Is This How Barnes & Noble Beats Amazon?

Amazon.com's (Nasdaq: AMZN  ) tangle with state legislators may just be the opportunity that Barnes & Noble (NYSE: BKS  ) needs.

"If Amazon doesn't want you, we do," reads an open letter by BN.com to affiliate marketers being dismissed by Amazon.

Some may argue that B&N is a couple of years too late. Back in 2008, Amazon locked horns with New York over the collection of state sales tax. The state had passed e-fairness legislation, arguing that the world's leading online retailer should be tacking on sales tax to orders placed by New York residents. Amazon had avoided the process because it didn't have a physical presence in the state, but New York argued that the presence of its Amazon Associates -- where everyone from hobbyist bloggers to leading websites earn commissions by referring leads to Amazon -- residing in New York gave it the required footing.

Amazon caved to New York's demands, but North Carolina, Rhode Island, and Hawaii didn't get off as easily. When they threatened to force Amazon into collecting state tax, Amazon dismissed all of the affiliates residing in those states.

Engagement ring specialist Blue Nile (Nasdaq: NILE  ) similarly broke up with its affiliates in North Carolina and Rhode Island at the time. Overstock.com (Nasdaq: OSTK  ) outdid Amazon by booting its New York affiliates. It's a cutthroat world in cyberspace, and tacking on state sales tax can sometimes price you out of the market when pitted against an e-tailer that isn't forced to do so.

Now, the competition will only get uglier. As more states ponder forcing online retailers to collect sales tax to help offset budgetary shortfalls, Amazon's popular affiliate marketing program will be tested.

Barnes & Noble may be two summers too late to intercept the flustered affiliates in North Carolina, Rhode Island, and Hawaii, but it's trying to get ahead of what may be a massive wave of affiliate-chopping at Amazon. B&N already charges state sales tax on its website, so it'll pay no price to pursue Amazon's castoffs.

Alas, BN.com isn't Amazon.com. Barnes & Noble relies on Google (Nasdaq: GOOG  ) to serve up its affiliate ads, but they're not the same kind of contextual spots with which Amazon has been arming webmasters since the mid-1990s.

There's also a big difference in the items stocked. Amazon and B&N may have been limited to media items in the 1990s, but today, Amazon's biggest category is consumer electronics and general merchandise. Media sales made up less than a third of Amazon's North American sales during the holiday quarter.

In short, B&N won't be a perfect proxy for Amazon. Still, you can't fault the deficit-riddled bookseller for trying. Amazon's initial success largely owed to Amazon Associates, who wallpapered the web with lead-generating ads. Every reference site and GeoCities page seemed to be wedging in links for Amazon's seamless monetization platform.

Amazon doesn't need its affiliate marketers the way it did during its formative years. Then again, it may think twice if B&N becomes the newest company to fill up the Internet with its discounted books, DVDs, and CDs.

Should states be able to force Amazon into collecting state sales tax? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value recommendation. Google and Blue Nile are Motley Fool Rule Breakers picks. Amazon.com is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz has been shopping online since the early 1990s, even before Amazon.com was around. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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