Venable’s John F. Cooney on Amazon.com vs. New York State Department of Taxation and Finance
As I think of the affiliate model now, as we say in our brief, it solves John Wanamaker's problem. Wanamaker was the first great marketer in the U.S., a hundred years ago, and used to say that half of all advertisements are wasted; the problem is you can't tell which half it is. It's a very difficult area in which to figure out which advertisements are leading to the completion of sales. And the way I conceived of the affiliate marketing model is that it solves Wanamaker's dilemma, at least in the electronic commerce model, because it allows the merchandiser to determine exactly which advertisement generated which sale, and to compensate the publisher of the ad (the person who ran it) only for ads that are successful.
So it's a fundamental change in the economics of advertising. And that's allowed people to do two things. First, it's allowed many publishers, many websites, to sign up to become advertisers (publishers of ads) and to receive revenues if they're successful in generating sales. The process is automated, so hundreds of thousand of people can sign up in an automated manner and become a publisher of ads. And it's also very cost effective for the [marketer] itself, because it's only going to pay for ads that generated the sales; there's no upfront investment cost. ... Revenue streams are being generated that go to these websites, many of which are part-time jobs or small businesses and have been generating revenue that those people can use to enhance their website to display more information online that's free to people who use the website—therefore benefit the public by providing income streams that help more information be posted online where the rest of us can access it.
So the effect of a tax that imposes a heavy upfront burden on the merchandisers, the Amazons of the world, will be that they won't be able to have such a broad network. They're going to have to think carefully about which [affiliates] they want to sign up and how many within a particular jurisdiction, because they will be taking on a substantial information generation burden and tax collection burden if they have affiliates in states that have this law.