Advertising is tax deductible, so we all pay for the privilege of being manipulated and controlled.

Noam Chomsky
US activist & linguist (1928 – )

Before I rant, let me just say 3 things:

1. Other than email marketing from an owned list, a well run affiliate marketing program is the best ROI marketing tool on the web when it comes to sales.

2. When it comes to customer aquisition, a well run affiliate marketing program provides the cheapest way to bring new customers or returning lapsed customers back to your business.

3. In the new world of social media and the fragmented web, we are finally at the point of peer-to-peer distributed marketing at it’s purest online form.

Now if you don’t believe these statements as fact, you (and your dog) can stop reading right here and talk to my hand.

Yesterday the State of Colorado passed a bill that caused Amazon, the so-called father of Affiliate Online Marketing to shut out its’ community of affiliate marketers on the Web.  Some say that Amazon could have fought the State and others say that Amazon was sticking by it’s principles, but I say this is all a silly excuse by Amazon like many other greedy companies to cut their costs.  They weren’t afraid that this might prevent them from having to do this in other states, but what I do fear is that this action will cause the many corporate lemmings of affiliate marketing to say, “we should follow Amazon’s lead” and drop our Colorado affiliates too.

A little over a decade ago, the lead venture capital firm , CMG Ventures, for my start-up specifically came to us and I was given money to “build an affiliate marketing program just like Amazon’s”.  Back then, a deal with AOL was worth something, eyeballs were worth something, and building a strong affiliate marketing program was worth something.  They were right.  a $10MM investment turned int0 a $100MM business just 2 months later.  I remember our acquirer marveling at how I had amassed 25K new points of distribution that drove 8% of our business.

While some might debate the validity of the analysis during those years, affiliate programs still were the unsung heroes of driving traffic for online companies which had no real name for themselves.  The new online “dot-coms” and their online affiliate partners dominated and created formidable foes for their larger “brick and mortar” foes.  The hope was to build a large enough network  that would help fend off the bigger brands once they entered the online world.  Other than email, the best marketing ROIs came from affiliate programs where contextual selling becme the key buzzwords along with collaborative filtering”.  Back then and today though, companies really struggled to figure out whether these programs were “brand builders” or “traffic drivers”.  I’ll address this in another post.

Now today you hear about Amazon dropping their affiliate marketing program in certain states because of taxes.  Are they turning  their back on the girl that brought them to the prom?  Are they putting man’s best friend out on the street?  Let’s get something straight.   There are alternatives.  They can charge taxes in those states and let those politicians see the inequities.  People understand.  How many times have you purchased something online where it said something like, “those in CA, VA, TX, and NY must pay 4% additional”?  Happens all the time.  Don’t tell me that Amazon couldn’t have imposed that strategy.  Not to mention at a time when affiliate marketing is now showing some oats with the power of social media marketing coming in to play, there is no doubt that affiliate marketing is beginning to feel it’s traction again.  This can’t happen in every state or else all affiliates will be living in another country or New Jersey (take your pick).

I’ve even had people in my company (you know the people who know little about your business but always like to send you links just because the follow Guy Kawasaki and Alltop which makes them a genius) send me the Colorado announcement and say “oops, looks like your Colorado affiliates are all going away.”   It just shows the lack of clarity as my current business doesn’t fall  under those same laws.  The rush to judgment like lemmings would easily spell the ending of affiliate marketing as we know it.  “Why would they do something like that then?”, I’ve been asked.

If you haven’t worked inside a large company, the phrases “customer ownership”, “brand dilution” and “incremental sales” are terms I’ve heard mentioned at almost every large company I’ve worked with.  There is no doubt that now that Amazon is a large firm and not just some online start-up that they might just feel they don’t need as much help from the online community helping to build brand equity and that they already own the customer because just about everyone online knows who Amazon is by now, is in their database, and is no longer an incremental customer (somebody who hasn’t purchased from them before).  They no doubt have done some analysis and figured what percentatge of those links from Colorado were already customers or could have come from links from somewhere else instead.  As much as Google is the big Brother of the Web, Amazon knows more about Web consumption behavior than anyone.

So you see, they have spent the last 10 years gaining ownership over your traffic that you sent them.  Your Uncle Charlie who clicked through your link in your blog and bout Sarah Palin’s book?  Yep, Amazon now has his email on file.  And likely knows his birthday and the last 8 items he looked at online.  That next purchase?  Yep, they don’t need your Colorado taxes and can pocket that 4% affiliate commission they aren’t going to pay out anymore.

Yep, Amazon is smart and they know points 1 & 2 stated above.  What they argue though is statement #3 and where politicians look like the greediest (and dumbest) of all.  Politicians are also to blame here.  So this is a new advertising tax, eh?  So now when I tell my friend via Facebook or Twitter about a cool book and add an affiliate link, that I should be taxed for opening my mouth?  Dear Mr. Colorado Governor, since when is giving advice taxable?  Are you going to tax every conversation on the Web?  Books have always been sold because someone told them it was good or because the NY Times put it on their Bestseller list (Oh so now we might want to get all those last taxes for those NY Times Best Seller referrals)!  Let’s have some common sense.

This just won’t happen.  People will lose jobs.  Measurable consumption will disappear.  Good, quality advertising techniques and methodologies will be left behind in the dust.

As we post this entry, the Senator from Colorado has said he will listen to those who will want to complain.  Let’s hope this is more action than just a political move.