Did Amazon Just Kill a Golden Goose?

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Why would Amazon want to penalize the big traffic makers that generate brand loyalty and purchase revenue?

Illustration by L. Leslie Brooke, from The Golden Goose Book, Frederick Warne & Co., Ltd. 1905 (Courtesy of Project Gutenberg)

Editorial by George Burke, CEO, eBookDaily.com

On Friday, Feb 21st, Amazon alarmingly updated their Associates Program structure to wipe out affiliate commission payouts to sites listing free Kindle books as the primary driver of user traffic to Amazon.com, causing many Kindle-focused book launch, review, and discovery sites to rethink their business models.

Starting March 1, 2013, Associates who we determine are promoting and meet both conditions below for a given month will not be eligible for any advertising fees for that month within the Amazon Associates Program…

1. At least 80% of all Kindle eBooks ordered and downloaded during Sessions attributed to your Special Links are free Kindle eBooks

2. 20,000 or more free Kindle eBooks are ordered and downloaded during Sessions attributed to your Special Links

And ironically, just two months ago, I launched free Kindle books alert service eBookDaily.com to rewards readers with Amazon gift cards for checking out the freebies each day.  In the first month alone, the site gained 8,000 members, generating 175,000 clicks to Amazon. Massive traffic for Amazon from such a little site, yet I’ll be forced to change my business model or shut down, like some site owners say they’ll do.

So why kill the very source of hundreds of thousands of users browsing and shopping Amazon? Why hinder the sites that have strengthened the Kindle brand through the clicks of loyal ebook readers?

“Amazon may be actively trying to squash the availability to readers of free books,” writes Burke.

The obvious answer is that commission on free Kindle book offers is paid when users purchase goods that were never advertised by the affiliate. Millions of Americans buy all sorts of products on Amazon every day — iPod chargers, toasters, shoelaces, DVDs, deodorant, barbecue grills, TV episodes, milk, and hair regrowth pills — and don’t need an affiliate to convince them to buy. I knew this and built eBookDaily to point readers to free Kindle books through my affiliate links so I can capture the commission on all that other stuff they’ll buy today.

So Amazon’s new regulations will close the gap on earning indirect commission through pushing free ebooks to get users to click.

Can We Save Our Commission?

George Burke, CEO, eBookDaily

Amazon intends the new 80/20 free-to-paid-book split to convince sites like eBookDaily to feature at least 1 paid book for every 4 free books. Doable, but Smashwords recently reported that they average 100 free downloads for every paid book. At this rate, free book sites will no longer be “free book sites.” Theoretically, even removing free books entirely could trigger a problem. Amazon matches up anything a shopper adds to cart within 24 hours to the affiliate, regardless of the affiliate advertising those products; so a user could indirectly download a hundred free books attributed to the affiliate even though the affiliate only advertised a paid book. Affiliates simply have no control over users after they leave their site.

What’s worse is that the 20,000 free book downloads leaves eBookDaily no room to grow. If 75% of my 13,000 members download 2 free books each, eBookDaily will have crossed the threshold. And even though Amazon is offering new reporting to detail the number of downloads, their affiliate reports are always a day or more behind. This will require free book sites to remove the affiliate tag from book links after some not-yet-determined number of downloads to not risk losing commission. Basically, eBookDaily is capped at today’s affiliate earnings; never earning more and always at risk of losing it all.

What About Abandoning the Amazon Associates Program Altogether?

Sure, there are a few other affiliate programs advertising ebooks. Smashwords’ commission starts at 11% and goes all the way to 80%! Comparing that to Amazon’s 4% (topping out at 8.5%) sounds pretty tempting. None of the regulations, plus Smashwords encourages free book downloads.

There’s also B&N’s affiliate program, but last year they eliminated affiliate commission paid out on NOOK books and other “digital products.”

But who are we kidding!? B&N largely sells books and media. Smashwords only sells ebooks. Sites like mine only work because users are clicking through and buying everything under the sun at Amazon — the world’s marketplace — not just books.

Is Amazon Really Curtailing Cannibalization of Print?

Sure this will instantly save Amazon hundreds of thousands — if not millions — in commission payouts to free book listing sites. But is this the real reason?

Is it possible that Amazon isn’t trying to save a few bucks on commission payouts, but rather is taking action against a trend of free books cannibalizing paid books?

Over the last year, incremental changes have been made to Amazon’s KDP Select policy. The “Great Algorithm Change” of March 2012 reduced the ranking and recommendations of free Kindle books to be a tenth of that of paid books, likely to minimize the number of free books that were automatically recommended to readers on product pages. Then Amazon began hiding the Top 100 Free Kindle Bestsellers list behind a separate tab on category pages.

Considering this trend, it would make sense for Amazon to undermine the very source of “free book” hungry readers — the listing sites themselves. Take away a website’s revenue source, and you’ll either force a website to change its business model or disappear.

If this is truly the reason, it is far more alarming to consider that Amazon may be actively trying to squash the availability to readers of free books.

Yet, Peter Hildick-Smith, the book industry stats guru of Codex Group has private studies revealing that free book lists are the biggest driver of paid book sales.

Mass Exodus of KDP Select Authors?

Many authors in the KDP Select program have grown fond of the ability to offer their books for free and see a spike in full price sales upon return to paid, all without the need to market or advertise. Free Kindle book listing sites might push their audience to a book, giving an author the exposure (and downloads) needed to propel the book into the visibility and prestige of the Top 100 Free Kindle Bestsellers list. Take the potential for that free exposure away by closing the sites linking to it and authors who signed up for KDP Select may just jump ship, seeing little value in offering books for free without the ability to find them.

The Kindle brand has dominated ebooks sales for many years, it now owns (by some estimates) a minimum of 45% of the ebook market, thanks in part to the affiliates who embraced Amazon’s strong ebook affiliate program, creating some very innovative sites and services promoting Kindle books (both free and paid). But it’s not just savvy entrepreneurs who are responsible. Book reviewers, journalists, book bloggers and even mommy bloggers (2 million affiliates) rely on Amazon Associate income, so they create hundreds of millions of links to Kindle books, resulting in a ubiquitous Kindle presence on the web. Consumers will make the logical choice of Kindle over other brands given the overwhelming Kindle references.

Amazon relies on affiliates like me to continue pushing the Kindle brand and funnel web traffic into Amazon every day. While eBookDaily’s primary revenue structure relies on members to purchase paid books and goods, I bring the user to Amazon.com for those purchases. Without clicking on eBookDaily’s free book link to Amazon.com, the person might never have visited Amazon and instead shopped at competitor websites… Why would Amazon want to penalize the big traffic makers that generate brand loyalty and purchase revenue?

George Burke is the Founder/CEO of a trio of book industry sites: “Netflix-style” book rental BookSwim.com, Kindle/Nook lending/swapping eBookFling.com, and Free Kindle ebook alerts: eBookDaily.com.

DISCUSS: Why is Amazon Trying to Squash Availability of Free Ebooks?

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Guest Contributor

Guest contributors to Publishing Perspectives have diverse backgrounds in publishing, media and technology. They live across the globe and bring unique, first-hand experience to their writing.