How Amazon is making money by giving it away

Jan 19, 2011

Lots of blog buzz today about how Amazon.com (amzn) is selling $20 gift cards for just $10. It's being done through online deals site LivingSocial, a Groupon rival that recently raised $182 million in VC funding from Amazon and others.

So this obviously is a (brilliant) customer acquisition play by LivingSocial, with a big hand from its largest investor. And Amazon probably assumes that the $6 million-plus it is "losing" in sales revenue will be outweighed by: (a) Increasing the value of its portfolio company, and (b) Selling Amazon gift cards to people who otherwise wouldn't have made purchases via Amazon.

But perhaps there is a third explanation for amazon's strategy, courtesy of Buzzfeed president Jon Steinberg (relevant part comes near very end):

[vodpod id=Video.5386946&w=425&h=350&fv=]

Hulu - Saturday Night Live: First CityWide Chan..., posted with vodpod

 

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions