When Condé Nast finally gave up on Style.com last month by selling its latest e-commerce iteration to Farfetch.com, it was perhaps the last gasp in media companies’ attempts to transform themselves into some sort of e-commerce/publishing hybrid for a new era.
But while the failure of the Style.com experiment provides more evidence that media companies don’t necessarily translate into e-commerce platforms like Amazon, that doesn’t mean they will never make money from e-commerce — or from Amazon. In fact, they already are via what are called affiliate links.
That’s the good news. The bad news? Media companies are increasingly reliant on Amazon. As publishers begin to try to fight back by, according to recent reports, joining together in a collective bargaining bid led by the News Media Alliance to fight against the duopoly of Facebook and Google, Amazon is the third tech giant that publishers have come to depend on for their financial survival.
“It’s one more dependency that media organizations have on the monopolies. It’s no different than the dependence The New York Times has on getting traffic from Facebook,” said Jonathan Taplin, author of “Move Fast and Break Things” and director emeritus of the Annenberg Innovation Lab at the University of Southern California.
Speaking of The Times: When the newspaper bought The Wirecutter, a blog known for product recommendations through rigorous testing, for $30 million last fall, media observers were surprised that the paper of record was willing to pay such a high price tag for a site that seemed, on the surface, to have a very different mission than telling “all the news that’s fit to print.” The business model of The Wirecutter, and its sister site The Sweethome, is all about affiliate links — and The Times receives a commission from each purchase made after a reader clicks through from the site and makes a purchase.
So far, though, the gambit seems to have paid off. In its earnings report for the first quarter of 2017, The Times noted that “other revenues rose 20.9 percent in the first quarter largely due to affiliate referral revenue associated with the product review and recommendation web sites, The Wirecutter and The Sweethome.”
And The Wirecutter, which employs more than 75 people, is looking to expand — at a time when the newspaper is cutting headcount through buyouts and layoffs.
The Times isn’t the only publisher to tap into that market. In October, New York Magazine launched a shopping recommendation section called The Strategist — turning a long-running shopping guide into a stand-alone online feature that provides a steady stream of themed lists, from Japanese Foot Creams to Dining Room Furniture. During Hulk Hogan’s libel trial against, it was revealed that roughly a third of Gawker Media’s revenue came from native advertising and affiliate links — and much of that was from Amazon. Magazine companies including Time Inc., Condé Nast, Hearst and Rodale have gotten in on the act by providing links in stories to external sites where readers can buy products.
A year-and-a-half ago, Meghan Muntean, then the vice president of business development at women’s site Bustle, began testing affiliate links to see if there was enough revenue potential to justify hiring a dedicated team. Now Bustle’s commerce section has six full-time employees and nine part-time. The revenue over the past year-and-a-half, when the company started doing affiliate links, has seen a 776 percent jump in affiliate marketing revenue from the first quarter of 2016 to the first quarter of 2017, according to Muntean. (She declined to provide precise figures, however).
There’s a simple reason that magazines, newspapers and blogs are making it easier for readers to shop than ever before: They get a cut of every purchase from sites like Amazon, Wal-Mart and Nordstrom. Amazon’s standard commission rate ranges from one percent to 10 percent of the cost of purchase, but many publishers negotiate directly with the company to get more favorable rates — although they uniformly declined to disclose them (Amazon declined to comment for this story). Considering that the ad-supported business model is in disarray as print ad rates fall and digital sells for a fraction of the cost, it’s no wonder that affiliate links are increasingly seen as a vital source of revenue.
While this is the model for most e-commerce sites that a publisher links to, there is really no platform as dependable as Amazon. After all, an estimated 80 million people have Prime memberships (Amazon doesn’t disclose the figure, but financial analysts make estimations based on SEC filings), meaning that many readers qualify for free shipping and do not need to pull out a credit card while taking a break at their work computer. The less complicated the transaction, the more likely it is that people will decide to make a purchase.
