Free shipping. One of the phases investors least like to hear about Amazon (NASDAQ: AMZN). Each year when Amazon releases quarterly earnings which cover the holiday period, shareholders get ready to cringe
Free shipping was one of the ingenious inventions of founder Jeff Bezos. Unlike drones, Amazon Web Services, and streaming video, it has been seen as a huge loss leader, and one which may be too much loss and too little leader. In theory, free shipping gives Amazon an edge over rivals like Walmart (NYSE: WMT). The theory lost some of its power when other retailers offered free shipping (usually for two day delivery). At that point, free shipping became as much a defensive move as a revolutionary business practice
Bezos has made it clear repeatedly, more by practice than by comment, that he is willing to spend to grow, and spend in a manner that can make profits razor thin. Free shipping is not the only evidence of this. The Kindle, one of the early e-readers, lost money. The Fire Phone was blamed for losses in the hundreds of millions of dollars. Kindle became the cornerstone of Amazon’s e-book dominance. The Fire was essentially killed off.
Since free shipping is to a large extent rolled up in the Prime service, which includes a large number of other benefits like video streaming and photo storage. In that context, it could be argued that free shipping makes money. As a bundled service, that could be true. However, it continues to beg the question of whether free shipping should be viewed as an independent part of the Amazon business, no matter how it helps or hurts other segments
Bezos has never been terribly forthcoming about margins on individual businesses. It has only been recently that the company broke out the profits of the wildly successful AWS. Of course, it make money, so why not disclose it? Free shipping, not so much
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