Prime Day Was All About Amazon Growing Its Base

The biggest sellers were Amazon devices.

Motley Fool Staff
Motley Fool Staff
Aug 5, 2019 at 3:30PM
Consumer Goods

Give Amazon (NASDAQ:AMZN) credit for creating a retail sales holiday that makes people shop for no reason in the middle of summer. Even with all of the discounts, however, one thing stands out: Prime Day is about pushing Prime memberships and Amazon devices. That worked excessively well, as the company added a record number of members and moved a whole lot of its own devices. That gives the company a bigger foothold into controlling people's homes with Amazon as their favored retail partner.

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This video was recorded on July 30, 2019.

Jason Moser: We wanted to start today's show, obviously we're knee-deep in earnings season here, and you've got like 500 companies per day announcing earnings over the next couple of weeks it seems like. A company that did release earnings last week, Amazon, we wanted to talk about Amazon, but not in the context of earnings. We wanted to talk a little bit more about its recent Prime Day. As listeners, I'm sure, know, every year now, Amazon has Prime Day. It's a way for them to get everything out there in front of us consumers, enticing us to click "buy" for all of the stuff that we really don't need. This year was a little bit different. Amazon Prime Day was two days, it was July 15th and 16th. Dan, while we're not going to see the impact of those sales numbers on this quarter that Amazon just announced, by most measures, it was still a very big two-day stretch for the company, wasn't it?

Dan Kline: It's a huge success! Amazon likes to tout that it was bigger than Black Friday and Cyber Monday put together, but I think it's a little bit deceptive. When they say Amazon Prime Day, let's focus on those two words, Amazon and Prime. This is Amazon's tag sale. They are cleaning out the warehouse. They are selling all the junk they want to get rid of before they start stocking up for the holidays. And they're offering some good deals from partners and other people, which has forced all sorts of other retailers to offer sales, so it's great for consumers. But the real goal of Prime Day is to get people to either become Prime members -- that's the Prime half of it. With Prime memberships, they renew when that comes up. Or, buy Amazon devices. And by all accounts, it's the biggest day ever for Prime sign-ups, and all of the top sellers that Amazon listed -- admittedly, Amazon doesn't give numbers, they don't provide a lot of detail -- all of the top sellers were Amazon devices. And every time they sell you an Echo, a Fire TV, a Kindle, all they're doing is building out their infrastructure. They sell you a Ring doorbell, which they own, then all of a sudden, you have to buy the rest of their system. The purpose of Prime Day is strengthening your connection to Amazon, or making people who aren't Prime members feel like, "Wow, I have to be a Prime member!"

Moser: Well, yeah. We're going to see Apple earnings come out here a little bit later today, actually. It's always been interesting to look at this divide between Amazon and Apple. You have on the one hand Apple, a company that's always made its money selling the devices to people. They sell these high-markup pieces of hardware. Whereas Amazon, Bezos has always been very clear, he wants to make money on us using his devices, not selling them. These devices all ultimately are just forms of engagement. That's why they can sell them for such a low price. Ultimately, it's not about selling you the device, it's about keeping you coming back and using that device and keeping you in that Amazon ecosystem.

Kline: We used to talk a lot about owning the living room, the battle for the living room. That goes back to the days we talked about Sony versus Microsoft. Now that all of these digital assistants and smart TVs are out there, it becomes, who has that footprint? And there's not actually a lot of ordering that's happening. Technically, I could say -- and I won't say it, because I'm in the same room as the device -- "Amazon device, order me some paper towels." And if I said the proper name of the device, it would make the little bloop bloop and it would do that, it would order me some paper towels. Not a lot of people actually do that. That doesn't matter. Amazon will figure that out. Once they control all the devices, they will figure out how to get you to use those devices in the way they want to. Apple does some of that. If you're on a Mac or an iPhone, you're in a closed-loop system where you have to buy your media from them, you have to buy your apps from them. Amazon gets some of that. If I'm flipping around on my Fire TV and I want to rent a movie, I do that from them. If I am not a Netflix subscriber and decide to subscribe to Netflix, I could go to my computer, but chances are I'm just going to do it right from my remote control there. So this is like staking out your territory. It's like a mad dash for control. And Amazon has been very smart about it. Its devices are cheap. I have, I don't know, seven, eight Echoes and Echo Dots, a bunch of Kindles. I don't even use a Kindle Fire and I think I have three of them because they used to be a really good way to watch a movie on a plane. Now I just do it on my iPhone.

