I was recently doing random searches on Amazon and their affiliate program and discovered interesting facts which I think should have gotten better media coverage but somehow went almost unnoticed.
I will tell you about what I found shortly but first read this quick introduction into affiliate marketing. Feel free to skip the first part if you think you know all about how affiliate programs work.
Affiliate programs are deals sites’ bread
Affiliate commissions are the main source of revenue for all bargain sites. The banners and context sensitive ads can be rarely seen on these websites. Some don’t have them at all. The idea is simple, they want you to buy stuff — not click on ads and browse away.
Affiliate programs can be very profitable. In fact they can be so profitable that many resellers don’t even bother setting up a website. They just do all the marketing via Pay Per Click ads. If you see a Google ad that brings you to a big merchant like Amazon — it is not Amazon promoting themselves but rather some entrepreneur pocketing the difference between the commission they receive on things you buy and the fee they pay for your click on the ad.
The higher sales volume is — the better commission rates the resellers can negotiate thus climbing up the commission tier ladder. The big guys like FatWallet can negotiate rates so high that the cash back they pay to the shoppers is often equal to what smaller affiliates get paid as their entire commission.
Why merchants need affiliate programs?
Affiliate programs expand the merchant marketing base. Resellers can be compared to contractors who get paid based on what they do versus a fixed annual pay of an employee.
In addition affiliate programs add flexibility to the merchant marketing efforts. Companies often change affiliate rates and thus regulate what type of product they want to promote or what distribution channels they prefer to use.
Just as with contractors, affiliates are the first to go when times are tough. This is what happened on October 13 of last year. Many high-tier Amazon affiliates received a letter saying that Amazon in essence doesn’t want them any more. The interesting part here is that not all resellers were affected. According to an Amazon rep
The changes […] will only affect Associates within the Deal & Coupon category, which can be defined as a category of Web site dedicated to finding the best deals or price discounts across the Internet (and brick-n-mortar stores as well) and/or websites that provide coupons to different retail stores, online or offline.
Most merchants outsource their affiliate programs to specialized networks. The notable three are Comission Junction, LinkShare, and Performics who probably cover most of the online retailers. Very few large companies do their affiliate marketing in-house, one of them is Amazon. This gives Amazon a lot of flexibility with what they can do to their associates.
Why did Amazon kill the program for deals sites?
The only explanation I can see is that deals sites were cutting into Amazon’s profit margins way too much. Since they are the ones who would usually dig out heavily discounted merchandise and post it for sale on the front page, Amazon would get very little if any from sales that these sites generate. Merchants often have a few products that they sell at a loss to attract buyers and gain regular user base. It looks like these products is what deals sites are/were selling most of the time.
Why offer changes that make the program unusable? Why not just reduce the rates? This question is a little tougher to answer but I still think I know the answer. Many affiliates who received the Amazon email that day suggested that it didn’t look like a typical official email from Amazon. Some even questioned its authenticity. In addition it happened shortly after the end of the quarter when the financial reports are usually published. All of this points to the fact that someone at Amazon got very unhappy about the numbers and demanded an immediate action which was produced in a hurry.
As it often happens in big corporations, immediate results are more important than long term effect, thus the outcome, Amazon lost affiliates, affiliates lost business. As SpoofeeDotCom commented on Amazon Associates forum
This is happening to my site (Spoofee.com) and it’s devastating =(
Top Tier partners are punished for performing well?
Read more about why Amazon doesn’t like deals site from these great sources: