Bringing E-commerce Back Home

Jeannie Otero wanted to change her life. A single mom with two young daughters, she hated the three-hour round-trip commute to her job in Miami, time she would rather spend with her girls. She dreamed about starting her own business, thought about investing in real estate. But she had the age-old problem: You have to have money to make money.

Then, she heard that a good way to make money was to build a Web site that connected shoppers with online merchants. “I put up this funky little site called PartyClowns.com,” Otero laughed. “I didn’t know what I was doing at all. It had a bunch of links to coupons, and it didn’t actually have anything about party clowns.” But it was the first step in her road back home.

Otero had entered the world of affiliate marketing, a sort of parallel economy in which anyone at all can become an online retailer with almost no investment or experience. Two years later, she’s generating a good supplemental income and looking forward to quitting her day job. She’s discovered that all an affiliate needs is a combination of some smarts, some personality, some common sense and a ton of ambition.

Affiliate marketing has quietly become a booming industry, involving thousands of U.S. corporations, millions of affiliates and hundreds of millions of dollars in transactions. If you haven’t heard of it, here’s the deal: You sign on as a commission-only salesperson for an Internet retailer. You use all the creativity, intelligence and perspiration you can muster to get customers for that merchant – customers it might not find on its own. For every customer you refer to the merchant, whether it’s for a paid purchase, a new subscription or a name for its email-marketing list, you get a commission. Because merchants pay only for results, they consider affiliate programs a form of advertising called pay-for-performance.

Affiliates have the whole world of commerce at their fingertips. They can put together an array of products from global selection of retailers and offer them to their own customers. They typically build one or more Web sites that mix content with links to products on merchants’ e-commerce sites, and sometimes feature products in email newsletters or place ads on others’ sites. They never see or touch the merchandise themselves; the merchant handles all aspects of payment, warehousing and shipping. They get paid once a month, or whenever their commissions reach a pre-determined threshold.

Sounds easy, doesn’t it? It’s not. While just about anyone can sign up for an affiliate program and put up a site, earning those nice commission checks is another story. While figures are sparse, the Internet Affiliate Marketing Association estimates that fewer than 5 percent of Internet affiliates have revenue of over $100 a month. That’s because affiliates face some of the same challenges as any other entrepreneur. Inexperience and a lack of basic business skills short-circuit some people’s attempts. Others don’t have the drive to persevere without a boss standing over them.

According to AffTrack, a service provider that aggregates statistics about the industry, 2 percent of affiliates make 98 percent of the commissions. “Affiliation is so easy to get into, that you might only have 10 percent of people who sign up actively promoting merchants, and a smaller amount still might be making any real money,” said AffTrack CEO Scott McNulty.

Like any other frontier, the affiliate world is rambunctious and confusing. There’s more than a whiff of the old envelope-stuffing scam to this industry, where you’ll find site after site promising that you can earn thousands of dollars working at home a few hours a day. It’s also gotten a bad rap from unethical affiliates, who bear some guilt for contributing to the spam deluge. When evaluating affiliate programs, don’t forget to apply the rule that if something sounds too good to be true, it probably isn’t true.

Retailers know affiliates can drive sales and keep customers coming back, but they give most of their attention to the top producers. “Retailers have begun to think about the way affiliate programs will work for them in a more efficient way in terms of driving quality traffic and repeat traffic,” said Carrie Johnson, senior analyst with Forrester Research.

This doesn’t mean that there’s less opportunity for you as an affiliate. But it does mean that you’ll have to work smarter and better to be part of that successful 2 percent. Like everyone else in this tight-fisted era, online retailers expect more for their money.

While there’s more competition, there is still plenty of opportunity. Affiliate marketing is the second wave of transformation in the global marketplace. The first wave, the rise of the commercial Internet, put the power of information in the hands of consumers, letting them compare prices among merchants anywhere in the world. This second wave has leveled the playing field between huge conglomerates and individuals who represent online merchants.

Raison d’Etre

Sending traffic to merchants’ sites is the affiliate’s major goal. While you’ll find plenty of affiliate sites that are just lists of links, many experts say that it’s unique content that draws visitors and keeps them there long enough to get interested in your merchant’s offerings. “Your site has to have a reason to exist,” said Brad Waller, vice president of affiliate and business development for EPage, a content syndicator. “It’s rare that someone can create a site and make money from affiliation without doing anything himself. No one will look at it because it’s not original.”

This doesn’t mean that you have to be a professional Web designer or an experienced writer. Most affiliate sites are highly personal; like Otero’s, they’re often sparked by a personal interest in a particular subject.

“The personal touch makes a big difference,” Otero said. For example, she created a special Web page with a rave review of one baby item, just because she thought it was so neat. “I had eight visitors and made $20,” she said. Now, she writes introductions and personal notes for most of her Web pages and plans to write a personal review for the best product in each category for her BabyShoppingGuide.com site.

A smart way to decide what your first site should be about is to choose an audience, according to Robert Bennett, an affiliate with eight years’ experience who also runs affiliate programs for several ISPs owned by his company, Archieboy Holdings. “Do you have any connections in any industry, or any opportunity to market to a certain group that other individuals don’t?” he asked. “Identify the market you’ll target, then figure out what products they might be interested in.” For example, if you lead a youth organization, you could look for products related to school or sports, then build your site content around those products. Ideally, the products become part of the content.

Creating your site is a lot like merchandising a store. You could go broad or deep. For example, you might spend time finding absolutely everything anyone could ever want for camping and put it all in one place. From freeze-dried food to sleeping bags to flashlights to first aid kits, you’ve got links to it. On the other hand, like Jeannie Otero did, you could identify a niche, and then scour the Web for every baby Halloween costume available. In either case, the work you do to find and maintain fresh, working links and to gather or create interesting content is the value you add – and the way you make money.

It’s easy to find affiliate programs:

Just search for the merchant’s name plus “affiliate.” Many programs are completely automatic. “Just grab any banner, fill out the form, add the code to your

Web site, and you’re done!” one vitamin retailer promises.

If you’re working with many different merchants, maintaining one-to-one relationships with them all could get hairy. You’ll need to check that the merchandise you feature is still available, and then keep track of what they owe you and when they pay. While most merchants are honest, the message boards are rife with complaints and feuds about payments and other problems.

For more hand-holding and help, you could join an affiliate network. Networks are services that help affiliates and merchants find each other. Then, what’s more important, they manage the process of keeping track of commissions and paying the affiliate. There are several advantages to joining a network:

  • You can get organized and comparative information about a number of merchants without having to search through individual e-commerce sites;
  • In some cases, the network will act as a matchmaker, suggesting partnerships or products that make sense;
  • Some offer support, productivity tools and forums to help newbies learn;
  • They may offer reporting tools that let you analyze your various relationships and see how much income they produce; and
  • They back up your bookkeeping. Instead of keeping track of commissions and payments from multiple merchants, you get a single check each month from the network.

There are many different networks, and affiliates tend to choose them based on the merchants in the network; many work with multiple networks in order to get the range of products they want. Despite the growing interest in the

business and concomitant number of affiliates, “Good affiliates are always in demand,” said Hayley Silver, director of affiliate development for LinkShare, a network that offers tools and services for merchants and affiliates. “[For merchants], they’re your salespeople. No one is ever going to turn down a strong salesperson.”

Content Connection

Once you have an array of products and services to sell and an audience to address, it’s time to flesh out your Web site to make it a true destination. While everything on your site could be considered content, most of it will be in the form of text. That includes your original writing, articles that you reprint, classified ads and user-generated content in the way of forums and message boards. You can arrange to receive automatic updates of syndicated articles and news feeds, either free or for a charge. There are even content sites that offer affiliate programs. They provide free content and, if a visitor to your site clicks back to their site and pays to subscribe or read premium content, you get a little lagniappe.

According to affiliate marketing guru Ken Evoy, your site must satisfy the needs of visitors, the search engines and the merchants; if you serve visitors well, you’ll go a long way toward satisfying the other two players. Site visitors want outstanding information and interesting, highly relevant links. Lots of fresh, relevant content encourages visitors to bookmark the site, come back, and tell their friends.

After all, people who want a book on a particular subject or a recipe could go directly to an online bookseller and search its inventory. They also could plow through literally thousands of entries returned by a search engine. “If someone was searching for information and finds your editorial [content], that person feels smart for having found you, and you become a trusted source of reference,” said Evoy. “By the time that person arrives at the site of a merchant you recommend, she is presold.”

That doesn’t mean your content should consist of plugs for products. Quite the contrary. If your content simply hypes products, your readers won’t trust you. If you write a book review, for example, tell your readers what you really think of the book – good or bad. You’ll earn their respect with your honesty. Then they can decide whether to click on the link you provide to an online bookseller. If all your reviews are positive, your visitors will probably end up looking for a more objective Web site.

High-Traffic Destination

The most authoritative site on the Web is wasted if no one sees it. So, your next task is to lure visitors. If you’ve started with a pre-existing audience or circle of influence, provide them with valuable information and your traffic will grow by word of mouth. Others will find you through search engines.

There are two approaches to increasing your site traffic via search. Some people focus on optimizing pages for the different search engines, while others approach their Web sites as writers and editors, assuming that if the site seems relevant, search engines will find it without extra effort.

Optimizers geek out over page statistics and the workings of various search engines. They analyze how many times key words appear in each page and use them over and over to get a higher ranking for the page. They religiously check how high their pages rank in searches, then tweak pages in order to get them higher still. There are lots of software applications that help automate this process. Optimizers often engage in arcane practices such as “cloaking” or coding phantom pages that exist only to fool search engines. In order to play these games well, you’ll need to know HTML and even some programming languages like PERL.

Experts, on the other hand, focus on becoming the go-to resource for people interested in something specific. This approach requires a passion for the topic; a smidgen of previous experience won’t hurt, either. Instead of trying to trick the search engines, they create focused pages and pack them with information that “appeals to humans, not search engines,” as Evoy said. Because search engines are designed to help people find what they’re looking for, this method can create pages that rank high in search results with much less work.

But successful affiliates say you should never sit back and wait for traffic to find you. Be prepared to constantly expand your customer base with shrewd marketing. “There are lots of different tactics and techniques,” said Hollis Thomases, president of Internet marketing services company WebAdvantage. Affiliates can place banner ads on other Web sites, buy keywords on search sites, exchange links with appropriate sites, send emails to existing customers or contact the media and try to get press. Some affiliates spread their content around the Web by writing articles for other Web sites, making sure to include a link to their own sites. “All publishers tend to try all of them at one time or another, refining and tweaking to see what works best,” Thomases said. “That’s where the art comes in.”

Now, can you sit back and watch the checks roll in? Uh uh. Prepare for steady work to make your site better. Whether you go the optimization route and spend your work time fiddling with keywords and links to improve your ranking in the search engines or take the expert approach and create a series of new pages, treat your Web site as a living thing. Nurture it and the fruit of your labor will be financial success and the pride of owning your own thriving business. And, maybe, spending more time with your kids.

Susan Kuchinskas, managing editor of Revenue, has covered online marketing and e-commerce for more than a decade. She is also the co-author of Going Mobile: Building the Real-time Enterprise with Mobile Applications that Work.

Affiliates, Start Your Engines

Unless you’ve been living in a cave for the last year or so, you probably realize by now that in order to get customers to your affiliate site you have to market it on search engines. Even if you haven’t realized this, your competitors certainly have, and if you don’t take advantage of what the search engines have to offer, your Web site is likely to go the way of many other dot-com dodos.

Over the last few years search engines have emerged as the most viable option for reaching many users on the Web. As an Internet marketer, your success online may be determined by how well you learn how to play the search engine marketing game.

In recent studies, search engines emerged as the number one way people find products or services on the Web, with about half of all Internet users utilizing search engines to find you.

Searching for what you need using search engines has become so ingrained in the Internet psyche that people even go to a particular engine like Overture, and type searches like www.Yahoo.com in the search box, instead of typing that URL into the address bar. Some of the top searches on many of the search engines come from people using the search engine to find other search engines.

As you may also have noticed, search engines are in the news lately. Google is always grabbing headlines, and the industry has consolidated, with many of the larger companies gobbling up the smaller folks in a race for Internet dominance. First, Overture bought Alta Vista, Fast and AlltheWeb; FindWhat merged with Espotting; and now Overture is hand-in-hand with Yahoo, which already purchased Inktomi.

MSN is beefing up its own search services in order to compete, and is rumored to be eyeing Looksmart and Ask Jeeves as potential purchases. So a realistic scenario in the next few years will be that three major engines will control over 80 percent of all U.S. searches on the Web, and the balance of searches will be performed between hundreds of smaller engines.

How can affiliates take advantage of that information?

Think of some keywords that represent your business. There are hundreds of Web sites competing with you for placement in millions of searches per month. Competition will only get worse as more businesses start to get their Internet act together. You can’t ignore search engines in your marketing efforts if you want to succeed. And, after all, search engines do have many advantages:

Affordability: The cost of a lead gained from a search engine marketing campaign is currently averaging about 29 cents. That’s a significant savings from the next least expensive Internet marketing vehicle, which is email at 50 cents per lead, according to a study conducted by Jack Myers LLC and presented at a Direct Marketing Association conference last March.

Equality: The Internet is still the great equalizer when it comes to marketing. Any affiliate marketer or small business with a Web site can utilize smart search engine marketing practices and to compete with their larger and better-known competitors. Even though you may not have the money to launch a large search engine marketing campaign, with a little knowledge, you can do most of the work yourself and still compete with the big boys. Many small businesses have built a decent living just using the power of search.

Flexibility: There are very few other venues where you can control so many aspects of the marketing campaign and stick a toe in the water for very little money. Search engine marketing allows you to test copy, placement, budget, messages and offers, on the fly, in real time. You don’t have to commit to a long-term contract or a minimum buy. You control the amount you spend, the cost per lead and the duration of the campaign.

Accountability: If you set up your tracking correctly, you can easily and quickly establish the return on investment (ROI) for your campaign. This will allow you to correct as you go, redesign your Web site, change your product offering and make adjustments based on your profit margin. Never start a search engine marketing campaign without the proper tracking in place. You can learn so much from the insight you receive that you may have to rethink your whole business model.

Accessibility: You can reach more targeted users utilizing search engine marketing than with any other marketing vehicle. You can target your campaign locally if your business is constricted by geography, or internationally if the world is your marketplace. Either way, Internet use is only going to grow in the next few years, so don’t let this opportunity pass you by.

In light of all this, it seems obvious that the more you can learn about search engine marketing, the more successful your Internet business will be. You don’t have to do it all yourself, but you should certainly know how it’s done. That way you can decide whether to keep search engine marketing in-house or hire someone else to do it. Either approach will yield good results.

In future columns I’ll discuss the different forms of search engine marketing and provide you with plenty of tips and tricks to ensure that you get your fair share of Internet customers. We’ll delve into all those acronyms you may have heard bandied about but never knew the definition of. Yes – the joys of SEO, WSO, PPC, CPC, SEM, PI and others, lie ahead. (Somebody stop me!)

MARY O’BRIEN is a partner at Traffic Mentor.net. She has worked in Internet marketing for the past five years and was formerly senior director of sales at Overture.com.

Blair’s Flair For Affiliate Marketing

How did a 93-year-old company that got its start selling black raincoats to funeral directors by mail wind up as a big winner in affiliate marketing?

Blair did it by building an innovative affiliate marketing program that does just about everything you’d want it to. And the effort is paying off handsomely. While year end results weren’t available, the program appeared on track to generate about $14 million for 2003.

Blair, like thousands of other corporations around the globe, is learning quickly that a low-cost affiliate program can help offset slipping revenue in other sales channels. It’s a strategy that helps Blair maintain its position as the 8th largest U.S. clothing retailer, competing with the big chains like J. C. Penney, Wal-Mart and Sears and the catalogue icons like Eddie Bauer, Spiegel and Land’s End.

“As we work to more fully integrate our offline and online marketing initiatives into a seamless cross-channel experience, our affiliate program is well positioned to play a key role in our growth,” said John E. Zawacki, CEO of the Warren, Penn.-based merchant.

The beauty of the typical affiliate arrangement for Blair is the high return on investment in the program. “There is some overhead associated with managing them, but in the grand scheme of things, it really isn’t a lot,” said Jeff Parnell, Blair’s vice president for e-commerce.

To be sure, affiliate sales still make up a small fraction of Blair’s total revenue, which totaled $568.5 million in 2002. The company generates most of its sales through its traditional catalogue operation. It also operates four retail stores – three in Pennsylvania and one in neighboring Delaware. But the rapid growth of the affiliate program combined with the increasing importance of other online activities is helping Blair adapt to a shifting market.

Like the majority of large companies, Blair grew fascinated with the potential of e-commerce during the late 1990s. The reality was clear. Blair’s traditional customers were getting older and the company had to appeal to younger, more active shoppers in new ways in order to attract new business. The Internet, management was convinced, was a pathway that would lead the company to its next level of success.

Blair’s most popular offerings appeal to older women who order mostly through the catalogue. To attract more baby boomers, the company put more emphasis on Blair .com and also created a hipper new brand, Crossing Pointe, with its own catalog and Web site. As a result, Blair put itself in place to compete on price and style through catalogues, retail stores or the Internet.

During the first quarter of 2000, Blair made significant progress in its strategic plan to establish an interactive e-commerce Web site. The new site would become a key part of the company’s program to capitalize on the rapidly expanding market of online shoppers, boost sales and shrink operational costs. Blair launched the site with plenty of time to get the bugs out before the vital holiday shopping season.

It was a good start. But a lot of companies took similar steps during the dot-com craze, and many of those efforts floundered. What set Blair apart was its almost uncanny ability to make just the right moves as its strategy began to unfold.

There are always things that can be improved. For example, we wondered how Blair.com would rank against competitors on Google. So we asked 10X Marketing, a firm that specializes in search engine optimization, to find out. Neither Blair nor Crossing Pointe showed up in the top 200 sites. An archrival, Coldwater Creek, ranked ninth, and an affiliate site called Blair-Clothing.com showed up at 148. Clearly, Blair could work on that (see chart on page 26).

However, in our look at Blair, we noted eight distinctions that set Blair’s effort well above many competitors. None is rocket science. In fact, you’ll see most of these strategies recommended in other parts of this magazine. But Blair’s revenue growth is proof that they work when executed properly.

1. Effective Promotions

Chris Park, who manages Blair’s affiliate program, said affiliate marketing works for Blair because savvy affiliates are “able to market some promotions, percentage-off savings and reduced price or free shipping” all bona fide inducements to the target market.

Those are just the right perks to attract repeat online buyers, according to the 2003 Retail Consumer Retail report from Jupiter Research. The report shows:

  • Discounted shipping and handling continues to be consumers’ favorite online promotion.
  • 33 percent of buyers often or sometimes make unplanned purchases to take advantage of a special deal or promotion. For the foreseeable future, retailers will still have to provide incentives to influence these purchases.
  • High or hidden shipping and handling charges have led 44 percent of buyers to reduce their purchases at certain stores, and 36 percent of buyers have stopped buying because they have been required to register at certain stores.

“It’s one thing to put a banner (ad) up,” said Park, “but it’s quite another to say, ‘You’ll get $50 worth of free shipping.”‘

2. The Right People

Park’s presence at Blair is, in itself, a sign that Blair’s pro-gram is on the right track. It isn’t enough simply to have someone in charge of online sales. Running an affiliate marketing program at a large company is a full-time job.

“Chris is able to give affiliates his hands-on attention. He is in constant contact with them about upcoming offers and promotions – two key components to a successful AM program,” said Parnell.

“One of the biggest keys is to have at least one person dedicated to it,” said Shawn Collins, author of Successful Affiliate Marketing for Merchants. “One of the biggest mistakes I see is that people assume it’s a magic bullet all by itself, but you have to dedicate staff to it full-time.”

3. The Right Products

Time is precious to affiliates, and most won’t promote a product unless they believe in it. Blair’s longevity bespeaks the quality of its goods. Clearly, no catalog company could survive so long without products that please consumers.

“You’ve got to have value,” said Parnell. “If the products don’t sell on repeat business, the affiliates don’t want to work with you. The fuel in the affiliate marketing program engine is the merchandise.”

The new brand, Crossing Pointe, was closely tied to the Web strategy. The brand’s mission was to provide fashion items at moderate prices to the 37 million female members of the baby-boomer generation, those 36- to 54-year-old women who presented a huge opportunity for Net sales. It’s a crowded market and Crossing Pointe is unknown to many shoppers, but Blair relied on its traditional value proposition to build the brand.

“We’re not L. L. Bean when it comes to name recognition,” said Park. “We service middle-income America with value-priced clothing.”

4. Strong Partners

“Partnerships and alliances are key building blocks in today’s marketplace, so we are encouraged about our [affiliate] program’s short and long-term potential,” said CEO Zawacki.

Parnell, who came to Blair from Performics, hired his old company to provide the technology for tracking affiliate sales, but he opted to keep program oversight and the handling of key affiliate relationships under Park’s control.

“[Performics] is a very important partner and they are very visible and active in selling [affiliate relationships] in their own right, but we also enhance and synergize that effect,” Parnell said. “We do a lot of our own research and follow-through.”

5. The Big Affiliates

The mainstays of the affiliate program are the big online shopping malls that feature hundreds (sometimes even thousands) of consumer shopping options. To set itself apart from competitors, Blair has paid slotting fees for preferred placement on selected sites.

“This is similar to what is done in a grocery store where companies pay a fee to have their products displayed at eye-level instead of the bottom shelf, or to be next to the chips and pop section,” said Parnell. At CouponMountain.com, for instance, Blair.com, filled the top slot on the women’s clothing page. (When we looked, Gap was in the second spot.)

At ActivePlaza.com, another affiliate, Blair.com was featured in the top slot on the women’s clothing page in October. CrossingPointe dominated the right side of the page. At a third affiliate, IShopWorld.com, Blair.com’s link was prominently featured in the top-selling women’s clothing store slot. A rival, Coldwater Creek, received even better billing with an overhead banner ad.

Blair is regularly featured on a wide range of loyalty-based sites, like EBates .com, that offer points, airline miles, rebates and other perks to Internet shoppers. And then there are the smaller storefront sites that may feature only a handful of buying opportunities.

“Blair does very well with affiliates that offer something back, sites like MyPoints and EBates, where you get something back,” Park explained.

Advertising is fine, but personal relationships also play a key role in building sales at these very important affiliates.

“The relationship we have with Blair is so strong because of the communication they have with us,” said Chris Washburn, head of business development for CouponMountain.com. “Chris Park is my communication link with Blair, and he is always sending me information about deals and coupons, which, as you can tell by our name, are very important to us.”

6. Mom and Pop

“We do work with a lot of smaller sites and we literally have thousands of mom-and-pop operations in our affiliate marketing program,” Parnell said. And, by the nature of affiliate marketing, those thousands of affiliates instantly become evangelists for Blair. Of course, Blair is continuing to recruit more.

Becoming active on the affiliate marketing industry message boards run by IAFMA.org and ABestWeb.com is a great way to get more affiliates, according to Collins, whose full-time job is marketing manager for ClubMom.com, a membership organization for mothers.

“They (message boards) are great for recruitment, so it’s great to take an active role in the industry and show that you really care,” Collins said. “I track all of the links I post and a lot of recruiting comes from there. It’s an indirect way to recruit new affiliates.”

Is there any screening before affiliates can sell Blair merchandise?

“We retain the right to approve any affiliate marketer,” Parnell said, using words like “objectionable” and “polarizing” to describe the types of sites that Blair would shun.

The big affiliate marketing program companies, like Performics and Commission Junction, also have guidelines regarding the types of sites they will work with and requirements for affiliate marketing participants.

Through Performics, the mom-and- pops earn a 9.5 percent commission on Blair sales. At Commission Junction, the commission Blair pays is 8 percent.

7. Top Line Growth

Strategies are nice, but this is business. And the changes to the online program showed measurable results almost immediately. That’s a key for any corporate e-commerce effort in the aftermath of the dot-com meltdown.

“For the first complete year [after the re-launch of Blair.com], online revenue grew to $35 million,” said Parnell. “In 2002, that number went to $58 million. By the halfway point of 2003, online sales climbed to $36 million.”

8. An Open Mind

Blair aims to extend its marketing relationships and online partnerships wherever and whenever the opportunities present themselves – even if the payoff isn’t obvious or conventional. Parnell cites Blair’s relationship with Tide, the icon detergent brand from multi-product powerhouse Procter & Gamble, as an example of the latter.

“We’re working with Tide and they’ve got a link on our site as part of their Give Kids the World program,” he said. “That’s a good example of two companies working together in a different sort of way.”

