Amazon is a behemoth in the eCommerce world with an unfathomable $1.3 trillion market cap and it’s still trying to expand its footprint. This time it’s leaving behind books and blenders for a much more ubiquitous recurring revenue stream, phone service.
This should have telecoms shaking in their boots as the mere mention of Amazon’s foray into the market sent a collective shiver down Wall Street. Amazon has proposed offering cheap ($10/month) or free phone service to Amazon Prime subscribers, an undeniable game changer that would turn the market on its head.
Amazon’s Dominance Contextualized
(Most) Bookstores Are No More
Amazon has summarily crushed competition since its emergence on the scene as a competitor for bookstores and subsequently publishers as a whole.
In its infancy, the eCommerce giant upended the way people shop for books when it came on the scene in 1995, essentially cutting out the middleman–bookstores. In the 22 years from 1998-2020, Amazon can take at least partial credit for the decrease in the number of bookstores nationwide from 12,000 to 5,733. That’s a decrease of 52.8%!
Under its own might, Amazon created an entire industry of literary hopefuls with its Kindle Direct Publishing offering. The platform hosts over 1.5 million self-published titles to this day with over 90% of the entire market share for this space.
The Writing on the Walls For Telecoms
Now for the fun part. Taking a look at Attain’s consumer panel we can make a few interesting inferences and predictions based on the data.
1. Free Is Better Than Not
Assuming the service level is comparable, a free phone plan would increase average savings for subscribers by $101/month.
With increasing economic pressure from inflation and stagnant wages, this could pose a significant threat to telecoms as consumers look for areas in their budgets to extract savings.
2. There’s Tons of Overlap
Attain’s data shows that among the big three phone service providers by transaction volume (which also aligns with US subscriber data), nearly 30% of users are also Amazon Prime subscribers.
To put that into perspective, T-Mobile has a market cap of $159.29 billion. Attain’s data shows 36% of T-Mobile users are also Amazon Prime subscribers, meaning that in a perfect world where T-Mobile customers weren’t locked into contracts, Amazon could cut over $57 billion from its market cap almost overnight.
This has implications industry-wide and no carrier is safe. With the introduction of free wireless phone service, low-cost small carriers could see a mass exodus of customers because their major value proposition will be significantly undercut. The savings are what matter to their customers and if they can get a better deal somewhere else, they likely will.
3. Dish Network To The Moon!
It’s been rumored that Amazon has been in talks with major telecoms–though many have denied these claims—and Dish Network has appeared as an early favorite to ink this monumental partnership.
Dish Network and Amazon Prime have significantly less overlap than the big three (ATT, Verizon, and T-Mobile) phone service providers at about 2%, according to Attain’s data. This gap is a chasm of opportunity wherein Amazon has the potential to introduce nearly 7.5 million new subscribers to its eCommerce platform and Dish Network has the opportunity not only to enlist Amazon subscribers, but poach customers from the big three telecoms in a bid to move out of its distant fourth place seat.
However distant, the mere possibility of this partnership has far-reaching implications, even present day where it has even managed to stall stock prices for the big three telecoms. The fallout and windfalls should Amazon introduce a low- or no-cost phone service would likely signal a period of intense competition among phone service providers, perhaps even spurring on significant innovation in order to beat the giant.