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Feb. 28, 2017, 11:35 a.m.
Business Models

Amazon just provided a nice little reminder of why it’s risky to build a journalism business on affiliate fees

Amazon is a powerful partner, but as book publishers have learned, it can also be a fickle one.

When digital advertising rates are falling and e-commerce is rising, affiliate revenue seems like a pretty attractive business model, and it’s one that many news outlets have been looking to for growth. Last fall, when The New York Times bought product review sites The Wirecutter and The Sweethome for a reported $30 million, Times executive editor Dean Baquet noted in a memo to employees that while the Times had already dabbled with affiliate links “in areas like our theater, movie and restaurant reviews and the best-seller lists,” the Wirecutter acquisition “represents a strong step toward a further embrace of this approach.”

One downside of the model, though, is that — at a time when publishers already fear they’re giving big tech companies like Facebook amd Google too much power over their revenue strategy — it’s, well, awfully dependent on the whims of a big tech company, namely Amazon. (While many companies besides Amazon have affiliate revenue programs, Amazon’s is by far the largest and most well known.) And — as you know well if you’ve watched Amazon and book publishers battle over contracts over the past few years — depending on Amazon can be risky.

Amazon announced last week that it’s making its affiliate revenue program less generous in some categories (though more generous in others). The bigger difference, though, is that it’s eliminating volume pricing advantages as of March 1. The affiliate marketing company Skimlinks, which works with publishers like Vox, New York Magazine, and The Wirecutter, explained the changes succinctly:

Rather than earning based on the volume of products you sell, now you’ll earn a flat rate across individual products ranges, meaning whether you sell five or 500 you’ll make the same commission on each sale.

Before, if you sold 50 baking mixers that cost $100 each, you’d earn 6.5% commission or $325. Under the new system, where you earn 4.5% commission for every sale, you only earn $225.

The largest sites that make money from affiliate revenue — including, presumably, The Wirecutter — have contracts with Amazon that list custom affiliate revenue rates, and it’s unclear how those are affected. “We’re not going to comment on the specifics of these new affiliate rules,” a New York Times spokesperson told me. “But we remain confident in the Wirecutter business and Amazon remains an important partner to us.”

The former Gawker Media sites now in Univision’s Gizmodo Media Group have long been standouts in affiliate revenue. A Gizmodo Media Group spokesperson told me, “We have a great relationship with Amazon that benefits both companies and our readers — this change does not apply to our business partnership.” Amazon did not respond to a request for comment for this story.

These sites may be shielded from the blow for now; smaller sites — including, to be fair, a huge number of spammy marketing sites built solely for the purpose of making money from Amazon’s affiliate revenue program — are the ones who will feel it. But contracts come up for renewal. And as booksellers and book publishers have learned, it’s proven difficult to get consumers to shift their shopping habits away from Amazon. As one commenter wrote on a Hacker News post discussing the changes:

Affiliate links are having less and less of an impact on convincing people to buy from Amazon, because Amazon is becoming the #1 place where people buy things anyway. If I read about something on the Wirecutter and I decided to buy it, I will buy it on Amazon whether or not they have a link to Amazon. Amazon knows this, and as they begin to dominate online sales in a certain category they can afford to drop their affiliate commissions knowing full well that it won’t really impact their sales.

The changes also raise interesting questions about how, if affiliate revenue and “service-y” content become a larger and larger part of news companies’ business models, affiliate revenue programs like Amazon’s could pit the companies against one another. A Hacker News commenter wondered: “Did Bezos do this to hurt the NYT and thus help The Washington Post?” Probably not this time around, but that could certainly be an issue down the line if the Post moves further into affiliate revenue — and why wouldn’t it?

It’s also possible that changes in affiliate revenue programs could shift product coverage at news organizations. With the changes, for instance, Amazon is paying a higher affiliate rate on luxury beauty products (10 percent, when it was previously between 4 and 8.5 percent). As affiliate revenue becomes a more important source of income, news organizations could make decisions on what to cover or review based on what’s pulling in the highest affiliate fees. That’s not all that different from launching new sections or verticals to attract high-end advertisers — it’s just an interesting wrinkle to think about.

Photo by Noelas used under a Creative Commons license.

POSTED     Feb. 28, 2017, 11:35 a.m.
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