Domain DevelopmentEconomicsInternet trends

Amazon.com — cracks in the foundation?

By July 22, 2010 February 27th, 2017 15 Comments

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.

ecri


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.

Join the discussion 15 Comments

  • While I have seen disappointing results with CJ affiliates, it would be interesting if you could share some stats regarding CTR as a percentage of site traffic and earnings per thousand impressions on the EPIK network. Or is $0.18 per thousand impressions the figure?

  • Rob Monster says:

    Leonard – For the affiliate sites, in the Epik Store network, it is $0.18 per CLICK. The average number of clicks per visit is more than 1. In other words, the average visit yields more than $0.18 in net revenue from affiliate net revenue. Drop ship and e-commerce will be dramatically higher, net of the cost of the actual goods, however, we’ll be selective on which ones we take on. We have a very early pilot running at EmergencyFood.com. Average order size is more than $100, and rising.

  • TJ says:

    Rob, what product categories do you initially envision implementing within the Epik product portal universe?

  • TJ says:

    Rob – I meant to ask, if presently known, “what product categories are likely to be initially selected as drop ship candidates?

    I agree 100% with your search analysis – the Amazon listings dropping on the Google search results is great news for Epik product portals.

  • Rob Monster says:

    @TJ – The focus is on:

    (1) Epik Store sites that already have significant traffic — we know which ones these are and the number of sites with “critical mass” is increasing on a weekly basis.

    (2) Product SKUs that have 35+% drop-ship margin, and/or 70+% e-commerce margin. The latter needs to be higher to account for inventory cost/risk.

  • Sorry to belabor the point but more than one click per visit seems confusing. With my CJ affiliates I see roughly 1 click to an affiliate site per 1400 impressions though with multiple affiliate links on some pages one visit could generate several impressions. With Adsense CTR is normally 1-3% though it varies by site. Now if the EPIK figure is $0.18 per click to the affilate site that might seem more logical and still far better than I see at CJ. Would you have the stat on clicks per thousand impressions or alternatively website visitors or is EPIK reporting different?

  • Rob Monster says:

    @Leonard – The reason why this happens is that a single visitor who goes shipping visits several product listings. Each product view is a click event. So, even if a minority of visitors click, those who do click, end up clicking several product listings, which is why the clicks per visit are higher than what you might expect from a parking page. The traffic is of course very targeted and relevant, which is also why the advertisers have been pleased with the ROI on these paid clicks.

  • VRtv says:

    >> CSN Stores and Hayneedle proved the model
    >> but neither has scaled it to 100,000 stores. And they won’t!

    why they won’t ?? thanks , 2w

    • Rob Monster says:

      @VRTV – 2W: The reason why CSN and Hayneedle have not embraced the long tail is because of the architecture of their business model. When I spoke last week with the CEO of CSN Stores, he made it clear that a store that does less than $10 million in gross revenues is not interesting to them. That makes sense because of how big they are, and because of how they are organized in terms of management infrastructure. However, my friend Mike Ray with his Reloading-Press.com will almost certainly be quite content to earn 10-20% rev-share on a $250K gross revenue business selling a product he knows about and is excited to sell. Epik’s federated or distributed owner model makes it possible to scale stores on the long tail — unified, hosted platform with diversified stakeholders who are can become experts in their chosen fields. Net, the difference is in the business design.

  • VRtv says:

    >> (1) Epik Store sites that already have significant traffic
    >> — we know which ones these are
    >> and the number of sites with “critical mass” is increasing on a weekly basis.

    please ,
    please specify exactly –
    how many uniques / month , would b qualified as significant-traffic or “`“criticcal mass” “”
    ??

    thanks , 2w

  • Paul J. Kapschock says:

    Dropshipping is the answer for product sites…that is great news!

    Paul

  • Viman says:

    Rob,

    I agree with your analysis especially regarding Amazon affiliate. I find that most of my domains can get to 1st page in google (e.g https://www.currydishes.com) and though I use amazon banner – most of my revenue is from google adsense + selling advertising space.

    I strongly believe targetted product stores integrated with google adsense have a much higher potential for earning. And hence my moe to get some of my domains such as dishawasher.net, drapes.net and punches.com moved to EPIK product portal. The proof is of course in the pudding -I have asked EPIK to build about 8 sites and if it works then I will move the remaining 50 odd site across too. domains across too.

  • Louise says:

    Hi Vivman, Enjoyed perusing Currydishes.com for yummy-looking recipes – it’s refreshing to find actual original content on a good domain, instead of parking page. Those are great domains – look forward to following your experience! Best wishes! 🙂

  • Love the idea of Epik Stores. I Have a few domains in mind. Will keep an eye out on how this develops.

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