“Once you get someone to Amazon, there is a very good opportunity for indirect revenue. So they are throwing stuff in their carts or getting stuff that they might have already had in their carts,” explained New York Magazine’s head of business development and strategy Camilla Cho. “We may have linked to a dining room chair from Amazon, and the user may decide not to buy that chair but find another one or remember that they meant to buy a bunch of other stuff from Amazon. So there is that halo effect, which works well for us.”
“Amazon is Amazon, and obviously they are great and have a great halo effect. So if the InStyle consumer also buys vitamins, it just increases the basket size because a lot of our customers are also Prime Members, I would imagine,” Time Inc’s vice president, digital general manager of style Pamela Abbott said.
Thanks to that so-called halo effect, the publisher gets a percentage of any purchase for the following 24 hours, whether it’s household goods like lightbulbs, big-ticket purchases like a state-of-the-art camera, impulse purchases like a fidget spinner or essential office supplies. And Amazon, which has been called the “everything store,” has a lot of stuff. Plus, it works well on mobile.
“If you have an account, you’re already logged in. It’s definitely one of the easiest shopping experiences you can have on mobile,” Cho said.
The everything store is also the anytime store.
“It’s incredible how much higher the conversion rate is with Amazon, versus other mainstream online retailers, even when we link to the same product,” Bustle’s Muntean explained. “Our average reader tends to feel much more comfortable making purchases on Amazon — they may have an Amazon Prime subscription, their credit card and shipping details are likely already saved on Amazon, it’s a retailer they’ve used before and trust. So there are fewer barriers discouraging someone from making a purchase.”
Even as they love the revenue they get from Amazon, publishers recognize the risks involved.
“It’s always dangerous to put your business in someone else’s hands who can change the terms without any notice,” Taplin said.
That occurred earlier this year when Amazon changed the commission percentages it sets as its standard rates. But while that impacted the universe of content whose entire business model depends on Amazon links (such as Mommy blogs and personal web sites), established publishers, which negotiate fees directly with Amazon, claimed to be unaffected. Still it was a sobering reminder of Amazon’s power, further on display today with the Amazon-created holiday Prime Day. The “sale” offers deals for Prime members in the holiday gift-less summer and has forced retailers to follow Amazon’s lead by offering their own deals on July 11. Meanwhile, Prime Day buying guides pop up across the Internet.
“Amazon is a behemoth in the online shopping space, and as such, they’ve been a tremendously important partner,” one media executive said, on the condition of anonymity. “There really isn’t a close second in this market. So of course, if Amazon were to dramatically change its terms overnight in an unfavorable way for us, it could be a huge disruption to our commerce business.”
Publishers all say that they diversify the e-commerce stores they link to. Nordstrom, which has good service and loyal customers, comes in second to Amazon at many media outlets, especially those focused on fashion and clothes.
“When it comes to any types of third-party platforms that we rely on here at New York mag, whether it’s the Strategist or anything else, I don’t think it’s wise to put all your eggs in one basket. So whether it’s the site relying on Facebook for traffic, or whether it’s our e-commerce affiliate links relying exclusively on Amazon, I think across the board we don’t want to put all our eggs in any one basket,” New York Magazine’s Cho said.
The Strategist has regularly featured products available for sale at select retailers, such as Saks Fifth Avenue or Net-a-porter. And to be sure, Amazon is still trying to edge its way into high-end fashion. But when it comes to categories like home decor and tech gadgets, there is no match for the tech giant.
Perhaps an instructive example can be found in the book industry, where publishers have generally given in to many of Amazon’s demands because, well, what choice do they have?
“Amazon is completely calling the terms, and is always pushing income lower for the publishers and higher for Amazon,” Taplin explained. Even so, Taplin admits that he depends on Amazon. “That’s the nature of a monopoly. You have no choice. I couldn’t not sell my book on Amazon. That would be like suicide,” he said.
So is it a mistake for media companies to depend on Amazon at all? Perhaps — but then again, what’s the alternative?
“They are looking for chump change everywhere they can get it. Since the core part of the business is getting killed because advertising revenue is flowing more to Facebook and Google, the media companies have to rely on all sorts of ancillary revenue streams,” Taplin said. “It may be nickels and dimes, but at least it’s something.”