Search For Tomorrow

It was the summer of 1998 when GoTo.com launched its pay-per-click (PPC) program in a fairly straightforward way. Back then, there were few competitors and the bids were low. Often a top slot could be had for a penny a click, and the reporting was bare bones.

It was morning in paid search country.

Six years later, the paid search landscape has gotten a lot more crowded. According to PayPerClickSearchEngines.com, there are now about 600 PPC engines. It has also gotten a lot more expensive, with the minimum of a dime per click at Overture. And all that has made things a lot more complicated.

If you want to know what the future holds for the fusion of paid search and affiliate marketing, strap in and hold on tight.

The typical affiliate program is heavy on affiliates utilizing either natural optimization or paid placement. A third of all affiliates promote their links in PPCs, according to a survey in the AffStat 2004 Report. Additionally, 16 percent cite data feeds as their preferred method for promoting an affiliate program.

When CAN-SPAM (Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003) took effect on Jan. 1, 2004, the email affiliates were significantly bridled. This has resulted in a seismic shift by affiliate programs and their growing reliance on search engine affiliates.

According to Kevin Lee, CEO of the search marketing technology firm Did-it .com, paid search is moving toward more personalization, automation and the greater emergence of vertical portals. There are also some changes on the horizon with regard to use of company trademarks by affiliates, says Lee.

Personalization Per Click

Affiliates using Google AdWords can now target regionally and locally, so they can reach the prospects who are most appropriate for the affiliate program they are promoting. For instance, if an affiliate is running a fan site for the New York Jets, it wouldn’t make a whole lot of sense for them to use paid search to push a Jets banner to a national audience. But with regional, city-level and IP targeting (using the address uniquely identifying a certain computer on the Internet), affiliates may focus on specific cities and metropolitan areas to market Jets goods. Google even enables affiliates to define their own target area by choosing a point and a surrounding radius of 20 or more miles or by picking points in order to define a border.

Personalization could be focused on regions or interests. “Rich media search, image search and news search will gain in popularity, and paid results will become available within these areas,” says Did-it’s Lee. “All the search engines will roll out some kind of personalization or personalized search where the engine remembers things about you. This will help with targeting ads better as well as algorithmic results.”

You can expect affiliates to begin using this option more extensively, bringing in a more attractive and effective CPM (cost per thousand advertising impressions) and CPC (cost per click).

Automate To Elevate

Affiliates have long relied on spreadsheets to manage all of their keyword bid campaigns, but as the paid search space matures, the administration and tracking of PPC campaigns is getting more advanced.

“In order to continue participating in the ever-increasingly competitive marketplaces for keyword bids, marketers will be forced to use marketing automation techniques that take into account order profit values and lifetime value, not just simple ROAS (return on advertising spending) or immediate ROI (return on investment),” according to Kevin Lee.

Some of the more popular tools for automating paid search processes are Atlas OnePoint (formerly Go Toast), the Maestro Client from Did-it.com, and PPC Track from KowaBunga Technologies. Additionally, search engine marketing firm iProspect unveiled iProspect Search Engine Bidding Agent (iSEBA) in the summer of 2004. ISEBA manages the keyword bidding process for pay-per-click advertising campaigns on both Google and Overture’s paid search programs.

Making A Vertical Leap

As affiliates get deeper into personalization, it’s natural that they’d also gravitate to vertical portals that serve the channels for the affiliate programs they promote. While search engines do not generally define themselves as servicing certain types of users, the MarketingSherpa Search Marketing Metrics Guide reveals that just like any other media property, each search engine has a remarkably distinct type of user.

This MarketingSherpa report, which surveyed 3,007 marketers in July, reveals that highly educated men with an interest in technology tend to use Google. Kids are more likely to Ask Jeeves for their search results. Older teens rebel by making MyWay their way. Moms tend to prefer MSN search.

So for affiliates trying to reach the men and kids, Google AdWords is the way to go to get your ads on Ask Jeeves, MyWay, and of course, on Google itself. But if you want to hawk wares to moms, you’d better be using Overture to place your targeted ads on MSN. Bear in mind that things may change due to consolidation and new business arrangements, so keep an eye on who’s serving whom.

