What is Obvious and not so Obvious With Amazon Raising its Free Shipping Minimum

Amazon Prime

Amazon raised its free shipping minimum to $49 in the US.

WIRED:

Amazon wants you to go Prime. It wants this so much that if you still haven’t signed up for Prime’s well-known deal—free two-day shipping plus unlimited video streaming for a $99 a year—the company is making it hard to get any kind of a deal on shipping at all.

This morning, Amazon raised its free shipping minimum to $49 for its non-Prime customers for most products. That’s up from $35—the first time it increased the minimum order requirement since 2013. At least one category isn’t affected, though: book orders only need to hit $25 to qualify for free shipping.

That is exactly right. And it is very obvious.

Cost is another obvious factor. Quartz:

The company still spends more than it makes in shipping. Amazon’s shipping costs were 4.8% of sales in the fourth quarter of 2014. In the fourth quarter of 2015, that increased to 5.5% of sales.

revenue, cost and net loss at Amazon

There are, however, a few questions:

  1. If one follows the logic that there are huge growth opportunities ahead for Amazon, so huge in fact, that it makes sense to reinvest every penny of profit back into growing businesses, then why does it simultaneously make sense to make steps that push regular customers to the customer loyalty program but that also push new and irregular customers away? That does not seem like a growth strategy. What is the angle here? Is the US maybe such a mature market for Amazon (with around half of US households Prime subscribers) that this makes sense specifically for the US?
  2. Once Amazon has build out its own logistics network the cost factor will remain to be there but not as huge as today. So, may the free shipping minimum go down again in the mid- to long-term future? (Wouldn’t that be a great marketing event?) Because, as a corollary to the first question, a low minimum for free shipping is also a moat against new entrants.

Or maybe this is an early worrying sign of Amazon Prime being, indeed, a strategic black hole.

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