Dialing for Dollars

Whether it’s fashion, technology or commerce, what’s old often becomes new again. Pay per call is the latest revolution in performance marketing, and it focuses on incorporating a 130-year-old technology – the telephone – into the process.

While it’s not a surprise that pay per call is rapidly becoming a preferred model for local advertisers, it’s remarkable that it hasn’t been a significant part of the equation all along.

The rise in popularity of performance marketing, which now represents 40 percent of online advertising revenues, made it inevitable that someone would create a mechanism for businesses that do not have websites to market themselves, according to Greg Sterling, senior vice president at analyst firm The Kelsey Group.

Instead of ads linking to a website, pay-per-call marketing lists phone numbers, often accompanied by phone icons. Merchants pay a fee to the publisher when someone calls after seeing the ad. The number of calls is easily tracked because each ad is associated with a specific phone number, a practice that has been used for many years in print and broadcast ads.

The pay-per-call market, in all forms of media, is expected to reach $60 million this year, and rise by an astonishing 6,000 percent to $3.7 billion by 2010, according to The Kelsey Group. Pay per call enables small and medium-sized enterprises (SMEs) that do not have websites to spread the word and only pay for phone leads.

“Most local businesses don’t know how to deal with clicks,” says Sterling.

He notes that many small businesses complain that understanding and monitoring pay-per-click advertising is too complicated. Approximately 70 percent of SMEs prefer receiving calls to receiving clicks on their websites, according to Sterling, who estimates there are 10 million SMEs.

A survey of SMEs, by The Kelsey Group, indicates that 74 percent of small businesses would pay up to $1 for a call.

The persistent problem of click fraud will also spur advertisers to shift to pay per call, which is difficult to fake, Sterling says. Most companies that advertise in local Yellow Pages are more comfortable with communicating with customers on the phone. Also, two-thirds of SMEs that have websites do not participate in online marketing, suggesting that companies have been reluctant to commit the money and attention to develop leads online.

SMEs also believe that a person who calls is a better quality lead than someone who clicks on a website for information, Sterling says. “If you pick up the phone, you are more buy-oriented than people who are clicking,” he says.

The promise of pay per call has prompted a variety of networks and technology providers to enter the market in recent years, including ADSclick, Jambo, VoiceStar, Miva, eStara and Ingenio. Publishers currently offering pay per call include Verizon’s SuperPages, YellowPages.com, Local.com and Amazon’s A9. Search giants Google and Yahoo are currently testing the pay-per-call model to attract local and small business advertisers.

Microsoft is also working on a click-to-call solution to be included in its Windows Live offering, according to David Cole, a Microsoft SVP and head of MSN and the Personal Services Group.

The click-per-call capability, introduced in mid- March, will let users connect to businesses via Web-based calls by clicking on MSN search links. Last September, just a week after Google launched its Google Talk instant-messaging service, Microsoft purchased Internet-calling startup Teleo to expand the capabilities of MSN Messenger. With the Teleo acquisition, Microsoft also gained click-to-call dialing capabilities that would allow MSN’s upcoming adCenter service to offer pay-per-call pricing.

Dialing for Dollars

Sterling says the potential rewards from pay per call dictate that eventually all publishers involved in local search will incorporate some form of pay per call. “Calls can generate much more revenue than clicks,” he says.

Pay per call is desirable for publishers because companies are willing to pay a lot more for a call than a click. According to The Kelsey Group, the advertising categories willing to pay the most for leads include mortgage lenders ($35), lawyers ($30) and travel agents ($8).

More than 1 billion searches per month are performed on pay-per-call network Ingenio, according to chief marketing officer Marc Barach. Ingenio’s launched in 2004 and has relationships with America Online, MySpace, Miva and Infospace.

Pay-per-call advertisers can decide if they want their ads to reach local or global audiences. Ingenio ad network can specify geographic region, and the company has also implemented IP tracking to determine the consumer’s location, according to Barach.

One potential limitation of the pay-per-call model for publishers is that unlike clicks, which are generated around the clock, call revenue will primarily be generated during business hours. By specifying that pay-per-call ads only run at certain hours of the day (or “day parting”), customers can make sure they don’t receive calls off hours, Ingenio’s Barach says.

The amount that Ingenio’s customers pay for a call depends on the amount that competitors are willing to pay. Taking a page from the SEM model, Ingenio’s auction model charges one cent more than the next highest bid at the time the call was placed. The company sets prices based on categories, not keywords to simplify the model. The minimum charge for a call is $2, which is the case for many categories.

David Clarke, the marketing manager for American Incorporators Limited of Wilmington, Del., began placing pay-per-call ads on America Online one year ago, and is happy with the results. “The biggest advantage is that those who call are a lot further along in the decision-making process and are more serious than people who click,” he says.

Clarke pays between $15 and $18 per lead for calls requesting information about AIL’s services for forming corporations, and approximately 10 percent of those calls result in a sale.

Publishers will have to weigh the potential revenues to determine if ads that generate money from calls or clicks get top billing. Where they are available, the higher-priced pay-per-call ads seem to get preferential treatment, getting the prime spots on AOL and YellowPages.com.

Pay per call is a “small but growing portion” of Ingenio’s overall revenue, which was $83 million in 2005, according to Barach. Ingenio has deals with networks Performics and Miva to promote pay per call, he says.

While pay per call has promise, it will not overtake traditional ads in search marketing, according to Mike Kerans, a senior vice president at Miva. Pay per call is appropriate for selling complex goods such as financial services, travel and “high-ticket items” like flat screen TVs, but because of the higher premiums charged, “I wouldn’t use it if I were selling ink cartridges,” Kerans says.

Pay per call will grow in popularity for the 25 percent of searches that are local, but national ad campaigns will continue to rely on other models, according to Kerans, whose company began offering pay per call in late 2004. “It’s never been that new media completely replaces old media,” notes Kerans, adding that pay per call is an effective way for small businesses to dabble online, as only one in three have a website.

Miva works with local TV stations, newspapers and larger publishers, including Verizon’s SuperPages and Infospace in the United Kingdom, and recommends that advertisers include a telephone icon to distinguish listings from pay-perclick ads, Kerans says. Companies should also use landing pages with maps to show the proximity to the customer, or promote special offers to induce people to call, he says.

Kerans says publishers have to determine how much ad space to give to pay-per-call versus payper- click ads based on the cost per thousand (CPM) that they expect to receive.

Calling All Clicks

An alternative form of pay per call enables consumers to prompt a phone call from the advertiser by entering their phone numbers online. Click-to-call technology was originally used to provide customer service, and automatically connects the two parties when consumers click a button. Click-to-call work can be financed through a pay-per-call model when applied to advertising, or through a flat fee or volume pricing.

Using click to call for sales enables customers to continue with their online sessions without having to stop to dial the phone, according to John Federman, CEO of eStara, which offers click-to-call and pay-per-call services.

While pay-per-call advertisements require unique phone numbers that identify the referring publisher, eStara’s Web-initiated calls save money by requiring only tracking numbers for each publisher, according to Federman. Using “cross-channel data passing” technology, the customer’s information is automatically forwarded to the advertiser’s call center, where sales representatives can view it on their screens. eStara customizes the pricing for each publisher, offering auction as well as flat pricing and subscriptions.

Click-to-call technology is also being used on commerce websites to prompt customers who are idle on a website. For example, after a shopper is browsing a website for a few minutes and stops clicking, a pop-up window offers customers the chance to talk with the merchant live to complete their order or to ask for more information, Federman says.

Some people aren’t anxious to fill out forms or give credit cards or social security numbers online,” according to Federman, whose company provides click-to-call services for Amazon, DaimlerChrysler and Continental Airlines. Federman said that after switching from formbased leads to click to call, DaimlerChrysler cut its conversion time from 30 days to four days or less, and doubled its conversion rates.

Search engines and local publishers of Voice over Internet Protocol (VoIP) technology reduce the cost of click-to-call phone connections, Federman says. Consumers using dial-up connections may be hesitant to go offline to call an advertiser, but click to call using VoIP enables them to instantly converse online. Technology developed by eStara automatically checks to see if the consumer’s PC has a microphone, and if so, launches a VoIP window.

While clicking an ad to talk live with someone is a “lower barrier to action than picking up the phone,” according to The Kelsey Group’s Sterling, consumers are not yet comfortable with making calls through their computers.

However, the rise of inexpensive VoIP services from Skype and Vonage could change consumer perception. “When VoIP is mainstream, you may start to see ads with phone icons (that initiate PCbased calls), but that is years away,” Sterling says.


JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, Alter- Net.org and in MIT’s TechnologyReview.com.

Vinny Lingham: Playing the Angles

Vinny Lingham’s career as a marketer started early. In kindergarten, he made money buying Thundercat stickers and selling the popular ones. In his early teens, he switched to cricket cards and then Magic The Gathering cards. In college, he partially financed his undergraduate studies by playing pool and managing and booking bands.

So it’s not difficult to see why the entrepreneurial aspect of online marketing appealed to him. In 2001, he caught the bug while he ran the search marketing department for a company that marketed on behalf of online casino clients, which had a large paid search budget.

Two years later he left to start his own company. Lingham is the founder and chief strategy officer of incuBeta, an online marketing company based in Cape Town, South Africa. incuBeta owns the super-affiliate Clicks2Customers.com, a paid search marketing company, incorporated in the United States, which specializes in directing targeted traffic to its clients’ sites and is one of Commission Junction’s top five performers.

With more than 50 full-time employees, incuBeta is on track to generate eight-figure commissions this year, as well as over $100 million in sales for its merchant partners. The company was a recent winner of Business Day’s Most Promising Emerging Enterprise in 2005.

Lingham started the company in 2003 with two friends and his then-fiancee, Charlene Troskie, who is now his wife and focuses on new development within the company’s campaign team.

It’s not easy working with your spouse – especially when you’ve been married just over one year, recently bought a house and make an international business trip every month. But Lingham feels that the toughest part of being employed at the same company is trying to keep shop talk from seeping into their home life.

Still, the line between his business and personal life is blurry. The self-described workaholic says he is online 24 hours per day and works 60 to 70 hours per week. He is often toiling at home into the night to keep up with clients on the west coast. Lingham estimates that 25 percent of incuBeta’s clients are in the United States, where he travels every two or three months.

Despite all the traveling, Lingham does not feel that his company’s location in South Africa is a disadvantage.

“Cape Town is considered the ‘Silicon Valley of South Africa.’ And we’re pretty close in time to London,” he says, which is where 60 to 70 percent of incuBeta’s clients are based. The only real issue is having to hop on a plane to get the interaction with clients he feels is so important. “The power of face-to-face is indefinable. But we’re a global company, so we’d have to travel wherever we were.”

Only one thing about traveling so much really bothers him. “I hate airports – taking my shoes off, waiting in queues and taking my laptop out of its case.” He’s also learned not to combine leisure travel with business trips, ever since work forced him to cancel the holiday portion of a trip last year. He did, however, manage to get away for his honeymoon, where he was “forced not to work for 10 days. I only signed on twice in all that time ” it drove me a little crazy.”

When Lingham does have spare time, he likes to spend it watching movies, including “Tsotsi,” which not only won this year’s Academy Award for Best Foreign Language Film, but was co-produced by Moviworld, a company that received investment from TEIM Ventures, the same private equity firm that provided incuBeta with crucial development capital.

Lingham is also a big reader – he’s read all of Dan Brown’s books and loves them. He’s also a big Tom Clancy fan. And his favorite book, Rich Dad, Poor Dad by Robert T. Kiyosaki and Sharon L. Lechter, reinforced his existing viewpoint that there is a huge difference in the mindset of the haves and have-nots.

Originally from East London, a city on the east coast of South Africa where his parents still live, Lingham is happy only when he’s learning. In addition to his more-than full-time job, he is also studying for his Master of Science degree, which will likely conclude with a thesis on incuBeta. He’s also interested in getting an M.B.A., but only in the U.S. His ideal school would be somewhere in the Silicon Valley, where he’s interested in spending a few years to grow the business.

Lingham was recently invited to join the Society of Industry Leaders, which provides knowledge and information to Vista Research, a Standard & Poor’s company. He also belongs to Mensa, defined on its website as “the international society that provides a forum for intellectual exchange among members.” But Lingham thinks the formula for selection is flawed. “I know my IQ but I don’t put a lot of faith in it. It’s your mental age divided by your chronological age,” he says, claiming that means the older you get, the lower your score becomes.