Lee expects that vertical portals will become hotter, including the shopping portals, as well as portals within specific industries or customer segments.

On Your Mark. Get Rules. Go!

In the early days of affiliates bidding on keywords, there were no regulations being enforced by the affiliate programs. This can be attributed to a number of issues, including good old-fashioned ignorance; many affiliate managers have never been affiliates and don’t know how they do what they do. However, you could also attribute it to self-preservation. Affiliate managers are aware of activity that’s not particularly beneficial to their company, but it makes the affiliate program look better. This resulted in an environment where multiple affiliates, and the trademark owner, were competing for ad placement on trademarked terms.

The bad news for affiliates is that things are changing. Over the past year, there’s been a significant shift. In a poll of affiliate managers on the AffiliateManager.net Forum in August 2004, 65 percent said they were no longer allowing affiliates to bid on their trademarks.

And why wouldn’t they feel that way? It’s a low hanging fruit that converts well, and if the company isn’t in a bidding war with their affiliate, it’s a cheap cash outlay. Why outsource that sort of thing to affiliates and pay exponentially more for it?

Don’t Jerk That Knee

But all things considered, merchants ought to be most concerned about controlling what’s above the fold. At least that’s the contention of David Lewis, president of 77Blue, which operates private- label shopping portals and coupon sites with more than 800 merchants in three countries. “There are unintended consequences to restricting trademark bidding. It’s not all about ROI. You have to consider PR,” says Lewis.

Lewis’ view is decidedly merchant-centric, which is surprising for an affiliate. According to Lewis, “Advertising on a merchant’s trademarks is a privilege and not an affiliate’s right. Merchants should consider creating a separate agreement with two or three affiliates they trust, and allow them to bid on the trademark,” he says. “This gives the merchant control that is forfeited when banning trademark bidding.”

By banning affiliates from bidding on trademarked terms, Lewis argues, “merchants are giving management of their brand to Google and Yahoo, with whom they may have no relationship. I would want to control the results that come up when a user searches on my trademarks, especially knowing that most users click predominantly on the first 10 results.”

While the majority of merchants are currently banning their affiliates from bidding on trademarks, Lewis’ view is gaining ground. Beth Kirsch, the affiliate manager for Audible.com, had a policy against affiliates bidding on her company’s trademark. But after taking Lewis’ thoughts into consideration, Kirsch did something of an about-face.

She says, “While Audible is our trademark, it’s also an everyday word. No affiliate PPC bidding left room for other companies to promote ‘audible’ products. It clearly damaged the brand. David’s input made us change our policy, where we now allow a couple of trusted affiliates to bid on our trademark,” she says. “What’s a few bucks, when we have spent millions to build a brand?”

Another affiliate, Steve White, sounds a similar note. “Affiliates have an incentive to apply creativity to the bidding and keyword selection process. That incentive is more commissions,” he says. “Therefore, a dedicated group of affiliates can far outweigh the internal efforts of a program, unless that program has the resources to hire full-time search engine experts, as well as the capital to bankroll the campaigns. The affiliates bring both to the table at no cost (to the merchant), and the results are almost instantly calculable.”

The Other Trademark Issue

Even though affiliates may not be able to bid on the trademark for Company X, they can bid on the trademark of Company Y (the chief competitor to Company X). The bids on Company Y can then direct traffic to Company X. This is an escalating problem, says Lee of Did-it.com.

“There may be some significant litigation regarding trademarks and search engine marketing (SEM),” he says. “Some marketers may try to encourage affiliates into bidding on competitive trademarks (not their own) in an attempt to shield themselves from litigation.”

In the past, Google granted requests from advertisers to bar competitors from bidding on their trademarked names. However, Google will now only review trademark complaints that relate to text appearing in sponsored listings on its Web site and those of its partners. So affiliates cannot mention a company in copy for their competitor, but they can bid on the trademarked name of that company, and that could be a liability for the affiliate program they are promoting.

Trademarks aside, the bulk of affiliate programs permit bidding on most keywords, and there are still bidding bargains to be had. Communication between affiliate managers and affiliates is essential, and the well-informed affiliate is the most efficient affiliate.

