Sree's Stories

Web Retailers Find Allies at Sites With Nothing to Sell

Monday, May 27, 1996

By SREENATH SREENIVASAN

Trying to generate business on the Internet has been likened to dropping your business cards on a Manhattan sidewalk during rush-hour. Almost no one knows you exist, and the few who stumble upon your card are unlikely to be the kind of business contacts you were looking for.

To increase the right kind of inquiries, dozens of online retail stores have set up relationships with information sites that are devoted simply to text, pictures, graphics or music -- without any retail component of their own.

The practice -- known variously as "syndicated selling," "online franchising" or "associates programs" -- allows retail sites to link with information sites to alert Web travelers where they can find products they are interested in. In return, the information sites receive a commission on any sales generated through the link. The information sites are not restricted to giant corporations; even mom-and-pop sites are becoming players in this field.

"Syndicated selling is a recent, but very fundamental, part of the Internet direct marketing business," said Mary Modahl, an analyst at Forrester Research, and a co-author of a report on the subject. "It's the difference between having one store and having 5,000. Obviously, the more points of sale you have the better." According to Ms. Modahl, the practice will continue to grow as consumers overcome security and privacy concerns and become more comfortable with shopping online.

The best known of these programs is the associates program at Amazon.com, the largest online retailer of books. Since launching the concept in July 1996, it has signed up over 8,000 associates, or partner Web sites, to send potential customers its way. The associates -- ranging from Star Chefs, a site devoted to celebrity cooks, to Puppynet, a site about pure-bred dogs, to Atlantic Monthly magazine -- have a link to Amazon on their sites, and receive a percentage of the sales generated at Amazon. The commission had been 8 percent on about 300,000 titles. But starting Monday, the commission on those titles has been raised to 15 percent and a 5 percent commission is on about 1.2 million titles that Amazon stocks. Amazon, which is based in Seattle, is preparing to release an initial public offering and is not allowed to talk to the press for several weeks.

Of course, giving and receiving commissions for referrals is nothing new to the business world. Small business owners from travel agents to health club operators have traditionally used incentives to get current customers to bring in their friends and acquaintances. "What makes these Internet programs significant is that they are specific to the medium," said Scott Smith, a digital commerce analyst at the research firm Jupiter Communications. "The Web allows both the retailers as well as their partners to direct traffic in a mutually beneficial way never before possible."

On the Web, being listed on the search engines and using advertising banners have been the most common ways of generating traffic to retail sites, but that is often not enough. "Internet retailers are learning that they need more than advertising," Smith said. "They need to make hard sales. What you're doing is harnessing the power of affinity groups and allowing people to act as agents for you. They have a propensity to buy because of their direct interest in what's being offered."

Almost every major retailer on the Web has a similar program either online or in the works. CD Now, the largest of the Internet music retailers, has made a major push to sign up partners. "It represents about 10 percent of our business right now, and we expect it to grow to 15 percent within the next four months," said Jason Olim, president of CD Now. The company, based in Philadelphia, says it sells over a million dollars of music a month and has about 200,000 registered shoppers.

These referral programs are structured in a variety of ways. Some, like Amazon, pay a percentage of sales generated from the visit as a commission. Others, like Cbooks Express, an online computer bookstore, pay a flat $10 fee for each new customer who makes a purchase at the host site. CD Now has two types of deals. One is a "cosmic credit" program that is a simple link from a content site (typically smaller sites run by amateur music lovers) that get a 5 percent commission for in-store merchandise. The other is a more sophisticated "merchandising partnership" with large sites (such as AT&T Worldnet and Pathfinder). These higher-level partnerships involve cash deals that are privately negotiated. About 2,000 sites have signed on for the cosmic credit program and over 25 companies are merchandising partners.

For the stores, these referrals offer advantages over other Internet sales options. Being part of an Internet shopping mall, for instance, usually means a limited number of visitors, while a single site makes it difficult to attract new customers because they have to come to the site on their own. Syndicated selling, on the other hand, allows the marketer to reach audiences according to their areas of interest, and allows multiple points for entry to its site.

But the most important feature of the syndicated selling technique is that the host site can offer items for sale without having to invest in expensive support.

"Providing good content is hard enough to do without having to do the whole business side of retailing," said Joe Vella, founder and president of Jazz Online, a leading provider of jazz information, which has a partnership with CD Now. "I couldn't do as good a job as a true retailer. The expenses would be prohibitive."

Of course the characteristics that make syndicated selling a success also make for potential problems. Though the information sites deny any conflict, saying it would damage their credibility, there is always the danger that because these sites have a stake in making sure that visitors at their site click through to the retailer's site and then purchase the product under review, they are less likely to be critical in their product reviews. "Suddenly, everyone is a publisher and a salesman at the same time and the kind of content you provide can have a direct impact on the revenue you get from the marketer," said Steve Fox, editor-in-chief of The Web magazine.


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