Why Amazon put services in the spotlight for Prime Day

NEW YORK (Reuters) – Amazon shoppers were treated to an exciting two-day Prime Event that concluded on Wednesday, which showcased the potential for growth in the services sector of the e-retailing giant. While Amazon has long been focused on goods, the event saw its 200 million U.S. Prime members spending a record-breaking $12.7 billion on merchandise, representing a year-over-year growth of 6.1%, according to Adobe Analytics. Many shoppers took advantage of discounts to stock up on back-to-school supplies.

Although the sale of services and experiences may not have resulted in a significant impact on Amazon’s bottom line thus far, the company is likely hoping that will change in due course. “Amazon has extracted all of the value that it can from being merely a pass-through of goods and is trying to move up the value chain,” stated David Klink, an analyst at Huntington National Bank, which holds $160 million in Amazon stock. He further noted that this strategic decision aligns with Walmart’s recent move to provide various services through Walmart+.

Amazon has yet to comment on its shift towards integrating services into its offerings.

PRICELINE, GRUBHUB, AND ONE MEDICAL IN FOCUS

In addition to enjoying discounts on popular categories such as apparel and electronics, Prime Day shoppers also received exclusive deal codes or discounts for hotel bookings with Priceline, restaurant delivery through Grubhub, and access to Amazon’s membership-based telehealth service, One Medical.

Klink views Amazon’s partnerships with Grubhub and Priceline as an extension of the company’s existing advertising strategy. He believes that these non-traditional partnerships aim to “make retail cool again” by meeting consumers on the Amazon platform.

A broader partnership with Grubhub, launched in July 2022 and expanded in June, offers Prime members a free one-year subscription to the Grubhub+ food delivery service membership program. Furthermore, online travel agency Priceline, a unit of Booking Holdings, participated in a Prime Event for the first time, providing an additional 20% discount to Priceline’s Hotel Express deals, which already offer 60% off hotels.

As part of the Prime Day event, Amazon also offered a 28% discount on a one-year subscription to its One Medical service for U.S. Prime members who signed up before the event’s conclusion.

EVENT BOOSTS SALES AND ADVERTISING

Amazon announced that the first half of the sales event was the most successful in the company’s history, driven by the growth of independent sellers. Despite a slowdown in consumer spending during the second quarter, the event still achieved record-breaking sales.

Andrew Lipsman, a principal analyst at market research firm Insider Intelligence, observed that Amazon is experiencing slower e-commerce growth due to consumers shifting away from certain categories that the company excels in. However, he suggests that by experimenting with more Prime Day deals on services and discounted memberships, Amazon can enhance its advertising services. Merchants and consumer products companies pay Amazon to promote their products on the site.

In the first quarter, Amazon reported advertising revenue of $9.51 billion, representing a 20.7% increase year-over-year. Analysts predict that ad revenue will reach $11.2 billion in the third quarter, which includes Prime Day data, based on Refinitiv data. Lipsman also believes that the data collected through Amazon’s partnerships with companies like Grubhub and Priceline will enable the company to strengthen its advertising collaborations within those sectors.

(Reporting by Arriana McLymore; Editing by Howard Goller)