Audible’s Kirsch knows this, and she makes a “keyword kit” available to her affiliates. It’s a document outlining which keywords affiliates cannot bid on, as well as a list of suggested keywords for affiliates to use that convert well.

It’s The Brand, Stupid!

In some cases, affiliate programs have forbidden SEM outright for their affiliates. For instance, the fund-raising affiliate program for the Republican National Committee doesn’t mince words when it comes to how their affiliates may promote them. The description of their program states: “Please note that search marketing is NOT allowed. Affiliates will NOT be paid for donations generated through search engine marketing.”

Often, the reason that companies will ban affiliates from utilizing search engines in their promotion efforts is that they are concerned about the way affiliates will represent them if left to their own devices.

“We’re seeing some increased dissatisfaction from consumers who are clicking on paid search ads and being directed to an affiliate site,” commented Rob Key, president and CEO of Converseon, a communications agency. “Companies need to think very carefully about how they allow affiliates to bid on their brand names. For brand-sensitive companies, we recommend they own their brand names and derivatives. With inflation expected to grow in paid placement, finding efficiencies is absolutely critical. A merchant’s affiliate network cannot afford to work at cross purposes.”

One cautionary tale, or marketing parable, depending on where you are sitting, was on a popular marketing message board. As affiliates debated whether it was okay to use pay-per-click search to promote affiliate programs, one affiliate comments, “If in doubt, just do it!” This was followed by another affiliate who commented “It’s always easier to get forgiveness than permission in anything … just do it.”

It may come as little surprise that when affiliates were asked in the AffStat survey, “When signing up for an affiliate program, do you read the affiliate agreement?” only 45 percent responded that they always read it.

Ignorance of the affiliate program terms is bliss for some affiliates. And when an affiliate program is on autopilot, it makes it that much simpler for affiliates to game the system.

So where are we headed with all of these changes? Well, we have seen the future of affiliate marketing and paid search, and with all of the personalization, automation, verticalization and gate keeping, we will be better equipped than ever before to measure ROI.

Gone are the days of pray-per-click.

SHAWN COLLINS is CEO of Shawn Collins Consulting, an affiliate program management agency; webmaster of the AffiliateTip.com affiliate program directory; and a founder of the Affiliate Summit conference. He authored the book Successful Affiliate Marketing for Merchants and the AffStat affiliate marketing benchmark reports cited in this story.

What Clicks At Performics

To the surprise (and delight) of many, 2004 has put the spotlight back onto e-commerce for the first time since the dot-bomb exploded in the spring of 2000. Web stocks rose over the first three quarters, while mainstream stocks were weighed down by geopolitics.

Google went public with the kind of swagger that conjured up memories of the late ’90s. Online spending continued its rapid rise. And big advertising companies went shopping for smaller Web properties.

ValueClick bought Commission Junction. And Internet ad giant DoubleClick bought Performics.

Few have more insight into the recent past or the long-term future than Performics President and CEO Jamie Crouthamel, who shares his views in this one-on-one chat with Editor in Chief Tom Murphy.

TM: How and when did you get into the affiliate marketing business?

JC: I started Performics, which at the time was called Dynamic Trade, in 1998 and we started as an affiliate marketing service provider addressing the needs of the catalog industry, now really the multichannel marketing industry. The needs they had at the time were affiliate marketing and performance-based technology as well as services and execution help as they were executing these programs.

TM: Why and when did you change the name from Dynamic Trade to Performics? What was the strategy on that?

JC: Early on in affiliate marketing, the term performance marketing wasn’t really being used. As we grew the business and saw other performance marketing opportunities start to evolve out of affiliate marketing, Performics was a better descriptor of what we were trying to accomplish. Today, we view ourselves as a performance-based marketing services and technology company. The fact that we’re leaders both in affiliate marketing and search engine marketing points to our focus in those areas. The two needs that companies have to be able to execute on are technology to facilitate these programs and marketing expertise to execute on them as well.

TM: The acquisition by DoubleClick is complete, and now the real work begins. What changes do you foresee at Performics in the coming months?

