Posts Tagged ‘Arbitrage’

Amazon Ending Affiliate PPC Arbitrage Game

April 7, 2009

I have a “dummy” website where I test out various online advertising products (AdSense, YPN, Amazon Affiliates, etc).  I got an email today from Amazon informing its affiliates that it will no longer pay referral fees for direct referrals through the paid search channel (affiliates can still use paid search, but they would initially need to direct that traffic to their own website).

There’s lots of speculation in the blogosphere around why Amazon would make such a decision. From my experience in the paid search industry, my guess would be the following:

Unlike others like eBay, Amazon has traditionally not been a ubiquitous PPC advertiser, instead relying on its affiliate network to monetize search traffic, especially in the tail. It is very likely that Amazon is in the process of significantly expanding and enhancing their internal SEM initiatives, having observed for years the effectiveness of the paid search medium in generating high-ROI leads.

By eliminating affiliate PPC direct-links to Amazon.com, Amazon seems to be counting on getting these referrals directly themselves, bypassing the middleman and its sizable commission, leading to higher ROIs. At the same time, the secondary effect on the paid search marketplace may also be favorable to Amazon’s SEM campaigns. By disallowing affiliates to use direct links to Amazon.com, it would make the economics of arbitrage less attractive to the former, since any type of intermediate landing page in the acquisition “funnel” would likely result in a large drop off in conversions, as only a portion of the traffic clicks through to Amazon’s site. The effect is to discourage affiliates from playing in the SEM space and help Amazon face less competition, especially in the shallow marketplaces of the tail.

Advertisements