Amazon raises its yearly Prime program fee: Details and a round-up of media observations and my own.

AmazonPrime's incrased cost: Is it worth it for you?

On February 27, I wrote an alert about Amazon's US Prime Program cost going up between $20 and $40/yr and said that, in my view, a $40/yr increase would not work.

  An email from Amazon to those of us who are Prime members confirmed the coming increase today, and I'm writing this for those who do not always see their Amazon email and to add information beyond what is in the email, as these communications are customized to the person's Prime program status (regular and student memberships), whether one is already a Prime member, and one's renewal date if so.

  They kept it to a $20 raise ($10 increase for students) -- a new price of $99/year, giving the same reasons they had before when they first announced they might do this, quoted in the earlier alert linked above.

  While the effective monthly cost (paid yearly) by adult Prime members has been $6.58, the new price will be the equivalent of $8.25/mo.

  This is a rise of $1.67 per month for the general Prime program, after 9 years at the same price.

Amazon CFO Thomas Szkutak had said, "...shipping costs have gone up a lot. Fuel costs have gone up a lot."

According to the email I received this morning (which I've reformatted for clarity):

' We are writing to provide you advance notice that the price of your Prime membership will be increasing.  The annual rate will be $99 when your membership renews....

Even as fuel and transportation costs have increased, the price of Prime has remained the same for nine years.

Since 2005, the number of items eligible for unlimited free Two-Day Shipping has grown from one million to over 20 million.

We also added
  unlimited access to over 40,000 movies and TV episodes with Prime Instant Video and
  a selection of over 500,000 books to borrow from the Kindle Owners' Lending Library.

For more information about your Prime membership, visit our Prime membership page at www.amazon.com/prime. '

  The Amazon Student price, (the free-trial period for the less-expensive Student version of Prime has no Instant video streaming, but if it's followed by a paid student subscription, it does), will rise from $39/year to $$49/year on March 20, but for students not yet on Prime, they're offering this:

  "If you start an Amazon Student free trial before March 20, 2014, you'll be charged at a membership rate of $39 when it automatically renews.
  ... If you have an existing paid annual Amazon Student Prime membership that renews before April 17, 2014, you'll be charged at a membership rate of $39.


*Regular* priced Amazon Prime changes
The increased price goes into effect April 17, and if your renewal comes before that date, you'll get the older rate of $79/year.  I wasn't so lucky there.

AMAZON'S Prime Program Membership Fee Changes page
Amazon has added a page with details on the fee changes.


Valuewalk opines:

' Those who order from the service frequently will certainly find it to be worth the extra money just to save on shipping.

  And of course those who frequently utilize the on-demand videos and / or the Kindle lending library will also find value, even in the higher price.  After all, the price is just $3 higher than Netflix, Inc.’s annual price—of $8 a month—and getting free shipping on products enhances the value even further. '

Amazon's pages state that the new Prime Fresh, a their same-day local groceries delivery service, will remain at $299."

  The last I paid attention, they were trying out the same-day delivery of groceries service in Los Angeles and Seattle, with plans to add other cities as it goes.  So, now we know that this costs members of that (more or less beta) program the equivalent of $25/mo.

  Amazon's stock has been rising this morning, since profit margin will be improved while the cost is not so high that people leave the program in droves.

Quartz's Zachary M. Seward has written an interesting story on how the first Amazon Prime price was set. Excerpts:

' Amazon didn’t expect Prime to be profitable at first, but didn’t want to hemorrhage money on it, either.
. . .
  The name actually referred to the “prime position” in Amazon’s warehouses for goods that were eligible to ship in two days at the flat rate, former Amazon executive Vijay Ravindran tweeted today '
. . .
" ... it needed to be large enough to matter to customers but small enough that they would be willing to try it out,” writes Brad Stone in his book about the company.
. . .
“It was never about the $79,” Ravindran is quoting saying in the book. “It was really about changing people’s mentality, so they wouldn’t shop anywhere else.”
. .
If it had kept pace with US inflation, Prime would cost $94.62 today."

