The Dynamics of Full Disclosure

A meme that regularly goes around the blogosphere is “full disclosure.”  When someone blogs about something they have a financial interest in (e.g. an equity interest in a company) or something they benefit from financially (e.g. affiliate fees), should they include a “formal disclosure.”

I received the following email today:

“I appreciate all your book recommendations over the last several posts.  It’s a great service.  However, with full disclosure being the norm these days, you might want to mention that you benefit from book sales via your Amazon affiliate status.  Pardon me if you have previously done this.”

So – for full disclosure, I benefit from book sales via my Amazon affiliate status.  I don’t pay close attention to how much I get from this as I’m much more interested in the data underlying which books you dear reader actually buy and read as one of the features of the affiliate program is all the data I get from it.

My purpose of having an Amazon affiliate code is three fold:

  1. I want to understand how the Amazon affiliate program works (and evolves).  This helps me with all of my investing activity.
  2. I am obsessed with the underlying data.  All of the various affiliate / advertising programs I have on this blog provide me with a variety of data.  I learn from this and can then help the companies I’m an investor in understand what appeals and doesn’t appeal to a publisher, using me as an example.
  3. I make enough money to get a discount from all of the books I buy at Amazon each year.

Summary: #1 and #2 help me as an investor.  #3 generates a modest amount of money to me.

Let’s focus on #3 for a minute since this I think this is the core of the “full disclosure” email I received.  In my case, I buy over 250 books / year at Amazon (I don’t know the exact number, but I’m estimating five a week which, based on what is on my Kindle along with the infinite pile of unread books, is low.)  Since I’m buying a lot more on my Kindle these days, let’s use the average Kindle price of $10 which is also going to be low given the number of hardcover books in the infinite pile.  That’s $2,500 per year of books.  I expect that number is off by at least 100% – so I’m spending somewhere between $2,500 and $5,000 per year on books at Amazon.

I just ran my earnings report from Amazon for the past 12 months.  Via my affiliate code, I’ve sold a net of 666 items (eek – subtle message in that – it’s actually 675 with returns of 7 and refunds of 2.)  I’ve generated $16,247.89 for Amazon and received $1,072.89 in referral fees.

So – even if you take my $2,500 number, by buying books via my blog you’ve effectively helped me get a 40% discount from Amazon (20% if you take the $5,000 number, which I think is more realistic given my book buying habit.)

In either case, the financial beneficiary here is Amazon, not me, although I guess you could argue that I’m ahead by whatever my effective discount is.  If my “book recommendations is a great service”, presumably this won’t really bother anyone (it might not have regardless). However, if every post I put up had an italicized “summary” of this post (or a link to it), that would probably get annoying over time! 

I’m going to think more about what full disclosure actually means in the context of the evolving shift of purchasing, advertising, and content online.  In the offline world, the construct of a reseller is well established (e.g. no one ever requires full disclosure from a bookstore when they sell – or promote – a book as it is well understand that they make a margin on every sale.)  I get that there are different issues in the online world, especially around content, but as the creative destruction of the Internet starts to really take a toll on retail (and resellers), there may be new issues around the construct of full disclosure.

Finally, thanks to the blog reader who pointed this out to me.  I hope this doesn’t come across as a gigantic rationalization on my part, or a defensive argument.  Instead, my goal was to think through this out loud, in public, and in the spirit of full disclosure.  If anyone out there has anything to add, or core principles that can help me define a forward looking view on this (e.g. what this should look like from 2010 forward), please weigh in with a comment.

  • Phil Sugar

    I've been thinking about affiliate fees/commissions for a while.

    (I really don't care how much you make, and if somebody is reading your blog and somehow doesn't realize you receive affiliate fees they really shouldn't be here)

    Affiliate fees are an interesting paradox. In one sense the internet should make the flow of information effortless (i.e. free) but on the other hand it really is valuable and quantifiable to pay an entity to bring you sales.

    Where this is interesting is that if the marginal cost to the entity bringing sales is zero (you wrote the blog, built the search engine, if 1 or 5,000 people click through there is no additional cost) then those affiliate fees could be split and eventually the split would all go to the purchaser.

    This is kind of happening when credit card companies want you to go to online stores through their site and they give you cash back (in the case of Discover Card) and its what Microsoft is doing through their search. Is that what they were meant for? I totally understand Amazon paying a blogger, but did they want to give Credit Card companies extra margin?