He considers Virgin founder Richard Branson a role model. “We’re similar in many ways, but I’m not as crazy as he is. He has a fantastic brand. Some of his companies have worked and some haven’t. But he does it because he enjoys it – for kicks. It’s a passion. It’s not about the money.” Other mentors include a former manager who inspired Lingham to study at Harvard one day, and Bono of the Irish rock group U2, “because of the work he’s done in Africa and for Africa.”

Lingham is a fourth-generation South African, whose ancestors hail from India. He does not consider himself religious, but says, “I was born Hindu, but I tend to focus more on the spiritual aspects of the religion (Karma, etc.), as opposed to the religion itself.” As for politics, he thinks he has “far too much candor to be a politician, but maybe I’ll become president of South Africa one day. Who knows?”

Proud to Be a South African

Lingham says there’s a lot of erroneous information circulating about his country in terms of drought, poverty and AIDS. “The Rand Water Board has one of the top three water supplies in the world,” he says, referring to the 100-year-old water utility that services South Africa. “Our economy is growing at 6 percent a year and all the urban and semi-urban areas, which house 70 percent of the population, can be considered ‘firstworld’ by many standards. The AIDS contraction rate is actually at a decline in South Africa, according to the latest statistics,” he says. And while the CIA World Factbook lists the poverty rate as 50 percent, Lingham says that is incorrect because “it doesn’t take into account PPP (purchasing power parity) or currency differentials.” Lingham says, “The poverty rate has dropped to around 20 percent, which is exceptionally low for a developing country, but is still obviously not ideal.”

Lingham also feels his country’s low life expectancy rate of 43 years is misleading. “The average is skewed by the number of AIDS babies that are born that die at a young age,” he explains. “It’s not an ideal number, but I guess that’s one of the things that the government is working on. Countries in Africa need relief from first-world debt in order to focus on issues like healthcare and poverty. Bono deserves his Time Person of the Year award for the work he has done in order to drive this forward.”

Lingham loves the weather, the people and the sports of his country. “I will probably spend a few years living abroad before finally settling down and having kids, but South Africa is my home and I truly enjoy living here – it’s a beautiful place.”

Lingham’s passion for his country is matched only by his passion for his business as a performance marketer. He even has a blog – VinnyLingham.com – where he discusses industry issues and events that he deems important to the online marketing community.

The Company He Keeps

In the beginning, Lingham and his associates needed a name for their new company. “We were looking for a word that embodied a start-up company looking for opportunistic ways to grow Internet businesses,” he says. Unfortunately, their first choice wasn’t available. “Someone suggested the name incubator, but obviously, the .com was taken. But incuBeta wasn’t – and seeing as technology is almost always in beta, it stuck.”

Clicks2Customers.com’s traffic comes from search engines – primarily Google and Yahoo. The company works with three affiliate networks: Commission Junction, TradeDoubler and LinkShare. Lingham’s company has had a relationship with CJ since its inception three years ago and was honored with the network’s Award for Innovation in 2004. Lingham’s site works with merchants with defined metrics (leads, sales, etc.) to generate traffic.

But don’t call him an affiliate.

“The term ‘affiliate,’ as it relates to online, was coined back in the day when Amazon and Barnes & Noble were paying commissions for clickthroughs on banners that resulted in sales for their sites. That was almost a decade ago,” Lingham says. “We’re performance marketers.”

Lingham wants incuBeta to become “the biggest performance marketing company – not just an affiliate.”

Given his fervor for the industry, that seems like a real possibility. “Nine times out of 10, we beat in-house and agency bids because our margins are better,” he says.

Lingham says he feels incuBeta is almost guaranteed to succeed, since the company has built-in motivation – it uses its own money to make clients’ projects work. The company is also growing and expanding. It’s opening an office in the United Kingdom this month, which will join the small setup in Woodland Hills, Calif., the Cape Town headquarters and the office in Johannesburg, which is considered the financial capital of South Africa.

Still, finances were once a huge challenge.

“When we started out, cash-flow management was the worst green-eyed monster,” Lingham says.

The difficulties stemmed from paying Google up front for search engine marketing costs, then waiting 60 days for a check.

“You can’t pay your debts with future profits,” he says.

The second-biggest issue was growth – the number of people working at incuBeta increased so rapidly that it became hard to create a functional business culture. But it was Lingham’s previous career ups and downs that made it all possible. “incuBeta wouldn’t have been started unless I had the experience I had. I believe if something doesn’t work, try something else. Failure is only a bad thing if you don’t learn from it.” Another challenge for incuBeta is being able to react to new developments in the search marketing field.

Flexible and Focused

“This industry is new and young, and when the rules of the games change every month, you have to be flexible,” he says.

“I think our biggest success has been in the paid search marketplace. Our focus is on the end user and delivering high-quality and targeted advertising. Whenever the search engines, especially Google, make a move to release new features or functionality, like quality scores or the affiliate policy, which relate to the user experience and relevancy, it always improves our performance because we both understand that user relevancy is the key driver in the search marketplace, and our business focuses on such,” Lingham says.

One thing that isn’t a problem at incuBeta is the dress code. Since only one of the company’s clients is based in South Africa, the office is pretty casual. “Cape Town is a beach town,” says Lingham. “Some employees are surfers and come to work after their morning run. Jeans are considered formal,” he jokes. Despite the laid-back environment, incuBeta is serious about business. Lingham has faith that his company can achieve great things and believes it is well on it way.

His definition of success includes helping South Africa lower its high unemployment rate (estimated to be 25.2 percent by the CIA World Factbook) by adding jobs to the local economy. He would also like to be a philanthropist, “investing in social community projects and education projects, and finding a cure for AIDS.” incuBeta is still a bit too new to be able to give much back to the community, but Lingham says they do participate in “charitable donations. It’s something we want to do more of going forward.”

Lingham says the Internet has made that a real possibility.

“Marketing has always been a relationship thing with no accountability. Performance marketing is different. The beauty is information for results – you can see what you’re getting for your money. If you can find things that satisfy advertisers, you can be successful. You can do it yourself. It’s the cradle of innovation on the Internet.”

A Failure to Communicate

There’s plenty of communication, but most of it’s ineffective.

Communication at its most basic level is the exchange of ideas and information. Seems simple, right? Like most things that involve people and processes, it’s not always as straightforward as it appears. Communication is part art, part science, part X factor. Getting it right is not easy. And when things go awry, it can be a hugely frustrating experience for all involved.

This appears particularly true in the online marketing space where the ability to clearly and effectively convey and share information between various groups is hampered by complexities, technology and just plain information overload.

In order to operate effectively, publishers need to get creative materials and up-to-date offers from hundreds of advertisers. Merchants and advertisers often rely on affiliate networks to act as the middleman in contacting their publishers. Publishers need to deal with online agencies and communicate with the networks to track their commissions. The networks have to stay on top of both their advertisers and publishers. It’s very complex and can become difficult.

“The state of communication and general communication throughout the industry is a big problem. It always has been,” according to Linda Buquet, an affiliate management consultant and president of 5 Star Affiliate programs.

That sentiment is prevalent.

“I believe in communication advocacy and relationship marketing – affiliate marketing is lacking that,” says Richard Lewis, president of ReturnOnAffiliate.com.

“Communication is a big issue in the community,” says Adam Viener, president and CEO of search marketing firm IMWave. “On one hand, each affiliate manager wants to communicate better and more often with affiliates. But affiliates want to deal with hundreds of merchants and yet they do not want to have to deal with everyone.”

Viener adds that there is information that is critical to his business that needs to be more effectively communicated to him, but it is often buried in a mountain of other communications that are informational but not urgent or necessary.

“I need to know if there is a change in the terms of an agreement or if someone I’m dealing with is moving – those are the kinds of messages that if I don’t see, I’ll lose money. But many of the messages I get are about opportunities to make more money,” Viener says.

Email Overload

There’s no lack of information available to everyone and methods abound for getting your message directly to your intended recipient, including email, RSS feeds, instant messaging, blogging, newsletters and even the telephone.

If you’re like the average connected person, or the average online marketer, email is your preferred mode of communication and your inbox is overflowing – even after the junk and spam mail filters have done their jobs. The average online marketer is likely to receive hundreds of emails per day.

IMWave’s Viener claims that at one point in early February, his inbox had more than 2,100 unread messages – dating back to November 2005.

“Every once in a while, I miss an important message and I’m not notified when there is a new message. That’s why instant messaging is so good for me,” he says.

That’s what prompted him to create the Affiliate AIM List (affaimlist.com), a list of the AOL Instant Messenger handles of people in the performance marketing space. Members opt to sign up and are then added to the buddy lists of all other members. That allows everyone on the list to see who is offline or logged into IM and then contact them directly (see Revenue March/April issue).

The Affiliate AIM List was created by Viener to facilitate communication among the many different parties comprising the affiliate community. Viener, a longtime fan of AOL Instant Messenger, thought the communication tool would be a great way to foster better and more frequent communication between people.

The list is not a moneymaking vehicle but more of a community service, Viener says. To date, it’s been well-received, and has 250 members. In April he launched AffiliateSkypeList.com as another way to boost communication.

“There has been a dichotomy between merchants, who want the most communication, and the affiliates, who want the stuff, but feel it’s very hard to control the volume,” Viener says.

Getting Personal

Instant messaging works for many, but Shawn Collins, president of Shawn Collins Consulting, says that IM is a more personal communication tool and that using it to send out mass IMs is irritating, impersonal and turns him off.

What irks 5 Star Affiliate’s Buquet is spam. “First and foremost with affiliates is reading emails and not knowing if they are spam they should be filtering or an important program announcement,” she says. “Then you end up having to go through the junk filter.”

Buquet adds that even with all the email rules and filtering offered by most applications, many affiliates still complain of being overwhelmed and bombarded with emails and unfortunately, “some affiliates aren’t very good at organization.”

On the flip side, most program managers don’t think beyond using email. They continue to contribute to the flood of email as it’s the easiest way to communicate quickly with a large group of people.

“With a lot of the affiliate managers, it never occurs to them to go beyond email and that thinking is flawed in so many different ways,” Collins says. “People are not opening email. How about picking up the phone more and engaging affiliates? Also, there’s RSS or direct mail. Just touch base with affiliates on a regular basis.”

He says that it’s also easier to catch less-than-scrupulous people on the phone. “If you have a reason to believe that someone is doing something questionable with affiliate links, you should call and ask them questions,” Collins says. “You can tell by the tone of their voice and the way they deal with you. It’s a much easier way to get a read on someone when you are communicating with them by phone than when they are sending you a prepared statement in an email.”

According to ReturnOnAffiliates’ Lewis, it’s not about how many parties you have to communicate with, but rather the effort that is put into those relationships. “Affiliates often feel like they are just a number,” he says. “I believe affiliate managers will get more out of affiliates if they communicate on a professional level and understand the person they are dealing with. There needs to be more respect for each other’s needs and that includes communicating in a way that is best for each affiliate. For some, that might be a phone call. For others, it might be email and still for others, newsletters.”

There are several things Lewis is unsure of when it comes to the fine art of communication, but one thing he’s sure of, “Communication is the end and the start, and it has to be free.”

Monkey in the Middle

But sometimes it’s hard for any two parties to interact directly with the networks, which are often acting as the middlemen between merchants and publishers.

“The networks get in the middle of merchant-to-affiliate communication to impede direct communications,” Buquet says. She suggests RSS as a way to get around that problem.

“One of the solutions that is an important piece of the puzzle is that the networks and the merchants aren’t using enough RSS,” Buquet says. “But it’s a chicken and egg thing. Not that many affiliates are using RSS feeds, because not that many merchants offer them. And merchants aren’t offering them because affiliates aren’t using them.”

LinkShare also noted the communication gap as an issue at the company’s annual LinkShare Symposium, held in January. Then senior vice president Steve Denton, who has since been named president, offered up some possible solutions from the affiliate network. One of these was a future version of its platform that requires publishers to read their messages right after logging in to the interface, and would not permit them to check other things until they view the messages.

Utilizing the Forums

Many industry watchers claim that forums offer a good way to communicate with partners. A multitude of them exist, and most often companies with big programs have their own designated spaces on these forums to directly relay information to their affiliates and partners.

But some say that many of the bigger, more established forums have taken on a culture of mean-spiritedness. Many blame anonymity for that. While the ability to post under a screen alias provides some freedom – especially if you are criticizing a company you do business with – it also can be abused by others to make unsubstantiated claims.

