The making of Amazon Prime, the internet’s most successful and devastating membership program
It’s easy to forget now, but Amazon wasn’t always the king of online shopping. In the fall of 2004, Jeff Bezos’s company was still mostly selling just books and DVDs.
That same year, Amazon was under siege from multiple sides. Some of its biggest competitors were brick-and-mortar chains like Best Buy, which was still in expansion mode at the time, with sales growing 17 percent annually. Toys ‘R’ Us sued Amazon in a high-profile battle, alleging it had violated an agreement the two companies had for the toy store chain to be an exclusive seller on Amazon.com.
And during the holiday season, Amazon’s website suffered repeated outages, drawing the wrath of customers and the press alike.Amazon.com CEO Jeff Bezos in Seattle, Washington in September 1998.Rex Rystedt/The LIFE Images Collection/Getty Images
Amazon was worth $18 billion at the time. Its online rival eBay, on the other hand, was an internet darling worth nearly $33 billion. If you were an outsider to both companies and you had to pick one as the future Everything Store, it might have been hard to imagine Amazon as the victor.
But 15 years later, Amazon is worth more than $900 billion, compared to just $33 billion for its old foe eBay, which spun off its (more valuable) payment division, PayPal. And the Amazon Prime membership program is perhaps the biggest reason why.
The service, which launched in February of 2005, was a first of its kind: For an upfront payment of $79, customers were rewarded with all-you-can-eat two-day delivery on their orders. At the time, Amazon charged customers $9.48 for two-day delivery, meaning if you placed just nine of these orders in a year, Prime would pay for itself.
“[E]ven for people who can afford second-day shipping, this feels sort of like an indulgent luxury,” Bezos said of Prime, on a call with Wall Street analysts when he introduced the service in February 2005.Amazon.com homepage announcing the Amazon Prime and Prime Video launches.Courtesy of Amazon
With it, Amazon single-handedly — and permanently — raised the bar for convenience in online shopping. That, in turn, forever changed the types of products shoppers were willing to buy online. Need a last-minute gift or nearing the end of a pack of diapers? Amazon was now an alternative to the immediacy of brick-and-mortar stores.
But the idea came with huge risks, and it spurred real tension inside Amazon. Some managers resented that their projects appeared to be deprioritized for a secret program they knew little about. Others feared that Amazon’s top customers were going to abuse the program and ultimately bankrupt the company with soaring shipping costs.
And if it succeeded, Amazon Prime was going to mean big, uncomfortable changes on everything from how managers were evaluated by superiors to how the company fulfilled orders and moved goods from point A to point B.
Bezos’s instinct, however, proved to be very right. Prime members spend more and buy more frequently than non-Prime members do. As of last year, Prime boasted more than 100 million paying members across the globe.
This is the story of how the greatest retail innovation of the internet age was created, in the face of sound logic and reason that suggested it might very well be disastrous. It’s also a story of how a frankly bland idea — fast shipping — was powerful enough to alter consumer psychology forever.
The story is told by the rank-and-file employees and the top company executives who built Prime. Their words have been edited and condensed for clarity.