IQ News: Amazon Calling




Personal Web publishers are now selling online retailers’ wares.
There’s a woman named Margaret who could be viewed as the electronic version of the Avon Lady. As proprietor of Margaret’s Shack of Music, a personally-published site on the community site Tripod, she has devoted her page to female singer-songwriters–and their recordings. As part of a deal called the Cosmic Credit Program, struck in April between online music retailer CDnow and Williamstown, Mass.-based Tripod, visitors to Margaret’s site can now buy a copy of Tori Amos’ Little Earthquakes or Nanci Griffith’s Other Voices, Other Rooms.
Thus, Margaret is one of many Tripod publishers who have also turned their sites into retail outposts, with winners everywhere you look. CDnow garners sales it might not have and scores a branding opportunity; Tripod and Margaret receive a commission.
Because they offer the prospect of making money on the Internet, partnerships such as the one between CDnow and Tripod are the newest wrinkle in a growing electronic commerce network of affiliates. Some time ago, online retailers such as BarnesandNoble.com cut deals with mega-sites including Disney Online, The New York Times Electronic Media Company, Yahoo and Netscape to sell merchandise through links to their sites. Now, they are wrapping their tentacles around community sites such as Tripod, which center around personal Web sites, to sign up Mom-and-Pop mini-stores. Amazon.com recently signed GeoCities to its associates program (that company’s term for affiliates), and BarnesandNoble.com just signed Tripod to its affiliate network.
“There are associates who have earned thousands of dollars,” says Shawn Haynes, group product manager at Amazon.com.
The excitement is infectious–at least among those who stand to profit. When Tripod closed its deal with BarnesandNoble.com, Tripod president and CEO Bo Peabody was noticeably enthused as he described a partnership which ensured Tripod “a multiple, seven figures up front for a guaranteed two-year relationship on top of a bounty for every affiliate we sign up and every new customer that we generate.”
Though affiliates seem like the online fad of the month, Peabody has history on his side. The BarnesandNoble.com partnership is Tripod’s third affiliate relationship, following similar arrangements the company has struck with CDnow and online software sales company TestDrive. Peabody also has his eye on other sorts of retailers such as Omaha Steaks, FAO Schwarz, Virtual Vineyards and, yes, Avon.
Even if it is too early to tell whether such small-time affiliates as Margaret are having an impact on retailers’ bottom lines, there’s power in the concept of affiliating with Web sites. According to Peabody, e-commerce sales that are rung up through affiliates account for three times more volume than sales that are generated by online buttons or banners. Through Tripod, CDnow has added some 5,500 affiliates since the program launched in the beginning of May. That deal will pay Tripod parent Lycos $18.5 million in cash and stock over a three-year term. Peabody expects BarnesandNoble.com affiliates to grow on a similar scale. Even before the Tripod deal, BarnesandNoble.com had gained 10,000 affiliates since launching the program in September of last year. Amazon.com recently announced its affiliates now number 60,000.
The combination of large and small affiliates packs a strong one-two punch. CDnow addresses its different levels of affiliate partners through separate programs. After starting strategic partnerships with larger sites, such as Yahoo, in 1996, it launched the grassroots-oriented Cosmic Credit Program in 1997, geared toward music fan sites. “The large sites with critical mass and traffic are important from the branding perspective. The Cosmic Credit Program is so targeted. There’s more likelihood for someone cruising Madonna sites to purchase a Madonna album, ” says Michelle Rubin, CDnow director of online marketing.
In addition, initiatives such as the Cosmic Credit Program create highly targeted relationships for direct marketers, so online merchants are speaking to the audience they want to reach, without spending money on advertising.
“From a marketing perspective, people drive content to the site by adapting homogenous catalogs of titles to specific needs of a market and improve targeted marketing of the offers,” says Geoffrey Bock, a senior consultant at The Patricia Seybold Group in Boston.
While online retailers wouldn’t break out numbers for affiliate sales, Ben Boyd, BarnesandNoble.com’s director of communications, says affiliate sales are “a substantial portion of the revenue stream.” First quarter sales of $9.4 million were up 14 percent from the previous quarter. Amazon.com registered first quarter sales of $87.4 million, up 32 percent from the fourth quarter.
“Amazon.com’s fabulous success is due in large part to their affiliate network,” says Bill Doyle, an analyst at Cambridge, Mass.-based Forrester Research. “They’ve crowded the competition out. Barnes & Noble has had to scrape and claw for the foothold it has gotten.”
Even though affiliate sales figures are hard to come by, such networks have boosted e-commerce business in ways besides click-and-buy, because affiliate relationships build brand awareness, too.
And, of course, the sites have a great incentive to market the e-commerce brand since there is the tantalizing prospect of increases in revenue by burnishing an online retailers’ brand image. Individual personal homepage publishers can get up to 7 percent of a commission on sales through BarnesandNoble.com and 15 percent on sales generated through Amazon.com.
Such relationships are also destined to grow because technology is making it easier for retailers to handle tens, or even hundreds of thousands of affiliates. BarnesandNoble.com outsources the back-end to Be Free, a Pittsburgh, Pa.-based affiliate vendor. Amazon.com developed its own software to handle the back-end of fulfilling and tracking sales. Amazon.com’s Haynes says the company can pass on cost savings in the form of a higher commission.
All of which makes affiliate networks an online trend that appears to have longevity because it combines technology, direct marketing and, to a lesser extent, branding in a way that could never happen offline.
“Brand advertising won’t be nearly the story that direct marketing, which can show a return on investment, will be,” Doyle says. “Direct marketing will drive the online marketing dollars for the next three years. Embedding a point of sale in many places on the Net, what we call syndicated selling, is going to be a bigger and bigger deal. It works so well for the marketers who use it.”
Soon, the online Amway salesman may only be a click away.