“If you are saying something on a board, you need to let people know who you are to be taken seriously as a professional and have others value the board as a business tool. Otherwise, it’s just a lot of people trying to point blame rather than debating important issues. There’s no real value to that kind of communication when you don’t know who is asking the questions and who is providing the answers,” ReturnOnAffiliates’ Lewis says. His social networking site started in January 2006 as an alternative to existing forums.

Several sources declined to speak on the record about specific forums for fear of public recrimination. However, many sources that requested anonymity cited ABestWeb.com as an example of a space they did not consider overly friendly or tolerant.

“There are all different types of forums and the mood of the forum is usually much like the personality of the forum leader. It’s like corporate culture based on leadership. If the guy at the top of the company is mean and hard to deal with, then likely so is the company. On the other hand, if someone is an empowering leader, that filters down. The culture is not only that of the forum owner and administrators, but the moderators as well, since they typically have the same ethics as those that hired them,” says one source, who asked not to be named.

Buquet, who is the founder and moderator of the WebProWorld affiliate forum, as well as the moderator of the affiliate forum at Search Engine Watch, posts regularly on approximately 30 affiliate and webmaster forums per month, answering affiliate marketing questions from both affiliates and merchants.

Often called the “Forum Queen,” she says it’s a well-known fact in the community space that one of the best ways to gain attention and notoriety for a forum is with flaming and saying something negative about a popular person or figure. “Sometimes the nice forums are not dicey or exciting enough for some people,” Buquet adds.

For merchants to cut through the clutter and noise in forums, she says, the most basic rule is to choose to participate in a forum that is moderated. Otherwise, the forum can turn out to be a “spam house” and merchants will just be lost in the promotional noise.

One idea currently floating around is working with the bigger affiliate networks to create their own proprietary mini-social networks. The way it might work, according to one proponent at an affiliate network who asked not to be named, is that the networks would offer all the communication facilities and tools used in the existing industry forums (blogs, mail, message boards, etc.). But the main topic of discussion would be issues related to the network rather than general performance marketing subjects.

“It could build value for affiliates and bring the merchants and network closer to affiliates,” the source says.

However, if you have an opinion or information that you’d like to communicate, but aren’t interested in expressing in a more public forum setting, there’s always blogging.

Blogs don’t need to be public. Merchants or affiliate managers can set up a blog with an RSS feed that is sent out only to a specific set of individuals. Many likened this approach to an updated version of a newsletter. Such blogs can be used to convey information about a program, announce changes in creative, publicize new promotions, highlight top performers or offer tips.

Personal blogs by people in the industry also allow communication of ideas.

“Anyone can blog,” Lewis says. “There’s no gatekeeper and the blogger can share their feelings about their work and the industry without too much worry of backlash.”

Sharing Is Caring

Still, many in this market space claim that giving up any information about their business is harmful. Because the barriers to entry in the online marketing space are relatively low, revealing the secrets of exactly how you achieved success is not seen as smart business (see Revenue Volume 2, Issue 7).

But others believe by sharing information you will help the industry grow and thus ultimately achieve even bigger success for your own company. Collins, Buquet and Lewis all claim that is not just part of their personal philosophy, but a key component in how they conduct their respective businesses.

Buquet, who launched her forum in July 2005, says it’s “goal oriented” to promote “positive success.” She wants her members to work together and share ideas.

“It’s an interesting human phenomenon to do things for the right reasons,” Buquet says. “The more you give, the more you receive. I try to empower people.”

Collins agrees. “People don’t really see the need or benefit to help people. It’s way too easy to be selfish and keep secrets. But sharing really does pay off. Giving benefits the overall industry and leads to more quality programs,” Collins says.

He attributes much of the success of the twice-yearly Affiliate Summit conferences he co-hosts to helping others. “I think I did the right thing,” says Collins. “I shared with people, without giving too much away and my business is growing. It’s a pay-it-forward thing.”

Be a Mentor

Collins has been helping people on an informal basis for years and now he’s working to formalize a mentoring program that would have industry leaders working directly with others. The idea is that the leaders would share their experience and knowledge, acting as role models and offering inspiration.

Collins says it’s a grassroots effort that started in 2001, when 30 online marketers in the New Jersey area would get together and simply talk about issues. He claims it spread to other regions, but was never formalized and eventually sort of faded away.

“It would be great to resurrect it. It became too onerous to organize people for the meeting, the meeting space, the food, etc., so it just fell off,” Collins says.

With the explosion of social networks, Collins believes that people are looking to connect in a more personal way with other like-minded folks. This time around, he’s looking for a more one-on-one connection and likening the new idea to the Big Brother Big Sisters mentoring programs.

His idea is to get industry leaders in various geographic locations to agree to participate and then connect them with someone within a 20-25 mile radius. The two would meet periodically to discuss whatever business issues they choose. Of course, people in competing businesses would not be paired up.

“It sounds like a wonderful idea. People respond best to people they can relate to, as well as if they care about you as a person,” says ReturnOnAffiliates’ Lewis. Beth Kirsch, group manager of affiliate programs at LowerMyBills.com, is working with Collins to get the program off the ground. “I’m happy to do anything that will improve communication between parties in the online marketing space,” says Lewis.

Collins is also pairing up people at his conferences. He’s attempting to facilitate the schmoozing aspect of the conference by holding formalized social networking sessions that allow attendees to request mini-meetings with other attendees they would like to meet. It’s like speed dating for the business conference crowd. By starting a dialogue between the attendees, Collins believes he’s helping improve industrywide communications.

Most agree that despite the lack of communication in the industry, things are looking up. There are many vocal performance marketing players from all areas working hard to rectify the problems using a combination of existing tools, new ideas and emerging technologies. This could bring some much-needed sanity and repair the communication breakdown.

TV Tunes In

Broadcasters are jumping on board the online bandwagon as bandwidth makes video a reality for users.

Television networks have spent much of their 60-plus-year media reign continually adapting their revenue models for new delivery platforms such as cable and satellite. After many years of hoping that interest in multimedia Internet content would fade as quickly as sitcoms featuring former Seinfeld stars, the networks are now fully embracing online video distribution.

Now that online consumers spend just as much time at the keyboard as with the remote control (14 hours per week, according to JupiterResearch), the TV networks are joining the party. The top networks are creating custom content and partnering with online media moguls to develop streaming and download services.

Making even a fraction of the vast reserves of current and archived television programming available through streams or downloads to portable media players and mobile phones will greatly increase the partnership and revenue opportunities for online advertisers, search marketers, publishers and affiliates.

Video Takes Action

The networks’ initial forays into distributing content online primarily featured clips of programs that were distributed for free and without advertising.

News dominated the early offerings from CNN, MSNBC, Fox and the big three broadcast networks (ABC, CBS, NBC). NBC was the first network to stream an entire regular newscast, when it launched its webcast of the NBC Nightly News with Brian Williams.

Late last year that trickle of content became a steady stream, thanks in large part to Apple Computer. Apple sold more than 1 million video downloads within the first three weeks of its iTunes video store opening in October 2005. Over the next few months Apple signed deals to sell downloads of TV programming from NBC, USA Network, ABC, Disney, Showtime and others through its iTunes service for $1.99 per program.

The global market for pay-per-content broadband was $360 million in 2005, and it is expected to skyrocket to $7.5 billion in 2010, according to ABI Research principal analyst Michael Wolf.

He says that previously the networks were wary of putting premium content online, afraid it would cannibalize their broadcast efforts, but Apple’s successful introduction of a new version of its iPod that plays video files convinced the networks of the feasibility of selling television content online.

According to Wolf, the most dedicated followers of popular TV shows such as Desperate Housewives or The Office are likely to also be active online media consumers.

CBS’ website had the most unique visitors among video publishers, followed by MSN Video, AOL Television and Yahoo TV according to December 2005 data from Nielsen//NetRatings.

In order to broaden the reach of video content beyond their own websites, the TV networks are turning to search engines and portals to distribute content. CBS partnered with Google to sell downloads of some of its top-rated shows including CSI and Survivor as well as “classic” shows such as The Brady Bunch and I Love Lucy through the Google Video Store. Disney is developing a broadband channel that could make up to one-quarter of its prime-time offerings available on demand.

America Online is offering old TV shows from parent company Time Warner including Alice, Chico and the Man and Wonder Woman. AOL also purchased video search engine Truveo in December 2005. Yahoo is teaming up with actors/producers Matt Damon and Ben Affleck and reality show guru Mark Burnett to develop an online reality show called The Runner.

However, the online video market still has some things to learn about alerting consumers to its offerings. Unlike television viewers who have several options to find programs of interest, online consumers are currently dependent on search to find programs.

To find what’s on broadcast and cable TV, viewers can look to TV Guide, newspaper listings, online programming guides and advertisements on the networks themselves. Currently, it’s the early days of television distribution on the Internet, and video search engines from Google, MSN, Yahoo and AOL do not offer TV directories or guides. Instead users are primarily using search boxes. Users plug in terms and hopefully find what they are seeking.

The next 12 to 18 months will be the prime time for the expansion of television programming online as the networks and search engines reach out to large and niche publishers to aid in content distribution. But the portals are not alone – specialty video search engines including TVEyes.com and blinkx.com are challenging the biggest players for a share of the advertising revenue from online television programs.

San Francisco-based blinkx has signed up E Entertainment, BBC, ABC, NBC, HBO and British news broadcaster ITN to deliver TV programming through its video search engine. blinkx CEO Suranga Chandratillake says, “2006 will be about telling other people to put our search on their sites.” The company is also partnering with performance marketing network Miva to expand the distribution of its video search.

Publishers can “splice and dice” the blinkx television feeds to create custom channels that match their individual audiences and will be paid via a revenue share, according to Chandratillake. For example, publishers could choose to limit searches to celebrity news, or make available only content from the A&E network.

Chandratillake says that to simplify the indexing of content, the TV networks provide metadata describing each program. blinkx enhances the quality of the search results through speech-recognition technology that identifies the subject matter being discussed.

Arise Ye Networks

Although most of the current revenue from full-length TV programming is derived from subscription services or downloads, income from advertising-supported content is expected to rival payfor- content. Advertising revenue will come from banner and contextual ads displayed on search results pages, as well as video ads that appear within the program.

Since the beginning, advertising has largely financed consumers’ almost-endless appetite for television, and online it is likely to be the same. The advertising market for online video will reach $8.6 billion by 2010, according to ABI Research.

“Broadcast TV shows are filler between the ads,” Peter Carlin, a TV critic for The Oregonian newspaper, says. He recently attended the Television Critics Press Tour where the Internet rated “above ratings” as a leading topic of discussion. Figuring out how to capitalize on online video distribution is top of mind for many TV executives, Carlin says, as they are anxious to exploit the lucrative online audience that tends to be younger and slanted toward males.

Carlin says broadcasters are learning how to maximize their revenue from digital content by exploring relationships with search engines and portals, and by testing new advertising models. “Nobody wants to be like the Betamax of new media age” and be left behind, he says.

To fully exploit the possibilities, TV broadcasters must learn about search engine optimization, developing affiliate networks and performance marketing revenue models. Carlin expects that the networks won’t have a problem with taking lessons from the online experts. “Being entirely reactive is not something they are uncomfortable with,” he says.

Video Ad Specialists

Demand for video ads will also create a new industry of production companies and interactive agencies that specialize in developing and distributing video ads. Companies such as ROO, PointRoll and Eyeblaster will work with online publishers to place ads within their online and downloadable content.

Repurposing TV programming for online distribution could also ignite interest in interactive technologies that link from videos or advertisements to landing pages. The networks have turned to escalating the use of product placement within programming to offset some of the revenue lost to online advertising, according to Carlin.

American Idol has blatantly pitched Nextel’s wireless service and placed large cups with the logo of Coca-Cola prominently in front of the judges, Carlin says, and The Office has an executive producer whose job is to determine how to incorporate products into the storylines “without prostituting the show.”

Microsoft is developing technology for its AdCenter platform that will enable video ads or broadcasts to link directly to other websites and with new technologies. This could open the door for the interactive TV market that has been much ballyhooed for a decade.

Dollars Drive Creativity

The revenue generated from online video distribution is likely to affect the creative process by increasing the demand for content and opening up the market for short forms of content. Television networks will likely use feedback from their websites to assess the viability of existing shows as they debut new programs online first to gauge audience response.

Carlin believes online distribution “increases appetite for shows that are less obviously mainstream.” The TV networks are quicker than ever to cancel shows, and online metrics could give the networks valuable input in determining a show’s fate. For example, fringe shows like The Office may get more consideration by the networks because of their popularity online.

