According to the new 80-20 rule (my name for it), Amazon affiliates will be penalized in any month that one, their affiliate ID shows up on more than 20 thousand free Kindle ebook purchases, and two, the total number of paid Kindle ebooks account for less than one in five purchases. If an Amazon affiliate can't comply with the rule, they will lose their income for the month.
When that rule was revealed yesterday there was a lot of hand-wringing among the free ebook sites as well as among authors and everyone interested in promoting ebooks by giving them away for free. There was a lot of discussion how this would kill most of the value in KDP Select (the optional free days is valued by indie authors as much as the KOLL payments). There was talk about how this would damage the ability of free ebook sites to promote ebooks while still covering the costs of running a website.
Update: Andrys Basten has pointed out that Amazon's new rule might have 3 clauses, not 2. The first requirement for the 80-20 rule could be that the rule only affects sites that, in the opinion of Amazon, "are promoting primarily free Kindle eBooks". The rest of my post is now hinges on a drone at Amazon deciding on whether an affiliate fits under the first clause. That does not exactly fill me with confidence. (Note: Other reports suggest that Amazon has said there are only 2 clauses.)
This is all true but we were thinking too small. You see, Amazon's new rule counts all free ebook downloads, not just the ones linked to directly.
For example, let's say you click on this link to Amazon and then get 5 free ebooks. Even though I didn't promote one of those free ebooks, I am going to get dinged for all 5 downloads. They will count towards that 80-20 rule.
The problem here is two-fold. Not only could Amazon potentially penalize any affiliate, this rule also assumes that affiliates can control what Amazon customers do after they click the link.
The larger Amazon affiliates are but a single download frenzy away from going over the 20,000 limit. What's more, this Sword of Damocles dangles over even the small and medium free ebook sites. Earlier today I heard from George Burke, the owner of eBookDaily, a 2-month-old free ebook site. According to George his site has now has 12 thousand active members. Under the new rule George is going to lose his Amazon affiliate fees in any month that the members average more than 2 downloads each.
I am only slightly kidding when I say that Amazon expects affiliates to practice mind control over everyone who clicks a link. Crazy, no? I'm still not sure how they expect that to work.
But the free ebook sites can always switch to promoting paid ebooks, right? That will get the average up and minimize the chance that they'll violate the 80-20 rule, right?
I'm not so sure.
The problem with trying to encourage the average ebook buyer to pay for more ebooks is that the ratio of purchased ebooks to free ebooks is rather low. I have been told, and a second source confirms, that the average ebook buyer probably downloads 15 free ebooks for every one they buy.
Edit: My original source says that the ratio of free to paid acquisitions is even higher than 15:1 (that was old data).
Second Edit: Smashwords reported in April 2012 that they saw 100 free downloads for every paid ebook. Look at the slides here (slide #49).
That's a 15:1 ratio, and in order to comply with the 80-20 rule the free ebook sites (and all other Amazon affiliates) will have to try to get Kindle customers to
buy 4 ebooks for every free title purchase at least 1 paid title for every free one either by getting them to download fewer free ebooks or by getting the customers to buy 4 times as many ebooks as they buy now.
One possible solution is that they could switch to listing more paid ebooks. Many sites already list a lot of paid deals, so I'm not sure that will have much of an effect in changing people's behavior. Affiliates could also stop listing free ebooks entirely, but there is no guarantee that it would have any effect on the downloaders.
In any case, the real problem here is that Amazon expects affiliates to control what happens after someone clicks a link. I know it sounds crazy but that's what Amazon wants.
If anyone can think of a solution, please share. Also, please feel free to point out the flaws in my reasoning.
If you ask me, I think Amazon should simply disallow affiliate links on ebooks. It would be easier on the affiliates, but it might also be more damaging on Amazon's bottom line.
Barnes & Noble made a similar move last March when they stopped paying affiliate commissions on Nook ebooks. I'm sure you can recall how badly they've been doing this past year in terms of Nook hardware and content sales.
Amazon probably won't suffer quite so much of a slowdown in growth, but they are still creating an opportunity for one of their competitors to step in and start trying to take customers away. Given that more people read on smartphones and tablets than on ereaders, this is a real possibility.
image by dqqd