Amazon spending $800 million to upgrade Prime delivery

At its investor briefing last month, Amazon (AMZN) reported revenue and profit above analysts’ average expectations, and stated that it is planning to speed up free deliveries for Prime customers to just one day instead of two. Upgrading the standard Prime free delivery program, set to cost Amazon $800 million in the current quarter alone, may take some shine off Amazon’s bottom line in the near term. However, the company believes the sacrifice will unlock many benefits down the road.

Amazon Could Kill Many Birds with This Single Stone

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Amazon looking for differentiation as rivals catch up

The Prime membership program helps Amazon recruit high-value retail customers, so the company is always looking for new ways to make it more attractive. Also, Walmart (WMT) and Target (TGT) have caught up with Amazon in two-day free shipping, raising the company’s need to find new ways to stand apart, and shortening package delivery time is one way to do so. Prime membership, which costs members $119 annually, brought Amazon $4.3 billion in subscription service revenue in the first quarter.

Prime members help Amazon attract advertisers

Amazon Prime customers spend an average of $1,400 every year on Amazon retail shopping, while regular customers spent $600, according to Consumer Intelligence Research Partners. Given Prime members’ heavier spending, businesses and brands are putting more toward Amazon advertising to catch customers’ attention, giving Google (GOOGL) and Facebook (FB) tough competition for digital advertising dollars.

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