Cable channel Comedy Central is aggressively pursuing an online audience and will develop 24 new online-only programs this year, according to Lou Wallach, senior vice president of original programming and development at Comedy Central.

Comedy Central has developed a media player called the “MotherLoad” to showcase its repurposed and original content. Wallach says that comedy is well-suited for short-form videos (five minutes or less) that have become popular online. Comedy Central’s online lineup includes sketch comedy and parody shows, such as All Access: Middle Ages, which pokes fun at the black plague and the crusades. The short-form video will also give increased exposure to digital and stop-motion animation, according to Wallach.

Wallach says one video ad will be shown in between every four to five segments. In addition to banner and video ads, Comedy Central is also considering sponsorships and product placement as revenue options.

Artists are embracing the new format, Wallach says. “The talent community recognizes that this form is here to stay.”

During the next year, television broadcasters will shift from experimentation in online distribution to expecting positive returns on investment. There is a strong incentive for publishers and advertisers to work with them to successfully exploit the medium. If online video distribution fizzles, the networks will likely cancel their online programs and invest more in competing video-on-demand services delivered to televisions.

JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlterNet.org and in MIT’s TechnologyReview.com.

The Research Report

How online marketers use facts, figures and forecasts.

Studies, polls, reports, surveys, statistics and forecasts. Every day the latest data on the most current trends is widely disseminated and distributed. Want to know which demographic group is most likely to spend more online, to have broadband or to download music? There’s data out there that purports to have the answers.

There’s no dearth of data, for sure, but just how much of this mountain of market research is useful for online marketers who need to make crucial business decisions is up for debate.

Kathryn Finney, a.k.a. The Budget Fashionista, uses reports from Forrester Research and comScore to learn about the top sites in women’s apparel. This gives her an idea of “who to target, who to partner with and to get an idea of where the industry’s going.”

Joe Zawadzki, founder and president of Poindexter Systems, which provides online ad management services, is less convinced about the value of some market research. “Once that research is made public, the opportunity to capitalize on that information is gone. Private data is the key.” Zawadzki says public research does have its uses, claiming it’s good for sales and venture capital fund-raising.

Some merchants claim research is helpful to them in a variety of specific areas, including understanding the competition.

Catherine Paschkewitz, manager of Consumer Marketing at HP Home & Home Office Store, which has partnerships with Forrester, JupiterResearch, eMarketer, comScore and Hitwise, says HP wants to see how Hitwise is working with the competition, which helps to understand and plan campaigns.

“We want to see how we rate versus our competitors,” says Paschkewitz. “We also do studies around search behavior and research to see how we can further optimize our program.” HP commissions comScore to create some of this custom research, but also relies on its own customer base for information, overlaying Claritas data and performing usability studies internally.

“Research is part of a process,” she says. “One part is up-front planning – looking at affiliate sites via Hitwise to see their traffic and customer profiles.”

When the HP Home & Home Office Store launched its affiliate program, for example, the team wanted to make sure it would succeed, so they researched what was working for the affiliate market, and talked to affiliates, managers and merchants who had affiliate programs, in addition to looking at research on the subject, Paschkewitz says.

HomeGain’s Affiliate Manager Marie Nilsson says merchants often use research to start a campaign.

“[It] is actually a piece of your research project in a sense, if you document your findings, draw conclusions and use it for optimizing your future campaigns,” she says. “That’s the beauty of advertising on the Internet: Provided you have the right tracking tools in place, you are able to measure each move.”

Nilsson says that once you have some experience, the research process is easy.

“As a merchant, you understand how your channel works by launching campaigns and documenting every step of the way, noting all the details, such as placement, targeting, creative used, time of year, close rates, conversion rates, CTR, pricing, etc.,” she says. This type of data becomes your future research. “Every campaign can be looked upon as an individual test in a series which compiles a research project if you outline, structure and target your tests.”

HomeGain obtains its research in several ways. It gets monthly Hitwise information, which Nilsson says “is great for understanding what your competition is doing.” The company also internally compiles metrics and data. “We use census information, which is free. We also do consumer surveys on a regular basis, all in-house,” Nilsson says.

But not all research is relevant for a merchant’s business, according to John Joseph, Performics’ senior vice president of affiliate marketing. He claims that merchants are very interested in statistics regarding overall ad spend and retail figures. “A year from now, merchants will really start using the demographic info that’s available,” says Joseph.

However, the use of research appeared to be a sensitive subject for many merchants. Calls to BestBuy.com went unanswered. Representatives from Walmart.com and Target.com declined to comment, on the grounds that this type of information is proprietary.

The Affiliate Perspective

FatLens’ co-founder and president Siva Kumar says the research his company finds the most useful is “learning about other companies with similar challenges and business models to us. We meet with and share experiences with many of the marketing personnel of other companies.”

However, Kumar notes that, “While we have perused published research from establishments like Forrester and find the information interesting, the high-level nature of the reports is not as relevant for daily decision making.”

FatLens relies on its own traffic and revenue performance data as research, because it is the “best way of learning about what is working and what we should expect to see as results.”

He claims that this type of information is most critical to help FatLens in modifying its programs as well as experimenting with new methods of traffic and revenue generation. “Our growth as a company from inception to our current revenue and traffic levels over the last nine-month period is mainly due to the research we have done on the various online customer-acquisition techniques for similar companies in terms of market segment and business models,” Kumar says.

Melissa Salas, senior marketing manager at Buy.com echoes Kumar’s reverence for research.

“It’s essential for marketers to be well-informed about industry reports, analyst projections, shopping trends, product announcements and reviews, as well as critics’ remarks. With this knowledge, you can position your company to meet your overall business objectives.”

Salas claims that marketing campaigns benefit from research as well. “Being a multi-category retailer, it is imperative to stay on top of best sellers and new product releases so marketers can create specific promotions to gain market share,” she says.

Research = Understanding

“Consumer research leads to insight,” Greg Smith, executive vice president of media, insights, planning and analytics at interactive agency Carat Fusion, says. “It gives you ideas of where to place ads.” Smith cites a past campaign in which research led his agency to recommend positioning minivan ads on parenting and kids’ sites as well as on car sites.

Smith says Carat Fusion’s use of research depends on the client’s objective, be it marketing or branding. Marketing efforts are most always motivated by sales, so the results are measured in straightforward metrics and the agency can move from site to site until it finds the best results for the client. With branding, clients are usually looking to change perceptions and attitudes, which makes the process a bit more complex. Here, Smith would use research to define the target, and then figure out where to find that audience in large numbers. Later in the process, Carat conducts “follow- on advertising” to find out if consumers bought the advertised product. The results are then presented to the client.

Carat Fusion has relationships with AdPlan (owned by AGB Nielsen Media Research) as well as comScore, Forrester and Jupiter. Smith says the company also researches its campaigns by analyzing search results and chat rooms to find out how a product is thought of, and speaking to consumers themselves.

Going Deeper

Former JupiterResearch analyst Gary Stein, now director of client services at BuzzMetrics, has noticed a trend of late that companies are conducting deeper research on the front end. Syndicated search from companies such as Jupiter, Forrester and Fathom Online acts as “preventive medicine” for their clients.

Stein estimates that clients usually have 90 percent of their campaigns nailed down, with ads placed on high-profile sites, but that the remaining 10 percent is “haphazardly planned.” That’s where research comes in – to offer insights to fill that gap.

Some research is suspect, Stein says, such as financial surveys sponsored by brokerage houses. To find reliable data, Stein recommends finding an objective source with a good track record, looking at several studies and in the end, making your own estimates. It’s an economic issue for many companies, because to get a good survey sample, they have to pay for each person, says Stein.

Stein believes some research is misleading, not in the spin it receives or the headline it gets, but in the very questions it puts forth. For example, Stein sites one study that asked, “Would you use a Bluetooth-enabled device?” of consumers who were not likely to know what a Bluetooth-enabled device was.

The best surveys are those that are weighted properly, according to another former Jupiter analyst who asked not to be named. “Numbers are good, but demographic variables are better.” He claims that most surveys by the well-regarded resources are properly weighted (see Research sidebar).

Pulse of the People

Most research industry insiders note that the majority of statistics are garnered from the U.S. Census data, released every 10 years. One company that has census information to power its business is Claritas. Prizm NE (short for New Evolution) is the company’s signature product. Introduced in 2003, it’s updated whenever there is new census data.

Prizm NE is a segmentation tool that divides the population into 66 categories based on a “geodemographic system” revealing behavioral and consumer activities. The product uses the census as its primary source, but is also infused with data from private sources and other governmental data. The 66 categories, which include controversial names such as “Shotguns & Pickups,” change based on the census. When the last report was issued in 2000, 26 names stayed the same, bringing 40 new ones to light. The geography is based on zip codes, with the census data as the foundation.

“Our syndicated services definitely affect online marketing decisions,” claims Bill Tancer, general manager – global research at Hitwise, which resells Prizm NE data. Hitwise provides research including “benchmarks so customers can see where they rank, and click-stream analysis to see why they have that rank.” Hitwise also offers traffic information so clients can see how users are getting to their sites, as well as the sites of the competition.

The majority of online marketers obtain research from established companies in the field. But smaller companies are popping up with some new ideas. Cydata Services owns T3report.com, a site that spotlights products such as T3 Competitor Report and T3 Affiliate Report (see Revenue March/April issue). These products allow affiliate managers to get the info they need to copy competitors’ marketing plans and potentially poach affiliates.

Having worked exclusively in the adult entertainment industry to date, Cydata recently turned its attention to the performance marketing arena. While some may find the company’s tactics unethical, Cydata founder and CEO Brandon Shalton claims his company is simply providing a shortcut to success, even though he does admit it is “a very disruptive service.”

He likens Cydata’s clients to smart fastfood chains, which shouldn’t “bother with all the research – just move in across the street from McDonald’s, because they’ve already done the research.” Shalton believes the T3 products let you “advertise smarter.”

Joe Pilotta, Ph.D., vice president of Big Research, feels his company is offering a unique service as well. “We produce more of an index of what the influence is on category of merchandise purchased. Our clients don’t need click data, etc., because it’s not that important.” Pilotta says his company’s data is created by sales and future intentions, so it’s never static.

Big Research obtains its data from established panels, and occasionally invites offline participants, such as listeners from radio stations, to weigh in. The company conducts its Simultaneous Media Study twice a year, which analyzes 32 different types of media. To get a complete consumer’s point of view, the study surveys 14,000 to 15,000 people.

Predicting the Future

Just as research reports and surveys of past activities play a big role in online marketing decisions, so do predictions for the future. “Forecasts give a gauge of how to prioritize – is search as big as we think it is? People want verification that people are spending money on a sector and that it’s growing,” Shar VanBoskirk, senior analyst on Forrester’s marketing strategy and technology research team, says.

HP’s Paschkewitz uses forecasts to plan for her company’s future, but adds in the site’s own data to get a more accurate picture.

Like most industry watchers, who claim that forecasts play a more valuable role for publishers rather than retailers, Performics’ Joseph says merchants don’t really act on general forecasts, such as last year’s hype of the potential of the Hispanic market (see Revenue March/April issue).

Big Research’s Pilotta says his clients definitely use forecasts to make decisions. Since the company releases its Consumer Intentions and Actions forecast every month, his clients are working with “fresh data” from 10,000 people.

“We use forecasts and trend reports to ensure that our infrastructure planning is adequately matched to the expectations of the market, FatLens’ Kumar says. “The trends also help us judge relative performances of the various marketing channels we are using and adjust our spending according to industry directions.”

Buy.com’s Salas agrees. “Reviewing forecasts and trend reports is an important part of preparing for the future of your business. Our marketing team makes business decisions based on internal customer behavioral data in addition to accurate and reliable forecasts, trend analyses and competitive intelligence,” she says.

HomeGain’s Nilsson says her company watches trends in the online real estate and marketing fields.

“We see a big shift now from a seller’s market to a buyer’s market. It’s a nationwide trend – the question of 2006 in real estate is ‘The Year of the Buyer?'”

Nilsson’s company also keeps an eye on housing price trends in local areas, as well as changes in the competitive landscape.

“For real estate, smaller online players with great technology and VC [venture capital] backing, like Zillow.com, posed a threat in the beginning of 2006. We saw this coming at an early stage and answered with adding more local neighborhood data and by marketing our free home-valuation tool more aggressively,” she says. “Another example is foreclosed homes. A lot of homeowners have interest-only, adjustable-rate mortgages; they are going to get hit hard as rates rise, and a larger percentage will default and go into foreclosure. In anticipation of this, we’ve deepened our partnerships with the foreclosure companies.”

