Yesterday, Amazon reported record earnings and announced a plan to offer Prime subscribers one-day shipping, setting a tough standard for retailers already struggling to satisfy shifting consumer expectations for rapid fulfillment.
Even though revenue growth decelerated, the retail giant doubled its profit over the comparable quarter last year through higher-margin businesses. A business in transition, Amazon continues to drive the most growth outside of its traditional Online Stores business through AWS, subscription services, and advertising. Growth from advertising also slowed down significantly in Q1; however, Amazon’s four quarters of nearly triple-digit growth make clear how the e-commerce giant was able to quickly become the third-largest digital advertiser behind Facebook and Google. Advertising on Amazon proves essential to drive product sales on the platform, and the retailer will continue to drive advertising growth as it improves and expands its offerings and more brands opt to shift budgets to Amazon and away from traditional advertising channels.
An impressive 82% of Prime subscribers identify free two-day shipping as the most valuable component of the service, and yesterday’s earnings further expanded on this value proposition, promising a $800 million investment to double down and transition Prime two-day shipping into Prime one-day shipping. As Amazon nears “peak Prime,” the retail giant must increase the value proposition associated with the service to keep subscribers renewing. By transitioning to one-day shipping without consumers even asking, Amazon indicates that it will continue to disrupt digital commerce, making it harder and harder for any other retailer to offer a comparable value proposition.