A link from Tide’s home page sends interested parties to Blair.com to complete the purchase of a model car – a die cast 1/64th scale replica of the 2003 Tide #32 Winston Cup racer. Through a link from Blair.com’s home page, shoppers get a chance to learn more and support the program. In both cases, the Web page is also a platform for Blair to plug its latest set of email specials.

“Any business book you read today talks about alliances and partnerships and ‘co-opetition,'” Parnell said. “Activities like this simply give companies like us more opportunities to work together.”

And working together is really what affiliate marketing is all about.

FRANK THORSBERG, is a veteran business writer with experience covering finance, small business, technology, sports and investments for a wide range of online and offline publications.

Here’s Herby

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

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

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

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

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

TM: How big is your association?

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

TM: How many of your members are merchants?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TM: How many merchants would you say are involved?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Guerrilla Affiliates

Because you’re reading Revenue, which is as focused upon affiliate marketing as you are, I doubt if I have to remind you of the glories of such marketing. If ever there was a win-win business proposition, this is it. If affiliate marketing is good enough for Wal-Mart, Amazon and eBay, I’m figuring that you realize it’s also good enough for you. Do you know what you have by the millions? Potential affiliates.

But (and my wife once warned me to listen extra carefully to everything that comes after the word “but”) like the Web, affiliate marketing does not do the job. It only helps to do the job.

“The job” is to market your program to planet Earth, especially to your own affiliates. They are well-meaning people, every last one of them, but they need you to show them how to cash in on their affiliation with you.

In addition to giving your affiliates a dynamite product or service, a generous commission and a vision of financial splendor, you’ve got to give them non-stop sales support. You’ve got to arm them with ultra-powerful marketing tools to help them sell your offering.

So send them ads that they can put in their e-zines, email letters they can customize for their customer lists, banners to add pizazz and profitability to their sites, even online audio marketing to keep your marketing fresh and up-to-the-moment. You’ll see the difference.

If you can create killer articles with a link to their site, they can send those articles to their newsletter readers. Traditional marketing is a full-spectrum affair, affiliate marketing is no different.

Set a time each month for a tele-class pep talk to your affiliates. Single out the ones who have done the best and share their secrets with your other affiliates. Let them know that you sincerely care about their success with your marketing support, your regular telephone presence, your tone of voice, your passion. Passion is contagious, you know. And you want passionate affiliates.

But mere passion isn’t quite enough. You also need solid marketing savvy, which means marketing your affiliate program anywhere and everywhere you can.

Guerrillas know that all the media work better if they’re supported by the other media. Feature your affiliate program on your Web site. Put your Web site onto your TV commercial. Mention your advertising in your direct mail. Refer to your direct mail in your telemarketing. Plant the seeds of your affiliate program offering with some kinds of marketing, then fertilize them with other kinds.

You’re not really promoting your affiliate program unless you’re cross-promoting it. Your trade show booth will be far more valuable to you if you promote it in trade magazines and with fliers put under the doors of hotels near the trade show. Guerrillas market their affiliate programs with the same zest and vigor devoted to their primary offering.

Multimedia

Your prospects, being humans, are eclectic people. They pay attention to a lot of media, so you can’t depend on merely one medium to motivate a purchase. You’re got to introduce the notion of your affiliate program, remind people of it, say it again, then repeat it in different words somewhere else. That share of mind for which guerrillas strive? They get it when they combine several media. They say in their ads, “Email, call or write for our free brochure.”

They say in their yellow pages ad, “Get even more details at our Web site.” They enclose a copy of their magazine ad in their mailing. They blow up a copy to use as a sign. Their Web site features their print ads.

Guerrillas are quick to mention their use of one medium while using another because they realize that their affiliates equate broadscale marketing with quality and success. They know that people trust names they’ve heard of much more than strange and new names; and guerrillas are realistic enough to know that people miss most marketing messages, often intentionally. (The remote control is not only a way for TV viewers to save their steps but also a method of eliminating marketing messages.)

No matter how glorious their newspaper campaign may be, guerrillas realize that not all of their prospects read the paper so they’ve got to get to these people in another way. No matter how dazzling their Web site, it’s like a grain of sand in a desert if it is not pointed out to an unknowing and basically uncaring public.

Cross-promoting your affiliate program in the media is another way to accomplish the all-important task of repetition. One way to repeat yourself and implant your affiliate program message is to say it over and over again. Another way is to say it in several different places. Guerrillas try to do both. Nothing is left to chance.

If you saw a yellow pages ad that made you an offer from a company you’ve never heard of and another with the same offer except that the ad said, “As advertised on television,” you’d probably opt for the second because of that added smidgen of credibility. I rest my case.

Psych ’em

The psychology of marketing an affiliate program requires basic knowledge of human behavior. Human beings do not like making decisions in a hurry and are not quick to develop relationships. They certainly do want relationships, which is what affiliate programs are all about, but they’ve been stung in the past, and they don’t want to be stung again.

They have learned well to distrust much marketing because of its proclivity to exaggeration. All too many times they’ve read of sales at stores and learned that only a tiny selection of items were on sale. They’ve been bamboozled more times than you’d think by the notorious fine print on contracts. And they’ve been high-pressured by more than one salesperson. In short, they’ve been used.

That’s why they process your marketing communications about your affiliate program in their unconscious minds, eventually arriving at their decisions because of an emotional reason even though they may say they are deciding based on logic. They factor a lot about you into their final decision – how long they’ve heard of you, where your marketing appears, how it looks and feels to them, the quality of your offer, your convenience or lack of it, what others have said about you, and most of all, how your offering can be of benefit to their lives.

Although they state that they now want to help you sell what you’re selling, and they do it in a very conscious manner, you can be sure they were guided by their unconscious minds. The consistent communicating of your affiliate program benefits, your message and your name has penetrated their sacred unconscious mind. They’ve come to feel that they can trust you, and so they decide to sign up and work their tails off for you.

Any pothole in their road to purchasing at this point might dissuade them. Are they treated shabbily on the phone or forced to wait for an email response? You’ve lost them. Do they access your Web site for more information and either find no Web site or find one littered with self-praise? They’ll leave. Do they visit you and feel pressured or misunderstood? They’re gone.

You’ve got to realize that the weakest point in the marketing of your program can derail all the strong points. Excellence through and through, start to finish, is what potential affiliates have come to expect from businesses, and these days, they won’t settle for less.

Understand Them

Just keep in mind that affiliate marketing is a 360-degree process, and you’ve got to do it right from all angles at all times. When it comes to affiliate marketing, people have built-in alarm systems, and any shady behavior on your part sets the bells to clanging, the sirens screaming.

It is very difficult to woo a person from the programs they support right now to your program. Although they are loathe to change, they do change. And when they do, they knock themselves out as high-energy affiliates and all because you’ve proven that you understand the psychology of human beings and the true nature of marketing. That depth of understanding is what they’re hoping for.

If you give your affiliates exactly what they hope for, there’s a strong chance they’ll help you get what you hope for.

Guerrilla marketers are able to get what they hope for because they know that the key to successful guerrilla marketing is in embracing not the concept of competition, but the beauty and advantage of cooperation. And cooperation is the lifeblood of affiliate marketing, it’s raison d’tre.

One of the most rewarding, inexpensive, underused and effective methods of all marketing is to align your marketing efforts with the efforts of others. In the

U.S. this used to be known as “tie-ins.” A Business Week cover article referred to it as “Collaborative Marketing.” In Japan and by guerrillas worldwide, this make-everybody-wealthy marketing tactic is called “fusion marketing.” Affiliate marketing is the highest form of fusion marketing because it is so performance-based and has mutual gain as its goal.

Fusion marketing is the guerrilla saying, “Hey Sara, if you enclose my brochure in your next mailing, I will enclose your brochure in mine. And I’ll give you $5.00 for every new customer who mentions your name.” And it is, “OK, Randy. And if you put up a sign for my store in your business, I’ll put up a sign for your business in my store. If I get a customer who says you sent them, I’ll give you ten bucks.”

Sara and Randy immediately see the wisdom in the guerrilla’s affiliate offer. Their marketing exposure has just been expanded. Their marketing costs have just been reduced. Hey, this is a good idea! Of course it is! Why do you think you’re watching all those McDonald’s commercials that turn into Coca-Cola commercials and end up as Finding Nemo commercials? Why do you think so many members of frequent flier clubs have learned that their airlines have fused with hotel chains, auto rental companies, even cruise lines? Because there’s a whole lot of fusing going on. And today, the majority of it is affiliate marketing, by whatever name you choose.