While many statistics are dismissed as obvious or hype, data often provides merchants, affiliates, analysts and even researchers themselves with an idea of how to improve their marketing messages and overall businesses.

The New Face of CJ: Q & A with Lisa Riolo

Commission Junction’s Lisa Riolo steps into a new role with some familiar responsibilities.

As Commission Junction’s senior vice president of business development, Lisa Riolo is responsible for driving revenue for the sales and business development teams. While she’s not technically filling Todd Crawford’s shoes, Riolo will be the new face of the affiliate network, taking on many of the same challenges as the former vice president of sales, who left in February.

Owned by ValueClick, CJ is based in Santa Barbara, Calif., and has tens of thousands of publishers in its global network. In the six years that Riolo has worked there, she has led the sales, client development, search and product management teams. In her new position, she manages the 25 people who make up the sales and performance optimization departments. Revenue Senior Editor Maria Sample recently interviewed Riolo about her company’s practices and plans for the future, as well as the affiliate marketing industry and the importance of understanding people.

Maria Sample Your predecessor was very active in the affiliate community (i.e., forums, message boards, etc.). Do you plan on continuing to be Commission Junction’s face in those arenas?
Lisa Riolo Actually, the organizational structure introduced by our general manager, Tom Vadnais, positions me in a role that hadn’t previously existed. So, fortunately, I’m not faced with the challenge of having to fill someone else’s shoes. I do recognize that, since its earliest days, Commission Junction has relied upon one or two individuals to convey most of its messages. In the future, I think the affiliate community will hear and see us take more of a team approach.

MS Todd Crawford (the former vice president of sales) was considered the public face of Commission Junction. The downside of that is that he often took the heat from angry and upset affiliates. Are you prepared for that? And how will you handle those sorts of public (and sometimes personal) attacks?
LR I believe passionately that Commission Junction achieved greatness because of the publishers. I’m very open and prepared to listen to them. It’s been part of my role for the past six years.

If I end up the target of discussion, that’s OK. I’ve found that frustrations expressed reveal great opportunities to learn and improve. I tend to worry more about silence than I do about rants.

MS Part of your responsibilities include increasing Commission Junction’s market share. What plans do you have to increase market share over the next 12 to 18 months?
LR Our vision has consistently included a global perspective, and in the last 18 months, we’ve expanded our European presence from the U.K. to Germany and France. In 2006, we plan to launch offices in more countries in Europe, and continue to leverage opportunities we have in Asia.

We’re also committed to improving our clients’ experience in the CJ Marketplace. As we make it easier for them to extract information and interact with our product offering, we’ll attract new participants to our business.

MS What about plans for driving new revenue?
LR Our current plans fall into three categories. Last year, we expanded our service offering to better meet the needs of our advertisers, especially those selecting the CJ Access service level. We see additional opportunities for services that benefit other segments with our client base. Next, we’re exploring opportunities for leveraging new distribution channels created by technology innovation. And finally, we’ve reaped great benefits by collaborating with other teams in the ValueClick family of brands and plan to continue to do so.

When you look at the ValueClick products and expertise, you’ll see we have a compelling story. When you look at the metrics from just a couple of our cross-divisional efforts, you see the type of incremental lift that generates real excitement on our part.

MS What threats, if any, does the sudden proliferation of ad networks present to Commission Junction?
LR Ad networks have existed for years, some of which we’ve had relationships with for a long time. We don’t see ad networks as a threat, per se. They offer value that complements what we do at Commission Junction. We see that from our collaboration with our teammates at ValueClick Media, who run the largest independent display ad network in the U.S. The more monetization opportunities we can offer our publishers, the happier they are and the more they want to work with us.

The fact is, as heard from several outstanding publishers, they go where they get the best return on investment [ROI]. Commission Junction must understand and optimize every component of the ROI equation, from payout to time spent in our member area.

MS Can you outline the risks and benefits of sub-affiliate networks?
LR From an advertiser’s perspective, the benefits are a) you’ve potentially improved your efficiency because you’ve outsourced part of your relationship management responsibilities, and b) the sub-affiliate network may generate significant volume and extend your reach. The two primary risks of working with subaffiliate networks are a) you’re typically paying a premium for “aggregated” transactions, and b) you often do not have good visibility into the promotional methods used by the “subaffiliates” which, in all likelihood, will challenge quality standards.

From a publisher’s perspective, the benefits offered include higher commissions and often, faster payouts. The downside is productive publishers that don’t have direct relationships limit their ability to demonstrate their value. Hence, negotiating exclusive offers or higher payouts is difficult. The other risk for publishers is that, often, the sub-affiliate networks are not only outsourcing to other affiliates, but also competing with them. How often does a subaffiliate’s transaction get attributed to the network or super-affiliate?

MS Andrew Jacob, Leadpile’s CEO, seems to think his company’s Centralized Online Lead Marketplace could take the place of Commission Junction. Recently, he referred to his offering as an alternative to “traditional, old-fashioned affiliate marketing programs like Commission Junction.”
LR Isn’t it fantastic to operate in an industry where someone references a company that hasn’t celebrated its 10th anniversary yet as “old-fashioned?” Anyway, my response in these situations is usually the same: I pay attention. I never dismiss the potential importance of a future or existing player in the space. If you’re still in business, the game never ends. You’re always competing and you always have to scout and monitor what else is out there – and why. You won’t catch me not paying attention.

I do look for potential issues with other networks. For example (and acknowledging that it’s still early on), Jacob hasn’t illustrated how he plans to manage quality and scalability from the advertiser perspective. If you can’t drive and manage large-scale results on a reliable basis, you can’t drive value for your network participants. And a bid-based pricing system alone doesn’t really resolve all of the issues around quality. Nor can he simply assert, “Our sellers provide high-quality leads” with no basis. Even if the prospective customers Leadpile provided to its past advertisers were of acceptable quality, it’s a completely different thing to build a quality network.

So, it’s about quality, efficiency and scale, and no one in the affiliate marketing industry has driven all three of these as well as Commission Junction.

MS What does Commission Junction have that the competition does not?
LR The first thing we have is market-leading scale. Commission Junction is a global leader in performance-based marketing, and is the No. 1 provider of affiliate marketing managed services. Second, our commitment to upholding quality standards within our network of advertisers and publishers is unparalleled. We are the only network that has a team dedicated to monitoring and enforcing our Code of Conduct and Service Agreements. We are a trusted third party that continually strives to build and retain our clients’ (and future clients’) trust and exceed their expectations.

Third, we provide more transparency than the competition. The CJ Marketplace is the only network that openly publishes the performance metrics of advertisers, publishers and ads, allowing for a results-driven environment.

Fourth, as part of ValueClick, we can introduce our advertisers and publishers to a broader set of solutions that help advertisers meet their various online marketing goals and publishers monetize their online presence.

MS Why does Commission Junction use the term “publisher” instead of “affiliate”?
LR When we made the change from “affiliate” to “publisher,” we introduced the CJ Marketplace with the intention of influencing online marketing beyond the affiliate world. So, we adopted terms more commonly used by the ad networks. We also switched from “merchant” to “advertiser.” The strategy worked well and we have caught the attention of a broader group of online marketers.

MS How often do you interact with publishers?
LR During the past six years, my primary responsibilities involved developing our clients – both the advertisers and the publishers. When it comes to personal interaction, client meetings reflect about a 70/30 split between advertisers and publishers. Typically, though, I spend more of my time in the publisher meetings. At our annual client-facing event, Commission Junction University (CJU) and other industry events, I focus my attention almost exclusively on publishers because I need more data points from that group to understand if, and what, trends exist.

MS What makes an affiliate/publisher a “super-affiliate” at Commission Junction?
LR There are several attributes, including commissions earned, that earn publishers a CJ Performer designation. Generally, I’ve found the highest performance levels represent the top 5 to 10 percent of a program or network’s participants.

MS What traits do super-affiliates/publishers possess that separate them from the others?
LR I almost always see a balanced blend of entrepreneurial spirit, technical ability and creativity among this type of publisher. They are goal-driven and usually set aggressive benchmarks. The one unique quality I see in those with a long track record of proven results is a greater focus on flexibility than massive scale.

MS What type of online advertisers/companies do you work with?
LR We work with 1,700 advertisers. There isn’t a specific type of advertiser that we work with – we attract a broad spectrum of advertisers from small, regional businesses to global brands and from all industries.

MS What rate of measurement works best for advertisers? Publishers?
LR ROI and ROI.

MS What do you think publishers could be doing better?
LR On the whole, publishers tend to focus on attracting consumers that have already progressed toward the decision-making phase in the purchasing cycle. I think they could improve their ability to effectively move a consumer through more of the earlier phases in the purchasing cycle.

MS What do you think online advertisers could be doing better?
LR Advertisers should focus on managing their spend and resource allocation across channels. Too often I hear the statement that affiliate marketing generates the best RoAS [Return on Ad Spend] coupled with the assertion that the channel isn’t capable of producing comparable “volume” to their other channels. Managed properly, as evidenced by a number of savvy advertisers in the industry, the affiliate channel can effectively outperform the alternatives – including search and portal deals.

MS What do you like about performance-based marketing?
LR Both the left and right sides of my brain get stimulated by this work. I love the analytics and seeing the big ideas unfold. You might think the accountability in performance-based marketing, with its focus on metrics, would discourage creativity. I think it’s quite the opposite. Driving results, on a pay-for-performance basis, forces a level of effectiveness that demands creativity. I think the publishers are often at the leading edge of change and innovation.

MS What do you dislike about performance-based marketing?
LR When you compare results across marketing channels – the standards set by performance-based marketing should prevail. Yet I still see advertiser clients having to fight, internally, for budgets and resources. If the team involved is properly monitoring for quality, then blowing through a “budget” should equate to blowing through sales goals – and that’s a good thing, right? They should be feeding the revenue machine.

MS Are you involved in Commission Junction’s Internet radio show, “Affiliate Marketing Today”?
LR Yes, I participated in the decision to produce the show and it launched on March 21. Our team changed the broadcast format to take a unique approach in that it covers the continual changes in the industry, with both an advertiser and publisher perspective across beginner, intermediate and advanced levels.

MS What’s happening in 2006 at Commission Junction – any big changes?
LR This year is very exciting for us and our clients. We have some significant projects in our pipeline. Also, I mentioned earlier we plan to launch in some additional European countries this year.

MS Do you think Yahoo’s ban on trademark bidding will have a big effect on SEM?
LR Right now, a conflict exists between brand marketers and performance marketers. The assumption is that you are either creating awareness or driving sales. Actually, both channels should benefit the other. I think pricing models and ROI metrics, rather than restrictions, are the best way to manage the effectiveness of a channel. As marketers’ perspectives on this issue evolve, I think Yahoo may choose to alter their policy.

MS What would happen to Commission Junction if Google suddenly went out of business?
LR At its core, Google is a distributor of information. I don’t think Google created demand that wasn’t already there. Instead, they found a way to effectively supply the information. Initially, Google altered the way people navigated the Web. If suddenly the system being used to access information disappears, what happens? People adapt and find a new source, or sources, to access information. With respect to Commission Junction, we, through our publishers, would adapt. Publishers would find new opportunities to promote offers at the emerging information sources.

You know what? These changes are already happening, but it’s gradual, not sudden. Web users navigate and source information differently today, compared to yesterday. What are we doing about this? Sensing, responding and facilitating changes within our model.

MS How has your psychology degree helped you in your career?
LR A psychology degree wasn’t supposed to help me in business – or so I recall having heard from people more often than not. I remember thinking that studying psychology would help me understand what motivates people. And, it seemed to me, if I was going to be an effective leader within any business, I better understand what motivates people. I think my theory held up pretty well.

Comparison Shopping Engines Drive Sales

Rev your sales by driving comparison shoppers your way.

Could comparison shopping be the gas fueling tomorrow’s affiliate sales? In 2005, three of the top comparison-shopping engines pulled in a whopping combined $351 million, thanks to merchant commissions. Yet insiders at the top shopping- comparison sites say the best days are still ahead.

“Comparison shopping really is vertical search and its day is just starting to dawn,” Mike Aufricht, chief marketing officer of mega-shopping-engine Shopping.com, says.

Already the number of comparison shoppers online is growing faster than the number of new Internet users. comScore reports that the Internet audience grew 5 percent over 2005. The number of comparison shoppers, meanwhile, grew nearly twice that much, according to comScore.

