Boaz Berkowitz

Who Benefited from Microsoft's Bing Cashback?

I covered the cashback program in depth in some of my recent articles:

seekingalpha.com/artic...

seekingalpha.com/artic...

But one question remains is will there be a lasting impact? I for one did make use of this promotion, but my loyalty has not increased at all. I simply go to which ever cashback promotion offers the highest payout (usually bing since they use their cashback program as a loss leader but not always - sometimes the competition has a better promotion or features a store that Bing is not partnered with). I suspect most other users are the same - this kind of promotion specifically appeals to price sensitive customers. In other words, they'll go where ever they can get the best deal. So using the current strategy, Microsoft may only build market share by literally paying users to search with Bing. As strategies go, that isn't sustainable for the long term.

Plus I've been dismally unimpressed with Bing's support. My wife had a problem where all of her cashback was inexplicably canceled. She's been waiting for the problem to be resolved for over a month to know available. We never had that sort of trouble with other cashback sites like Fatwallet, Ebates, Mrrebates, etc.

As an advertising tactic though, it was brilliant. A few months ago, no one heard of Bing. Within its first few weeks, already 1 in 4 US adults recognized the name somewhat. That is quite an impressive feat. I don't know how much money Microsoft blew on this promotion, but it could easily have been less than a mass advertising campaign would have cost them. And was likely more effective too.

Amazon/Overstock Gamble May Pay Off

Bill Galkin, Esq. just came out with an update on this issue here:

seekingalpha.com/artic...

The Amazon Tax on e-Commerce: Coming Soon to a State Near You

eBay is an interesting question since their has been a fight about charging income tax on ebay for a long time now, long before the sales tax issue came up. More and more people have quit their jobs and have become sellers on ebay full time - all tax free.

Technically, when Americans sell even their used goods at a garage sale, they are supposed to report the income to the IRS and pay their income taxes on these sales. No one really did. But with some individuals making six or even seven figures on ebay every year, the IRS has been paying more attention. They've been pressuring eBay to release information that would enable them to charge income tax on these sellers. Information which is readily accessible if eBay chose to cooperate (as opposed to a garage sale which the government would likely never know about). So far eBay has resisted for obvious reasons.


On May 02 01:16 PM Option Maestro wrote:

> Agreed 100%... Is the Ebay tax going to be on all goods or just "new"?
> If it is just on new items, I believe the secondhand market will
> thrive.

The Amazon Tax on e-Commerce: Coming Soon to a State Near You

Excellent article and a good explanation of a complex situation. I wrote about this topic myself here:

seekingalpha.com/artic...

I'm very happy to read your update on the situation. Can you please explain why Amazon would be supporting the federal legislation that would require them to collect sales tax? It would put an extra burden on the company and at the same time, I believe it would drastically lower their sales.

When only NY State imposed sales tax collections on Amazon, they went out of their way to sue, challenging the constitutionality of the new law. I fail to understand why they would support such a law on a national level. If that is accurate, it's a bad call. They'd be better off joining forces with eBay, Overstock and other powerhouse internet sellers to fight the legislation. Together they would be a formidable opponent.

Amazon/Overstock Gamble May Pay Off

AUTHOR'S UPDATE:

More Bad news for those opposed to the tax. A Supreme Court justice in Manhattan has dismissed the lawsuit saying that Amazon and Overstock have no basis for the legal action. They have the right to appeal and this could go all the way up to the US Supreme Court. Of course in the meantime, New Yorkers are stuck paying sales tax on most internet purchases. Time to move to Jersey!

Amazon/Overstock Gamble May Pay Off

AUTHOR’S UPDATE:

