From what I've seen they've done two things. First, yes, they've basically spent huge amounts of what would otherwise be profits on subsidizing two day delivery

From what I've seen they've done two things. First, yes, they've basically spent huge amounts of what would otherwise be profits on subsidizing two day delivery. They have dabbled in various methods of last mile delivery, like using their own drivers or drones, but to this day 90+% of my Prime deliveries are delivered by UPS or FedEx. The rest are either Lasership or Amazon delivery both of which have a noticeable drop off in reliability. The last mile cost is extremely complex and I see no evidence that Amazon will figure out zero cost two or single day deliveries. FedEx nor UPS has been able to, and that's their core business! I do think that it will be solved one day, but it won't be by Amazon. It'll be due to an advancement of lots of outside technologies that will be enjoyed by all retailers. And if we're being honest, isn't that outcome better for consumers? The second thing that Amazon has done is subsidize things like free Video, books, and now Thursday night NFL in addition to free two day shipping to create an overall value package that draws people into Prime.