Online retail giant Amazon has seen first quarter profits dip as continued investment in free shipping was compounded by a tax-related charge. For the three months to March 31, Amazon's net income was $78m, compared to $111m in the first quarter of 2004. As well as a $56m tax charge, Amazon said it's shipping loss was $55m, an increase of 29 per cent on a loss of $43m a year ago.

The Amazon Prime membership program, launched in February, allows US customers unlimited free shipping for a flat fee of $79 per year. Amazon sees its free shipping offers as essential to retaining long-term customer loyalty, despite some analysts' concerns about the cost.

Jeff Bezos, founder and CEO of Amazon.com, said: "We're seeing especially heavy use of Amazon Prime in electronics, tools, kitchen, and health & personal care. For $79 a year, Amazon Prime members get 'all-you-can-eat' free express shipping. Getting your items right away changes the way you use and think about Amazon.com."

Net sales increased 24 per cent to $1.9bn in the quarter. North American sales through the US and Canadian sites were $1.03bn, up 21 per cent, while international segment sales, representing the UK, German, French, Japanese and Chinese sites, were $875m up 28 per cent. Across the year to the end of the quarter international accounted for 45 per cent of Amazon's worldwide sales.