72 Kilowatts Affiliate Marketing

The Affiliate Contract

So if the New York tax debacle (whether it’s repealed or not) has taught me anything, it’s this very important lesson:  As an affiliate, the tenuousness of the contract you sign puts you in a horrible position.

It was so easy for merchants to remove NY affiliates from their programs, especially for independent merchants that have access to address data, and later on for networked merchants who got support in determining who was who.

It’s “at will” employment at it’s finest.  A merchant you make $2000 a month with today can drop you this afternoon, at their discretion.  Sure, it might not be the wisest choice on the part of the merchant to walk away from that revenue, but let’s say for arguments sake that the merchant felt all your sales were repeat customers, and you were only providing coupon tags while the shopper was on the merchant’s check out page.

You have no perceived value to them, so out you go.  And what can you do about it?  Promote their competition?  Sure, but if you were getting traffic on a trademark search as opposed to a general product search, it might take you some time.

So the point of me even pointing this out is simple.  I’m playing around now in the merchant realm, as a form of diversification.  I can’t rely on crappy contracts to pay the mortgage anymore.  So I’ll be selling kitchen ware and foods (like Romertopf clay bakers, etc).  I’ve had a URL I’ve wanted to use for something like that for a few years now, so i decided to move on it.

I think it might be the beginning of the end for me as an affiliate.  The industry has been good to me, but not good enough.  And the current in fighting and what have you are only making it worse.

Cafepress Late to Drop NY Affiliates

In a confounding move, Cafepress terminated NY affiliates effective July 1st, 2008.

I say confounding, because I find it unlikely that CP would not have met the nexus criteria previously, and therefore didn’t really save themselves by this move.  However, it’s possible that they didn’t meet it in the last 4 tax quarters, in which case, well, it’s just another bad break for NY affiliates.

The email didn’t specifically state their interpretation of the law, just indicating that

“Due to mounting uncertainly over these new laws we will no longer be able to support affiliates residing in the State of New York, effective July 1, 2008.”

I’d like to know what the “mounting uncertainty” is.

Shareasale raises the cost of entry… just enough

I’ve often been critical of this industry, and the lack of responsibility put on the networks for watching the bad actors, and contract breakers. When all of the onus gets put on the merchant to monitor everything all the time, it keeps the small business from being able to effectively launch and manage an affiliate program, given the responsibilities of watching restricted keywords 24/7 etc.

The price of all that adds up.

At the same time, I always thought Shareasale was undervalued, perhaps to their own detriment, as well as ours.

In announcing the new merchant set up increase, I think Brian Littleton and company have done us a favor. The new price won’t discourage serious merchants from applying, but may cut back a bit on the crap we see over there on occasion.

Kudos to SAS on a wise move.

The Boston Affiliate Tea Party

It occurred to me this irony:  Affiliate Summit East is in Boston this summer.

In light of all of the talk of taxes, how curious that we would all be heading to the official Headquarters of “No Taxation without Representation” in just a few months.

Maybe we should dump photos of Spitzer, Patterson (and by then maybe Governor Arnold too) into Boston Harbor.  Then we could march through the streets, decrying unfair tax initiatives.

Then we could go get a beer.

Amazon to hold onto their Valuable New York Affiliates

An update was made to the recent New York Times article:

UPDATE
Amazon.com will not cut off New York affiliates, according to an e-mail from Patty Smith, a spokeswoman. She wrote:

Nothing is changing with regard to Amazon’s relationships with Affiliates in New York state. We expect to begin collecting sales tax (as the new legislation requires) no later than June 1, 2008.

This is a start. Amazon has the popularity and brand power to still be able to sell even with adding on the taxes. It’s less likely that smaller merchants with affiliate programs will be able to maintain a competitive edge after adding on the sales tax.

Who else is affected by the Nexus Syndrome?

Andy Beard quoted the NYTimes as saying that Overstock went beyond terminating the traditional affiliates in yesterday’s action. Instead, they ended nearly all (if not all) pay for perfromance relationships with firms listed with New York State addresses, including:

Jellyfish A comparison shopping engine. This is still traditional affiliate marketing in my opinion, but comparison shopping, to me, doesn’t represent a “sales force” in the classic sense, so it’s of note (considering that it had been determined by the courts previously that a Nexus only occured when a “sales force without which a company would not be able to market to a state’s residents)

NextJump Who apparently leverages affiliate relationships to provide employee benefits. Their homepage clearly indicates that they are headquartered in New York, and are in “stealth mode” until their IPO. Good luck with THAT ipo considering these circumstances.

And it broadens from there:

Remember those Entertainment coupon books you all are asked to buy around the office or door to door? Overstock withdrew their relationship with them as well, citing that it was a pay for performance relationship, and thereby under the auspices of the Nexus Syndrome.