What started as a way to directly compare prices and features for technology at various online retailers is now expanding to all kinds of products and services sold by retailers online and off. Some comparison engines categories are already top of mind, such as travel, books and soft goods like apparel. Others are just gaining a foothold, such as education, financial services, automotive, healthcare and real estate.

The result? Thirty-seven percent of those who went online or used an Internet application in January 2006 used a shopping comparison site, according to Nielsen// NetRatings. That’s a whopping 57 million consumers in January alone. In the financial category, 15 percent of financial consumers based in the United Kingdom used a price-comparison engine in January before picking their purchase – up from 6 percent in 2003, according to Forrester Research. And here’s the kicker for affiliates: Forrester also found consumers who use comparison sites spend 25 to 30 percent more online than those who don’t.

Affiliates, Start Your Engines

So what new revenues are affiliates bringing in by adding comparison-shopping engine functionality? A whole lot, if you ask affiliate David Felts.

In 2002, Felts had one website with static affiliate links organized in directory format. Three months into running it he received his first affiliate check: $22. He now runs 40-plus niche price-comparison sites pulling from a database of over 1 million products from more than 50 stores. His main site, iShopHQ.com, receives an average of 400 visitors a day. In December 2005, gross revenue from his network exceeded $9,500.

Providing the ability for his customers to view in-stock products from multiple vendors in an aggregated, yet simple, format “definitely gives me an edge over single- vendor affiliates, and helps drive sales,” he says. Vendor data feeds are automatically

downloaded and unzipped; data import jobs pull the new feeds into the database, and more jobs reconcile the inventory and rebuild the search index. The whole process kicks off every day at 2 a.m., giving up-to-date inventory daily. He hosts all the sites from his own server at his house using a business-class broadband connection. “As a Web application developer by trade, I was able to do all the programming myself,” Felts says, “and my search engine marketing background enabled me to leverage PPC and SEO to complement my affiliate marketing efforts.”

With search results filtered by price, price range, feature set, brand or whatever users want, price-comparison engines are indeed changing the process of comparison shopping, both on and off the Web.

“Rather than flipping through catalogs, writing down sale items from newspaper ads or scouring the Yellow Pages and calling local retailers,” says NexTag vice president of product shopping Mark Bradley, “[shoppers] can now conduct product – and

many services – in a few seconds with a few mouse clicks.”

While comScore’s mid-2005 study of consumer electronics comparison shoppers found 75 percent were merely window shopping, 25

percent did buy within the next 90 days. Only 10 percent bought online, though. That’s a figure top comparison engines are working hard to increase. Some have added buy-now incentives. Some have built-in peer pressure in the form of real-time blogs and peer-to-peer reviews. Some offer special deals only found online.

“Consumers are just beginning to understand the power of the Internet when it comes to shopping: comparison,” Farhad Mohit, founder of the Shopzilla.com comparison engine, says. “In the offline shopping world, there hasn’t been a service like this that lets you have all the choices for all the stores.”

While the Sabre system in travel allows people to tap in to all the flights and seats that are available, there is no Sabre for shopping. “In a very real way, we are building the Sabre in our industry,” Mohit says of today’s top comparison engines. “All of us are attempting to do this.”

But for affiliates, paying to be included in comparison-shopping sites is not very thorough searches for just about any seen as a benefit, according to industry observers. That’s primarily because most merchants are already sending feeds to the big comparison engines and since most of those charge a cost per click, rather than a percent of the sales price, click costs also quickly add up. For instance, Shopzilla collects the equivalent of 10 to 15 percent commission in click costs for every product sold. Affiliates would profit only if their commissions were substantially higher.

A few enterprising publishers are launching their own comparison engines, simply adding search technology within their existing catalog of affiliated merchant products. Take Pepperjam.com, which since 1999 has amassed a loyal following of a reported 6.5 million unique visitors monthly to shop its QVC-advertised collection of grandmother’s-recipe pepper jams and a growing assortment of affiliated merchant products. With more than $100 million in affiliate sales through LinkShare, Commission Junction and Performics in 2005, this 25-employee super-affiliate in March launched the Pepperjam Comparison Shopping Blog, its house-made search and customer review forum.

“Over the past six years, as we’ve grown as a company, we’ve received calls from a merchant or affiliate manager saying, ‘How can we work more closely with Pepperjam to get more sales for us?’ Now it’s going to be easy,” says Kristopher Jones, Pepperjam’s co-founder and CEO. Featured search placement goes to merchants who increase their commission or open a Pepperjam online merchant account and bid their product to the top. “With 6.5 million visitors already coming to our site,” Jones says, “now, in order to get the premier real estate on Pepperjam, [merchants] are going to have to give us more.”

While Pepperjam has more than 1 million products in its catalog, the largest product selections are found on the existing biggies of comparison sites, which include up to 100 million products each. So, the secret for most affiliates to profiting on this trend is to get in as an affiliate of a comparison-shopping engine already offering categories their site visitors need. Shopping.com, PriceGrabber.com, NexTag.com, Shopzilla.com and many other engines have affiliate programs, either through co-branding, custom banners or text links.

“Consumers are just starting to realize that general search is very difficult for doing shopping,” Shopping.com’s Aufricht says. “Consumers talk about the chaos that’s created by using general search engines to do their shopping. They talk a lot about having to click from a search engine to a website, back to the search engine, taking notes along the way, opening multiple browser windows simultaneously. That’s very unwieldy and very time-consuming. Shopping comparison engines allow you to do all of this very quickly from one website. It’s a value proposition that’s very appealing to consumers.”

Not the NASCAR Crowd

The purchase prices for three of the top engines that were sold in 2005 seem toconfirm industry

watchers’ expectations for growth. Shopping.com went to eBay for $634 million, Shopzilla.com was sold to media conglomerate E.W. Scripps for $525 million and PriceGrabber was acquired by Experian for $485 million, plus expenses.

Companies buying these shopping engines are justifying the hefty price tags with the promise of a potentially lucrative and loyal shopping following. NexTag’s Bradley says the demographics for electronics is typically higher income/higher education, while there is a more broadbased appeal for apparel and sporting goods – those run the full gamut when it comes to education and income.

With the addition of such categories as education and healthcare, across-theboard comparison shoppers are “a very general audience now,” Bradley says. “We touch a lot of people simply shopping for anything online.” Meanwhile at Shopzilla, “women are our target demographic; 70 percent of women use Shopzilla.com,” Mohit says.

Though you may think of comparison shoppers as cheapskates, they’re not. At Shopping.com, Nielsen//NetRatings reports 42 percent of its shoppers have household incomes of more than $75,000 and 48 percent hold at least a bachelor’s degree. Shopping.com also reports 80- plus percent of its shoppers prefer to shop for brands they trust, with less than 10 percent considering lowest price to be the primary driver behind their buying decision. According to comScore Media Metrix, that translates to five times the revenue per lead of other leading portals and search engines.

PriceGrabber brings in all ages, from 18 to 54, with high incomes (users report an average yearly income of $71,000) and college educations (77 percent). The average order is $450. NexTag, meanwhile, seeks to “close that gap between the savers and the non-savers,” Bradley says. “Since comparison shopping is morphing from lowest pricing and grabbing to social shopping, we’re adding in content, recommended merchants, special deals and coupons that you can’t get anywhere else.”

For now, online comparison shopping is anyone’s race. “You put all those numbers together,” says comScore chairman Gian Fulgoni, “and what that says to me is: It’s having a pretty major impact on the way consumers spend their dollars.”

Fine-tuning Your Engine

As far as placing your comparison engine on your site, “every site’s different,” Bradley says about comparison search engine box placement. “Above the fold is the best, but it really depends on their navigation and how they have their advertising laid out currently. You can do very effective testing over a month’s period.”

Must-haves are things like images, product reviews and search technology that allow users to not only search by general search terms, like shirts, but also search for specifics like a camera make and model, and corresponding product reviews. At the least, says Peter Koning, a British Columbia-based M.B.A. and founder of Affiliate-Software- Review.com, “affiliates need to get to that next stage if they want to survive, as more technology is used in the shopping experience,” he says.

“It comes down to basic business principles: If you understand your audience and are listening to them and answering their

questions, then you need to go a little further and give them a little help so they can self-serve and educate themselves. Try to separate yourself from your bias as an affiliate, where you only get paid for a sale, with the real challenge of establishing your credibility so they are willing to trust you. At minimum, put up a one-page comparing products on your site. Show them you’re not biased and you’ll really provide value,” Koning says.

You’ll also want a defined marketing message. In January, Forrester researcher Benjamin Ensor found that price comparison sites aren’t top of mind even for previous users. “The more we can educate consumers when they first come to us through a search engine, the more likely they are to return,” Shopping.com’s Aufricht says. The message is simple, he says: “We need to generate awareness that comparison shopping exists and the advantages of consumer search engine sites. The biggest advantage is to be able to search across millions of products across thousands of merchants. As a result, you’re going to find the right product, at the best price, and probably most important, do it with the least amount of effort.”

For the 10 percent or more searching exclusively for price, University of Indiana Professor and new-economy researcher Michael Baye in 2005 uncovered some stats that make good promotional verbiage for site visitors: “Consumers save 18 to 20 percent, on average, by comparison shopping for products online versus visiting the nearest brick-and-mortar retail outlet.”

Here’s Shopzilla’s marketing strategy: “We have a higher conversion rate because we prepare our shoppers in advance to make a purchase once they click on a listing,” Mohit says. “By having all the information up front, they’re not going to click on a listing that doesn’t make sense to them.”

NextTag’s marketing advice comes from Bradley: “Reviews for merchants that don’t have brand-name recognition are very important. If a customer comes in and hasn’t heard of that merchant, reviews from satisfied clients definitely help them make a sale.”

The Finish Line

And there’s plenty more for comparison shopping down the line: Yahoo Shopping, with 100 million products in its database but no engine affiliate program as of yet, will be the first to bring out a comparison- shopping service for mobile phones. “So you’re at point of sale and simply type in the product model number and have access to comparison information,” says Rob Solomon, vice president of Yahoo! Shopping Group. “That is a game changer from a consumer perspective, because it gives a lot more power to consumers on price. In the future, they will be able to scan in a bar code or take a picture of the product. It’s just a phone call, and it isn’t an incremental cost at all (depending on your phone plan). You could also use a pay-per-call technique in the future; I can imagine a universe where that happens fairly soon. It’s nascent, but it’s coming and it’s very interesting.”

Whether turning to an existing comparison engine or launching your own, experts say you’ll do well to get in now. “The general question is whether online shopping is going to continue at its torrid pace, but it’s tough to see it slowing down anytime soon,” says comScore’s Fulgoni. Even better news: “On top of that, when users go to broadband, their spending rates just rocket, plus the broadband user is spending 35 percent more time online,” he says. “This just plays into the hands of anybody that’s offering a value-added service online. Comparison engines have got to be one of the beneficiaries.”

JENNIFER D. MEACHAM is a freelance writer who has worked for The Seattle Times, The Columbian, Vancouver Business Journal and Emerging Business magazine. She lives in Portland, Ore.

The Dating Game

Making a match can lead to big bucks if you know the rules of affiliate courtship.

Although Blake Killian is a Christian and believes there are benefits to Christian dating, he is forthright that the motivation behind his two websites, ChristianDatesOnline.com and Christian-dating.com, was purely financial.

It was the serendipitous result of some research of online dating keywords he was doing for his day job as an Internet marketer at Voodoo Ventures. Killian noticed that the search volumes for Christian dating keywords were really high but the bids were affordable. So, in March 2005, after committing himself to stop if he was losing money, he put together a website that reviews online dating sites and includes affiliate links on it. Initially he spent 20 to 30 hours per week. Now, a year later, he works on his sites about five to 10 hours a week and the monthly net profit is only $100 short of paying his entire mortgage payment every month.

“I knew there was money to be made. It has taken a lot of hard work since March but now the site is rolling. I love my job,” the 24-year-old New Orleans resident says. Is he experiencing beginner’s luck or is there still money to be made in online dating?

Super-affiliate-turned-author Rosalind Gardner, who famously made $436,797 in one year as an affiliate for online dating services (Sage-Hearts.com), started back in 1999 and continues to do extremely well. She says that although the current environment for starting an online dating site is “pretty complex,” nearly anyone can be making money today if you’re using Google AdWords. “There are still keywords and keyword phrases out there that people haven’t picked up on yet,” she says.

Even though online dating is vast – according to Publishers Association/comScore Networks, it represents the second- largest category of paid content online after music and video downloads – the boom years appear to be over.

