Amazon is straying from Jeff Bezos' vow to 'charge less'

  • Amazon is increasing its Prime subscription to $119 a year, an additional $2 billion in revenue.
  • But there's no indication that Prime services are getting better.
Jeff Bezos
David Ryder | Getty Images
Jeff Bezos

There's a famous quote from Amazon CEO Jeff Bezos which appears all over the internet. It apparently stems from a 2001 earnings call, and was popularized by journalist Brad Stone's book on Amazon, "The Everything Store."

Bezos said, "There are two kinds of retailers: those folks who work to figure how to charge more, and companies that work to figure how to charge less, and we are going to be the second."

Perhaps he's had a change of heart.

On Thursday, Amazon announced it would be raising the price for its Prime subscription to $119 from $99 for customers renewing after June 16. The additional $20 a year would account for an extra $2 billion in revenue for the company, based on its recent revelation that Prime has more than 100 million members.

But it's not clear what kind of extra value Prime members will get.

Prime's main advantage is its free shipping. Perhaps in order to keep up those services Amazon may have to raise prices to account for additional cost. However, if the increases did really affect the company, we'd expect to see shipping prices rise across the board including for non-Prime members. And it doesn't look that way for now.

As media costs rise, with competitors like Netflix raising their content budgets up to $8 billion this year, Amazon has to spend more to get rights to TV shows and movies. It's estimated to be spending $4.5 billion for non-sports content in 2017 according to MoffettNathanson, and has an upcoming "Lord of the Rings" show with a reportedly whopping $500 million budget.

But its shows have not received the pop-culture resonance that some of its top competitors Netflix and Hulu titles have achieved. A Reuters report found "The Man in the High Castle" cost $72 million in production and marketing, but only received 8 million total viewers as of early 2017. It brought in an additional 1.15 million subscribers, at a cost of $63 per subscriber -- not much less than the current $99 fee.

Amazon does offer Prime Music, which gives ad-free access to selected songs and curated Prime Playlists. But market leaders Spotify and Apple Music's premium services, which cost $9.99 per month or less with family plans, open up their entire music libraries to listeners without any restrictions.

There are other benefits including a Kindle Lending Library, unlimited photo storage through Prime Photo, and grocery delivery in selected areas through Amazon Fresh. But these are all benefits Prime customers received already for $99.

There may be things in the pipeline we don't know about just yet. For example, Amazon may make moves into health care, perhaps going into the pharmacy space. And when those benefits get added then perhaps Prime will be worth that extra $20. But for now, it just seems like people are paying more for the same old service.

Disclaimer: CNBC parent company NBCUniversal is an investor in Hulu.

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