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Arrington on Techcrunch talks about the possibility of Amazon licensing its Kindle ebook reader hardware specs and trademark to third-party manufacturers:

…a licensing program that gave hardware manufacturers the ability to build Kindle clones, along with an incentive to sell them at near-zero margins. Amazon would give those manufacturers access to the core Kindle hardware specs (there’s no real magic there anyway) and the right to call it a Kindle device so long as they also put the core Kindle software on the device. That software links the device to Amazon’s store, meaning downloads revenue flows through Amazon.

Amazon would then share a percentage of net margin generated from downloads with the hardware manufacturers.

Techcrunch has put into words what I’ve felt since the day the Kindle was announced. After all, Amazon isn’t in the hardware business at all; it’s in the product and content retail business. I can imagine that in the initial days of the Kindle launch, Amazon needed its own device to build a strong association between Amazon’s brand and the mobile ebook model. Now that that purpose is served, manufacturing and selling the Kindle hardware is an overhead that Amazon could avoid.

Just like Associates?

This isn’t very different from the masterstroke that Amazon played years ago with its Associates affiliate program. Before Affiliate Marketing became the wild jungle that it is today, Amazon launched a series of innovative tools – aStore, Omakase Links, Product Previews – to let publishers (people who owned websites/blogs/suchlike) add links to Amazon’s content onto their web pages. These publishers then earned a cut of the sale generated by clicks from the links on their web pages.

Kindle is Associates all over again, except instead of web-based tools, we’re talking hardware specs.

For instance, Amazon’s aStore let developers build their own focused online “stores” (which displayed Amazon’s books). (A religion-focused website would be able to draw viewers and sell that category of books better than Amazon.com itself.) In the same vein, a student version of Kindle with access to e-textbooks and additional bookmarking features would be better marketed and sold by a third party which is focused on only that market.

With such an Affiliate/Franchise/Licensing model, manufacturers would fall over themselves for a chance to access Amazon’s massive ebook and newspapers database – and a cut of the subsequent revenues.

The Mobile Opportunity

Once third party manufacturers have licensed the Kindle specs, they are no longer restricted to building anything that looks like the Kindle today. I can readily think of well-designed iPhone/iPod Touch ebook applications like the New York Times app. This fits in with American universities doling out iPods Touch and iPhones to their incoming freshmen.  A market for Nokia’s S60 devices would be many times larger.

What do you think? Would you purchase a Kindle application for your mobile device?

Aside: Of course, manufacturers would then be free to choose the carrier of their choice for wireless content delivery. That sure isn’t going to make Sprint-Nextel happy.

Dealing with clients is never easy – especially those who haven’t had any previous experience or knowledge of Affiliate Marketing. A few things I recommend are non-intuitive, and seem to go against accepted wisdom – but are essential to distinguish a mediocre campaign from a great one. What commission to pay is frequently an area which needs explaining.

Commissions aren’t everything. But when presented with a competitor campaign analysis, a client will point to his biggest competitor and insist on matching or bettering the commission he’s offering his affiliates. Obvious? Things aren’t as simple. Is a program that pays 15% comission necessarily more attractive than one that pays 13%? No.

What you really want for your client is a low cost per conversion – to sell as many items as is possible while paying out as little in commissions as is possible [1]. In that case, what you want to look at is the EPC, or earnings per 100 clicks [2]. The EPC for the affiliate is the cost per conversion (CPC) for the merchant.

We begin with an EPC value equal to or lower than, say, the client’s current EPC for his PPC (Adwords/Overture) program. Now we calculate what commission the client should offer:

EPC = (percentage of clicks that result in a sale) X (average value of a sale) X (commission) X 100

Now we know the EPC, the average value of an online sale (the client can tell you that, based on his past sales records). That leaves only the sales-to-click ratio to be estimated. This is where past experience is invaluable. I rely on past campaigns that I’ve run and use those as estimates (which turn out to be fairly accurate).

Now you know better than to rely on simply matching your competitor’s commissions – your client could be paying a lot more than he needs to for the same sales volume!

Notes:
[1] Note the difference – “as little in commissions” is a dollar term, while “percentage commissions” is a numerical term.

[2] Earnings for the affiliate, not the merchant!

Any good affiliate marketer hits the Long Tail Dilemma of publishers fairly quickly. On the one hand are large publishers with lots of eyeballs which could get the merchant huge volumes of highly focused audiences. For instance, an India-centric Moto-enthusiast website such as http://www.xbhp.com/ would make a fantastic publisher for a motorcycle company such as Royal Enfield. These form the “head” of your publisher base – they number a few, but bring in substantial sale volumes individually. As an affiliate program manager, you will work with each individual large publisher to best position your merchant’s offerings on their web “real estate”.

