Here’s Herby

From his passionate crusades against spam and “scumware” to hosting his group’s annual summit, the baritone-voiced entrepreneur has a knack for stirring things up and forcing long-neglected ethical issues to the front burner. Now, he’s ready to launch an accreditation program that would require participants to act more responsibly.

Herby (hardly anyone uses his last name) has been a leading advocate for the creation of a magazine about affiliate marketing and generously shared his expertise as we assembled this first edition of Revenue. Herby sat down recently with Editor-in-Chief Tom Murphy for a frank talk about his organization’s background, problems and goals.

TOM MURPHY: Why was your group formed, and what does it hope to accomplish?

HERBY OLSCHEWSKI: In 1999, I was a speaker at an affiliate marketing conference in San Francisco. There were about 700 people in the audience who basically paid money to listen to different affiliate solution providers bicker with one another. It made me realize there was a need for an association.

Our main goal is to help merchants and affiliates keep it fair in revenue share. That’s really a two-sided coin. It’s to help merchants understand what affiliates need in an affiliate program. And we have to help affiliates understand how best to reach the revenue share opportunity offered by merchants.

TM: How big is your association?

HO: We have just over 4,000 members, and that’s really without having done any sort of membership drive. Hence, we know that there’s a need to band together into a professional platform that will help to further the interests of affiliate marketing.

TM: How many of your members are merchants?

HO: We estimate about 55 percent of our members are merchants with affiliate programs. About 45 percent are pure affiliates. We must remember the overlap; there are affiliates who are merchants and vice versa.

TM: What are the top two issues facing the industry right now?

HO: Predatory advertising and the need for the public to understand just what affiliate marketing really is.

TM: Let’s start with the second one. What do you think is the misconception about affiliate marketing?

HO: The first misconception is that affiliate marketing is actually some kind of multi-level marketing. Nothing could be further from the truth. The basic difference between an MLM program and an affiliate program is the commission structure. In a multi-level program, you can have anywhere from three to 16 levels. In an affiliate program, there are only two levels, a first tier and a second tier. It can be equated to a car dealership where you have a car manufacturer making cars available to a wholesaler and the wholesaler having dealers out there.

TM: I think a lot of people who hear “multi-level marketing” think about pyramid schemes. Do you think that?

HO: One of the goals of the association is to fight the trend of multi-level programs in companies that are trying to get around the stigma of that area by calling their revenue-share opportunities affiliate marketing. The Internet Affiliate Marketing Association takes a strong stance against that. And the way to do that is to educate the public on what affiliate marketing really is.

TM: The other area you mentioned was predatory advertising. Can you explain the problem there?

HO: Let’s first see how these predatory advertising mechanisms are distributed. The first is a Trojan horse mechanism where a software company will offer freebie software that might appear to be a music file-sharing program or whatever the case may be. What they include in that software program is a memory-executable program that will determine when the user goes online to search for a particular product or service. So, if somebody were searching the Web for “baby clothing,” that program in memory will remember that and will pop up an advertisement for baby clothing. That makes it very targeted for a merchant. The merchant will have a much higher success rate from that pop-up. But the problem is, how did that pop-up get into that system? The user, nine times out of 10, doesn’t even understand that they loaded that program onto their computer.

TM: When people first hear of affiliate marketing, the first image that pops into their heads are all the ads for male potency drugs, bank loans, or weight loss products that trash-up their in-boxes. Is that affiliate marketing at work?

HO: No, that is not affiliate marketing, but we do have affiliates that go out and spam in order to increase their commission rates. We help merchants identify who those affiliates are, and we would actually report them to the merchant. It’s in the best interest of the merchant to curtail that and to expel that affiliate from their affiliate program.

TM: I know you certify people within your organization. How does that touch on some of the ethical issues, like spamming or predatory advertising?

HO: We’re launching a certification process where our members can apply to be an approved merchant, an approved affiliate, a recommended solution provider, etc. The difference between membership and the certification process is that we want everybody to feel welcome to be a member, including the unethical people and the uneducated people.

Our mission is really to educate our membership, and the certification process revolves around our manifesto. The member voluntarily agrees to sign the manifesto and agrees to abide by a certain code of ethics. One of those line items in the code of ethics is regarding spamming. They have to make a public declaration that, A, they won’t spam, and, B, they won’t tolerate affiliates who do spam.

TM: You’ve had your share of controversy within your organization recently. Some of your postings on bulletin boards were deleted and I know you took some flak personally for making that decision. Can you tell me what happened and why you did that?

HO: In most online forums, people sign into the forum with a pseudonym, Zorro123, or XYZ. We’re opposed to that in our forum. We have a very strict first-name, last-name policy. We believe that anyone who says something in our forums should do so under their own name and with personal decorum. We don’t have moderators. What happened recently was that some of our members got too emotive about the industry, and specifically about predatory advertising. We don’t believe in making litigious, derogatory statements against merchants, so we curtailed that sort of behavior.

We created a thing called “Forum Decorum,” which is very basic. It’s Professionalism 101 on how people can debate with one another. Four of our members chose to flaunt that publicly, and we had no choice but to enforce a seven-day posting suspension. They reacted to that as censorship, and they voluntarily left the association. And, to be quite honest, good riddance. Our forums have ended up being far more professional as a result.

