Instant Analysis: 3 Million People Sign Up for Inc.'s Prime in One Week

The e-commerce king will still reap a windfall even if most new customers back out.

Rich Duprey
Rich Duprey
Dec 29, 2015 at 8:30PM
Consumer Goods

What happened?
In a sign that Christmas this year belonged to (NASDAQ:AMZN), the e-commerce site announced this week that not only did it ship over 200 million more items in its Prime membership program this holiday shopping season, but in the third week of December, 3 million new customers signed up for Prime, which includes free two-day shipping and access to tens of thousands of movies and TV episodes.

Does it matter?
According to some estimates, between 40 million and 80 million people have a Prime membership. Amazon itself doesn't disclose actual numbers, instead saying that "tens of millions" of people are members, but it's the revenue received from the $99-per-year annual membership fee that's helping to fuel the e-tailer's growth.

Retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) have responded by making available new shipping options for customers. Wal-Mart is a big proponent of buy online and pickup free in store, while Target did away with order minimums to qualify for free shipping for the holidays.

Of course, not all is what it seems. While the surge in the number of Prime members was remarkable, the market analysts at Consumer Intelligence Research Partners said the majority of people who signed up for the service last year during the holidays canceled it after the 30-day free trial period ended as they were simply looking to gain the free shipping benefit for the holiday. At the time, Amazon had said "10 million new members worldwide tried Prime for the first time" during the holidays.

Even so, the tens of millions of customers who haven't canceled their membership are a valuable resource for Amazon. They are estimated to typically spend more than twice what non-Prime members spend, or some $60 billion annually, and this summer, Internet Retailer said research from Millward Brown Digital found they convert to a sale 74% of the time, compared to 13% for non-Prime members.

Moreover, Prime members are also loyal to Amazon. A non-member browses other websites like Wal-Mart's or Target's more often than Prime members do. The MBD research found non-members also looked at 12% of the time after starting a session and 8%, but Prime members did so only 0.9% and 0.7%, respectively.

Even if a small portion of the 3 million who signed up for the service the third week in December stay on, they'll likely become lucrative customers for in the future.