Here’s where you get real innovation, where magic with data feeds can be wrought, where true integration with content is possible.However, affiliate program managers are also acutely aware that there’s tons of data being generated every single day on the web – and that every website, blog, service that comes online is more web real estate, and every new user is a potential affiliate. These form the “tail” of your publisher base. For an affiliate program to really scale (and scale tremendously), it must ride the wave of this data. As a program manager, you won’t chase and cut deals with each individual fish that jumps into the web pool. Today, you rely on publisher registrations on CJ, Shareasale, Linkshare and that minnow in the news lately, Performics. As the read-write web gathers mass, the tail is growing inexorably larger in comparison to the head.

The Dilemma, then, is this: you can’t offer the tail as much as you can offer the head. And reciprocally, the tail can’t perform acrobatics with your creatives and data feeds either. All your tail does today is slap banner or text ads on their blogs or home pages. That’s about the limit of adoption. Where’s the differentiation? Not only for your merchant, but also for you, the affiliate program manager? What value are you adding? If the only interaction with the tail is going to be making animated GIFs and catchy text ads, writing up a “Join our Affiliate Program” page on the merchant’s website, and registering on CJ et al (and waiting for the tail to sign up), the merchant will soon realize that the middleman isn’t adding any value, and will cut you out. He’d much rather do it himself.

What we’re seeing is the commoditization of the process of traditional affiliate marketing. The guys who’ll make the real bucks in the future are going to be those who’ll put easy-to-use tools in the hands of the tail. Or even better, make tools for affiliates that auto-deploy themselves. Who bring in the innovation that belongs in the head today into the tail. Amazon began the process way back with aStore, but that isn’t going far enough.

Hold it. Auto-deploy? Doesn’t that sound like Search Engine Marketing? Well, it does, in a way. From the publisher’s point of view, what’s the essential difference between AdSense and Affiliate marketing? With AdSense, the publisher has no control over what ads will be displayed in the AdSense code box that he/she slaps on his/her page, merely that they’ll be more or less relevant to the page content. With Affiliate marketing, the publisher chooses from a clutch of creatives provided by a merchant. Once you talk about auto-deploying merchant creatives in innovative, “head-like” ways, the line between them gets blurred. Several startups have caught on already. This comment on Sam Harrelson’s blog lists a few of the more interesting ones.

We’re at a fairly interesting juncture in the Affiliate Marketing market. The next big opportunity belongs to whoever will have the gumption to target the Long Tail, and do it in a way that goes far beyond the tired, banal banner-text-ad process that’s been perfected into a science.

So Google’s decided to take the plunge and buy DoubleClick. And what’s more, along with the big bird, they also get Performics as part of the deal. Performics was a bit player in the affiliate marketing space until yesterday, but under the Google umbrella it transforms into a potential 800-pound gorilla. Understandably, the affiliate marketing corner of the blogosphere’s gone ballistic over it. Every affiliate consultant worth his/her salt has a take on it. There are two things which everyone seems to have missed. The less significant one first:

1.) Google doesn’t seem too enthusiastic about Performics. From the takeover FAQ:

Q. What will Google do with Performics?
A. Performics is part of DoubleClick, and we are acquiring it as part of the transaction. We have no plans to dispose of it at this time.

Dispose of it? Haven’t they any idea what they’re going to do with it? Or is this a subtle attempt to throw potential competitors off the track?

2.) Here’s the big one, though, and I’m surprised no one’s caught on to it: Late last month, Google announced a US-only, beta program for what it calls “pay-per-action” advertising which, from this page, looks like affiliate marketing masquerading under a Google-ized pseudonym. Take the very first question, for instance:

What is pay-per-action advertising?
Pay-per-action advertising is a new pricing model that allows advertisers to pay only when specific actions that they define are completed by a user on their site. Rather than paying for clicks or impressions, advertisers can choose to pay when a user makes a purchase, signs up for a newsletter, or completes any other clearly defined action that they choose. Pay-per-action ads are eligible to appear on publisher sites in the Google content network, and publishers can choose specific pay-per-action ads that are relevant to their site to run in new ad units that they create.

There you go. My take on it is that Performics technology is far more important to Google’s strategy than they’re letting on. With Performics as a complement to its pay-per-action efforts, the company acquires a ready seed base of merchants and publishers (although insignificant in comparison to giants like Commission Junction and ShareASale.com). Expect more innovations from the Goog’s stable, perhaps on the lines of the superbly-executed Amazon Affiliate Program, or even beyond.