In a JupiterResearch 2006 survey of 2,000 consumers online, the percentage of online users who visited dating sites in the last 12 months grew slightly from 2005 to 2006, while the percentage that posted online personal ads and subscribed to dating sites fell marginally during the same period.

A 2005 JupiterResearch report predicted that the industry would grow 9 percent to $516 million in 2005, down from 19 percent growth in 2004 and 77 percent in 2003. According to eMarketer, the overall market is often pegged at over $1 billion if ad revenue for the free portion of online dating sites is included.

Most experts agree that this decrease is just the beginning of a cooling of the market as opposed to precipitating a larger drop. Nate Elliott, an analyst for JupiterResearch, says, “We see continued growth for the next five years but it is plateauing – the rate at which consumers are subscribing to dating services online is flat. As a result the revenue growth is not going to be as high as it was.” James Belcher, an analyst for eMarketer, says, “I don’t see things shrinking in aggregate.”

Most experts agree the market is mature and headed for consolidation.

“I think there will be fewer sites. There will be some consolidation – you won’t have 15 versions of JDate.com. I think some of them will merge or fade away,” Belcher says.

“The market is saturated; you have all of the online dating sites you’re ever going to need,” notes Elliott.

One area that is thriving is “adult” dating sites – such as AdultFriendFinder, IWantU.com and SexSearch.com. According to Nielsen//NetRatings, traffic to AdultFriendFinder, the most visited adult dating site, rose 67 percent in January from a year earlier. Prices for these sites are comparable to traditional dating sites – most are in the $20 to $30 range.

Options for Increasing Revenue

For years, online dating sites relied upon significant growth in unique visitors to drive revenue. Nowadays, JupiterResearch’s Elliott believes that revenue growth is being driven by higher monthly rates rather than increased membership. Due to the slowdown in unique visitors, dating sites are faced with either improving their conversion rates or increasing the value of each customer.

Sites need to convert more visitors to paid subscribers to keep revenue growing. A 2006 JupiterResearch report found that only one-third of those who go to dating sites sign up for membership. This is the first time JupiterResearch has seen a drop in conversion rates since it began tracking the space in 2003.

Another way for sites to develop revenue is to increase the value of each member – sites are charging higher monthly subscription costs and are encouraging subscribers to maintain their memberships for long periods of time. Yahoo! Personals recently raised its one-month subscription price by 25 percent, and its six-month subscription price by 50 percent. Many of the more expensive sites justify their price by offering advanced services such as privacy enhancements, personality tests and security checks.

Increased prices, however, even those for premium features, seem to be backfiring. “Rising prices have kept a large number of users from converting to paid subscribers ” 37 percent of visitors who don’t convert say dating sites cost too much, making it their leading complaint,” explains the 2006 JupiterResearch report.

Another challenge the online industry is facing is a high level of dissatisfaction among users. Thirty-five percent of online daters were somewhat dissatisfied or very dissatisfied with the sites and only 29 percent were somewhat satisfied or very satisfied, according to a 2005 JupiterResearch report.

A 2005 Keynote Customer Experience benchmarking study found that the most common frustration reported by customers stemmed from a lack of trust or comfort in other members. Sixty-one percent of customers are concerned that other members are misrepresenting themselves and as many as one in three express a lack of trust in other members.

Looking for Love

According to the U.S. Census Bureau, there are 33 million U.S. adult singles that are online and open to pursuing a relationship. Dave Evans, who blogs about the online dating industry at Online Dating Insider, says he believes the number is close to two in five online singles who have tried online dating.

Not everyone is so bullish.

“Everyone who has wanted to do online dating has tried it,” eMarketer’s Belcher says.

However, JupiterResearch reports that only 5 percent of consumers online currently pay for an online dating service – down from 6 percent in 2004.

More than 34 million people visited the top five online dating sites in December 2005 alone. Evans claims the 80/20 rule applies. “The top five sites get 80 percent of the traffic. The remaining 20 percent is split up among the thousands of dating sites out there,” he says.

A January 2006 study by comScore MediaMetrix found the top five online dating sites were: Yahoo! Personals, Match.com sites (including Chemistry), Spark Networks (which owns AmericanSingles, JDate, ChristianMingle, etc.), True and Mate1. Other leading sites that consistently land in the top 10 include eHarmony and FriendFinder (if you include AdultFriendFinder).

“The top rankings seem to be fairly consistent but the numbers for unique visitors vary hugely between comScore and Nielsen,” Mark Brooks, editor of Online Personals Watch, says. “Hitwise uses partnerships with ISPs, Nielsen has a panel and data feedback from a toolbar download and Alexa uses data from its downloadable toolbar.”

Online Dating Insider’s Evans claims some new measurement is needed. “There needs to be a new metric which is a blend of visitors, members and features. Traffic rank certainly reveals popularity but that popularity can be bought and sold via toolbars, spyware, etc.,” he says.

The remaining 20 percent of online daters go to the thousands of smaller online dating sites – many of them niche sites. Niche sites aggregate users with similar interests into a more concise space; which purportedly promotes better, more relative connections. Many believe that niche sites raise the chances of finding more compatible partners rather than going to huge data warehouses like Yahoo! Personals and Match. There are dating sites that cater to Filipinos, Muslim singles, gays and lesbians, farmers, etc.

If a 50-something, female Asian lawyer in Boston wants to try online dating, should she go to a niche site? It depends on how closely she is aligned with the niche. She could go to a site that serves Asians or seniors or to a regionally focused site for the greater Boston area. If she wants to marry another lawyer, LaywersInLove.com would be a good avenue to explore.

“It’s the spear versus the shotgun approach. The shotgun approach throws money, time and energy without much regard for results. The spear approach is targeted, contextual, focused,” Evans says.

James Green, marketing manager for MingleMatch, a Spark Networks property, explains the opportunity of niche sites such as ChristianMingle by saying: “The volume is low but the conversion is high.”

Some niche sites do extremely well. Online Personals Watch’s Brooks says that, JDate, for Jewish singles, has “a lot of word of mouth and brand inertia. Most of their users come from type-ins and the extreme focus of their site.”

Financially, JDate, which charges $34.95 per month, generates average monthly revenue of $29.42 per subscriber and spends an average of just $8.09 to acquire a subscriber.

“It’s a golden site. They own the Jewish segment – no one comes close,” Brooks says. Compare that to a non-niche site like AmericanSingles, which generates an average monthly revenue of $22.16 per subscriber with an average acquisition cost of $43.29.

The range in monthly subscription fees varies widely. Yahoo! Personals and Match.com charge $19.95, American Singles and Date.com charge $24.95, while True.com charges $49.99 and PerfectMatch.com charges $59.95.

In general, serious daters are considered to be lucrative – they are more likely to be new to online dating and these unique users provide incremental revenue to sites. They are also considered to be willing to pay higher subscriber costs for advanced features and be longer-term members.

“People think that on serious sites, you’re going to meet people who are more motivated and committed. Because of that, eHarmony attracts people who are serious about finding the right relationship and they can charge $50 per month and require a two-hour profile questionnaire,” Brooks says.

Some sites, such as LavaLife.com, have a reputation for catering to casual daters, many of whom are younger. Because of the churn rate among the more casual sites, Yahoo! Personals and Match.com have each launched premium services, Yahoo! Personals Premium and Chemistry, respectively, to try to capture some of eHarmony’s market share.

Getting Social

Over the last several months, social networking sites such as Facebook, MySpace.com and Hi5.com have gained momentum. Some industry watchers perceive the social networks as a threat to dating sites – mainly because social networking sites are free and fueled by viral marketing.

“MySpace has been so successful because they empower the connectors – the connectors are the people that talk. MySpace hit people at their point of passion; they successfully appealed to the music lovers,” Online Personals Watch’s Brooks says.

Online Dating Insider’s Evans says social networks are hazardous to online dating sites because, “It would be very easy for social networks to add a dating component – all these sites need to do is add check box.”

Others disagree, claiming that dating sites and social networks cater to different customers. A 2006 JupiterResearch report found that the social networking sites pose little threat to the online dating industry.

“Just 14 percent of dating site visitors who don’t pay for subscriptions say they use free sites, like social networks, for online dating instead,” the report states.

Brooks agrees, “Social networking sites attract ‘freebie hunters.’ Serious daters come to online dating.”

While there is some disagreement as to how this will all shake out, nearly everyone concurs that 2006 will be a critical and decisive year in the results. Most agree that there is still opportunity if sites can determine how to capitalize on it.

According to Evans there is certainly potential for growth. “Remember that a significant amount of online users have not tried online dating. The services have to get better to lure them online and into the fold,” he says.

To attract price-sensitive users and to convert registered users who have not subscribed, smaller sites should adopt below-market subscriptions. Discounting and short-term subscriptions “offer the best way for dating sites to grow paid subscriptions and market share,” JupiterResearch’s Elliott says.

The Rules of Attraction

Another way to attract more people is to reach out to a larger universe of users, such as eHarmony’s campaign to target “marrieds” for counseling, or by continuing to spend heavily for online and offline advertising.

It appears that big spending on online and offline advertising will not diminish in 2006. Mike Jones, CEO of Userplane, says, “Everyone is upping each other on marketing dollars, so winning at online dating just becomes another spending war.”

eHarmony, which claims that more than three-quarters of its users come from television advertising and word of mouth, raised $100 million a few years ago and has spent tens of millions of dollars, and possibly more than a hundred million, on advertising in the last few years, according to Elliott.

“You have so many options; that is one of the reasons why eHarmony has put out so many ads – it cuts through the clutter,” says eMarketer’s Belcher. “Branding will be more and more important in the sector because people are familiar with the concept but not the individualized powerhouse of dating sites.”

To help distinguish a dating site from others, branding must be in line with the company’s goals. For example, True has spent a ton of money on advertising, especially with suggestive ads that may raise its profile, but may not attract paying subscribers like serious daters.

“I think we will see more and more high-profile psychologists and relationship advisors such as Dr. Phil getting behind Match.com; sites want some very specific personalities that people can attach themselves to,” Userplane’s Jones says.

Another feature to become more prevalent is personality testing. “I think personality profiling is the future. I think that people will pay for it – I see them charging $100 a month. The technology is just going to get better 10 years out. I don’t think we are there yet.” Tickle and Chemistry offer a variety of tests, as does True, which offers a sexual compatibility test,” Brooks says.

Jones agrees. “A lot of companies are embracing personality profiling systems to facilitate meeting people better.” He thinks we will see more testing on sites – “it will become a necessary component” – but does not foresee sites requiring tests in order to use the service, like eHarmony does.

Differentiators

Security checking is also a big issue for 2006. Illinois State Representative John Bradley proposed a bill that would require any online dating service with members in Illinois to disclose on its website whether it has conducted background checks on members. Not everyone would consider this to be a good thing.

Joe Tracy, the publisher of Online Dating Magazine, estimated that 30 percent of daters using online services are married; a number he believes has steadily risen. Because of this, there are married or recently divorced people who don’t want to disclose that information. “You have a portion of online daters that do not want background checks,” he says. Like personality testing, background checks could be a feature that sites offer but not necessarily require.

Another way that sites are looking to differentiate themselves is by offering the latest technological marvel. “Nowadays, most sites offer or soon will offer live communication tools, especially ones that are audio- and video-enabled,” says Userplane’s Jones. For example, in February, Vivox introduced Tempo, which allows users to connect using a variety of communication tools – voice, video and IM – across various platforms such as the Web, interactive voice response telecom, Internet protocol and mobile phones.

But these bells and whistles “will not be a differentiator for very long because they are easily imitated,” eMarketer’s Belcher says. What matters more in the long run is, “do you have enough potential people on the site that are close by and would be of your same interest group,” he says. “That’s far better than the kind of avatar that you can choose from for your IM on the dating site,” he explains.

Courting Affiliates

For affiliates, the objective is to go after sites that convert. Conventional wisdom would recommend that affiliates focus on the big online dating players – the logic being that the more people who are in the network, the higher the chance of conversions. Also, according to Online Personals Watch’s Brooks, “The top sites have brand equity, which means that they convert better.”

But bigger isn’t always better. Some affiliates have had better luck with smaller sites. Killian of ChristianDatesOnline.com says the niche sites, which have fewer members than the big players, have served him the best – mostly because people who come to his site are “prequalified” – they are looking for Christians who date.

“I do the best on ChristianMingle – I have unbelievable conversion rates, like 70 percent,” he says. “I have not made one dime on Match.com.”

Super-affiliate Rosalind Gardner says, “Many folks are disenchanted with the really large sites that try to be everything to everybody. I actually do better with the smaller niche sites that appeal to specific demographics; for example, interracial or seniors dating.”

