What's Up With Amazon's New Revenue-Sharing Rates?
Online entrepreneurs of every stripe are familiar with Amazon.com's (NAS: AMZN) affiliate program. Through specially-crafted links and banners, you can direct readers from your blog, e-mail newsletter, mobile app, and other venues, to go buy stuff on Amazon. Then you sit back and pocket a percentage of what those customers spend.
For webmasters and blog writers, it's a welcome income generator. For Amazon, it's the online equivalent of paying people to stand by the highway with cardboard signs pointing to the Amazon store. Huge vats of freshly boiled peanuts are optional.
Amazon is notoriously tight-lipped about its various divisions and programs. We still don't know how much money its incredibly-successful Web Services operations make, for example, and affiliates is no exception. When asked to give an update on affiliates during an earnings call, CFO Tom Skzutak tartly waved the question away: "I really can't comment on that. We're incredibly pleased to have our affiliates. We continue to work with them and there's not much more I can add to that."
It's a closed book for the most part, very unlike the way Google (NAS: GOOG) gladly shares a fistful of detailed advertising metrics in every earnings report. But we can still read this book by its cover.
Amazon just changed the percentages it hands over to its affiliate friends. Some rates are going down, but one is up dramatically. I think this speaks volumes of what Amazon wants to sell right now.
Starting July 1, groceries will net the affiliate a fixed 4% instead of a more generous sliding scale that used to peak at 8.5%. Industrial products and the Myhabit store -- not an outlet where nuns can find fashionable outfits, but a shopping club for supposedly addictive brands -- drop from 15% to 8%, a still generous, but severe reduction. These are the categories that Amazon obviously wants to de-emphasize right now. Maybe the margins are compressing in those sectors, or perhaps Amazon found other ways to promote the wares.
But the rate for magazines and related products just shot up from the grocery section's old sliding scale to a straight 25%. That's insanely generous for a company with overall gross margins of less than 23%, and nearly breakeven bottom lines. Amazon seems willing to sell magazines at a minimal profit, or even at a loss.
Well, incentives make a difference. Expect a barrage of affiliate magazine marketing in July, and watch Amazon closely in order to figure out the real reasoning behind this move. I'm thinking there's a new Kindle model on the way, and that an improved reading experience will play a large part in its marketing message. The only real question is, will the next Kindle be a full-sized, full-service tablet to do battle with the Apple (NAS: AAPL) iPad and Microsoft (NAS: MSFT) Surface, or is it simply another twist on the well-worn, specialized e-reader idea?
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Either way, Amazon is changing the face of retail, and its every move is worthy of deep thought. Grab this special report on how e-tailers are killing big-box retail stores for more detail, but don't delay -- the report won't be free forever.
The article What's Up With Amazon's New Revenue-Sharing Rates? originally appeared on Fool.com.Fool contributorAnders Bylundowns shares in Google, but holds no other position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Microsoft, Amazon, Google, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Google, Amazon, Microsoft, and Apple.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple and another bull call spread position in Microsoft. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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