Gone Cyber

Now it’s online. It’s happening very visibly among the large businesses, but it’s happening more frequently among small businesses, even teeny-tiny businesses. The gas station fuses with the video store. The restaurant fuses with the clothing store. The sporting goods store fuses with the ski area and the tennis club and the golf course. It’s happening all over.

The purpose of an affiliate marketing arrangement is mutual profitability. Glad we’re clear on that one. Realize that almost everyone in your community and on your planet is a potential affiliate, that almost all of them will see the wisdom in your suggestion of a connection for mutual profit.

The key for you to keep in mind at all times is that your affiliate program is a lot like your product or service. It must spring from a basic marketing plan. It should adhere to your marketing calendar. It requires patience, repetition, consistency, and aggressiveness in your overall marketing effort.

It takes commitment to your plan, an assortment of marketing tools, constant testing, precise measurement of results, and your time, energy, imagination and knowledge. But it does not take your money. It provides you – and your affiliates – with money if you go about it the right way.

In this magazine, you’re learning how to go about it right. In this article, you’re learning how to market it right. You can’t ask your Dad or your college professor to help you on this one. Affiliate programs are too new for them. But they’re right on the money for you.

There is no real magic in marketing. And there is no real magic in affiliate marketing. But when you combine the two and season them with your own marketing insight, “abracadabra” might become your battle cry.

Jay Conrad Levinson, is the author of the Guerrilla Marketing series of books, the most popular marketing series in history, with 14 million copies sold in 39 languages. GuerrillaMarketingAssociation.com features marketing ideas and information about its affiliate program.

A Nose For Data

As a canny entrepreneur, you’ll want to monitor all aspects of your business. On the Internet, that comes down to tracking data, all kinds of it.

Remember, an affiliate is really an Internet marketer and successful marketers of all persuasions love data. Marketers burn to know who their customers are, where they heard about the company, what makes them come back, what makes them buy. One of the key differences between Internet marketing and the bricks-and-mortar kind is the amount of actionable data the Net can provide.

Keeping track of all that information can seem overwhelming. When she launched bargain shopping site DealHunting.com in 2000, Maggie Boone spent 16 hours a day trying to keep up with stores, products and coupons Ð for a grand total of $2,000 a month. “It’s really hard and very time-consuming,” Boone said. “If anyone thinks it’s easy, well, it’s the opposite.” That careful tracking paid off. Three years later, although she still puts in the hours, Boone has four full-time employees and an income that lets the family live comfortably without her having to work outside the home. She has enough profits salted away that her husband can retire whenever he wants to.

Get ready to become a data hound. If you want to be as successful as Maggie Boone, you’ll need to keep track of four different areas: sales; merchants and their offerings; traffic to, from and within your site; and your advertising and marketing.

How deeply you have to get into tracking data depends on what kind of site you have and how many programs you run. To offer one example, Rotten Tomatoes is a site for film buffs, packed with movie reviews, news and gossip. Visitors can buy DVDs, posters and games. Because the site is so targeted, Rotten Tomatoes works directly with just a handful of merchants. “A lot of these groups have their own ways of tracking,” Rotten Tomatoes CEO Patrick Lee said. “We can either log in to see them, or they send us reports.” Lee trusts the reports, although he might check how many clicks the site is sending over to a merchant, to make sure the numbers make sense.

Compare that simple approach with CouponMountain, a site that strives to help people “live a little above their means” by getting discounts on all sorts of stuff. Founded in 2001 as an after-work hobby by Talmadge O’Neill and Harry Tsao, it now draws 1 million unique visitors every month and reports that it sends more than $100 million in sales each year to approximately 500 merchant partners. CouponMountain, which now has a staff of 11, employs a mix of third-party services and homegrown software applications to keep close track of merchants, referrals, coupon expirations and advertising. The company has one person dedicated to checking merchant reports each day, using AffTrack, an Internet-based service that aggregates reports from networks and individual merchants.

The bottom line

Sales are, of course, top-of-mind for affiliates, because they’re the main influence on the bottom line. Each merchant program may have a different basis for commissions: One might pay for clicks through to its site, another for site registration, and another for sales of products.

Affiliate networks and individual merchants offer other Web-based reports where their partners can check sales and revenue. Reports may be real-time or updated daily or weekly. While many affiliates like to check their reports once a day, most wait at least a month or two to drop under-performing programs. Tracking of sales and commissions happens automatically and reliably, according to Chris Henger, vice president of sales and marketing for affiliate marketing company Performics, because each affiliate’s traffic comes to the merchant via a unique link. “Affiliates don’t have to monitor whether tracking is working,” Henger said. “[There are typically more issues] around, ‘What sales volume am I getting from this merchant, and how do I improve that?'”

Successful affiliates focus not on gross revenues, but on earnings-per-click, or EPC. (See the sidebar “ABCs of EPCs.”) “The most important metric you can get from any network or software is the EPC,” said Shawn Collins, director of affiliate marketing for resource site ClubMom. For example, someone might send a thousand clicks to a bookseller and only 120 clicks to a clothing store, each of which pay the same commission. If you looked only at the commission, you might assume the two programs were equally lucrative. You’d be wrong.

“They don’t pay attention to the fact that it took a lot less traffic to make that same amount of money from one of the merchants,” Collins said. “They don’t take the time to crunch the numbers to see what they actually earn. They’re just stupefied by the [gross] numbers.”

Tracking EPC can help you put your efforts into programs that return the most profit for the least amount of effort. Some network reporting tools and third-party software can automatically calculate and compare EPCs from a variety of programs. Some can also let affiliates create custom reports that compare merchants and programs in different ways so they can identify trends or compare conversion ratios. DealHunting and ClubMom use tracking and analysis tools from AffTrack. There are a lot of reporting options that people don’t take advantage of, according to Collins. Those who don’t, he said, “don’t see the real story.”

Merchant-dizing

When it comes to keeping an eye on all the different merchants, offers and promotions, top-producing affiliates can expect personal service from affiliate managers with the networks and merchants. For a smaller fry, it’s more self-serve. Boone said most of her time is spent on this aspect of her business. “We get a lot of our sales info from the customer channel,” she said. “A handful of merchants keeps us really informed; the rest we deal with as a customer to know what’s going on. We subscribe to the email newsletters that go to their customers, and we literally get hundreds of emails a day from different merchants with sales and bargains.”

Boone turned to a programmer friend to create a database of stores that automatically tracks coupon codes and deletes them as they expire. She can query the database to find out, for example, which stores don’t have any current offers. CouponMountain also built its own tool to track coupon expirations. And it has a content team that spends its days checking to make sure that offers are still good.

Aside from keeping an eye on expiring offers, affiliates have no control over their visitors’ experiences when they arrive on merchant sites. The more you make clear your role as a referrer, the less likely your visitors will blame you if things go wrong with a merchant. Working with trusted partners can ease your mind. Networks protect you by vetting merchants, and they’ll pull the plug on deadbeats. When dealing with established retailers, you can rely on their reputations to some extent. That doesn’t mean you shouldn’t explore less established brands. “There are always different new companies,” said Collins of ClubMom. “I’ll go to different message boards and ask around, ask who’s considered to be the most trustworthy vendor of a product.” Collins warned that you should take such advice with some caution, however. “There’s always a risk that a competitor might try to send you to a bad company. People are helpful and friendly, but they have their competitive interests.”

Still, it’s wise not to take remove yourself too far from consumer-merchant relations. Daniel Washburn, director of merchant development at CouponMountain, says consumer feedback is an important part of his business. “I’m in contact with merchants on a daily basis,” Washburn said. “But in an online business, customers aren’t walking in your front door. So having some sort of communication with them is very important in building a successful site.”

Every time a visitor requests a coupon from CouponMountain, a popup box asks, “Did this coupon work?” There are many places on the site that request feedback, and the company gets as many as 50 customer emails a day. These are not just complaints but also requests for particular coupons or items. But don’t ask for feedback unless you’re willing to respond within two days, the industry standard for good customer service. Wait any longer, and your customers will get impatient and either contact you again with more irritation or go elsewhere to find out what they want.

