Amazon will have spent nearly $5 billion on video content this year. That doesn’t just include blockbuster shows. A deal was also struck with the NFL for $50 million to stream 10 Thursday night games, which were exclusively available to Prime members.
Amazon SVP Jeff Blackburn said, “We’re focused on bringing our customers what they want to watch, Prime members want the NFL.”
Isn’t that what Amazon is all about? Taking over the world with Prime by giving people what they value?
That’s why talks of Amazon’s new free tier of Prime video has some people confused. Isn’t that the opposite of how it usually works? With Amazon, people usually pay for premium benefits. With this video service, there’s more than meets the eye.
AdAge says that this free video tier would be supported by advertising and that Amazon is currently in talks with TV, film and digital media firms to bring both back catalogues and new, original content to Prime Video with its 50 million subscribers as a bargaining chip.
Traditionally, any ads that have been featured on Prime have mostly promoted Amazon’s own products and have been minimal, but this would bring in outside marketing revenue for the first time.
A video service paid for by advertisers is the opposite of its current subscriber paid service, but there is good reason for advertisers to take an interest.
In a time when consumers can tune out TV ads easier than ever with Netflix and other streaming services, Amazon would give advertisers a new platform to be in front of millions of consumers who are there to shop.
There is already a war being battled out for video audiences by tech giants like Facebook and Apple and this would add fuel to the fire because Amazon has an almost unfair advantage. About half of all online shoppers start their product searches on the site, something that they can leverage nicely. They also have massive amounts of data on their customers, so they can easily target certain shopper segments.
To effectively serve ads, Amazon may do something they’ve never done before: give up some of this data on their customers.
This free video tier would give marketers another highly valuable channel to get their products in front of Amazon’s loyal and frequent customer base.
A spokeswoman from Amazon officially denied plans to offer this free-video tier, and she also said that the company would not comment on negotiations with publishers and other content owners. She also said that Amazon is not currently looking at ad revenue sharing opportunities with them.
However, an anonymous executive stated that Amazon is talking about giving content creators their own channels and sharing their ad revenue in exchange for hours of content creation each week.
Amazon is no stranger to the advertising business. While it currently only makes up a sliver of Amazon sales, it still generated $1.4 billion in 2016 and could reach $2.4 billion by 2019.
In addition to embracing the impact that ad sales could have, why would Amazon rethink its current streaming video service? We think it goes deeper, much like Prime Day.
Is it really just a coincidence that Amazon offered a free trial of Prime on Prime day?
It might seem like Prime Day is all about selling products, but it’s not. In 2015, Amazon added 750,000 members on Prime Day and 34.4 million items were purchased. It’s no secret that Prime members are Amazon’s most valuable customers. They shop more often than non-members and spend more when they do.
Members interact more with the program because Prime brings a lot of value to their everyday lives through numerous services and members have enjoyed an ever-increasing suite of benefits. It has become integrated into the daily lives of tens of millions of people, and that’s what builds customer loyalty around Amazon. That’s why it’s the prime example of a premium loyalty program.
Once people are in the Prime ecosystem and experience all the benefits, Amazon is probably betting they’ll stay. 91 per cent of members renew for a second year, so it’s hard to disagree with that.
We believe this free video tier is a similar strategy. It’s about giving consumers a little taste of what Prime Video has to offer to ultimately convert them into Prime members.
When people get to experience the benefits of a program without any risk, you get their feet in the door and can nurture them along the way with a wonderful experience.
That’s why the freemium model has worked so well for software companies for decades.
This pricing strategy gives away an entry level product or service for free while a better version of the product is available for a premium.
Companies like Spotify, MailChimp, and SurveyMonkey have put this strategy to effective use. In fact, Slack became one of the fastest growing business apps of all time. They don’t care if they get the first sale. They strive to create a product that delights users so much, they feel like they must recommend it or even pay for it.
As proven by the examples above, if the benefits are valuable enough and the product becomes a part of the user’s everyday lives, you’re golden. That’s why freemium models are great at rapidly building awareness and premium members, and that’s why it’s great for Amazon’s newest service.
Amazon is an expert at melding into peoples’ daily lives. It’s not only about the valuable online shopping benefits. Amazon is all about disrupting entire industries and creating new audiences. And it’s not only for those with higher income. People on government assistance and students with limited funds can enjoy Prime benefits at a discounted price as well.
From grocery to fashion, Amazon is becoming more and more of a staple in all parts of daily life.
Movies and TV shows are a huge driver of Prime joins, so a free version of Prime Video is a great hook to get people in. At the end of the day, that’s what it’s all about for Amazon.
Tom Caporaso, CEO, Clarus Commerce (opens in new tab)
Image Credit: Amazon