Oct 7, 2016 · 7 minutes

Amazon and Netflix are considered twin forces fucking up Hollywood.

Their stars are elbowing networks out of awards ceremonies. They are paying some of the highest salaries, and their talent gushes about the creative freedom they are given. They created a panic over unsustainable prices paid for potential hits at film festivals. They’ve created such a glut of “television” that broadcast has leaned heavily on recognizable fare like reboots of MacGyver or Lethal Weapon or…. Kevin James doing a nearly identical show as the one that just ended.

And even when it comes to that playbook, Netflix is competitive: The reboot of Gilmore Girls is the best of Netflix old and new. Its ability to cater to a core rabid fan base in a way broadcast can’t, and its willingness to write checks for content no one else will. The stars of the show are the highest paid actors of any drama, second only in all of TV to the cast of Big Bang Theory.

And yet, if you speak to senior people at Amazon and Netflix in charge of commissioning content, and they’ll describe very different jobs.

Netflix is about creating the kind of content no one else will fund-- see a show that kills a dog in the first scene or Bill Murray’s strangely wonderful Christmas special-- and then using its trove of data to shove that content into the right faces at the right times. The end game? Dramatically decreased reliance on content deals and controlling its own destiny.

I once asked a senior person in the content wing of Amazon what his job was. With a straight face he said: To sell more shoes.

This is what a lot of people miss about Amazon. At its core, it’s still a retail company. Everything flows from that and everything flows back into that.

I was speaking at a large eTail conference earlier this year and speaker after speaker telegraphed their fear or hatred for Amazon’s breadth and pricing power-- an absolute annihilator of hopeful startups and brick-and-mortar stores trying to stay relevant. Saying anything negative about Amazon in this room was like saying “Crooked Hillary” at a Trump rally. Head nods, chants, the works. (Ok, it was a business conference so they were chanting on the inside)

And yet, one speaker asked how many of the companies in the room ran on AWS. About half the hands went up. You are giving them the money they need to beat you! He screeched, beseeching them to switch to Google.

And he’s right. The genius of Amazon is the honey pot. Once you are an Amazon customer, you stay an Amazon customer, and you likely grow as an Amazon customer. The engine of this strategy, of course, is Prime, and it’s the reason Amazon competes differently than bookstores, differently than Netflix, differently than Apple, and differently than Google.

To the chagrin of anyone trying to compete against a sliver of Amazon with a different game, Prime is growing. This week, Morgan Stanley issued a research reporting reiterating its “overweight” rating on Amazon and $950 price target. (As of press time, it’s at about $840 with a near $400 billion market cap.)

The catalyst is all Prime, all the time. There are now 60 million Prime members, rising some 28% over the last seven months. That’s another 13 million members. That number is remarkable given how long Prime has been around. At Amazon’s recent single sale day event in India, it sold 15 million “units”, according to FactorDaily, one in every three of those was a Prime subscription. That bodes well for its continuing war in the sub-continent, if US trends hold true globally.  

But International growth aside, Prime’s core of strength is in the US market, where there are some 41 million Prime members, according to Morgan. Those users also spend 4.5 times more than non-prime shoppers, as Amazon starts to eat into content business, Costco’s business, and increasingly the apparel business. That’s a difference of $550 annually for non-Primers and $2,500 for Prime subscribers. According to the report, 40% of US Prime subscribers spend more than $1,000 a year, compared to just 8% of non-Prime subscribers.

Yeah… it gets worse if you aren’t Amazon. Prime members tend to stay Prime members, and seven to ten year Prime members that Morgan spoke with spend as much as ten times more than non-Prime members as we (and I say “we” because I’m in that bucket) spend more and more with Amazon over time as we get trained to, and Amazon continues to expand its Prime benefits.

The most common reason people subscribe? It isn’t content, so this isn’t really a competition with Netflix. It’s free two day shipping on retail goods. Put another way: Amazon doesn’t have to be as good, as cool or as arty as Netflix, because Prime isn’t only about the video. Still, the video helps keep you in the Prime funnel, spending more. As Amazon rolls out instant video through Europe, Morgan expects the numbers to get an extra boost. Morgan has raised its Prime subscription estimates by 12%-14% for the next twelve months based on the strength.

Prime is the digital equivalent of Walmart. At its peak, Walmart exhorted huge control over DVD sales and music sales, because of its massive mainstream retail footprint that was primarily there to sell you other stuff. But you wouldn’t have considered Walmart a “music” company.

This isn’t just relevant for content-- it’s relevant for anyone competing with Amazon. And this week, Google opened a new front on that war. This week it announced a high end phone to hopefully compete with Apple, a router that will hopefully compete with Eero, and a home speaker system that will hopefully compete with Amazon’s popular Echo.

The business press and early adopters have exhausted social media comparing the strategies and pros and cons of Google and Amazon’s hardware in particular.  And from a consumer point of view, these kind of comparisons make sense. But from a business point of view, comparing the hardware strategies of Amazon and Google, makes about as much sense as comparing the content strategies of Amazon and Netflix. They are simply meant to do different things for the mothership.

For instance, if Amazon is about eventually selling you more “shoes”, Google is about getting it’s creepy AI assistant to infiltrate your home. In that sense, it’s as much of a Facebook competitor or an Apple competitor as it is an Amazon competitor, even though these guys don’t yet have a speaker you talk to. As these handful of originally very distinct tech companies become larger conglomerates, they’re all competing in a variety of businesses: Hardware, video, cars, maybe rockets one day. But each company still competes from it’s core of strength.

For Facebook, that’s the massive billion-person-plus social graph. For Google, that’s organizing the world’s content. For Apple, that’s the phone. And for Amazon, it’s selling shoes. These core differences affect consumer purchases more than “specs.” Google’s maps give it an advantage in cars, Apple’s payment system built into your phone may impact where you buy a piece of content available everywhere, and that Prime membership definitely makes consumers spend far more at Amazon.

Perhaps the most important thing to note: It’s unlikely anyone ever beats Amazon at this particular game. Jet was the closest to anyone in amalgamating the confidence, billions, and team to try, and they “failed” all the way to a $3 billion acquisition. While I’ve argued being part of Wal-Mart will likely get Jet closer to its goal of competing with Amazon, it’ll only do so in retail, not AWS, gadget hardware or movies. So even a Jet that wins with a Walmart  assist won’t ever come close to Amazon’s game and will be off the market for anyone else to acquire.

Back in the afterglow of the 1990s, eBay was called the Internet’s “perfect store” because it didn’t carry inventory. It took longer, thinner margins, and the conviction of a CEO who didn’t listen to Wall Street to build the Web’s actual perfect store.