Positive attributes

Tracking offers and merchants is just the beginning. You can go deeper. Consumers on the Internet are often searching for product information to help them make choices. You need to understand why they make the choices they do on your site, so that you can encourage them to make choices that lead to sales. At the same time, as in the real world, not all shopping choices are based on objective considerations. Merchandising and presentation play a big part in decisions. Therefore, you should carefully track what Lisa Riolo, vice president of client development for affiliate network Commission Junction, calls “attributes.”

Offer attributes may be actual features of the product. To use credit card offers as an example, the product attributes include the introductory APR and annual fee. If you ran a financial information site, analyzing the attributes of your best-performing credit card offers might show you that your audience preferred cards with no annual fee, Riolo said.

How products are described and displayed are also attributes. A retailer might offer several different photos of the same product, in different sizes, with and without backgrounds, from different angles. If you keep track of which photos or descriptions you use, you can understand what works best with your unique site.

Traffic jamming

Another element to come to grips with is internal traffic: how do visitors move through your site? Large corporate Web publishers use complex applications to track visitors’ movements. Many affiliate networks let you put extra information into your links so that you can see which pages do the best job of getting visitors to click. This information lets you move ads and links to the pages visitors like and delete pages of no interest.

Tracking the comings and goings of Web visitors is as important as monitoring revenue. After all, it’s the traffic that makes you money. Check your ads, including banners, link exchanges and paid search results, to see what it is that drew people to your site.

Playing the search keyword game is an art and science unto itself, and many affiliates devote the majority of their time to scrutinizing and massaging their word lists. Search engines Google and Overture have tools that let advertisers observe how their paid search advertising performs. Some networks have management tools that let you incorporate paid search advertisements into your analysis of your overall activity within the network. Some site-building or management applications will let you compare results across search engines and networks.

When you’re ready to become more sophisticated, look for software tools that let you map everything we’ve discussed. “You may want to track all the events that led up to a sale, not just what ads got the most response,” said Commission Junction’s Riolo. Look at where the visitor landed on the merchant’s site, where and when people converted from shoppers to customers. Compare that to which product image you used, the product description and any keywords you bought to advertise on search engines and the text of your ad. “The combination of all this drives the consumer,” Riolo said.

This may sound like a lot of work, but it is worth your time. By tracking all these nitty-gritty details, you’ll get the big picture. Like a well-trained hunting dog, you’ll be able to anticipate the movements of your customers and sniff out the most profitable deals before they get away. n

SUSAN KUCHINSKAS, managing editor of Revenue, has covered online marketing and e-commerce for more than a decade. She is also the co-author of Going Mobile: Building the Real-time Enterprise with Mobile Applications that Work.

Cyber Creeps

When thousands of consumers got emails asking them to help electronics retailer Best Buy combat Internet fraud, they were eager to help. But those who clicked on the link and entered credit card and Social Security numbers learned the ugly truth too late: They’d been had.

The link took them to a “spoof” page that looked just like Best Buy’s home page but was actually operated by thieves. “The trust we worked so long to achieve was threatened by this rip-off,” said Dawn Bryant, a spokeswoman for Best Buy. “This is some- thing a business should never have to contend with.”

Neither should consumers. But the reality is that identity theft, predatory advertising, spamming, spying and other sleazy practices have left Internet shoppers understandably wary of buying goods on line. The number of complaints of Internet fraud nearly tripled last year to more than 48,200, according to data from the Internet Fraud Complaint Center operated by the FBI and the National White Collar Crime Center. The Federal Trade Commission says the Internet is now the focus of almost one-in-five of the complaints it receives.

“If these kinds of practices continue, it will run the whole thing out of business,” said Ray Everett-Church of the Coalition Against Unsolicited Commercial Email (CAUCE), an activist and lobbying organization.

Honest affiliate marketers face a double threat. Not only do they have to overcome consumer skepticism, but they have to compete with unethical rivals. Several industry organizations have teamed up with consumer groups and government agencies to educate affiliates and corporate program managers about ways to build consumer trust while combating ethically bankrupt practices.

All the ugly horses

One notorious practice involves Trojan horse software that bundles one or more secret programs along with an application that an Internet user desired.

“A surfer might go to a site and download something that looks interesting or might be fun,” said Jim Sterne, the author of five books about online marketing, including World Wide Web Marketing. “Unbeknownst to them, the download includes a piece of spyware, parasiteware, or thiefware as it is sometimes called.”

In its most benign form, a program might serve ads in a window within the application interface. For example, Cydoor is an ad-serving application that rotates ads in a window on the user interface of applications such as file-sharing software from Kazaa and Grokster.

“No one really likes ads, myself included,” said Robert Regular, Cydoor’s vice president of sales and marketing. “But we are just an ad delivery mechanism showing ads only when you’re in the application, to make money to pay the developers who wrote the software.” He said that Cydoor does not gather any personal information on its uses.

Advertising-supported software gets on shakier ground when it includes technology to track people’s movements on the Web. People who provide this software say this tracking technology improves their ability to show more relevant marketing messages. The problem is, most consumers wouldn’t know they’re being watched.

“The user agreement might have a buried reference, or there might be a box to click to accept the other software, only it doesn’t fully explain what is being accepted,” said Jason Catlett of Junkbusters, a privacy advocacy group. Catlett said this is “another example of junk consent creeping into the fine print of transactions. Even if it’s buried somewhere in the legalese, ethical marketers should not give customers stuff from others that [the consumers] don’t expect.”

What really infuriates affiliate marketers are hidden programs that pop up advertisements for competitors while someone is shopping on the affiliate’s site. Sterne said Gator, a marketing company that offers a free electronic wallet for consumers, “waits quietly until the surfer goes to a merchant site that sells a product that is competitive to one of Gator’s clients. Gator then pops up their client’s ad.”

Conceivably, shoppers might benefit from a better deal, but it is a bit like waving an ad for Fords in front of someone test-driving a Chevrolet. Affiliates call this predatory advertising because they feel their commission has been stolen after they converted the shopper into a buyer.

Sterne noted that many people intentionally download Gator, but said “the sticky part is when Gator comes included in something and the surfer is unaware they agreed to install it.”

Gator executives declined to be interviewed. A company representative referred questions to a FAQ on the company’s Web site, where the home page clearly states that users must agree to see ads in return for the free software.

Can the spam

Unsolicited commercial email now accounts for more than half of all messages, but nobody seems to want it. That leads to a curious question: Why would anyone want to send out emails that nobody wants to read? The answer may stem from the type of commission offered to affiliates by merchants selling those products.

“If a program rewards the affiliate for clickthroughs and not sales, it’s more apt to be abused,” Everett-Church said. “If all [the affiliate has] to do is get the person to go to a site, you are more apt to spam.” On the other hand, he said, programs that pay only for leads that result in sales don’t experience the same kind of abuse, because affiliates must add value in the form of information before users will click on their links.

Everett-Church recommends that affiliate programs that pay commissions based on clickthroughs institute checks and balances to make sure users aren’t gaming the system. “If you’re rewarding people for volume but there aren’t controls in place, you’re unwittingly encouraging abuse,” he said.

The worst spammers buy CDs containing millions of email addresses, then use software to automatically spew out millions and millions of ads touting prescription drugs, low-cost mortgages or what-have-you. But the problem doesn’t end there. If you send your email newsletter to someone who didn’t specifically ask for it, you could be in trouble.

“Spamming is against the law in most states,” said Marc Rotenberg, president of the Electronic Privacy Information Center in Washington, D.C. “Most affiliate agreements have clear usage guidelines on how you can advertise them. If you’re caught spamming, you could be fired as an affiliate for the merchant on whose behalf you spammed.”

The fallout can radiate beyond your network and get you into hot water with your Internet service provider, said Brian Huseman, a staff attorney for the Federal Trade Commission. “Your ISP may shut you down, and then you can’t send any email at all,” Huseman said. Worse, you could be placed on a blacklist so that even if your ISP reinstated you, your emails would be bounced by many other ISPs.

“An affiliate marketer who intends to be around for any length of time can’t use these kinds of marketing approaches,” said David Nielsen, founder and principal of consumer information resource FightIdentityTheft.com. “Overall, they’re a threat to the legitimacy of the industry.”

Got ethics?

It’s not the technology that’s to blame, industry experts say. It’s the unethical or uneducated businesses that abuse that technology. Unfortunately, it can be hard to know where to draw the line.