    So what will eventually happen? I remember seeing business models where a web company would say they were going to facilitate the trading of some commodity and receive a .5% commission. Having worked for a Japanese Trading company in the 1980's I knew that commodity companies would sell their mother for .5% I also realized that as information became more available trying to profit from being the one with the information became tougher and tougher.

    Its why realtor and other margins are getting squeezed. What if you set up a site where you linked to all websites with an affiliate program and gave almost all of the margin back. Why doesn't Google give money back? (in a sense they do by letting you use their massive computer network for free)

    Its also interesting where the moral line gets drawn. If I said to a budding entrepreneur I have tons of contacts and if you raise money because I got you meetings with people like Brad Feld you owe me 5% (I don't and I can't) you would rightly be offended and disgusted. Why shouldn't I pay it forward? Its the same when you recommend a complementary outside vendor. If I try to get a cut it makes the vendor less competitive and if its a complement I should want the customer to get the lowest price possible.

    We work in this space in the loyalty marketing field, but I really like to call it value exchange marketing. Exchange value directly with customers for them providing information to you.

    That's a long post to say I'm not sure where its going, but it seems like most things it will move towards going directly to the consumer purchasing the item.

    • http://intensedebate.com/people/bfeld Brad Feld

      Re: “If I said to a budding entrepreneur I have tons of contacts and if you raise money because I got you meetings with people like Brad Feld you owe me 5% (I don't and I can't) you would rightly be offended and disgusted.” This comes up periodically. It’s very different than an affiliate fee as there is a disconnect in “who pays” and “what the value transfer is.” In addition, Amazon has to approve me as an affiliate; to be similar, I’d have to approve YOU as an “affiliate.” Other than all the legal issues around that, the fee would be coming from “me” rather than from the person you are introducing to me.

  • http://intensedebate.com/people/dgcohen David G. Cohen

    A while back (before my blog situation changed), I struggled with this to and at some point decided to invest 100% of the money I made from my blog in kiva loans. for me, the central issue was not "making money" it was "not leaving money on the table." For a blog like yours, not taking referral commissions is simply leaving real money on the table. seems dumb. so that's really why most people do it. Putting it towards something like Kiva makes my world feel more right. it's clear that i'm not doing it for the money, but rather for the greater good. people dig that. ;-) of course, they have to trust me that i actually use it towards kiva loans (which i do).

  • George McQuilken

    Silly me. I hadn't realized that I could just click on the titles in your blog and go directly to Amazon. I like this feature. Also, may I suggest the following: pick a book you really don't enjoy and write a post saying "under no circumstances should you buy this book." Then report how many of your readers buy the book. We can then ask the original reader who raised the ethical question whether it now appropriate to collect fees for books you recommend not buying. I miss the Boulder Bookstore.

    • http://intensedebate.com/people/bfeld Brad Feld

      I usually mention the stuff I don’t like in my longer reviews (when I do a batch review of books after a vacation, or after they add up.) I’ve never really looked to see how many people buy them when there is a negative review – I’ll have to check that!

  • http://intensedebate.com/people/mel_starrs3001 Mel Starrs

    Slightly OT, but linked, was a thought I was having only yesterday wrt twitter, monetisation and amazon. Personally, I would like a simple, one click way of tweeting amazon recommendations to my twitter followers (who are much more proactive and immediate than my blog readers) with my affiliate code connected to it. This of course opens the same can of worms which you go into above, and it's slightly harder to 'fully disclose' in 140 characters…

  • http://blog.mercury-rac.com Jed Christiansen

    I assume that every blogger uses affiliate codes whenever they link to Amazon books/products, and don't mind at all. (I wish I had the traffic on my blog to make it worth my while to do the same!)

    For me, the issue comes with direct recommendations for products, services, etc. In those situations, I think a blogger needs to be direct about any disclosure.

    In general, you, Fred Wilson and other VC's are excellent about this. It's some of the other for-profit bloggers where I get concerned with their motives.

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  • http://intensedebate.com/people/Chip_Schooler Chip_Schooler

    Brad, I see two issues here: Disclosure: if there is a financial interest, disclose (In your case, you received a $1,072 in referral fees.) The amount doesn’t matter. Imho, quibbling about the amount is a slippery slope.

    I don’t think the bookstore comparison is on point because you are comparing offline and online when the comparison should be between an online sales site to an online review site. True, the bookstore does not explicitly state its financial interest. However, it is not required because the interest is so strongly presented implicitly, i.e., the presence of pricing and the offer to sell. This is true for Barnesandnoble.com and well as for Barnes and Noble in the Forum. Disclosure is required when the arrangement is not clear or, more importantly, could influence the information presented – regardless of whether the channel is online or offline.

