Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

How Amazon is making money by giving it away

January 19, 2011: 2:32 PM ET

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):

 

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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