JC: DoubleClick acquired Performics because we have a proven track record for success. So many things will remain the same. But we immediately began to work together to build DartSearch, which is a DoubleClick solution, powered by Performics’ technology. Performics also uses DartMail for merchant email campaigns and affiliate communication, and our clients think the product is terrific. Already, we see the benefit of being part of a larger company and ultimately clients and affiliates will enjoy that benefit too. We now have global reach with 19 offices around the world, so as our clients look to expand into new markets, we have the right resources in place. In addition, DoubleClick has great research and a lot of talent. Affiliate marketing is a very good fit within the DoubleClick suite of products. The biggest changes at Performics are always driven by growth. For example, we already have more than 130 employees and will add at least another 30 or more before the end of this year.

TM: The acquisition is another sign the interactive media business is converging. Is the day of the independent affiliate network coming to an end? Do you think a new network could start up independently at this point?

JC: The online marketing industry is consolidating, and affiliate marketing is part of that. Last year, there were four major networks, and now there are three, with two of us owned by larger online advertising companies. So clearly the industry has consolidated. A new network would have many barriers to entry, because established affiliate networks have already built successful companies and achieved some level of efficiency with their businesses. That still does not mean it would be impossible to launch a new network, but a new affiliate network alone wouldn’t be enough today. Marketers want access to multiple performance- based marketing channels, and they expect more from fewer vendors. They want to participate in several performance- based marketing opportunities. Affiliate networks that provide only affiliate marketing services while ignoring other performance-based marketing services lessen the value they can provide clients and hurt their own chances for success in today’s environment.

TM: Are there ways that you would say Performics is different from the other major affiliate networks?

JC: We’re very different in that we look at the performance-based marketing sector as a whole versus components of it being affiliate marketing or search marketing or other forms of it. We started out in affiliate marketing. If you look at affiliate marketing today, and back then, it really set the benchmark for performance- based marketing. Today, everything is really compared to it. It’s interesting to note that affiliate marketing, often the most cost-effective channel in an online marketing mix, provides a platform for pricing. And any media today is really based off of an effective affiliate marketing or rev-share measurement that people use. We started off with that and we started seeing other concentrations of performance-based marketing around affiliate marketing. The first one, which really is pretty obvious, is search marketing. So we broke that out as its own practice per se. We’re the only major affiliate marketing leader who is also a leader in search marketing. We looked at what our clients needed and branched out from there.

TM: A lot of affiliates do search engine marketing as well as affiliate marketing. How does your company avoid competing with your own affiliates on that level?

JC: One way is we know very much about every affiliate in our network. We take great pride in that. Every affiliate who enters our network is screened and it’s understood what their business model is, versus an open network where they come in unfiltered and just start performing their activities. Many clients prefer that Performics run their affiliate marketing program and their search marketing program in parallel because of the inter-workings of the two programs you just described. There are a lot of affiliate programs and a lot of affiliates within those programs who help to complement the marketer’s search program. There are many terms and many categories in which the affiliates are better off participating. That’s advantageous to the affiliate and to the merchant.

TM: There are other areas emerging in the performance marketing field that seem to be fairly lucrative. I wonder if Performics might start competing in such areas as search engine arbitrage or creating blogs to increase revenue flows.

JC: We keep looking at performance-based marketing opportunities as they would be beneficial to advertisers. We always represent the advertiser in ways that would be beneficial to them. We probably wouldn’t get into the blog creation market because that would basically be creating content, which we don’t necessarily do. We just help our advertisers take advantage of it. So as blog advertising may or may not unfold, we would participate in that. With search arbitrage, we tend not to work in that market. But we would convince our clients that it’s better for them to run their own programs so they can reap the benefits of those programs.

TM: You guys are well known for your proprietary tracking technology. How is that system run? Is that a cookie-based system?

JC: There are different elements to it, and there is also a cookie component as well. As with any tracking technology, if you’re trying to track some return-day or some come-back to the site, you have to use cookies. So every tracking technology uses cookies. But there are other elements to it as well.

TM: In our last issue, Steve Messer from LinkShare raised some eyebrows by suggesting cookie systems weren’t accurate enough for this business. Would you care to comment on that?

JC: Well, in our technology, one element of it is a cookie technology. And DoubleClick, which now owns us, also leverages cookie technology. And everybody in the industry uses cookie technology, including LinkShare because they track some type of return-day. So I would think that’s a standard.

TM: Is there something beyond that you use to back up the accuracy of the cookies?

