Illustration: Eniola Odetunde/Axios

Amazon's annual Prime Day event has grown increasingly global.

Why it matters: If estimates that show how slowly Prime membership has been growing in Amazon's key U.S. market are accurate, international expansion is one imperative for the future of the company's e-commerce business.

Driving the news: Amazon's upcoming Prime Day is its largest-ever in terms of simultaneous geographic footprint.

  • Sales will begin on Tuesday in 24 countries, including Turkey this year. In India, Prime Day will run from July 15 to 16.

Zoom in: Amazon's much-hyped annual promotion isn't just about selling as many products as possible — for the the company it's also, and maybe more importantly, about getting as many people to sign up for Prime as possible.

Prime members are extremely valuable to Amazon.

  • A survey of U.S. shoppers conducted by Bank of America found that Prime members spend nearly $2,000 on Amazon on average per year, about four times as much as non-Prime members.
  • And the recurring fees that Amazon charges for Prime membership drives high-margin revenue growth as overall online sales growth stagnates.

State of play: Since the program's inception nearly 20 years ago, more than 200 million people in 25 countries, including the U.S., have become Prime subscribers.

  • Amazon keeps specific Prime stats a secret, but estimates from multiple reports suggest that U.S. subscribers make up the vast majority of the membership base.
  • Recent and separate projections from Bank of America and Insider Intelligence peg the U.S. share at about 73% to 74% as of 2020.

What they're saying: "For overall Prime membership, the growth in members is much more likely to come from international at this point," Andrew Lipsman, principal retail and e-commerce analyst at Insider Intelligence, tells Axios.

The intrigue: Amazon's challenge now is establishing distinct value propositions for Prime membership by geography.

Tailor-made offering

While free and fast shipping and Prime Video are core Prime perks globally, Prime isn't a "one size fits all model where we take the U.S. benefit structure and apply it to a new country," Lisa Leung, worldwide director of membership growth, tells Axios.

  • Through focus groups, surveys and customer service responses, Amazon learns what people in different regions of the world need to help it create localized Prime membership packages, she adds.

There are four primary buckets of Prime innovation, according to Leung — payments, third-party partnerships, shopping and entertainment.

  • In Japan for example, customers with certain mobile carriers can pay for Prime with their phone bills, and customers of certain utility companies can get discounts on their Prime membership.
  • In India, where cash is still a popular form of payment, Amazon allows customers to pay in cash for Prime signups and other orders. And in Brazil, where alternative payment methods have gained in popularity, Amazon has enabled order transactions to take place through platforms such as Boleto and Pix, a mobile money transfer system from Brazil's central bank.
  • When it comes to third-party partnerships, adding Grubhub+ and Deliveroo subscriptions as part of Prime in the U.S. and U.K. is another way to boost perks.
  • Prime customers in Germany also get special discounts on Booking.com.

Entertainment and sports are also becoming bigger drivers of new Prime signups.

  • "In India, Amazon Video or Prime Video is the tip of the spear," Akshay Sahi, head of Amazon Prime in India, tells Axios.
  • One strategy includes timing new film and TV series releases to coincide with Prime Day sales. "Once they come on, we [then] bring them onto shopping," he said.

Meanwhile, Amazon also quickly "doubled down" on adding sports packages to Prime's basket of benefits following the 2019 success of its Premier League football offering in the U.K., according to Alex Green, managing director of Prime Video Sports Europe.

  • The deal brought in more new Prime members in the U.K. than any other perk the company had launched up to that point, he says.

Value isn't cheap

Amazon has been spending mightily to bulk up its content library in its quest to acquire and retain more customers.

  • In 2022, total expenses for music and video rang up to about $16.6 billion, up from $13 billion in 2021.
  • Of that nearly $17 billion figure, about $7 billion was spent on original videos, live sports and licensed third-party video — up from about $5 billion the year before.
  • In the U.S., Amazon is reportedly shelling out about $1 billion annually just for exclusive NFL Thursday Night Football rights.

Currently, those costs may be worth it.

  • The first broadcast of Thursday Night Football drew a record number of new Prime signups over a three-hour period, according to CNBC.
  • And Amazon's original show "The Lord of the Rings: The Rings of Power," which reportedly cost nearly $500 million for its first season, drove more Prime sign-ups worldwide than any other previous content in the history of Prime Video.

Amid still-elevated inflation, a rise in the number and prices of subscription offerings, as well as more options for spending disposable income, Amazon has to work harder to prove that value.

Between the lines: "The purpose of the [content] is to keep and gain the Prime customers," Sunil Gupta, a professor of business administration at Harvard Business School, told Harvard Business Review. "Two day free shipping is fine, but if you ask me to pay $99 or $119 for two day free shipping, I might start doing the math in my head."

  • "But once you throw in, in addition to the two-day free shipping, some TV shows and movies that are uniquely found only on Amazon, I can’t do this math."
  • Or, as Sahi put it: "Prime should be so valuable that it's almost irresponsible to not sign up for it."

What to watch

Amazon usually posts a wrap-up of the event, but most of the time in a way that makes it hard to compare performance year to year.

The bottom line: It will be a crucial couple of days for Amazon.

  • More members worldwide sign up for Prime on Prime Day than any other two-day period throughout the year, Leung tells Axios.

Go deeper

Go deeper