The dollar value of shipping isn't the only cost - 2+ days is a long time to wait and Wal-Mart is only a couple of miles away. Some things can wait and you can plan ahead to account for shipping times, but not everything can be planned for and sometimes you just want or need something tonight.

Weekends are especially bad - once Thursday afternoon passes, you're probably not going to get what you order until Tuesday or Wednesday.

Fair enough, if you live close to a Walmart (and I know many do.) Personally, I find the 2 day wait is generally a reasonable trade for being able to order from my iPhone wherever I am, saving me an hour of driving to Walmart, going in and driving back. Moving errands from time blockers to parallel processes is a win in my view.

This is exactly what I love about Prime. Need something? Take 3 minutes to go online and order it. Then forget about it. It will come in a few days and requires no mental overhead (i.e. "remember to buy X at the market next time") in the mean time.

You have to pay for shipping one way or another -- whether it's explicitly, or in the form of higher prices. It's not really free.

By that measure, you pay for shipping at Walmart, too. The goods don't magically arrive at the store.

But Wal Mart's shipping can be much cheaper due to their predetermined, set routes. A truck is going to that store every night regardless of what is on it. They often offer free shipping to the store because the marginal cost to them for putting one more box on a truck is negligible.

Amazon's shipping has fewer nodes in its graph. And the truck they use goes to your house every day: it just has UPS on the side.

Transport is just one part of shipping costs. Handling, inventory time and other operations overhead are also a factor.

Unless you've arranged to live within walking distance to a Walmart, you've got to get there one way or another; by buying gas and driving, or by taking the bus subsidized by the local municipality.

Seems to me like UPS (or whoever delivers for Amazon) also has predetermined set routes. Also, just because marginal cost is zero doesn't mean cost to shipping customer is zero.

Amazon has to ship its merchandise twice: first to their distribution centers, then to the customer.

Everyone has to use distribution centers and ship things multiple times - items come from Asia in shipping containers, which you have to break up and load into trucks, since individual stores don't stock inventory in amounts that large. Walmart has an extensive network of warehouses around the country that receive goods before they're shipped to the retail locations.

Additionally, given the lag on orders of new inventory from overseas (which can be months), Walmart and other retailers have to maintain a pool of merchandise here in the US that they can ship to individual store locations based on local demand to replenish inventory.

Of course, the "free shipping" takes a lot longer (sometimes a week longer) than even their standard shipping. If you want free shipping that takes place reliably quickly, you have to sign up for Amazon Prime, at which point free shipping is no longer free.

Prime's about what, $7 a month? Each mile I drive costs $0.20 in gas. If having Prime saves me just half an hour / 35 mi of driving a month (less than two trips to Walmart), it's cheaper than going to the store.

If you amortize it over a year, compare it to the cost of driving to a store and include the cost of free streaming videos then Prime is virtually free.

Walmart makes special deals with those they buy from. It's more like Walmart tells them what the price is. I don't think Amazon has that kind of leverage.

...yet ;-)

To a certain extent Amazon does; they wield a lot of clout in book pricing and an enormous amount in ebook pricing. Outside that traditional core competency (and Amazon Android Appstore) not so much