Amazon’s net shipping costs — the difference between how much it charges customers for shipping and how much it actually spends to get their purchases in their hands — hit a new high in the fourth quarter, topping $1.2 billion.
Those are the underlying economics driving the company’s announcement yesterday that it’s considering raising the price of its $79/year Amazon Prime subscription service by an additional $20 to $40 — citing a combination of higher Prime usage and the increased cost of fuel and shipping. The flagship feature of Amazon Prime is free two-day shipping, and Amazon hasn’t raised the price of the service in the U.S. since its launch nine years ago.
“On a per customer basis, Prime members are ordering more items across more categories with free two-day shipping than ever before,” said Tom Szkutak, the company’s chief financial officer, on Amazon’s earnings conference call yesterday afternoon.
The number of Prime subscribers has also increased, to more than 20 million worldwide as of the end of the year.
In the past, Amazon CEO Jeff Bezos has cited the company’s addition of features to Amazon Prime — Prime Instant Videos and Kindle book lending — as an example of the value that the company is providing to customers, without raising the subscription rate. But it looks like the economic realities are finally catching up with the company.
On the conference call yesterday, Amazon executives declined to say when or how the increase would roll out. If you’re an Amazon Prime subscriber, would you stick with the service at $99/year? What about $119/year?