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Amazon's Three Big Ideas for 2014

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It's pushing everything from laundry detergent to a sitcom, but Amazon Prime and the Kindle are still its keys to success.

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You've got to wonder why Amazon (NASDAQ:AMZN) has been so cagey about releasing hard numbers on sales of its Kindle devices. Especially after a new analysis from Consumer Intelligent Research Partners that estimates about 20.5 million of the devices were in the hands of consumers as of the end of September.

But here's a much more interesting number: Owners of Kindle devices spend about $1,233 per year on Amazon, compared to $790 per year for customers who don't have a Kindle.

And, they make purchases 50% more frequently than Kindle-less customers.

Investors have always perceived the Kindle as a media-buying device as much as a media-consumption device. But nobody guessed just how much money was being uploaded to Amazon in return for downloads of books, movies, music, and software, not to mention all those one-click orders for hard goods.

Those kind of numbers might quiet some of the criticism of Amazon's take-no-prisoners pricing strategy for its branded devices. Its strategy is so aggressive, in fact, that some analysts don't believe its claim that it breaks even on the devices.

The devices now range from about $69 for the smallest e-reader to $379 for the latest, fastest, and biggest Kindle Fire HDX tablet.

For the holidays, Amazon has even introduced a special offer for the top-of-the-line model, a no-interest installment payment plan. (Fail to pay an installment, and no more downloads for you.)

The Kindle is one of the two juggernauts in Amazon's strategy to be the store for absolutely everything. The other is Amazon Prime, the $79-per-year membership loyalty program that offers members free shipping, among other benefits.

This is a good time to mention that the strategy hasn't borne fruit yet. Amazon is still losing money.

Its supporters say it's building infrastructure on a massive scale for the future. Its detractors, like Seeking Alpha's Paul Santos, say, well, Amazon is still losing money.

It's hard to imagine exactly how Amazon can continue to expand its customer base or its product offerings.

Here are three ways it will work on both goals in 2014.

Amazon Pantry

First, there's Amazon Pantry, a program designed to change the way Americans buy the dull (and non-perishable) necessities of life, like laundry detergent. First reported by USAToday.com, and not yet officially confirmed, the program will be available only to Amazon Prime members.

Amazon already stocks the full range of packaged goods. Its Pantry program is designed to coax Amazon Prime members into regular orders of packaged goods, by offering "wholesale" prices and reasonable delivery charges.

In short, it's going up against Costco (NASDAQ:COST) and the rest of the big-box discount shopping emporiums that offer good prices on the basics, not just detergent but canned goods and even cereal.

By limiting the program to packaged goods, the company cut much of the prohibitive cost: No warehousing of highly perishable fresh goods; no Amazon trucks speeding through the suburbs on demand.

The company also hopes to offer a reasonable shipping rate by defining and limiting shipment size. A customer will fill a box of a certain weight and size with goods, to qualify for a set shipping price.

Exclusive Video Streaming

The second strategy for 2014 is not brand-new. It's a game of catch-up.

Netflix (NASDAQ:NFLX), its video-streaming rival, won huge word-of-mouth and critical praise for two original series, House of Cards and Orange Is the New Black.

Emmy Awards are nice, but that isn't what this is about. It's about getting a hit show, an exclusive, first-run series, and limiting its access to Amazon Prime members.

The new entries in Amazon Originals are the sitcom Betas and a political satire, Alpha House. The shows were the top vote-getters among 14 pilot episodes introduced earlier this year in a customer-ranked competition.

Expansion in Grocery Delivery Business

Amazon has been slow-it says "thoughtful and methodical"-in getting into the grocery delivery business, taking six years so far to test the market in its hometown, Seattle.

Now, AmazonFresh has rolled out its delivery service in San Francisco, following its introduction in Los Angeles. Officially, those markets are tests, too.

Despite the obvious logistics and cost barriers, fresh produce delivery already has plenty of competition, from the new and trendy FreshDirect and PeaPod to the old-line Wal-Mart (NYSE:WMT) and Safeway (NYSE:SWY). Even eBay (NASDAQ:EBAY) is trying to get in, through eBay Now.

Unless and until Amazon gets those drones in the air, this one still sounds like a nightmare in the making.

And yet, there's another reason why Amazon wants all those bright green trucks rolling through city streets: They're carrying many other products-non-edible but higher margin products-for one-day delivery to Amazon Prime customers.

See also:

AT&T's Answer to Google Fiber Is Absolutely Ludicrous
No positions in stocks mentioned.
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