The success of Prime Day is creating a holiday that's all about Amazon. It creates the frenzy you get when there's a big Apple product release. I think even Apple struggles to do that. I don't think when the iPhone 11 or X-1 or whatever the heck they call it comes out in September or October you're going to see the frenzy you used to when there were major new features and big changes. But do you know anyone at any age that wasn't aware it was Prime Day for those two days?

Moser: No. I think most people were aware of it. Obviously with social media now, stuff gets around, whether it's Facebook or Instagram or Twitter or whatever else. To your point, it is all about marketing. It is just about getting that Amazon name out there and creating that awareness that pretty much Amazon can do anything that you need them to do at this point, and it's going to be at a pretty darn good price.

Kline: Yeah. They also did something pretty amazing. I wrote an article before Prime Day about what the benefit was to brick and mortar. This study -- I apologize for not naming or citing the study -- said that the biggest benefit to Amazon itself is actually Whole Foods. When you're looking at brick-and-mortar retailers, Amazon has done a wonderful job driving traffic to its own brand. They did something smart -- if you shopped at Whole Foods a few weeks before Prime Day, you got $10 to spend. I had actually intended to sit out Prime Day. I had decided there was nothing I needed, so I wasn't going to get sucked into a deal. What happened was, I went, "But wait a minute, I have $10 to spend." And I think I only spent like $14. I didn't spend a lot on top of that. But I did go to Amazon, I did buy something, they had a chance to get me to buy more. And that's a brilliant tie-in!

Moser: Oh, yeah! We see Starbucks see those same types of things. It's all about figuring out a way to create you to spend, whether it's a limited-time drink or a treat receipt or whatever it may be. They're figuring out ways to get you in there even when you don't need to. I'm like you. I actually don't think I bought anything on Prime Day because I didn't need anything. But I did look around to see if there was some stuff I might want. I always feel like I'm going to find that piece of home-improvement equipment that I've been longing for, whether it's this awesome nail gun or some type of chainsaw that I feel like I could benefit from. There's all sorts of stuff going on when you're a homeowner. And honestly, I didn't find a lot of that stuff. I was a little bit disappointed from that perspective.

But one of the things I was looking back here with Amazon, looking back at Jeff Bezos's letter to shareholders here in April, obviously Prime Day is all about Amazon. But increasingly, Amazon is also all about those third-party providers, those independent third-party sellers that are selling stuff on their platform. If you go back to 1999 and you look at the percentage, the share of physical gross merchandise sales sold on Amazon by independent third parties was 3%. You fast forward to 2018, it was 58%. So you have to figure those third-party sellers are starting to look at Amazon Prime Day and thinking, "This is a big chance for us, too."

Kline: This is a massive advantage for Amazon over Walmart. They've been able to get this huge base of sellers. In most cases, they get paid for the warehousing, they do the shipping. It really is like Amazon getting to have a bigger inventory, and not only not having to buy that inventory, they actually get paid if that inventory doesn't move. It's a win-win-win-win. I don't know how many wins, but a lot of wins for Amazon. And as a customer, that made Prime Day better. Again, I didn't buy anything. But some of the things we looked at were better deals from third parties, there was some more interesting stuff. Had I not just bought a Roomba, I might have bought a robot vacuum from a third-party seller. There was some interesting stuff there. And yeah, these are more important. And Amazon has to show traction for those people because both Walmart and eBay are trying to lure those third-party sellers away.

Moser: There's no question. And don't forget about Shopify either. I think that's going to be a legitimate competitor here in that space for many years to come.