, Brian tells the story of the origin of Prime Membership on Amazon. In this blog, we discuss the implications of this story for you.
According to Charlie Ward, the response was, “Is Charlie crazy? What if the up-front fee didn’t cover the yearly total shipping charge? Amazon would be losing money. “ In 2005, Amazon launched Prime with an annual membership fee of $79. As Charlie Ward’s colleagues predicted, the first year reduced Amazon’s EBITDA. Over time, however, it generated increased customer sales and brand loyalty. Prime membership became a juggernaut for Amazon's growth.Many company leaders face the dilemma of “How can we grow without destroying what made us great?” Growth creates hierarchy, standardization, and the reduction of true innovation.
A second lesson from this case is that the hierarchical nature of corporate life tends to filter out novel ideas from percolating upward. It becomes too easy for CEOs to live inside a bubble where the information is biased to confirm cherished perspectives. Having the CEO read each suggestion is a way to break out of this information bubble.