Mobile accounted for 25% of Ulta's e-commerce revenue during Q2.
Amazon no longer pays when affiliates’ paid search ads link directly to Amazon.com. Are other retailers following suit?
When Amazon.com Inc. in April announced it would stop paying commission fees for traffic sent directly to Amazon from paid search ads that affiliates purchased, a practice called direct-linking, it was the latest round in a long-standing industry debate over the role of so-called “paid search affiliates” in merchants’ affiliate programs. But it was the first time the Internet’s largest retailer had stuck a flag in the sand over this particular issue.
Here’s an example of what Amazon doesn’t pay affiliates for under the new policy: An affiliate buys an ad with the header “low-cost blender” and a few lines of text describing electric blenders. The ad displays a URL for searchers to click on, supposedly to go to the site selling blenders-say, “Cheapblenders.com.” But when the shopper clicks on the ad, a redirect that the affiliate places in the ad sends the shopper to an Amazon product page offering blenders, though Amazon’s name appears nowhere in the search ad.
One stop required
While this might still work for affiliates on another pay-per-click search engine, Google doesn’t allow redirects. On Google, a search ad’s display URL must match the domain name of the destination URL. That means on Google, affiliates must direct traffic from any search ad they’ve purchased first to a page on their own site. They can then direct traffic to a retailer’s site via links to the retailer on that page. Basically, Amazon’s and Google’s policies on redirects just add another stop between the search ad and the merchant.
Sounds simple, but Amazon’s policy change has big cost implications for its own larger pay-per-click efforts. Here’s why: An affiliate can buy the keyword term “Amazon blender” on Google and play by the rules, sending anyone who clicks on the ad to a landing page on its own site that contains a link to an Amazon category page on blenders. But Amazon itself is probably also bidding on the term “Amazon blender.”
This puts Amazon in direct competition with affiliates over the keyword “Amazon blender,” and competition drives up bid costs. Amazon-and other retailers with large paid search programs-can reduce their overall pay-per-click marketing costs by cutting out commissions to affiliates for direct-linking search ads.
“It’s traffic Amazon could probably get with a much smaller search investment on their own,” explains Mark Kirschner, chief marketing officer of affiliate network LinkShare Corp.
The policy applies to affiliates directing shoppers to Amazon.com, Canadian site Amazon.ca and Endless.com, Amazon’s shoe and handbag site. Amazon’s explanation of the policy change is “we regularly review how we are investing our advertising resources and reached this decision after our most recent review.”
Some affiliate marketing experts interpret that to mean Amazon is seeking to eliminate less profitable relationships. And, in the interests of cutting pay-per-click costs, many other merchants now prohibit direct-linking, as well.
With 15,000 affiliates, including about 2,000 that are active, eBags Inc., for example, prohibits search affiliates from direct-linking. “We would not allow anyone to trump our own listing by using a direct link or using eBags.com as the ad’s display URL,” says Thomas Benge, marketing manager.
Similarly, with 2,000 affiliates, including 50 to 100 that are active, Petco Animal Supplies Inc. doesn’t allow affiliates to link to its site directly from paid search ads and only rarely gives affiliates permission to bid on its trademarked names. But it does let affiliates bid on other keywords it might be bidding on itself.
According to affiliate expert Shawn Collins, co-founder of the Affiliate Summit Conference, paid search terms don’t drive the same quality of consumer traffic to retail sites from affiliates as do links embedded in a destination site that offers useful content, such as product information; these are sites that attract a more engaged consumer.
One example: A site hosting a review of a new fishing pole might include a link to Orvis.com to buy it. “That type of affiliate relationship is much stronger,” Collins says.
But what works for Amazon-or any other online retailer-won’t necessarily work in the same way for all. “The arguments for and against paid search affiliates have been going on for many years,” says Jennifer Lovette, vice president, advertiser development/West, at affiliate network provider Commission Junction, a unit of ValueClick Inc. “But many retailers do not have the intense brand recognition or resources that Amazon has, and, therefore, Amazon’s strategy is different from many other online retailers’.”
Affiliate marketing’s performance-based model remains popular with e-retailers as a low-cost, low-risk way to acquire new customers. Forrester Research Inc.’s U.S. Online Affiliate Marketing Forecast 2007-2012 projects online marketers will spend $2.1 billion on affiliate marketing fees in 2008, and $3.3 billion by 2012.
Affiliates increase sales for marketers. The 25 online merchants surveyed by consulting and research company The E-tailing Group Inc. for Acquity Group’s Multi-Channel Marathon Report in June said 5% of their sales come through affiliate marketing in 2009, up from 4% last year.
And paid search is a popular tactic among affiliates, with 55% of the more than 450 affiliates surveyed in Collins’ Affiliate Summit 2009 AffStat Report saying they promote their links in pay-per-click search engines.
Time to diversify
Nevertheless, retailers are on a constant watch to see whether the traffic that comes in through affiliates is qualified, how often clicks lead to purchases, and whether they can get that traffic and any sales that result more profitably through other marketing methods. That’s one reason most retailers prohibit affiliates from bidding on the retailer’s trademark names, though some allow top-producing affiliates to do so occasionally on short runs.
While Amazon hasn’t shared the effect of the new policy on sales, its marketing costs or its affiliate relationships, it’s clear that it hinders the earning power of affiliates that depend on paid search as a primary way to drive traffic. Some of the larger affiliates in LinkShare’s affiliate network contacted management to seek other retailer relationships after the policy change, says Mike Kowal, vice president for performance marketing.