I drank the eBay Kool Aid on free shipping a long time ago. The simple reason is because it works. I have tested my listings both ways and free shipping does increase conversions on eBay. It works all years around, but it really works well during the holidays.
One of the major downsides to offering free shipping is that you pay eBay a final value fee on the shipping amount you build into your price –and believe me that adds up. So you not only have to add the shipping cost into your price but you should also add a little bit for the extra fee also.
But it turns out there is another major disadvantage to offering free shipping. Most sellers like me put the words “free shipping” right into the listing title to get the buyer’s attention. It turns out that if you do that, Google will not index your listing. I learned that just this morning when I read Ina Stenier’s blog: Could Offering Free Shipping on eBay Hurt Your Google SEO?. If you are offering free shipping in your eBay listings, I strongly recommend you read Ina’s post.