A recently added benefit for those who use the Prime instant-video streaming feature (40,000+ movie and tv videos available at no added-cost for Prime members), includes the ability to download many of these to your computer to watch when you're away from your home or a WiFi connection.

Brad Stone, author of The Everything Store: Jeff Bezos and the Age of Amazon, wrote today, for Business Week: (emphases mine)

' Bezos believes, even more so than his rivals, that content (books, music, and the like) can be the gateway drug that lures customers into Amazon’s immersive world of devices and digital services.  So over the last few years, he has packed digital freebies into Prime membership...
. . .
Amazon is producing its own television shows and movies in an arms race with Netflix to secure exclusive streaming rights to the most popular TV series. And the company is reportedly working on adding a free music streaming service into Prime.
. . .
In the next few weeks, Amazon will also likely release a set-top box for the living room, and it wouldn’t be surprising to see the device touting extra benefits for Prime members. '

In my case, the additional $1.67/month is still worth it to me, as I'm a frequent shopper and watcher of Instant Prime video.

  To be able to order something I need that's even low priced and get it within 2 days without having to wait until I can add more products to the order to make the $35 ninimum for non-Prime Super Savings program, is a real boon.

  Add that, although it's not considered by me as important for my own needs, it's likely that the rumored new TV box and streaming music program will include benefits for Prime members.

---

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Inside the Kindle 2 - what is its "true cost"?

Businessweek's Arik_Hesseldahl reports on what was uncovered during the disassembling of a Kindle 2.

Points from the article for those curious about the details.
1. Research firm iSuppli tears one apart to determine the cost of its components.
    Getting straight to the point, they estimate the cost of building at $185.49, or 52% of its retail price.
2. Hesseldahl makes an assessment of its unique identification and branding in a short time:

"...Amazon's (AMZN) Kindle has come to personify the e-reader in much the same way Apple's (AAPL) iPod brand of music player is often used generically to mean an MP3 player."

3. iSuppli identifies the suppliers and estimates the the cost of the components, to arrive at a rough estimate of the profit margin for each unit.
3. They believe the most costly component is its display (surprise!) made by E Ink.
4. The display is integrated into the final module by Taiwan's Prime View International (PVI).
    (This leads to the question of quality control issues -- E Ink's? or PVI's ?)
5. iSuppli's supervising analyst, Andrew Rasseiler, estimates the cost of the E Ink display at $60 "or about 42% of the cost of materials"
6. "The screen uses tiny, round microcapsules that change to black, white, or gray to represent text or images as needed."  When the unit was disassembled, the last image remained on the screen, as no power is needed to keep it there, requiring less battery power/drain.
7. Novatel Wireless makes the basic wireless module that costs $39.50.
8. Since the Kindle 1 had wireless components right on the motherboard instead of in a separate module as the Kindle 2 has, that was a more complicated and costly design, Rassweiler says.
9. Inside the wireless module are Qualcomm chips, which cost $13.18.
10. The main applications chip is from Freescale Semiconductor (spun off from Motorola) at a cost of $8.64.
11. Other:  memory chips, Samsung;  power mgmt chips, TI;   and 3 other companies provided some parts.

So we've a total estimated cost of materials.  Then there is of course the additional cost of its main feature, wireless access and the pre-paid use of Sprint's EV-DO cell phone network which usually costs cell phone users at least $30/month for limited use, with tiered levels (above) available.  At this point, Kindle users can access the entire Net 24/7, even if it is far from ideal in execution.

Add the cost of assembling, sw/hw development, distribution, management, customer support, etc.  Jeff Bezos has mentioned a few times that the profit margin is low on the unit, which is likely a reason they don't distribute it through stores, but they appear to have some faith in its more addictive powers, allowing customers to use it for 30 days and to return it if just uninterested in keeping it.  I've not heard of anyone having problems getting the refunds.

ADDED 4/27/09: Earlier photos of the inside of the Kindle 2 - page 1, page 2.  Note a commenter's note that what some thought was a spot for an SD card is instead a SIM connecter, with less pins than an SD connector. Below are ways to Share this post if you'd like others to see it.
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