Can A Broadband Service Drive Revenues For Amazon In Europe?

Reports suggest that Amazon (NASDAQ:AMZN) is considering whether to offer internet services to its customers in Europe. While details of when and how these services might be offered are not available, bundling broadband service along with Prime video would give Amazon a competitive edge over cable operators who offer a similar broadband-video package and thereby attract more video users to its platform. Offering broadband services as a perk to its Prime customers could be another way to attract more customers to its Prime Membership in Europe. Regulations in the UK allow players to provide wholesale access to their networks and Amazon can take advantage of an existing network at a cost to provide this service to its European customers. As Amazon looks to increase its market share in the international segment, a strategy to provide bundled service or internet access as a perk to its Prime customers can attract more users to its platform and drive growth in international revenues.

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Driving Sales Through Attractive Perks On Prime Memberships

Prime Members are the key drivers of sales on Amazon and studies estimate that prime shoppers spend more than double on Amazon’s e-commerce site compared to non-members. The company continues to make its Prime offering attractive to enroll more members and internet access can be an attractive perk in Europe. As per our estimates, the share of Amazon’s international EGM (electronic and general merchandise) sales in the international e-commerce market will increase from 2.0% in 2016 to around 2.8% by the end of our forecast period.

A faster pace of increase in this market share can lead to an upside in our price estimate.

According to eMarketer, subscription video on demand has strong growth prospects in Europe and it is likely to account for nearly 60% of the total home video spending by 2020 in Western Europe. Amazon offers a paid Prime Video subscription in Europe and can potentially bundle this with broadband access in future. Given the strong potential for growth in this market in Europe, Amazon should be able to drive revenues through the bundled offering.

A broadband service can drive revenues for Amazon in Europe in two ways:  1) If the company offers this as part of its Prime Membership perks, it can grow Prime Members in Europe and drive e-commerce revenues for Amazon; and,  2) A bundled offering with a Prime Video subscription also holds a strong potential in Europe. Lower costs due to the ability to use wholesale network providers is a huge advantage in Europe. Expanding this to other regions might not be simple or feasible for Amazon, but we believe region-specific initiatives should work to foster the growth of Amazon’s international business.

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