Amazon Expands Its Prime Ecosystem Into Mobile Gaming

Amazon (NASDAQ:AMZN) recently announced that it would start offering its Prime members free in-game content for mobile games. The perk will roll out with exclusive items for Tencent's popular battle royale game PUBG Mobile, and gradually add content from partners like Electronic Arts, Moonton, Netmarble, and Wargaming Mobile in the "coming months."

Why it's a smart move for Amazon

These mobile gaming perks could help Amazon in three major ways. First, they increase the stickiness of its Prime ecosystem, which already offers discounts, free delivery options, music streaming, video streaming, free e-books, and other perks for $119 a year.

Research firm CIRP estimates that Prime's number of U.S. subscribers topped 100 million at the end of 2018, and that the average Prime member spends $1,400 annually versus $600 for non-members. That's why Amazon is willing to sell hardware devices -- like the Kindle, Echo, and Fire TV -- at thin margins or losses to tether more users to that ecosystem.

The stickier Prime is, the tougher it is for rivals like Walmart and Target to gain ground against its core North American business, which generated $38.7 billion in revenue last quarter and accounted for 61% of its top line.

Second, mobile gaming perks expand its gaming ecosystem, which already includes Twitch, the top video game streaming platform in America, and Amazon Game Studios, which is currently developing an online RPG called New World, a battle royale game called Crucible, and a free-to-play Lord of the Rings online RPG.

Twitch accounted for 72% of all live gameplay hours streamed in the U.S. during the second quarter, according to StreamElements, and over 15 million daily active viewers spend 95 minutes per day on the platform. Amazon already offers a Prime perk called Twitch Prime, which offers bonuses like channel subscriptions, access to select games, in-game loot, and exclusive badges and emoticons.

Most Twitch broadcasters stream PC and console games, so offering free mobile items in exchange for linking their games to Amazon Prime might encourage more mobile gamers to broadcast their gameplay on Twitch. It could also convince more developers to launch their mobile games in Amazon's Appstore, which offers far fewer apps than Alphabet's Google Play and Apple's App Store.

Lastly, Amazon can convince its new mobile gaming partners to buy more online ads across the tech giant's sites and digital platforms. Amazon doesn't regularly disclose its exact ad revenue, but eMarketer estimates that it's already the third-largest advertising platform in America after Google and Facebook. The firm expects Amazon's advertising business to generate $11.33 billion in revenue this year, which would account for about 4% of its top line.

A new version of an old idea

This isn't the first time Amazon has waded into the mobile market. Amazon Game Studios previously released several mobile games, but they never gained much momentum in the crowded market. Amazon subsequently laid off dozens of developers and canceled some of the studio's projects earlier this year.

Back in 2014, Amazon gave away free Amazon Coins -- which could be redeemed for in-app purchases -- to reward users for downloading apps. In 2015, it launched "Underground Actually Free," a program that offered free versions of paid apps with free in-app purchases. Amazon subsidized the program by paying developers based on the time customers spent using the apps. That program, which was mainly aimed at gaining more Fire tablet and Appstore users, was discontinued in 2017.

Amazon's introduction of free content for mobile games looks more sustainable than those previous efforts. It could be a win-win deal for both Amazon and game makers: Amazon strengthens Prime, expands its gaming ecosystem into the mobile market, and gains potential advertisers; and game developers can keep gamers engaged with a fresh stream of free digital content.

This article originally appeared in the Motley Fool.

Leo Sun owns shares of Amazon, Apple, Facebook, and Tencent Holdings. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Tencent Holdings. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.