Amazon's big announcement

Got an email from the Amazon Associates Program today announcing a that they are no longer going to pay referral fees to associates who use paid keyword search (i.e. Google Adwords et al.) to drive traffic to Amazon.

Amazon is good at research.  They've clearly determined that the amount of purchases they generate through these channels are not worth it.  Since keyword buys are priced based on demand, associates' use of these keywords is driving up Amazon's own paid search advertising costs.  So Amazon has decided that it costs them more to pay the referral fees and higher ad prices, than they earn from this incremental traffic.

It's quite obvious that, as an e-commerce company, if you can figure out on your own every case where you can make money getting your customers via paid search, there's no reason to share that revenue with anyone - just do it yourself.  With handy companies like Marin Software (my brother's company) to help organize your paid search campaigns, you no longer need to rely on your Associates to figure out these sweet spots for you.

Amazon may also have noticed that they were funding Google's revenue growth with a share of their profits -- perhaps that factored into their decision as well.  I wonder how much of Google's Adwords revenue comes from Associates-type referrers, and how much of a hit Google will take if the idea of cutting off payments to referrals that come via paid search takes off.

Many other e-commerce sites have referral programs as well.  If their programs are working, they're probably thrilled to have the extra revenue, and perhaps haven't considered that referrer buyers are bidding up their search prices or that they could do this advertising by themselves and skip the referral fees.  Now every company in this position will need to take a look at their situation and see whether they couldn't do better on their own.

Another interesting question is how angry will the Associates be who have come to depend on a revenue stream from buying search keywords and referring customers to Amazon - and how hard will they bite the hand that no longer feeds?

Here's the text of the email:

Dear Amazon Associate:

We’re writing to let you know about a change to the Amazon Associates Program. After careful review of how we are investing our advertising resources, we have made the decision to no longer pay referral fees to Associates who send users to www.amazon.com, www.amazon.ca, or www.endless.com through keyword bidding and other paid search on Google, Yahoo, MSN, and other search engines, and their extended search networks. If you're not sure if this change affects you, please visit this page for FAQs.

As of May 1, 2009, Associates will not be paid referral fees for paid search traffic. Also, in connection with this change, as of May 1, 2009, Amazon will no longer make data feeds available to Associates for the purpose of sending users to the Amazon websites in the US or Canada via paid search.

This change applies only to the Associates programs in North America. If you are conducting paid search activities in connection with one of Amazon’s Associates Programs outside of the US and Canada, please refer to the applicable country’s Associates Program Operating Agreement for relevant terms and conditions.

We appreciate your continued support and participation in this advertising Program. If you have questions or concerns, please write to us by using the Contact Us form available on Associates Central.

Sincerely,

The Amazon Associates Program

Comments

[PuReWebDev]

I've always looked at ppc arbitrage as a way to kind of game the system, and bypass all the normal means of generating traffic and sales, e.g. setting up a website and marketing it. So in the end, it looks like those people will need to create websites anyway.

I am wondering how significant this economic shift is. Clearly Google won't be happy about potentially losing thousands of affiliate customers.

With thousands of associate affiliates out of the ppc game, there will certainly be a void and opportunity.

This is a smart move on Amazon's part however, so I applaud them for taking such a difficult step, what's more, Amazon is a cutting edge company and is making decisions that no other company has had to make before. They are forging new paths, and executing their strategy.

For the people who didn't have websites before, now is the time to start looking at Amazon Associate websites. Ecommerce For Everyone specializes in them, and you can always run a ppc campaign to your site.