“What makes the difference between ethical and unethical is, the person has to know what is happening. You have to be straight with your customers as to why you collect information [like email addresses] and what you use it for,” said Rotenberg from the Electronic Privacy Information Center.

Smart affiliates use their tech tools wisely. For example, there’s a very simple guideline for email marketing. “If the person has asked for an e-mail, it’s okay, but otherwise, don’t send it,” said Steven Salter, director of operations and administration for BBBOnLine, the Internet arm of the Better Business Bureau in the United States.

Huseman agreed e-mail ads are fine on an “opt-in” basis where the user makes a choice to receive messages. That can happen when a consumer makes a purchase or registers on a Web site. Typically, a box will be provided with the prompt, “Click here to receive messages about promotions from this merchant.” The very best approach is double-verification, when users who sign up for promotions get a second email that confirms their interest.

BBBOnLine and other groups are anxious to help rebuild consumer trust. “The whole BBBOnLine program was created as a way to give online businesses a way to show they can be trusted,” said Salter. BBBOnLine.com has a reliability seal for Internet businesses. To qualify, affiliates must join the BBB chapter where their company is headquartered and agree to participate in the BBB’s advertising self-regulation program.

You can also bolster consumer confidence by designing a professional-looking site. “If your site doesn’t pass the visual inspection, users will think it’s not very credible,” said B. J. Fogg of Stanford’s Persuasive Technology Lab, author of a study on Web credibility conducted in partnership with Consumer WebWatch. According to Fogg’s research, design was the top factor consumers used when deciding how trustworthy a Web site appeared to be.

To differentiate yourself from spoofers, it’s a good idea to let consumers know who you are. Be clear in your advertising and on your Web site that you’re an affiliate of the merchants you mention, not the merchant itself. To maximize credibility, it’s a good idea to provide actual contact information, not just a “contact us” form, on your site, according to Leslie Marable, research project manager for Consumer WebWatch.

It’s not enough to have your heart in the right place. Ethical affiliates must constantly monitor their own activities to make sure they stay firmly on the side of the good guys.

And if the affiliate marketing industry doesn’t cleanup its own act, others will likely step in to do the job.

Abused consumers are taking up arms against unethical merchants and affiliate marketers, encouraging state and national legislators to consider tough laws to prevent spam and to punish scamsters. The question for affiliates and program managers is whether to work with them or against them.

JANIS MARA covered interactive advertising and marketing as a senior writer for Adweek. Her articles have appeared extensively in a variety of print publications.

No Free Lunch For Merchants

It sounds like a no-brainer: Tap into a sales force of self-employed affiliates who’ll handle everything from producing product information to Web design to advertising. Let them do all the work, and pay them anywhere from a few pennies to a few dollars – but only if they produce to your exact requirements. What’s not to like?

It’s a strategy that works for Bluefly, the online retailer of discounted designer clothing. In 2003, sales from its affiliate program ranged from 11.5 to 16 percent of the total each month. “We’re really excited with the progress we’ve made. We’re still early on in the process of refining our affiliate program, but I don’t see any reason why affiliates couldn’t contribute more than 20 percent of our sales,” said Bluefly executive vice president Jonathan Morris.

While Bluefly’s total expenses were up, its marketing expenses actually decreased 17.4 percent. The company chalked that savings up to a switch from advertising to email and pay-for-performance marketing, including affiliate sales. As a result of this change in focus, Bluefly’s cost to acquire a customer dropped nearly 38 percent, down from $16.20 to $10.05 per customer.

“The beauty of affiliate programs is that they’re performance based. The amount of commission you pay is dependent on the amount of sales you drive – not always the case in advertising,” Morris said.

But it’s something of a misnomer to describe affiliate marketing as pure pay-for-performance. It’s not exactly a free lunch. In fact, overhead costs can eat into profits, while there’s a danger that inept or unethical affiliates can hurt the brand and actually drive customers away. To really get a handle on the upside to an affiliate program, a merchant must uncover the hidden costs – and risks.

Micro Management

Few affiliate programs are truly self-serve. Amazon.com’s is a good example of one company with proprietary technology that lets affiliates sign themselves up, quickly and easily. Yet, even with the hundreds of thousands of pay-for-performance marketers hyping everything on the site from books and DVDs to toaster ovens, every affiliate must be individually approved before starting, a process that typically takes less than 24 hours.

Merchants can outsource most of the affiliate management to network services such as BeFree, LinkShare and Performics. Networks provide the software infrastructure and varying degrees of human oversight to handle automated sign-ups, link generation and the pushing of special promotions and information. Their staff will sometimes untangle snafus and soothe irate affiliates.

But none of the companies contacted by Revenue put their affiliate programs on automatic. Instead, they devoted anything from a couple of staffers to a full-blown department to managing the program. “For probably the first two years after we started our affiliate marketing program in 1998, we didn’t do a whole lot with it, didn’t dedicate internal resources toward it. We just expected it to run on auto-pilot,” said Bruce Matthews, vice president of business development for electronics retailer Tiger Direct. As a result, affiliates brought in a few sales but the revenue they generated wasn’t exactly eye-popping. The program was floundering.

Then, Tiger Direct decided to commit. “We dedicated more resources, and started to pay attention and make it work,” Matthews said. In 2001, the company added a staff position devoted to affiliate relations, began fixing problems in the program and added tools for the affiliates. The result: Tiger Direct affiliates now boost the bottom line by over $1 million a month in sales. Matthews said it took a year of solid work to bring Tiger Direct’s affiliate sales from under $100,000 to that million-dollar mark.

Online department store outlet Overstock.com saw a similar boost when it got serious about affiliate marketing. After it revamped its program and made it a strategic initiative, the company saw its top-line revenue generation from affiliates grow eightfold in 17 months. But the program needs a lot of attention, said Shawn Schwegman, CTO and vice president of sales and marketing. “You’re developing relationships, and that takes relationship management.” Overstock.com has a five-person team responsible for 30,000 affiliates, headed by the company’s director of marketing.

Hidden Costs

Whether or not the retailer has staff whose sole job description is affiliate relations, overhead for the program is spread throughout the entire company, from the accounting department that cuts the checks to the janitorial service that hauls off the coffee containers emptied by night owl employees.

The true cost of an affiliate program, said Prakash Bharwani, senior manger in interactive marketing for 1-800-Flowers, is, first of all, the salaries of his staff. “Then, there’s the indirect staff members, my IT team, my accounting team, my creative team, my colleagues. Then the infrastructure costs, server space. There’s a customer knowledge team, and we use up their time to understand how the affiliate program is working.” Bharwani said that promotions offered through affiliates should be added directly to the revenue share to get a true picture of how much the affiliate program costs the company.

The first task of the affiliate manager or team is recruiting and approving new affiliates. Many large retailers approve each application by hand, paging through the affiliate’s site, making sure it’s professional and a good representative of the company. Even though 1-800-Flowers works with LinkShare, Bharwani said the first 30 or 40 minutes of his day is devoted to approving affiliate applications.

Merchants will differ on what’s acceptable, they all share the risk of having their brand value diminished by its appearing on a shoddy affiliate site. Rick McGrath, director of e-commerce partner development for auto parts merchants J.C. Whitney Co., said, “Everybody starts someplace, and I try to maintain a low barrier of entry. But I need to see a clear commercial intent.” Sites that have pictures of the family vacation or someone’s favorite rock band will get the boot. And McGrath has no interest at all in sites that offer get-rich-quick-through-affiliate-marketing offers or multi-level marketing schemes.

Next, he screens for downloadable applications like the Gator eWallet or WhenU, another deal-breaker. “That’s objectionable. I see that as undermining the affiliate program, in my humble opinion,” said McGrath.

Bluefly’s Morris said he scrutinizes affiliate applications closely, and then continues to monitor the affiliates in the program. “We make sure they use the creative we provide and that the environment in which our creative appears is appropriate.” Bluefly staffers manually check affiliate sites, focusing on the ones doing the most business, but also performing random checks on less active affiliates. Besides a general level of professionalism, Bluefly makes sure the sites have adequate privacy policies and disclosures, and, he said, “are legitimately providing a service to their customers by promoting Bluefly.”

The Creative Touch

Affiliates aren’t professional designers, and even the sharpest affiliate can’t compete with the full-blown creative teams that retailers have in-house. Bad product photos scanned from a magazine, misspellings and incorrectly colored logos can make the merchandise look shoddy. To counter this, retailers end up creating special ads, content and images especially for affiliates.

