Tuesday, November 6, 2012

Amazon's New Strategy

Amazon is now encroaching into Netflix’s space by hosting numerous movies and shows that can be rented. It has expanded the Amazon prime service to stream movies along with enabling sharing of e-books. One of the biggest similarities in this new Avatar is its similarity to Netflix’s pricing model. The prime service can be purchased at $7.99 per-month or for $79 for a year.

This pricing is interesting because its cost per month is higher than that of the annual subscription. It is important to notice though, that these prices are aimed for two types of customers, first is the commitment-shy customer, who would rather buy a temporary contract than a yearlong commitment. The second type are  the current subscribers of Netflix or Hulu who for the same price are getting only the video(streaming or DVD) service.

This move can disrupt the already ailing paid streaming services. With years of work, amazon has an impressive movie library. It has penetrated deep into the middle class user base through enormous ‘kindle’ sales and free 2 day shipping (through amazon prime). Considering all these measures can help the existing customers and if this is sustainable and repeatable, Amazon will continue its dominance in the market.
In the short run too, this move will help Amazon to generate tremendous sales before the holidays.
As one of the investors mentions, “While one risk for Amazon is that consumers use Prime for just one month to take advantage of free shipping on large purchases, the test could also reveal that a ready market for alternative pricing, and serve as a new customer acquisition tool,”. 

So it will be exciting to notice how a giant company pivots to remain in-sync with the customer requirements.

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