Amazon Squeezes Affiliates When They Can Least Afford It
(Bloomberg Opinion) -- The coronavirus pandemic has gutted many U.S. businesses. Amazon.com Inc., of course, is one of the notable exceptions.
The e-commerce giant is thriving as self-isolating consumers make more and more of their purchases online rather than risk Covid-19 infection by shopping outdoors. To illustrate the magnitude of the recent ramp-up, the company announced earlier this week it plans to hire another 75,000 workers, on top of the more than 100,000 employees it has already put on its payroll over the past month to deal with the increase in demand. And investors are noticing the trend as its shares have risen some 30% year-to-date, compared to the S&P 500’s double-digit decline.
But the sudden surge is not without its difficulties. On Thursday, CEO Jeff Bezos spoke about the company’s logistical challenges and the tremendous stress it has put on its supplier and delivery networks in his annual letter to shareholders, and to its workforce. Amid criticism about the degree to which it is protecting its workers, he cited efforts the company is making to step up safety measures, including increased social-distancing practices and virus testing. From a business standpoint, Amazon has had to make some difficult choices. Since mid-March, it has prioritized the stocking and delivery of essential items such as household staples and medical supplies, leading to longer delivery times for other items, while reportedly scrapping some promotions and scaling back coupons to keep customers from overloading their digital shopping carts. In addition, the company informed its customers earlier this month it will suspend its budding shipping service that competes with FedEx and UPS in June.
While these steps are understandable and probably necessary at least until the pandemic ebbs, there is one move that is a bit of a head-scratcher. CNBC reported on Tuesday that Amazon will lower the commission rates it pays out in its affiliate marketing program starting next week. The program, called Amazon Associates, gives members a cut of any sales generated by links to an Amazon product listing. The reductions are significant across product categories. For example, the fee rate for furniture fell to 3% from 8% and the percentage for grocery declined to 1% from 5%.
The move makes financial sense for Amazon. By lowering the payouts, it can manage the flow of demand and increase its own profitability. And in the current environment when supply is limited and consumer demand is high, there isn’t a need to pay high commissions for more orders. But for many affiliates — including digital media companies such as Buzzfeed and Vox Media, which have grown reliant on this type of marketing as a key revenue stream — the negative implications of Amazon’s move are vast. The tech giant’s decision will only add to the pressures on the media industry as corporations are already slashing ad budgets due to the economic aftereffects of Covid-19. Further, many online content creators, web marketers and small businesses that rely on the affiliate business for their livelihoods will likely get wiped out.
Yes, Amazon has every right to look out for itself and exercise its market power. That’s capitalism. But it may also prove shortsighted in a couple ways. First, unfavorable public relations are inevitable. The upcoming stories on how Amazon stepped away from its loyal longtime partners just when they needed support the most will be bad optics. Second, Amazon should not forget Big Tech is still under a cloud of antitrust scrutiny from regulators. Flexing its ability to generate higher profits, when businesses are in turmoil can’t, isn’t a great look either.
Given Amazon’s vast financial resources, does it really need to make this extra money now? Perhaps it’s not the right time. Just because you can, doesn’t mean you should.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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