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News OnBuy.com's aggressive response to Amazon slashing partner’s commissions pays off

Discussion in 'Business News & Resources' started by Helen, May 14, 2020.

  1. Helen


    Mar 26, 2013
    Back near the beginning of the COVID-19 crisis, when it started to become clear that there was going to be a big global economic impact of the pandemaic, Amazon.com announced to all their referring partners that their commission rates would be cut beginning with almost immediate effect.

    Referral schemes are a common way of websites working with third parties to give them a commission for any buyers that they send their way. So if I run a model gaming site, and send my users to Amazon to buy from them, I get a commission for every sale made. This means Amazon don’t have to pay up front for marketing that may or may not work, only paying on a ‘win’, and the model gaming site referring gets a revenue stream for putting links on their site. The negative is that they likely use spaces they could have sold to other companies, but again, it is minimum effort post development work, and fairly reliable. Companies obviously have then got used to having a revenue stream that contributes to their business and knew the rate they were being paid per ‘win’ was fair so long as they kept sending traffic.

    Unfortunately the commission rate slash was not by a small amount, it depended on category, but was as much as 80% in some cases as reported by CNBC

    “Rates are being cut for a number of affiliate product categories. For example, the affiliate cut from purchases of furniture and home improvement products has fallen from 8% to 3%, while the commission rate for grocery products has slid from 5% to 1%, according to a document obtained by CNBC. "

    Amazon refused to comment on its reasoning, but this hit a lot of partners very hard at a time when they were also dealing with working from home, operating at limited strength due to furloughed staff and also compounded for many the economic impact of the pandemic with many business owners citing there would be significant, if not fatal impact on their bottom line. This is likely especially true the smaller the business.

    OnBuy.com started in 2016 and has risen very quickly to become one of the world’s leading eCommerce marketplaces, with a recent valuation at £61.3 million, offering 24 million + products to over 8 million customers succeeding in a landscape where many ‘triers’ have come and gone (trust me – I’ve seen a lot of ‘we’re the next eBay’ presentations in the past decade!). OnBuy.com took the decision to almost immediately double its affiliate fee in response to Amazon’s cut. They hoped to encourage users to come to the site and buy their Marketplace Seller’s products.

    And it looks like it paid off – they increased their partners by 100% and OnBuy.com logged over 3 million monthly visitors in April alone, and had been placed as one of the fastest growing companies in the UK, only behind Etsy, Halfords and Apple. On top of this it has appeared in Similar Web’s list of UK eCommerce companies to grow under the pandemic.

    Cas Paton CEO and Founder said “We’re proud to run a business that gives customers access to both big name brands and independent sellers at competitive prices, especially given the current reality. Our growth shows that both sellers and buyers are crying out for a different online marketplace experience, and we’re ready and excited to be able to give them that at OnBuy.com.”

    Along with the obvious benefit to businesses who are sending buyers to OnBuy in a new revenue stream, what shouldn’t be overlooked that the Marketplace Sellers will also have increased eyeballs on their goods.

    From personal experience in B2B industry, Amazon has long had a repuation for being nice to buyers, but there is always an undercurrent of economic aggression towards their suppliers and partners. For Marketplace Sellers on Amazon their ‘take it or leave attitude’ certainly meant historically that they managed to gain a standard around delivery and service that encouraged sales and meant they became a big cog for most online sellers. However, what they did is make that an ‘industry standard’ to compete and any newer businesses, whether retail or marketplace have found this necessary to even trade, and it is not the differentiator it once was for buyers. Amazon also recently disrupted FBA sellers with this same attitude with their sudden freeze on movement of “non-essential goods” (even to be returned to seller) – this hit them economically as they couldn’t sell elsewhere, but also knew no revenue would be received via Amazon, leaving a bitter taste in their mouths as the previous advantages of FBA (a paid for service) became a rope around their necks.

    This had lead to many eCommerce retailers finding themselves planning for how to mitigate this risk in the future, especially in the event of a second (or winter) wave – and one of the key ways would obviously be to diversify into different sales channels and spread their bets rather than being halted by one. It is certainly something we recommend in any advice, talk or event and OnBuy are successfully positioning themselves to be part of any strategy in the UK and have just secured £3million investment with plans to launch to 42 new countries this year to bring new sellers and buyers.

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