So, multi level marketers? That means you too. So you can stop recruiting me on Facebook.

More on the New York Tax Initiative

I’ve been pondering solutions to this New York Tax law for the better part of a month, and I’m not finding a clear way out of it, short of Amazon winning it’s lawsuit.

What can happen:

New York wins, other states follow suit, and affiliate marketing suffers a serious blow. Since affiliates are the crux of the whole Tax nexus (initially), it’s likely that quite a few affiliate programs will fold.

Some will hold on though, based on how specifically the judgment in the case is written. Large retailers may not be affected at all, if it’s decided that affiliates aren’t the only means they have for attracting New York business.

Secondly, the law can then be expanded to affect advertising agencies, PPC engines, other forms of banner advertising on websites, etc. Seemingly, any third party that may influence a New York buyers decision to purchase may at some point be considered a Nexus. It’s a slippery slope.

What Can’t Happen:

Unfortunately, the problem cannot be solved by applying sales taxes on all internet purchases made by New Yorkers on out of state websites. That has already been deemed unconstitutional. No taxation without representation, right? It’s one of our founding principles.

What NEEDS to Happen

Amazon needs to clearly demonstrate that New York affiliates:

1.) Do not represent a significant portion of their marketing efforts to New Yorkers.

2.) Are not targetting New York customers, as a rule, to begin with.

Personally, I believe Amazon will be successful. I just hope it’s soon, before this ball starts rolling across the country, and affiliate programs start to close as a result.

Going to California?

5 Star is reporting that California might be next to tax online shoppers via the Nexus Syndrome.

All eyes focus on Amazon again, I suppose, as we wait to see if they will challenge the proposed law, or rather wait to see how their New York effort goes.

Who does the new New York Tax Law really effect?

We represent a serious representation for Amazon and other online merchants, and as such, Amazon et al are obliged to collect taxes on all purchases made by NYS residents, regardless if an affiliate was involved in the transaction.  That’s what our friends in Albany, NY, are telling us.

Let’s set this up.

Yes, New York needs to collect taxes in some format in order to make up for internet purchases. At the same time, New York needs to do it in a way that will not rob from Peter to pay Paul. Especially since recent evidence suggests that Peter isn’t going to have any money left to rob.

Here’s the set up:

Amazon says it is advertising when it compensates New York-based websites for posting links that refer customers to Amazon.com. New York says it’s soliciting business. The distinction means all the difference in the world for sales taxes, for Amazon, and possibly even print media, television and radio.

Amazon.com sued New York State earlier this month, challenging a newly enacted law that has serious implications for online advertisements. In April, the New York legislature passed a law designed to increase sales tax revenue from Internet sales. The law is known as the “Amazon tax” because of the way it broadens the sales tax law to apply to Amazon’s Associates Program, thereby achieving the necessary legal nexus for New York to force Amazon (and other Internet retailers) to collect and remit taxes on all sales to NY residents.

You can read the full article here: New York’s Ambitious Sales Tax law

So that’s the current state of affairs.

Let’s examine in detail what Braden Cox did an excellent job of explaining in the article, from an affiliate standpoint.

While I might think pretty highly of myself, it’s unlikely that I, or the other New York based affiliates are what are exclusively allowing Amazon to do commerce here. They are simply too big, and in fact, a household name. That would seem to put this issue well outside of the Quill decision. For Amazon.

But is that true only in certain cases?

What about smaller programs, such as those for merchants you might not have ever heard of unless they had an affiliate program? An argument could be made that New Yorkers could find them and purchase from them through PPC initiatives directly presented by the merchant, or social networks, or natural SERPs. At the same time, it’s also safe to say that affiliate sales will make up a larger percentage of their sales. Potentially, given the right affiliates are involved. (In many cases, this still isn’t true, as power affiliates don’t often get involved with very small merchants for a myriad of reasons.)

That’s where I question the magical $10,000 that New York has deemed as the indicator of Nexus. Given the criteria that the TechLiberation article points out for determining when Nexus occurs, it would seem that a flat figure is an unfair way of determining what merchants have a Nexus here, and which don’t.

However, if you start to look at what might be a good indicator of Nexus, i.e. what percentage of your annual revenues come from affiliates, it starts to get even scarier. There’s enough merchants that manipulate these totals already for other purposes; we don’t need to add fuel to the fire.

I’ll be writing about this much more, as it so directly impacts me. In the meantime, here’s some other folks that have touched on it today:

Shawn Collins, Overstock Drops NY Affiliates

Brad Linder

TechCrunch

Overstock.com Drops New York Affiliates

Just received word that Overstock.com is dropping all New York affiliates. my opinion on that in a few minutes…