GeekCast 19: Tough Love for Overstock.com
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This week on the GeekCast, Jim Kukral, Lisa Picarille, Sam Harrelson and myself talked about Overstock.com and the upcoming affiliate tax in New York.
The show featured helpings of criticism and suggestions for Overstock.com in the wake of their move to boot NY affiliates and potentially alienate many more affiliates.
We all seemed to agree that it’s not too late for Overstock.com to come out smelling like a rose, but they need to take some proactive measures right now.
I shared a favorite quote from the King of All Stuntmen, Evel Knievel, during the show: “With every adversity, there is an equivalence to benefit. Sometimes you just have to look for it.”
Patrick Byrne and company – have you looked?
After about 45 minutes on Overstock.com, we jumped into a bunch of topics, including the hosted version of the OpenX ad server, putting medical records on Google, Sam enjoying salted nuts in his Coke, the genius of Peter Shankman, and the continuing aggravation of Twitter downtimes.
Give a listen for an unbiased view on the decision of whether or not to boot NY affiliates.
Subscribe to the RSS of the entire GeekCast.fm network, or add us on iTunes.
Listen to the show at http://geekcast.fm/archives/geekcast-19-overstocking-the-geek-pond/.
- Posted in Affiliate Resources
17 Comments
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On May 27 @ 4:35 pm posted[...] Patrick Byrne responds [...]
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On May 27 @ 5:00 pm posted
[...] Patrick Byrne responds [...]
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On May 31 @ 1:08 pm posted
[...] this week, Overstock chairman and CEO Patrick Byrne shared his perspective in my blog comments on this [...]
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On June 2 @ 2:18 am posted
[...] its New York affiliates, and so have other companies. In a comment over at the Affiliate Tip blog, Overstock’s CEO does the math explaining why they eliminated their New York affiliates. It’s a perfect example of the chilling effect that taxes have on [...]
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On July 1 @ 10:43 am posted
[...] in May 2008, Jim Kukral, Lisa Picarille, Sam Harrelson and myself talked about Overstock and their actions with the New York advertising tax. It’s an interesting listen on the issue over a year later and you can see feedback from [...]
Hey Folks
I heard your podcast. At the risk of being cheesy: Thanks for taking them time to comment. But you make some assumptions that skew your analysis.
1) Yes, we formally have 3,400 New York-based affiliates. Less than 200 of them are active.
2) As far as our commitment to affiliates goes: Years ago we adopted a “war of the fleas against the elephants” strategy, and it has worked. We are fanatic about our affiliates. We have won various awards from LinkShare's affiliate network for being the best merchant, best program, etc. When Amazon dramatically tightened the terms of their affiliate deals a year ago, we hung in there with ours. Affiliates often tell me that we are the best merchant they deal with, and squeeze the most value for them out of their traffic stream, etc.
3) You make a big deal about us being publicly traded. That has nothing to do with anything. None of our decisions are based on what Wall Street is going to say. It does not enter the calculations.
4) The math is pretty simple.* Suppose (hypothetically only) that we expect doing about $60 million in sales to New York residents this year. If we have to start collecting New York taxes, that is about $5 million we'd have to collect (put differently, it is $5 million in additional costs we'd have to bear or pass on to consumers). Our New York affiliates will generate considerably under $10 million in revenue, and $300,000 – $500,000 of net benefit (gross profit minus the fees we pay to affiliates). Should we in one hand absorb $5 million in additional costs in order to rescue in the other hand $300,000 – $500,000 of benefit?
You may view that as just a cold-blooded corporate decision, but come on. The New York legislature passed a law that (besides being unconstitutional) made it highly uneconomical for us to keep alive our affiliate program in New York. They imposed an additional $5 million cost on us (or our customers) that we would have to absorb in order to save a business providing a few hundred thousand dollars of benefit. Of course we feel badly about it. The affiliate world has been good to us. But legislatures cannot go around imposing costs and not expect people to respond by changing their behavior.
Respectfully,
Patrick
* This math was explained for illustrative purposes only. No actual prediction of Overstock's results are intended. Please see our most recent press release for all the lawyers' disclaimers.
reply to this commentThanks for stopping by, Patrick.
Your points are totally understood, but I think the sentiment of many affiliates is that they would have liked to see you fight NY (like Amazon) before this sort of law becomes common in 5, 10, or 25 states in the next year.
reply to this comment“Your points are totally understood,”
Actually the math made no sense at all. Big discussion over it – http://forum.abestweb.com/showthread.php?p=8338...
reply to this commentAs mentioned by Patrick, the math was hypothetical, so I think it suffices to say the numbers didn't work for them.
That's how I “understood” it.
reply to this commentYour math is as fuzzy as al gores Ass.
I will never SHOP overstock.com again.
reply to this commentShawn,
I do not see any math in anyone's reply. Just “ludicrous” and “fuzzy” but no actual logic.
Actually, the math works just fine, whether these are hypothetical numbers are good projections. They are missing the point.
Someone wrote, “This is ludicrous – equating the tax, to be collected from their customers, as a cost that Overstock would have to pay out of its pocket.”
NY's act creates a new cost for SOMEONE to bear of $5 million. Either we pass it on (and hence consumers buy less from us) or we absorb the cost ourselves, but in either case, NY created a new $5 million cost. The market has elasticity: there is no way that a state can create a new cost of $5 million and expect people (whether it be us or our customers) not to change consumption patterns.
Patrick
reply to this commentHi Patrick -
I was referring to the previous commenter who was pointing to a thread on ABestWeb.com.
I understand and empathize with the situation thrust upon you and others by New York state.
While it is easy to play armchair quarterback over here, I would have liked to see you guys contest the law, rather than accept it, as such acceptance may well lead to other sates adopting similar laws.
reply to this commentI enjoyed your cast!
reply to this commentPatrick,
I'm working with a group to launch an affiliate marketing professional association. Our hope is that through a united voice and education, we can make sure we have a collective and timely response to these kinds of issues. Or better yet, we hope to mature to retain professionals that can help the industry lobby against this kind of legislature.
Patrick, I'd very much like to talk to you further about your thoughts on an industry association. Please email me at rebecca@affiliateclassroom.com.
If others are interested in providing input or becoming involved, please email me as well.
reply to this commentMr. Byrne,
reply to this commentI run an affiliate site so I'm on your side in this one, but I have to basically agree with the other posters who say your math doesn't make sense. How is the tax on $10 million in affiliate sales going to produce a $5 million liability for you? I would be careful about blurring the line between tax on your overall New York sales and your affiliate sales, as it will weaken your argument as the affiliate tax issue progresses – and I expect you to be one of the most quoted voices in the argument. Correct me if I'm wrong.
Inisheer,
Because by having an affiliate in New York, it would give us nexus, and so we would have to start paying tax on all New York sales. Not just affiliate ones.
Patrick
reply to this commentInisheer,
Because by having an affiliate in New York, it would give us nexus, and so we would have to start paying tax on all New York sales. Not just affiliate ones.
Patrick
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