According to Brooks it’s a combination of factors.

“The best affiliates do the following: They have unique content where they drive traffic; they have some content that is really geared for getting natural search traffic; and they have PPC [pay per click] on it; or they do a combination of all three,” he says.

An online dating affiliate needs to provide compelling content that is timely and informative to please the visitors of the site and to boost natural ranking. Search engines such as Google are getting more selective and smarter about how it ranks content.

Gardner says the traffic boost from a blog can be huge and that it makes a big difference when running a content site. “I would do everything just like I did when I started but the only difference today is that I would expand my content base faster by adding a blog.”

Many online affiliates have been successful with reviews about each dating site. Some of the successful dating affiliates offer these types of service, including ALoveLinksPlus.com, OnlineDatingMagazine.com and eDateReview.com.

Because daters want to meet people in their area, another successful affiliate approach is to offer a site that has a regional focus, such as Seattle Singles. Michael Brucker, WebEx affiliate manager and former affiliate manager for Yahoo, says that for the affiliate site SinglesOnTheGo.com, “the owners spend a lot of time listing all of the singles events in each city; events such as bowling night, library night and Toastmasters.”

The relationship between affiliate and affiliate manager is paramount; for example, MingleMatch’s Green and Killian communicate almost daily. “I can instant message James a couple of times a day and he will get right back to me. That is not something that is going to happen with Commission Junction,” Killian says.

Stephanie Lewis, affiliate manager for Date.com, says Date.com offers both an internal program and one through Commission Junction. She says the big networks are attractive for new affiliates because they offer the promise of easy reporting and help getting started.

Money Matters

“Some seasoned affiliates are compensated better, they have more flexibility and they don’t have to pay a percentage to CJ. If we paid X amount to CJ, we could give that bonus to the affiliate. Or we could offer a co-branded partnership that we could not do within CJ,” Lewis says.

Payment structures vary widely. The compensations listed on the affiliate splash page are the public (or street) offers. Better affiliates get better rates, based on their value to the affiliate program and the specific requests from affiliates. Payments can be extended 30 percent (and higher) to better- quality affiliates.

Some affiliate programs pay on the first month and subsequent months – which makes a huge difference on what affiliates earn. Many top affiliates negotiate a revenue share based on the subscription and an ongoing percentage for every month the affiliate’s customers remain subscribed.

Gardner says, “I try only to do business with those merchants who offer a fair rev share. Fifteen percent on a digital service simply doesn’t cut it, especially not when I pay to advertise my affiliate sites. 50/50 recurring is my idea of a fair deal on online dating services,” she says. “While I do promote a few big merchants that don’t pay a fair commission rate, I use their names to get people looking around the site, and then direct them to more fair-minded merchants.”

Despite recent buzz that online dating has peaked, there is plenty of evidence that the dating market is just leveling off from its skyrocketing growth and that the segment is still a viable road for affiliates to travel. With the enormous range of sites out there that cater to every religion, race and hobby under the sun, there is sure to be a plethora of keywords and daters for affiliates to target.

Given the surge in traffic and subscribers to the adult dating sites, affiliates who are comfortable dabbling in those racier areas will be able to yield returns for years to come.

ALEXANDRA WHARTON is an editor at Montgomery Research Inc., Revenue’s parent company. During her four years at MRI, she’s edited publications about CRM, supply chain, human performance and healthcare technology. Previously she worked at Internet consulting firm marchFIRST (formerly USWeb/CKS).

New Network Flavors

The affiliate network menu is expanding to offer many more options than just vanilla, chocolate and strawberry.

Call them what you wish – ad networks, sub networks, CPA networks, CPA ad networks. No matter the name, these aggressive challengers are mounting pressure on the “Big 3” affiliate networks.

CPA ad networks, which use a cost-per-action payment model, are providing increased competition, which is likely to mean publishers will benefit from more choices, bigger payments, a wider range of potentially lucrative offers and what some observers claim is a more nurturing environment.

Affiliate consultant Shawn Collins refers to ad networks as the “hybrid of affiliate marketing – part merchant and part affiliate.”

Like traditional affiliate networks, CPA ad networks rely on publishers willing to promote their advertisers’ offers. But unlike their cousins, ad networks act more like direct CPA-deal brokers and generally focus on lead generation, registration-based offers and bounty programs. In addition, CPA ad networks often don’t require start-up fees and advertisers to prequalify, thus lowering the barrier to entry. It’s estimated that one needs approximately $5,000 to get a CPA network off the ground.

However, many claim the life span for the bulk of these emerging ad networks is limited and this crop will never be able to truly compete on a larger scope with the bigger established networks such as Commission Junction, LinkShare and Performics. “

CJ started in 1999 and the landscape has changed over the last six and a half or seven years,” says Kerri Pollard, director of publisher development at Commission Junction. “There’s been an increase in competition and new CPA networks.”.

Some affiliate managers argue that CPA networks fail to add value because they poach advertisers who are already in merchant affiliate programs. Others insist CPA networks add tremendous value because they attract new and unique advertisers who in turn, deliver new valuable customers.

Regardless, CPA networks are emerging as major players in the online marketing world. These marketing companies have direct access to groups of advertisers who, through a wide array of techniques, have the potential to drive a high volume of clicks, sales and new customers.

Maybe that’s why you can’t attend a conference or trade show related to online marketing without seeing the booths of the exhibit hall jam-packed with CPA ad networks looking to woo affiliates and garner some attention.”

Who’s on First

With so many players in the game, it’s difficult to keep tabs on everyone. Some well-known current networks include CPA Empire, DirectLeads, Endai Worldwide, Adteractive, Metarewards, The Vendare Group, XY7.com, YFDirect, eMarketMakers and TheBizOppNetwork. In addition, several new ones are popping up nearly every week.

In 2005, many of the major players gained a bigger foothold by partnering with other companies. Affiliate Fuel, also known as Thermo Media, LLC, was acquired by Experian in April. PrimaryAds was bought by Think Partnership for nearly $10 million. And ValueClick purchased Web Clients for $141 million.

For affiliates, much of the appeal of these ad networks is the size and frequency of payments. Affiliate networks usually pay on a monthly schedule or when a certain revenue level has been achieved, whereas CPA networks typically pay affiliates weekly so they don’t need to float the costs of advertising or, in the case of incentive sites, the costs of the incentives themselves. CPA networks often negotiate top-rate commissions for their publishers. In many cases, these deals are much better than what a publisher can negotiate from the merchant’s affiliate manager.

A post on the ABestWeb.com forum from an affiliate sums up the appeal of CPA networks:

“As an affiliate, I love them because they often pay considerably higher commissions than the major networks, they often pay quicker, and most don’t allow reversals,” writes Michael Coley, president of AmazingBargains.com.

While the affiliate appeal is high, some downsides to dealing with ad networks exist, including poor practices, such as cookie stuffing, adware, spyware and spamming. “

The biggest problem I’ve had is that campaigns will get canceled without any notice sometimes, so I end up having to find another source and switch out my links,” Coley continues. “I don’t think any of them are ‘clean.’ Most seem to work largely with email marketers, some of which are notorious for spam.”

Merchants claim to be somewhat cautious for a variety of reasons. Although CPA networks reduce the risks for publishers while maintaining the direct-response needs of the merchant, the merchants have no control over how their offer is presented. “

As a merchant, you don’t know who is promoting you, and the CPA network is not going to tell you, because you’d cut them out of the deal if they did,” according to Collins. “

What I like least about CPA networks is they build loyalty between the network and the affiliate with merchants’ money,” says Beth Kirsch, group manager of affiliate programs at LowerMyBills.com.

J.T. Stephens, director of auctions marketing and business development at Overstock.com Auctions, offers some tips for advertisers dealing with CPA networks:

  • Communicate your business needs;
  • Provide networks with an email suppression list of marketing companies/ affiliates on your blacklist and a list of your top affiliates that the network cannot contact;
  • Be on the alert for unsavory affiliate activities (adware, spam, spyware); and
  • Do not let the networks determine how to market your offer.

Many CPA network advertisers are huge proponents of free iPod offers and promotions. That tactic is likely to bring in customers more interested in the prize or giveaway than the merchant offer. This type of promotion fuels the perception that CPA ad networks only cater to less-savory advertisers.

Still, some figures state that big brand names make up 30 to 45 percent of all CPA advertising. Big-brand sites can also act as affiliates accepting CPA ad buys, such as MSN, when it has remnant inventory. Big-name publishers are selling CPA buys, but often it’s directly to the advertiser and not through the network.

Everybody into the CPA Pool

Though networks generally make more money selling on a cost-per-thousand (CPM) basis, some will sell leftover inventory and run CPA offers, according to an executive at one of the major affiliate networks, who asked not to be named for fear that the industry stigma associated with CPA practices would be damaging. In most cases, the networks are “booking these revenues as CPM,” the source says.

Another network executive says her network will continue to stay focused on its overall value proposition.

“We want to make CJ remain the preferred place for the new publishers,” Pollard says. “We have many different categories of publishers. They are the backbone of affiliate marketing. The top request from our 1,500 to 2,000 advertisers is overwhelmingly, ‘How can we help publishers trying to make money?'”

Pollard claims that by leveraging CJ’s connection with its parent company ValueClick, it can provide more value than CPA networks can by going beyond affiliate marketing to include lead-generation business, click integration, tracking and email.

“It’s a bigger and better picture to the clients. We have more synergies and offer them in a streamlined way,” she says. “But there is a lot of value that CJ brings as a trusted third party and the value associated with that is worth a lot to our clients. It’s currently a win/win situation and we want to make sure it remains that way.”

Rob Key, president and CEO of online agency Converseon.com, says the Big 3 are doing well with fraud initiatives and payment services. He also applauded LinkShare’s efforts in the area of analytics, which he says adds a higher level of sophistication to its program. However, he feels there is some room for improvement in the area of data feeds and customization.

“There will always be a place for LinkShare, CJ and Performics,” Key says. “But the space is expanding and people want more customization than the Big 3 can offer.”

He claims the movement toward more customized platforms has “topped out in the networks, which are looking to be all things to all people.” Instead, by offering specialized services, certain network alternatives help “people look beyond the traditional and reinvigorate.”

Converseon’s network-agnostic custom platform is designed to aid companies that are trying to get a view of their data across all channels, Key says. “You can’t do that if the affiliate data is off to one side, like it is with the networks,” he says, adding that the traditional networks will see continued price pressure.

Pollard expects to see consolidation in the CPA network space over the next year or two and says there’s no threat of a CPA network displacing any of the Big 3.

“I also expect that one or two other larger players may come in, but nobody that’s the size of LinkShare and CJ. CPA networks will evolve for months and years, but many of them will not be around for long,” she says.

The increasing power of ad networks was brought to the forefront at the end of last year when Commission Junction ousted AzoogleAds from its network. Because AzoogleAds was a CJ affiliate that grew into its own revenue-sharing network, many industry watchers claim it was just a matter of time before CJ kicked out the sub network.

Joe Speiser, AzoogleAds.com cofounder, called the move by Commission Junction “flattering,” adding that his company was clearly “dangerous enough from ValueClick’s point of view” to warrant giving up the “nearly 80 percent of traffic we brought in on the eBay campaign.” That’s a huge factor, since eBay is CJ’s biggest campaign.

Speiser also says that CJ was threatened by Azoogle’s growing presence.

Pollard says despite the incident with Azoogle, CJ has no plans to ban sub networks.

“Our business is always changing and we never want to put policies in place that hamper publishers and stop them. I want the creativity to remain,” she says. “Sub affiliates are great partners and we want to continue to have relationships with them.”

From Pollard’s point of view, sub affiliates “have found good niches and are good at servicing the advertisers.” However, she notes that it’s important for CJ to maintain network quality and ensure sub networks do not do business with affiliates that are engaging in questionable practices, such as performing downloads and software installations.

Collins says CPA networks are a dime a dozen. “A good amount of them fail quickly. If 10 new CPA networks open today, most of them will fail within months,” he says. “I guess it’s sort of like affiliates; there are a million affiliates and only about 10,000 that are doing things. Some aren’t going to move the needle,” Collins continues. “The networks certainly don’t need to sweat it just yet.”

Rather, according to Collins, pay per click is a much bigger threat to the networks than CPA. He expects a viable challenger to soon emerge (such as Direct Response or KowaBunga) that is backed by significant capital from a public company.

Regardless of the challenges, Pollard claims the good news is that the performance marketing pie is getting bigger and there’s room for everyone.