FORTUNE -- Amazon Prime customers awoke this morning to something they're not quite used to seeing from the e-commerce giant: a price increase.
The Seattle-based online retailer sent emails to both its regular Prime and student membership program customers announcing a $20 price increase for the regular membership (from $79 to $99) and a $10 increase for students (from $39 to $49). And while that may not sound like a lot of money in absolute terms (just $1.60 more per month for the standard membership), most companies don't take a decision to raise the price of a product by 25% lightly.
Indeed, Amazon (AMZN) has been famously resistant to raising prices in recent years, which has enabled its revenue to soar -- by 20% in 2013 to $74.4 billion -- but it has left its profit margins razor thin:
As you can see, this trend hasn't exactly been in the favor of investors, who have been valuing the company at a sky-high price-to-earnings ratio of 636.7. As Morningstar analyst R.J. Hottovy sees it, Amazon's stock market valuation "seemingly requires a leap of faith based on whether the company will be able to monetize its explosive growth."
So why is Amazon all of a sudden bucking its aversion to price hikes? There are several reasons, including the fact that it probably can't expect growth in its Prime program to continue at the rapid pace it has seen in recent years. Hottovy estimates that Amazon doubled the number of Prime members from 10 million to 20 million in 2013, and while he still thinks it can add "several million" more members in 2014, it's unlikely it'll hit 100% year-over-year growth again. Like any savvy business, Amazon wants to direct its investments in the areas where it can expect the largest growth.
Now that Amazon has what analysts believe to be roughly 20 million members -- its Prime army -- it wants to invest in making that experience as robust as possible. That means spending money on better content for its video streaming services and continuing to build out its fulfillment-center infrastructure so that it can efficiently ship to every corner of the country in two days or less.
Most of all, Amazon is raising its Prime prices simply because it can. The e-retailer is famous for beating out its rivals on prices for commodity products like electronics and media. But while Prime began as a sort of loyalty program that enticed shoppers to buy ever more from its massive warehouses, Prime has, for many customers, become one of the most unique products that Amazon offers. After all, where else can you go to to pay $100 bucks to get free shipping on such a wide variety of products, with free streaming video and Amazon's e-book lending library thrown in for good measure?
After years of duking it out in the rough-and-tumble world of commodity retailing, Amazon finally has a product no one else can offer -- and it's making a pretty safe bet that it can demand a higher price for it.
We're driving less, and that may not necessarily be a good sign for the economy.
FORTUNE -- U.S. gas prices are declining, falling below $3 a gallon across a handful of states. Not surprisingly, most are taking the drop as goods news, since less money spent at the pump leaves more money to spend elsewhere. That's one way to look at it, but often when gas prices drop steadily, that also MORENin-Hai Tseng, Writer - Nov 12, 2013 9:53 AM ET
Most economists do not expect gas prices to reach the levels that typically force consumers to stop spending elsewhere.
FORTUNE – For the 12th day in a row, prices at the pump have climbed, hitting a national average of $3.67 a gallon Friday for regular self-serve, according to AAA. Gas is up nearly 20 cents a gallon, or about 6%, during that period.
Whenever drivers see spikes such as these, it makes headlines. MORENin-Hai Tseng, Writer - Jul 19, 2013 9:59 AM ET
Why gas prices could actually decline in Sandy's aftermath.
FORTUNE – After Hurricane Sandy ripped through the nation's east coast earlier this week, one of the biggest storms ever to hit the U.S. is poised to cost billions of dollars due to property damage and lost business days. Despite all the bad news Sandy will bring as the region tries to pick itself up after the massive storm, there might be MORENin-Hai Tseng, Writer - Oct 31, 2012 11:58 AM ET
Today's high gasoline prices prove that drilling for more oil in the U.S. doesn't lower energy costs. We have Wall Street to thank for that.
By Leah McGrath Goodman, contributor
FORTUNE -- The U.S. is now selling more petroleum products than it is buying for the first time in more than six decades. Yet Americans are paying around $4 or more for a gallon of gas, even as demand slumps to historic MOREApr 11, 2012 10:27 AM ET
Lower gas prices might feel great at the pump but they aren't the economic stimulus we were hoping for.
FORTUNE -- Much to the delight of U.S. consumers, prices at the gas pump have been steadily falling. Nationally, the average for a gallon of regular gasoline is $3.45, down from a high this year of $3.98 in mid-May, according to AAA.
But while households might save on gas, potentially leaving more money MORENin-Hai Tseng, Writer - Sep 30, 2011 10:10 AM ET
In the latest sign inflation is tapping the brakes on the recovery, gas-price increases have practically wiped out Americans' winnings from last year's tax holiday.
So says Goldman Sachs. The firm cut its first-quarter U.S. growth projection Friday for the second time this month, warning that the price of gasoline – up to $3.83 a gallon on average at the latest reading – could undermine consumer spending and slow an already laboring MOREColin Barr - Apr 18, 2011 5:51 AM ET
|Fears grow over China property flameout|
|Detroit to auction vacant homes online. Starting bid: $1,000|
|How Zuck met Oculus: Facebook's big bet on virtual reality|
|Researchers claim to hack fingerprint sensor on Samsung's new Galaxy S5|
|China GDP slows to 7.4% in first quarter|