Amazon's (NASDAQ:AMZN) massively popular Prime subscription service is about to get even bigger. According to a recent article by The Wall Street Journal, Amazon has been testing the waters with a new program that allows merchants to ship goods directly to customers under the two-day Prime membership service. Previously, merchants had to send their goods to Amazon's warehouses first, before they were shipped out to Prime members.
While this is just a trial program right now with a small number of merchants (estimated to be under 10), it could pave the way for more more Prime-eligible products -- which could greatly expand Amazon's lucrative Prime membership subscriptions.
Prime members currently pay $99 per year to receive free two-day shipping on about 20 million items on Amazon's website (plus access to other things like Amazon's instant video streaming). Adding additional merchants and items to Prime shipping would be a great way to both keep existing members and lure new members into the service.
Amazon typically doesn't like to share Prime figures. However, in early 2014, the company confirmed that it had surpassed 20 million Prime subscribers, and it later said that subscriptions increased 53% in the full 2014 year. Meanwhile, Consumer Intelligence Research Partners says Amazon has about 41 million Prime members.
So we know there are at least 20 million Prime members (or closer to 30 million or more by now), and the membership base is growing quickly. Furthermore, by some estimates they spend nearly double the amount that non-Prime members spend on Amazon's site.
By making more merchants and goods eligible for Prime, Amazon could potentially increase both the number of subscriptions and the number of things Prime members are purchasing, which would be a win-win for both Amazon and its members.
It's easy to see why Prime members and Amazon would want this, but what's in it for those selling the goods?
Remember that merchants who are part of Amazon Prime have to first ship those goods to Amazon's warehouse before they go out to people like you and me. That means they have to pay to have them sent to Amazon and then ensure that the warehouses have enough of their product to go out when it's ordered online. By shipping directly to customers, merchants could save money by only shipping their goods once and save time and working capital by not having to send items to Amazon in the first place.
What Amazon has to watch out for
For now, this sounds like just a trial program that's been going on for a couple of months at the most. But it's easy to see the upside for everyone involved if Amazon chooses to incorporate this fully into Amazon Prime.
The one potential problem -- and it's a big one -- is that Amazon would be giving up some of its control over Prime shipping if it launched this on a broader scale. Considering that Prime subscriptions are built on the guarantee that users will get their items within two days, Amazon will have to incorporate strict oversight over merchants to make sure they're delivering products on time.
And that's likely why Amazon is quietly testing this system out right now. If the company finds that merchants aren't getting their products into Amazon Prime members' hands within two days, then it'll likely pull the plug on the program.
But if it finds that it can manage merchants effectively enough to ensure shipping times, then we might soon see an expanded roster of Prime items -- and hopefully a huge uptick in Prime membership subscriptions along with it.