How Amazon is making money by giving it away
January 19, 2011: 2:32 PM ETLots 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):
