Amazon Stock: Why Prime Music Makes So Much Sense

Giving Prime members even more reason to visit is key to the Amazon stock story.

Tim Beyers
Tim Beyers
Jun 17, 2014 at 7:34PM
Technology and Telecom

Will Prime Music be a catalyst for Amazon stock? Credits: Amazon.com, YouTube.

Amazon.com's (NASDAQ:AMZN) Prime Music isn't better than any of the services it purports to compete with. Heck, you could even argue it's much worse than what Spotify, Beats Music, and Pandora (NYSE:P) offer. Even so, I expect Prime Music to be a catalyst for Amazon stock because it gives the e-tailer's most valuable members yet another reason to hang around the store.

Why "good enough" is so great
First, let's address why Amazon built such a weak alternative. The short answer is because it could. Even a simple, ad-free service such as Prime Music serves as a reminder that Spotify and Pandora insist on filling your ears with pitches you'd rather mute.

Money is also a factor. Amazon would have to invest millions (or perhaps tens of millions) to compete with the catalogs available at Spotify and Beats Music. There's also quality to consider. Upgrading Prime Music to stream at the audiophile-preferred rate of 320 kbps would consume resources that might otherwise go to service-profitable Amazon Web Services clients.

Every incremental service increases the odds of a transaction
The goal here isn't to build the best product or even disrupt the industry. Amazon merely wants to grow its base of Prime members because they shop more. But don't take my word for it. Here's Amazon Vice President of Digital Music Steve Boom, in an interview with VentureBeat late last week:

The goal we have when adding new services to Prime [membership] comes down to two things. We want existing Prime members to have deeper and longer relationships with Amazon. But we also try to look at services that have universal appeal and are used frequently if not daily. And music is an obvious service that fits into that description.

Just as Apple (NASDAQ:AAPL) is buying Beats Electronics to help sell the iPhone, Amazon is offering Prime Music to help sell everything else in its store to its most qualified customers. So don't think of Prime Music as a Spotify killer. Nor is it a threat to Pandora or Beats. Amazon isn't after audiophiles, but rather everyday, casual listeners. Millions of us who haven't yet signed up for Prime but who would do so given the right incentive. Prime Music just made their decision easier, and Amazon stock owners should see the benefits.