Here at The Motley Fool, we believe individual investors should have the same access to information that Wall Street has. In that spirit, we've listened in on some investment-bank conferences with major companies to give you the rundown. We call this feature "Fool on the Street."
There's a lot riding on the Amazon Prime program these days. Amazon.com
So, is Prime a blessing or a curse? Amazon CFO Tom Szkutak spoke at the Morgan Stanley Technology Conference earlier this week, discussing the state of the leading e-tailer in general, but also educating attendees on the advantages of its Prime workhorse.
The Prime opportunity
"We always start with the customer first and work our way backwards," Szkutak says, and Prime members would have to agree.
An investment in Prime is an investment in making Amazon.com your storefront of choice. You don't go into a buffet and ask for the smallest plate they have. The same goes for Prime. Once the clock is ticking, you almost feel as if you're cheating yourself if you're not buying anything and everything through the site.
That plays into the three customer pillars at Amazon: price, convenience, and selection. Because of the subsidized shipping, there's an immediate pricing advantage over rival sellers. Knowing that the UPS truck will swing around your place two days later adds to the convenience of the proven site checkout platform. Then you have selection.
Amazon knows all about selection. Its distribution centers are stocks. Its third-party vendors, which once ran stand-alone storefronts but now find their items integrated into the Amazon product description pages, help fill in the gaps. That's important, because when hot toys like Tickle Me Elmo TMX and Wii gaming consoles were in short retail supply over the holidays, third parties were there to mark them up accordingly.
Prime's role in expanding selection has also meant introducing new categories. Last year alone, Amazon introduced new categories for dry goods groceries and auto parts. It had to relaunch a retail toy storefront after Toys "R" Us decided to fly solo. Prime helps here because Prime shoppers make more sales across a greater breadth of categories. In short, Prime helps new categories scale quickly.
Amazon also sees eventual cost relief here. With the company now shipping out so many free two-day parcels and subsidized overnight deliveries, it can turn to negotiating pricing breaks and operating efficiencies with its distributors.
Amazon version 2.0
So, what will Amazon look like in the future? Prime is nailing shoppers down on Amazon's doorstep, and that's not an opportunity Amazon plans to squander.
The retailer has made waves with its video-downloading initiative. Unbox was launched late last year, renting and selling downloads of movie and television episodes. In a move that trumped rivals like Apple
Amazon has "a lot of work to do" with Unbox, but Szkutak is encouraged to find that Unbox is "one of the categories that has the highest repeat purchase from a traffic standpoint."
The company is also thinking outside of category boxes. It launched Endless.com, a stand-alone handbag, footwear, and accessories store recently. It also acquired specialty apparel site Shopbop.com last year.
Amazon isn't alone in that regard. Gap
You can't blame Amazon. It's got the shopper traffic. It's got the proven storefront. It's got the network of third-party merchants and developers. You would spread your wings as widely -- and as quickly -- as possible, too.
If you want to learn more about Amazon Prime, here are some other Foolish headlines:
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Longtime Fool contributor Rick Munarriz has been bitten by the Prime bug, but he's been an Amazon shopper since pretty much the beginning. He does own shares in TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.