JC: Yes, we have other means that are a little technical to describe in an interview that also do backups to it. But if you’re trying to track any sort of return to a site once you leave, cookies are about the most accurate way to do that. There’s no tracking that is 100 percent. For every pro, there’s a con to it as well.

TM: There’ve been some complaints on the forums that links from Performics don’t go live right away, and that of course makes it harder for affiliates to check their links as they upgrade their sites. Why does that happen and can it be changed?

JC: I don’t know the technical answer to that. But once our links are created, they’re basically live in the system within seconds of being created. So it might be getting approval of those links instead of technically being ready.

TM: Like some other networks, Performics is said to block its affiliates from speaking directly to merchants, which could prevent affiliates from seeking higher commissions.

JC: That’s not true. We encourage meetings between our merchants and our affiliate partners. There’s contact information where a merchant can contact an affiliate. In most cases, an affiliate can contact a merchant. In a lot of cases, a merchant prefers that Performics handle the potential thousands of conversations on their behalf. So it’s really an efficiency request by the merchant, but it’s not a restriction.

TM: People seem to be a lot more aware of predatory advertising now. Do you think that problem is lessening, growing or staying about the same?

JC: I think it has picked up over the last few years. I think it has leveled off. It has become more heightened in the marketplace, and I think that’s why people hear more about it now. At Performics, we’re strong opponents of it. We’ve taken steps with our code of conduct, with our partnering with Commission Junction on that. Again, we screen every affiliate in our network, so it’s difficult for the spyware or the wrong side of the equation, predatory advertising, to take advantage of our merchants.

TM: Blogging, of course, is exploding with affiliates right now because they’ve figured out they can get high search engine rankings. What do you think is going to happen with that trend?

JC: We’re watching blogging very carefully. I don’t have any predictions at the moment. It’s a very efficient form of moving creative content back and forth, but there’s still a kind of non-standards going on right now with blogs being created and with blog writers. So I think there are still a lot of things that will unfold in that area.

TM: As merchant revenue grows in the affiliate marketing arena, do you think some of the smaller affiliates will be forced out by bigger players in their field?

JC: No, I do not. I think the beauty of affiliate marketing is that it’s a way for small publishers or affiliates to participate in the marketing mix of a merchant. I think that’s the beauty of affiliate marketing, that publishers of all shapes or sizes can participate because of the leverage you can get out of an affiliate program.

TM: Do you think, as the industry grows, more merchants will bring their programs in house instead of going through a network?

JC: Again, from the past question, I’d say not, because affiliate marketing allows publishers of all shapes and sizes to participate efficiently in it. It allows for the next evolution. Affiliate marketing seems to create new performance-based marketing vehicles. That’s the catalyst of it. So participating in a network that gives you broader reach in new opportunities allows you to see those emerging trends.

TM: What do you see as the biggest challenges for affiliate marketing in the coming months? It’s an area that changes all the time. Is there anything on the horizon now that seems like a threat to affiliate marketing?

JC: I don’t think there’s a threat per se to it, but I think what you’ve seen over the years is a trend toward more tightly controlled networks. You’ve seen folks who’ve run massive affiliate programs with tens or hundreds of thousands of affiliates starting to scale those back in an effort to get better understanding and control of their affiliate marketing program, as merchants are performing their other performance marketing-based activities.

TM: You said you screen affiliates closely. Do you also remove unproductive affiliates from your ranks? Do you keep them active in hopes they’ll start producing?

JC: Performics reviews each affiliate applicant as a service to all clients. Many Performics clients provide criteria for their program, and the evaluation matches the affiliate against the provided criteria. If a new affiliate applies to our network, we don’t necessarily make a judgment upon application about how productive that applicant will be, but we do make sure they have an active Web site and check for any content or practices that violate Performics’ policies, including our Code of Conduct for Fair Practices. Performics may remove affiliates that do not generate transactions over a period of time, usually one year. Many clients ask that we clean up non-productive affiliates more regularly, but before we remove an affiliate, we attempt to contact them to inquire about the status of their account. We do our best to encourage productive referrals from and commissions for all affiliates.

TOM MURPHY is Editor in Chief of Revenue and the author of Web Rules.