    The second issue is privacy: As I understand it, you are: a) capturing user information and, b) covered under Amazon’s privacy policy since it is coming from Amazon. However, I believe anyone engaged in capturing my habits should have a privacy policy in place for me to agree to. This policy does two things: 1) it lets me know you are capturing data (and I would probably want to know how which would lead to the Amazon affiliation) and 2) it informs me of your data sharing policy. (This enables me to avoid giving you personal information or avoid your site if I disagree.)

    On more abstract level, I believe your post is about building trust online. Disclosure and privacy policies are a way to build trust, which is the core of almost all business transactions. The real challenge for an online business is to build the level of trust that the corner store has (or had) from their physical proximity. No one wants to buy from a dog on the Internet.

    • http://intensedebate.com/people/bfeld bfeld

      I’m not sure I know how to address the first issue (financial interest) any differently than I did in the blog post. I disagree with you that the offline vs. online issues are different, but that’s a philosophy that’s going to play out over the next decade as the dynamics around commerce change. Re: the second – I don’t collect any personal information. I only get purchase data from Amazon (e.g. which books were purchased). I have NO idea who actually purchased them or when they purchased them. I completely agree with you that if I was collecting this kind of information, there would need to be an explicit privacy agreement, although I’m sure you know that the vast majority of sites on the Internet that collect this data don’t actually have an explicit agreement (many of them have an implicit agreement.)

  • http://intensedebate.com/people/lou_paglia Lou Paglia

    a) Brad, I think the more important thing to discuss here is your almost inhuman ability to consume the written word. :) Seriously, you read at an incredible rate to read the number of books you do. Disclosure: I am a slow reader. :)

    b) I don't see an issue at all without your disclosing that your links are affiliate links. It is not a material amount of money (in my opinion) where you need to disclose. I know arguing the amount is a slippery slope but there has to be a line. And if we are talking about drawing lines, why should it stay in a monetary context? Should you have disclose that you are "considering" investing in glue-type investments when "talking up" the glue technology environment or does it only matter AFTER you make the investment.

  • http://andybeard.eu Andy Beard

    I would add a link to this post from your legal page

    A long while back I actually paid a programmer to write a WP plugin that not only provided a disclosure link or statement within blog post (and feeds where people read them), but also made it specific to the content, similar to contextual advertising.
    Thus if your disclosure changes for a particular company, such as a company you are emplyed by, and then leave, then it is also automatically updated on all blog posts.
    Disclosure doesn't need to take up a huge amount of screen real estate, it can for instance be handled by CSS on a blog page.

    Ultimately I haven't maintained the plugin, it doesn't work with current versions of WP, because although disclosure is something that many blog readers seem to claim they care about, ultimately in the first 6 months after publishing only 100 or so bloggers downloaded the plugin, and the dedicated site I created to promote it only received 20 blog mentions, half of them from me.

    Now when I write an affiliate review of a product I just include disclosure within the text.

    Some affiliate programs actually require disclosure, or conforming to WOMM rules or guidelines that amount ot the same thing. Others, most notable Google with their referral units in some ways prevent it, because although they encourage you to write positive things to increase referrals for "Google Pack", they have stated in the past you are not allowed to tell your readers that you earn money from the activity.

    It can be a real issue providing full disclosure on CPA networks where you might be paid for a free referral, where the people who you refer might feel inclined to sign up just so you can make money.

    If you ever feel like trying your hand at higher ticket information products, which often also have much higher referral percentages, I know plenty that would be very suitable for your audience.
    Reviewing something where a sale generates $1000+ for an affiliate really places a lot of strain on ethics.

  • http://intensedebate.com/people/joel_kehle1953 Joel Kehle

    Hi Brad,

    Hmmm Intense Debate seems to have eaten my first comment. Apologies if this is a dupe.

    I purchase books solely through the kindle. You need to take the kindle factor into account when computing your conversion stats. I wonder what percentage of your readers are kindle users?

    Joel

    • http://intensedebate.com/people/bfeld Brad Feld

      Mmm. Yummy. I love it when ID eats a comment (sound of blog licking its lips). I have no idea if I get credit via the affiliate fee for Kindle purchases. If you click through on the link on my blog, I think I do (and one click it from Amazon.) If you buy it from your Kindle, I definitely don’t. Interesting conundrum.

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