>make a worthwhile margin of profit?

If Dominos can do it for pizzas, amazon can do it for much bigger ticket items.

PLUS they are not incurring the cost of shipping the item to a prime member. Right now for every physical good prime purchase they spend money on shipping.

Also see: Amazon is not worried about short term profit [1]

They have probably planned to not profit for a while in exchange for increased cashflow. Again for Amazon, profit isn't first, the customer is.

[1] http://www.businessinsider.com/amazons-jeff-bezos-on-profits...

Dominos can do it for Pizzas because the profit margin on Pizzas is about as close to 100% as you can get, and delivery-person pay is about as low as you can get, combined with subsidy via tips. A $20 pizza will have a higher total gross margin than a $100 anything-retail.

Amazon is going to lose money on this, and it will probably only ever be feasible (even as a net loss) in a handful of zip codes in the US.

That's exactly what I was thinking

They're charging $7.99 for one-hour delivery. That's about on-par with on-demand courier fees that I've seen in NYC. Presumably the two-hour free delivery will be phased out once they've reached some metric.

If we assume that a) the 1h delivery is break even for them and 2) the 2h delivery would allow the courier to do a couple of extra deliveries on the same trip, then I think the per item cost for 2h delivery could be only a couple of dollars, making it competitive with UPS and thus maybe free for prime members indefinitely.

$7.99 + you need to have $99 Prime.