Amazon’s Q2 earnings are out. They missed the analyst estimates and the stock tanked 15% in after-hours trading. Domain owners with product category names, take note, as I believe this has implications. I previous blogged about Amazon here. I continue to follow Amazon closely, not just because they are a Seattle-based internet success story, but because they are a bellwether for web commerce. When Amazon catches a cold, it is meaningful because it suggests something is afoot.
The results were good, but below expectations
Today, after the US markets closed, Amazon came out with their latest earnings report. The company earned $207 million ($0.45/share) on $6.57 billion in revenues. The analyst consensus was at $0.53/share on $7.16 billion. For a public company with an out-sized market valuation, that would be a …. BIG swing and a miss! Why the shortfall versus forecast? Well, the analyst expectations were a bit giddy, for one thing. However, could it be that Amazon’s ability to squeeze stakeholders is finite? I think so.
Symptom #1: Google is Kingmaker
I have a theory that Google has become a significant threat to Amazon’s business model. Google is increasingly not ranking Amazon product pages at the top of the SERP. On any given day, IceCreamMaker.com is #1 or #2 on Google. At Epik, we see the same with other fast-risers like IceCreamMaker.com, GirlsSwimwear.com, and Bra.net but also on the vast network of long tail category names that are getting traction like psylliumhusk.com and reloading-press.com. As more competitors compete for these top category terms, Amazon will have to battle even harder to maintain a top position in organic search. Easier said than done when operating on such vast scale.
Perhaps more importantly, what is the incentive to Google to rank an Amazon page? As near as I can tell, there is none whatsoever. If Google sends a consumer to Amazon, that consumer has just been trained to go shopping at Amazon the next time they are wanting to shop online. It is foregone conclusion that Amazon’s pages will be less favorably ranked than they are today. The writing is on the wall as there is a growing number of domain developers who are learning affiliate marketing, dropshipping and e-commerce. Some of these new entrants are going to execute well. CSN Stores and Hayneedle proved the model but neither has scaled it to 100,000 stores. And they won’t!
Symptom #2: The affiliates are waking up
Affiliate marketers are increasingly aware that Amazon is paying out lower and slower. Our affiliate network pays out an average of 3 times higher than we were earning when we used Amazon feeds. In the short-term, it makes logical sense for Amazon to (1) increase chargebacks, (2) discount click volume and (3) delay payouts. However, affiliate marketers are generally not idiots, and will eventually wake up and smell the raw deal. When they do, they will come up with counter-measures. Epik already did. Sure, there will be a new generation of affiliates, but if enough of the top-ranked competitors defect from Amazon, that spells trouble for Amazon.
Symptom #3: The consumer is still hurting
At the end of the day, Amazon’s success is tied to a robust consumer economy. This may or may not be in the cards. Of note, the ECRI publishes the best non-tampered economic indicators that I have found. The leading indicators are not good and flashing double-dip recession. See the green line below.
WWAD – What would Amazon Do?
So, the operative question for domainers is this? Given Amazon’s balance sheet strength, and the implied risk of 100,000 category-defining domains being powered by something other than Amazon, when will Amazon embrace a domain strategy? I don’t know if Amazon has a domain strategy. I do know that the price of not having a domain strategy is going to go up rapidly in the months ahead.
A look ahead at Epik Stores (formerly known as Product Portals)
Luke Webster, EVP Operations of Epik, is normally based in Sandpoint, Idaho where we operate our call center and fast-growing production center. This week, Luke spent 2 days in Seattle working with the team here for strategy meetings. A core purpose of the meetings is the planned migration to Dropship, and eventually, e-commerce for many of our online stores. Luke’s previous work in the e-commerce field, as well as the work of Epik’s sole outside investor, Tal Moore (Founder of Gumballs.com) has taught us that there are categories where there is as much as 90% gross margins — a far cry from the $0.18 average CPC currently being earned on our affiliate networks. Stay tuned.