NEW YORK (CNN/Money) - Buy.com founder and CEO Scott Blum is a wanderer in the Internet world. Like a Forrest Gump with smarts, Blum has seen firsthand the Internet's highs, lows, and comeback trails of the last few years.

At Buy.com, he scored a $165 million investment round, took his company public in February 2000, saw the bottom drop out of the market, bought his company back, took it private, laid off 80 percent of his staff, and now houses the firm in a 20,000-square-foot facility he owns.

Blum will need to muster all his strength as he gears up to enter a new battle with his longtime online nemesis Amazon. Last week, both Amazon (AMZN: down $0.02 to $17.51, Research, Estimates) and Buy.com announced free-shipping initiatives. Back in the heady days of the late 1990s, of course, free shipping for online retailers was commonly used as a ploy to attract new customers. But after the bubble burst, "and people's feet touched the ground again," as Blum puts it, free shipping went the way of Webvan.

So what's going on? Why is Amazon, which just returned its first profit ever, cutting into its margins by offering free shipping on any order totaling more than $49? And why is Buy.com offering free shipping for all orders, provided the goods don't weigh more than 120 pounds? Do they know something we don't?

"The motivation is different for each," says Jupiter Media Metrix (JMXI: down $0.02 to $0.20, Research, Estimates) senior analyst Ken Cassar. "Amazon is trying to understand the demand elasticity associated with shipping costs, and how consumers will react." (As Bezos explained in an e-mail message to Amazon users, "We'll be looking to see if our current customers order more from us and whether we attract a greater number of new customers.") Buy.com, meanwhile, is trying to pick up market share and capitalize on the publicity generated by Amazon's promotion, announced just one day before its own.

Showing there's no love lost between the two retailers, Blum ridiculed the me-too accusations that have been lobbed in his direction. "We were planning our announcement before Jeff [Bezos] made his offer," he said.

To be sure, understanding the connection between online consumer behavior and shipping costs is something of a Holy Grail for companies like Amazon and Buy.com. And both companies are largely in the dark as to where the sweet spot lies.

"It's a test," says an Amazon spokesperson. "It's very expensive to do this. We'll find out if the customer response is great enough to make it work, but it's the right thing to do."

Buy.com's no-minimum-order approach will clearly establish the bottom end of the market, but at what cost? Jupiter's Cassar is skeptical about Buy.com's ability to pull off such a drastic promotion and still make a profit -- a feat that Blum adamantly insists he can accomplish.

"I don't think they can do it," Cassar says. "In order for Buy.com to make any money off of this, their order size has to be two units per order. There's no incentive in the offer to drive the order that high."

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With Amazon's experiment, there is such an incentive: a $49 minimum required purchase. But can the offer drive enough sales to make up for the margin dilution that will inevitably occur? And how will Wall Street react if Bezos doesn't hit a second straight quarter of profitability? Amazon's stock traveled south after the shipping announcement was made on June 18, losing about 5.5 percent. But it showed signs of gaining strength at week's end.

This could be a critical inflection point for online retail. If either company can make its offer work, free shipping could become the industry norm. But if the companies can't divine the sweet spot, and they end up losing money, this could be the last time we'll see any such offers -- except for very limited, one-time deals. "I don't think either of them knows if it's going to work out economically or not," Cassar says. "The only way to know is to try."

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