There’s almost nothing Amazon.com, Inc. (AMZN) can’t do. We all know the story: It went from humbly selling books online in the mid-90s to becoming a global e-commerce powerhouse in a matter of years.
Spin the clock forward 20 years and Amazon is producing its own TV shows, making AI-infused personal assistants, selling tablets for $50 a pop and building its own global delivery network to elbow out United Parcel Service, Inc. (UPS) and FedEx Corporation (FDX).
So where exactly does Comcast Corporation (CMCSA) fit into all this?
Well, it just so happen that AMZN’s strengths are Comcast’s weaknesses, something that was tacitly acknowledged over the weekend when CMCSA started selling its packages through Amazon.com.
Say what?
CMCSA Turns to AMZN’s Expertise
The Amazon Cable Store page lets customers browse and buy XFINITY Internet, TV and home phone packages, with the promise of dedicated customer service for Amazon customers.
The partnership should be beneficial for both CMCSA and AMZN. For Comcast, it gets visibility on the most ubiquitous selling platform in the United States, but more importantly, the experience that Amazon has in selling online.
If that sounds cheesy, you’ve got a point … it did. But Amazon’s experience has actually resulted in some quantifiable results for CMCSA already. According to a Monday Wall Street Journal article, Amazon “helped Comcast reduce the number of clicks that it takes for a customer to complete a transaction.”
That’s important, but perhaps an even bigger game-changer for CMCSA is the guarantee that customers who sign up through Amazon will have much better customer service. Comcast is notorious for its awful customer service, which earned it a spot in InvestorPlace‘s recent piece, “10 Companies Screwing Over Their Customers.”
The Amazon cable store promises “dedicated customer service with no waiting” for AMZN customers and notes that their agents don’t earn commissions.
Cancelling also won’t be impossible.
What does AMZN get out of the deal? Quite a lot, potentially. While the exact terms of the deal weren’t disclosed, Amazon will take a cut of each sale made through its site. As you probably know, cable and Internet aren’t cheap nowadays.
Let’s assume Amazon takes a referral fee of 12%, which is a rather reasonable assumption given its current fee structure. And let’s assume for the sake of simplicity the average sale is a two-year contract for cable and Internet, running you an average of $100/month.
The benefits for CMCSA are obvious, but the vig that AMZN takes on that transaction is a thing of beauty. It gets $12 a month for 24 months, merely for bringing together buyer and seller. That’s $144 in annual (recurring!) revenue. Make 1 million sales like that, and AMZN makes $144 million per year in recurring revenue. Those will be high-margin sales, too, since Comcast is putting up the customer service representatives.
On top of that, other cable companies may soon join the fray. Charter Communications, Inc. (CHTR) is currently in talks with AMZN to join the program. Amazon should also enjoy some tangential sales that occur when customers are browsing Amazon.com around the time of their cable purchase.
At the end of the day, this is a win-win for both companies, who are probably each coming away from the deal feeling good about themselves. That said, given cable’s subscriber losses in recent years, if I had to own one of these stocks, I’d own AMZN.
And I do.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
