I wrote this blog titled “the incentive to be on a platform” a few weeks ago. Today when Amazon announced rate cuts for their affiliates, I was reminded of my thoughts regarding the platforms.
The rate cuts were announced despite the fact that Amazon is one of the few businesses right now surging through unprecedented growth. They had to hire over 100,000 employees in last few weeks to fulfil the demand of essential shopping and I can’t help but wonder how could Amazon be driven by COVID-19 to take this action. Honestly, I can’t seem to understand it. If this is a COVID-19 related event, please help me understand how.
A rate cut of as much as 70% is devastating for many content websites which generated a substantial amount of revenue from affiliate links as the ad revenues declined due to a large user base behind ad blockers.
It also means a loss of up to 70% valuation for what are known as “affiliate blogs” which are blogs designed to generate 100% of the revenue through Amazon affiliate program.
The sellers were also halted from selling anything but essential items for a few weeks. Sellers were also forced to move out any items from their warehouses that could “melt” such as edibles and make up. While the decision to remove these items was taken by Amazon in order to prioritize essentials, Amazon still charged per unit warehouse removal fee.
When you build businesses on a platform, this is the kind of counter-party risk that is involved. As I wrote in my other blog post, these platforms are the power houses and fuel growth, but no business should ever be built solely with a platform in mind.