How Amazon Created Prime

How Amazon Created Prime

I recently had to put my Amazon newsletter, The Amazon Chronicles, on a two-month hiatus because I’m going to have surgery to replace my shoulder. So what should happen the day after I make my announcement? One of the very best Amazon reporters, Recode’s Jason Del Rey, comes out with an oral history of Amazon Prime, the membership program that covers free fast shipping, digital media, and more — and arguably, the innovation that pushed Amazon past eBay and Walmart to become the retailer of first resort.

Charlie Ward (former Amazon principal engineer; current Amazon VP, technology)

I’m a one-click addict. I hate having to go through the order pipeline and choose everything again and again and again. And … I couldn’t use one click with Super Saver Free Shipping.

I kind of have a perfectionist type of mentality. Things kind of irritate me and get more and more irritating over time and it was just really confirmed to me that I couldn’t make it better. So I threw out this problem to the group: “Wouldn’t it be great if customers just gave us a chunk of change at the beginning of the year and we calculated zero for their shipping charges the rest of that year?”

And we kind of had a small pause, a moment where we all looked at it as like, “Is Charlie crazy?”

See also this digital media pullquote which Peter Kafka pointed out on Twitter.

Bill Carr (former Amazon VP of digital music and video)

Netflix had a budget which — and you’re going to laugh when I tell you the scary number — was $35 million dollars a year on video content. These were fixed costs. This meant they’d go and buy the rights to movies and TV shows from the studios for $35 million a year and it didn’t matter whether they had one viewer or 100 million viewers, that’s what they’re going to pay. Well, that’s not the business Amazon was in.

We were giving much more than $35 million a year to the motion-picture studios at the time. But it was a daunting thing to commit to it on a fixed-fee basis with no knowledge of how we’re going to actually get any subscribers. In the 2008, ‘09, ‘10 era, that was a scary amount of money.

And I remember then Jeff finally goes, “I’ve got an idea.” And in typical Jeff fashion he picked something that was not on the list at all and he said, “Let’s make it part of Amazon Prime.” And we looked at him like there are arms and legs growing out of his head. Like, “What are you talking about? Amazon Prime? That’s the free shipping program.”

And the principle that Jeff realized was that we need to do actually exactly what Netflix did when they first launched their digital service. Everyone scoffed at that, too. Like, “you’re offering digital plus DVDs and you’re not charging more?”

Netflix was able to get away with the fact that the content was not great at the beginning because it was free. It was like, “Oh, by the way, here you go, here’s some movies along with it.” And we were going to take a page out of their book.

I remember Jeff used those exact words — It’s an, “Oh, by the way.” “Yeah, Prime is $79 a year. Oh, by the way, there’s free movies and TV shows with it.” And how much could consumers complain about the quality of movies and TV shows if it’s free?

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