TM: In another recent controversy, you recently had a split with one of your long-term colleagues within the association. Could you talk about that?

HO: That involved the previous president of the United States chapter of our association. We had a difference of opinion as to the role of affiliate managers in the association. He wanted a bigger voice for affiliate managers and a separate forum that only affiliate managers could enter. The association in general is against that sort of thing because we don’t want to create a them-versus-us situation. We believe affiliates, merchants and anybody else in the industry should be on equal footing and should be available to each other to discuss issues. This individual subsequently decided to start his own forums for affiliate managers and also decided to start a rival summit to our summit, which is now in its fifth year. (See sidebar: Shawn’s Turn)

TM: Do you have a rough estimate of how many affiliates there are in the world?

HO: It’s almost impossible to say. If I had to take a guess, I’d say it’s in the 10 million, to 15 or 20 million range. Now these are people who may or may not be operating a successful affiliate program.

TM: I would think many of those would be participating in more than one program. When you eliminate the duplicates, the final number of affiliates is actually quite a bit smaller, isn’t it?

HO: Yes, an affiliate may be a participant in more than one affiliate program. It’s almost impossible to say [how many affiliates do that] until we can establish from the affiliate managers themselves. Because of the privacy policies in most affiliate programs, it’s almost impossible to say.

TM: When we talk about the number of affiliates out there, the truth is most of them don’t make a lot of money. Isn’t that right?

HO: Absolutely. I would hazard to guess that less than 5 percent of the affiliates out there actually make any money at all. A popular theory is that most affiliates don’t even make $100 a month. But there are some that make hundreds of thousands of dollars a month. It works in the two extremes.

TM: We’re looking at a few of those success stories in the magazine. What in your mind is the difference between them and the others?

HO: The difference is really how well the affiliates niche themselves. If you look at a stay-at-home mom or someone trying to derive a second income from the Web, then they need to focus on something. Let’s take baby clothes for example, or retail clothing. They really have to build a site around that, and they will make money. You’re not going to make money by just creating a site and slapping up a banner for it. Your success will be extremely limited that way.

TM: How many merchants would you say are involved?

HO: We have a mailing list of over 7,000 affiliate managers, so the estimate is that there are anywhere between 7,000 and 10,000 affiliate programs.

TM: That strikes me as a very low number when you consider the number of corporations there are in the United States.

HO: The problem is that affiliate marketing was perceived as the underbelly of the Internet. It was seen as people sitting at home in their pajamas, writing scripts in order to generate incomes from affiliate programs. In the dot-com era, it was one of the things that suffered. A lot of affiliate programs went under. And affiliate marketing was hyped up. Companies didn’t get the return they were expecting, and they left affiliate marketing. Our job now is to get those companies back.

TM: What do you see as the greatest challenge for the year ahead?

HO: The greatest challenges for the year ahead are, A, get the public to understand what affiliate marketing is and, B, keep the companies from being wooed away by the predatory advertising agencies. What ultimately could happen is that affiliate marketing could die away, and a great opportunity would be lost to help companies market their goods on a pay-per-performance mechanism that makes far more sense.

TM: What is your vision for the association going forward?

HO: The vision is that everybody is welcome, and those who do choose to be part of the organization need to abide by a simple manifesto that lays down industry standards. We’re not going to get all merchants in there. We’re not going to get all affiliates in there. We just want to create a little oasis for people and to grow the association. Over a period of time, people on the outside will realize the benefits of being on the inside, and the association will just grow naturally.

TM: It almost sounds like you are building a self-regulatory organization. Is that because of the lack of regulation internationally on the Internet?

HO: Absolutely. If you look at the Internet as a whole, it’s a great medium for global communication, but without frontiers. We already know it’s going to be absolutely impossible for any one country to control the Internet. That’s even truer in the case of affiliate marketing where an affiliate in New Zealand can be making a lot of money out of merchandise in Cleveland, Ohio. Who is going to lay down regulations? No country can do that.

TM: Say I’m getting spammed. Is there anything I can do as a consumer to get your association to help me out?

HO: Yes, absolutely. We’re shortly going to be publishing a series of guides to look at affiliate marketing from various points of view. And the very first guide is actually the rev-share guide from a consumer perspective. And we’ll be telling consumers how to combat spam, how to get discounts on products, how to use affiliate marketing to their advantage.

TM: I have a personal philosophy that it takes about 20 years for new media to develop. We saw that with radio and television. Since the dissemination of the first popular browser, Mosaic, it’s only been about 10 years. I think we have another 10 years to go before the Internet really matures. Do you believe that’s true?

HO: I do. We see a lot of consolidation in the industry. Web sites are consolidating. Dot-com companies are getting together. Affiliate marketing is really an opportunity for the average guy or lady in the street to derive a second income from the Web and also for the small merchant to sell their products on the Web beyond the realm of traditional advertising, which is unaffordable in many cases.

I think probably in the next 10 years, affiliate marketing is going to grow in three ways: as a way for merchants to sell their products, as a way for people to make a second income on the Web, and as a way for corporations that can actually reduce their advertising expenses by learning how to pay for performance and not just shove money into ads.