L2 Founder Scott Galloway was featured a Marketplace segment last week about the potential increase of Amazon Prime’s annual membership fee from $79 to $99. Prime, which provides members free shipping on almost all Amazon goods and 41,000 movies for streaming, is one of Amazon’s biggest cash cows. Galloway said talk of a price increase could be a sign investors are getting restless with the bitter cocktail of huge growth and low profit. (In fourth-quarter 2013, for example, Amazon reported more than $25 billion in revenue and $239 million of profit.)
Amazon has purposefully sacrificed short-term profits to acquire more customers and pricing muscle, Galloway said. The current prime membership just covers the cost of free shipping for more than 20 million members, but Prime members spend twice as much as regular customers on the site. Galloway added that Amazon will have tremendous pricing power once its flexes its muscle and become an extremely profitable company. Listen to full clip here.