Free lunch on Amazon?

October 27, 2003

Anyone who shops on Amazon.com (AMZN) is probably familiar with the free shipping offered for those who spend $25 or more. Amazon switched to this policy last year after unsuccessfully trying to turn shipping into a profit center. Now, it looks like the policy is paying off according to the 10-Q filed on Friday. While sales were up 32 percent during the third quarter, shipping revenue was only up around 5 percent. Indeed, Amazon says it lost $27 million on shipping during the quarter, compared with a $10 million loss during the third quarter of 2002. Yet margins, mostly due to higher sales, were still up 32 percent for the quarter. In the Q, Amazon says it views the free shipping offer as “an effective marketing tool.”

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