Thank you all for your comments and thank you to user "dumb money 76" for providing some interesting contrast to my article. Mr. (or Ms.) dumb money 76, you are correct on several points. As I mentioned in the article, New Yorkers have always been required to pay sales tax on their online purchases but few if any do. In a similar vein, people are supposed to pay income tax on the profits they make from selling their old junk at garage sales or on eBay. But again, few do. What I failed to mention however, is that one has to keep in mind why brick and mortar stores charge sales tax. The money is used for services that benefit these stores such as maintaining roads, repairing electricity, trash collection, etc. Amazon, Overstock and other sites based outside of NY receive no such benefits. NY's "Amazon Tax" may be closing a loophole in the law or even leveling the playing field as you suggest, but I'm not convinced Amazon should be subsidizing the government services that Barnes & Noble receive in NY. And is it really leveling the field? There are advantages and disadvantages to buying an item online besides sales tax. A customer may save on the sales tax but at the same time, they may have to pay much more for shipping and/or endure lengthy ship times. And in the spirit of true competition, Barnes & Noble should not petition that Amazon be forced to charge sales tax as well (brick and mortar companies have been lobbying for this law for years) but rather should be forced to find creative ways at competing with Amazon on their own core strengths (price is one of Amazon's core strengths not theirs). For instance, one way Barnes and Noble successfully accomplished this has been by offering Manhattan customers same day delivery, something Amazon's business model could never offer.

Perhaps a solution would be to charge sales tax to all customers with the tax revenues going to the website's home state. For instance, Overstock is based in Utah, so it might make more sense for them to charge Utah sales tax on all sales which could be used to subsidize services within their own state, not New York. But of course that would involve a huge overhaul of our current tax laws. But am I against a sales tax as some readers have suggested? As a consumer, I of course prefer paying lower prices for items but as a U.S. citizen I appreciate the value that paying taxes offers to society. But those who made this accusation are missing the point. The question isn't whether Amazon should be charging tax to New Yorkers, the question is whether New York's new law is technically illegal? And regardless, is it bad for New York? While I am no law expert, I think it is a stretch to claim affiliates qualify as a legal presence. And yes, I do think it can hurt NY businesses. First of all, if NY succeeds in keeping this tax on the books, other states are virtually guaranteed to pass similar laws of their own. Which means people may shun NY based internet companies, for those based in states that haven't passed such a law. Additionally, larger internet stores will likely follow Overstock's lead and shun them as well. Overstock may have been trying to send a message to Albany that the law will hurt NY businesses, but it was also a simple mathematical equation. As explained in their most recent earnings call transcript (seekingalpha.com/artic...), they calculated that they would lose more business by charging sales tax to New Yorkers than they would by abandoning their NY affiliates. If NY actually fights the lawsuits and wins, I think we will be seeing Amazon employ the same math and if their calculation brings the same result, Amazon’s affiliates will be out the door as well. Why haven't they done this yet? Amazon is very focused on customer service and my hunch is that they believe NY will either back down or lose the lawsuit. If that happens, there will be no need to kick out their NY affiliates and will have generated tremendous goodwill by not having done so. Especially in light of Overstock's abandonment of theirs. Plus many of Overstock's 3,400 NY affiliates will likely join Amazon now that Overstock has closed its doors to them. When this all blows over, many of them will probably choose not to rejoin Overstock. So as much as I hate paying more at Amazon, I thin this was a good move for them.

As for the user “Lisa” who requested an update, there unfortunately isn’t much to report. While a bill to repeal the law has passed the Senate by a wide margin (voting 6-24-08), it wasn't passed until the last day of New York's Session. The bill still needs to be approved by the Assembly to become law and that can't happen before the next Session which will not be until January, 2009.

Meanwhile, I’m afraid my article may have been overly optimistic. Even if the bill to repeal the tax passes the Assembly, according to Saul Hansell at the NY Times (bits.blogs.nytimes.com.../), it seems that Governor Paterson will likely veto it. So at the end of the day, those that want to see the Amazon tax repealed may have their hopes hinge on the outcome of Amazon and Overstock's lawsuits. And that could take a long time to resolve. It will also cost NY taxpayers a lot of money in lawyer's fees. Unfortunately, New York is very creative at finding ways to charge sales tax and if they lose the lawsuits, they'll likely find some other way to increase tax revenues. Anyone else remember when New York State sent agents to stake out New Jersey malls in 1992 to record NY license plate numbers? They were trying to crackdown on New Yorkers crossing the border to save on the lower taxes. It makes me wonder if New York would be more effective in increasing tax revenues by being competitive and actually lowered the NY tax rate. Then maybe our neighboring states would be flocking to NY stores instead of the other way around.