“You don’t want to just keep telling them, ‘Don’t do this,'” 1-800-Flowers’ Bharwani said. “You want to tell them, ‘Do this. If you want to send out an email, don’t send it with those ugly orange and pink colors, use this instead.’ We not only give them creative, but also help them with things like email templates.”

Whether it’s producing separate-but-equal ad campaigns or simply reformatting existing digital assets, this work can stress the company’s resources or add to the overhead. It has the potential to divert time and attention from other forms of advertising. Overstock.com, with over 30,000 affiliates, has a dedicated designer producing materials for affiliates to use. Because the company buys limited lots of products, it instituted data feeds that every night automatically update dynamically displayed products on affiliates’ sites.

Crying Game

Good communication like that is important when working with affiliates, merchants say, not only to help affiliates succeed but to stave off problems. When affiliates feel they’ve been treated unfairly, they can strike back and really dent the merchant’s reputation. Internet message boards are rife with backbiting and flaming recriminations against merchants who disappointed.

“If you have a few disgruntled affiliates or an issue that comes up, you have to be very proactive in resolving it,” Bharwani said. Merchants must deal with a wide range of personalities and operations, from highly professional types to loners in dark rooms. “There are guys who are big corporations and guys who are running it out of their homes. And each person matters.”

Affiliate marketing may not be for every merchant. To avoid damaging the brand or siphoning off resources from critical projects, merchants must have the resources and culture to manage the program well. “You have to allocate resources, absolutely,” says Tiger Direct’s Matthews. “I believe you get out of it what you put into it. The key, he says, is to “balance what they want with what makes sense for you in a business case.”

The bottom line: While there are risks, there are also rewards.

SUSAN KUCHINSKAS, managing editor of Revenue, has covered online marketing and e-commerce for more than a decade. She is also the co-author of Going Mobile: Building the Real-time Enterprise with Mobile Applications that Work.

Profits By Design

Link all you want, but unless your site helps visitors find what they want while enjoying the process, they won’t stick around long enough to buy anything. The big secret is creating a well-designed Web site. That’s easily said, but difficult to accomplish. Quality sites have fresh, interesting content; easy-to-understand organization; visual appeal; and affiliate links that are relevant and attractive.

We asked five very successful affiliate sites to share their tricks for designing a hard-working, pleasing site that keeps users coming back for more. Each site exemplifies a key principle of good Web design.

Build a solid foundation

Thoughtful planning of the structure and content before design began has helped Kitchens.com to fulfill its aim of being the Web’s most comprehensive consumer resource for kitchen design and remodeling. Today the site ranks as the fifth most visited affiliate site in Alexa’s Home Improvement category. Click the site’s “shop” link and you’ll find a sizeable custom storefront linking to dozens of merchants.

Kitchens.com wants to walk its visitors through complex projects (such as kitchen remodeling) while making it look easy and fun. The site is minimalist, with only a few links on any given page. Like a recipe, the site breaks projects into easily digestible steps.

Editor Kate Schwartz stressed the importance of planning when it comes to building a successful affiliate site. Schwartz said the founders spent a full year analyzing the kitchen industry and determining what users would expect from a kitchen design and remodeling Web site before launching Kitchens.com.

“It was expensive, in that one designer and the original editor spent an entire year working on it,” Schwartz said. But the careful planning paid off in reduced maintenance costs, because the site worked well and really did provide just about anything anyone would want to know about kitchens. The structure also allows for updates to be made as new products or styles evolve without the need for adding new sections or reorganizing. Now, said Schwartz, “Basically, we tend to add rather than modify or change.”

Find the right style

A site must appeal to its target audience by developing a unique style using color, typography, arrangement and voice. PowerBasketball.com, a resource for youth basketball coaches, manages to seem friendly and yet professional. Guy Power launched the site in 1998 as a personal project. It’s now the fourth most-visited site in Alexa’s Basketball category. PowerBasketball is an Amazon affiliate, and book and video sales can earn four figures each quarter during the basketball season, which is not bad for a one-man show.

Power wanted visitors to be pleasantly surprised to find a site that offers so much without charging a monthly fee. A self-taught designer, he went through several iterations of site design. “I have spent so much time searching the Internet and studying design, layout, and color schemes,” he said. “You name it, I have tried it. I always liked the look of simplicity and subtle color scheme – the newspaper look.” Power replicated that look by laying out stories in relatively narrow columns on a white background, and adding only a minimal amount of color.

Indeed, visiting PowerBasketball.com gives one the feeling of being on the inside, privy to the knowledge of professionals. The design is a sharp contrast to the amateur look of the site’s competition. Power feels that the current site design will satisfy his visitors for some time to come.

Organizing content and distributing it across the site was tricky. “The hardest part of design has always been to position chunks of content on the main page that will allow the visitor the opportunity to find information that appeals to them without weighing it down.” He wanted to offer enough content on the main page to reassure visitors that the site was substantive, while encouraging them to wander through the rest of the site. Power achieves this by highlighting a small selection of recent stories in the center of the home page but also offering a number of other jumping-off points around the primary content in smaller type. By mimicking the design of more established media outlets, PowerBasketball gets to play with the big guys.

Let content rule

BaseballProspectus.com was launched in 1996 by a group of baseball insiders and sports writers to become an online resource for updated information in conjunction with the group’s annual Baseball Prospectus books. The site, in effect, complements the books.

The Site’s Spartan design makes sense for baseball enthusiasts, who expect endless statistics and reports without much fanfare. In fact, many of the pages look much like the typical stats page in a newspaper’s sports section where sports junkies find their data.

Expect that to change, though. The demands of ever-increasing content are driving a re-design. “We’ve got thousands of paying customers, dozens of stat reports, huge databases filled with player information, moderated chats and as many as 35 new articles per week from a large number of writers,” said co-founder and executive vice president Gary Huckabay. “We have too much stuff for our current design.” The goal of the second-generation design is to make more content accessible via the home page while keeping load time down.

For Baseball Prospectus, content is king. “Promote and spend all you want, but at the end of the day, you absolutely must have the best content in your business,” said Huckabay. “We work very hard to go find the best analysts and writers we can, and that’s the key.”

Maintain consistency

Kendall Holmes launched OldHouseWeb.com in 1998 to be a repository of information, he said, “for homeowners and contractors about living with, working on and restoring old houses. We also sought to build a community of enthusiasts, so old house lovers could connect with each other and share ideas and techniques.”

Old House Web sells a variety of merchandise through HomeStore.com, Rockler.com, and Amazon.com. The site’s biggest sellers on a daily basis are books focused on restoration and remodeling.

Holmes said the basic design concept is to keep it simple. “We try to fit with our audience like an old, comfortable pair of shoes or blue jeans,” he said. That simplicity extends to terminology and navigation. The thousands of pages of information are divided into logical chunks with common-sense topic names, such as “doors,” “cabinetry” or “flooring,” rather than more technical or cutesy terminology.

To simplify navigation, the site employs “breadcrumb trails,” a textual representation at the top of the page showing where the user has been. For example, someone reading an article on waxed plaster finishes would see a bar at the top of the page reading “Home > Walls > Plaster,” making it easy to retrace steps. “But we’re also realistic that no matter how logical the layout is to us, most users aren’t going to be able to follow our logic,” Holmes said. “So we put a search box on every page.”

Attention to design extends to affiliate relationships as well. Said Holmes, “With anything we sell, from anyone, one of our requirements is that we need to maintain our look and feel, so that we can deliver our user experience … even if the final transaction takes place elsewhere.”

Holmes credits the flexibility of the Web services system at Amazon.com with dramatically boosting sales of Amazon merchandise. Old House Web uses the e-commerce giant’s XML feed to brand its own version of the Amazon sales pages, putting its own look onto the design. Rather than just linking to a book page on Amazon, this service lets Old House Web seem to have its own information page with pictures, reviews and samples. People may not even realize they’re using Amazon until they check out.

Help visitors find their way

Ron Hornbaker, founder and editor of BookCrossing.com, struck upon the idea for his site one day in March 2001 and pulled the basics together in one all-nighter. The site is a radical take on an online public library. Anyone is free to join and trade books simply by leaving the book in a public place. Books are tracked online using serial numbers registered on the site and pasted inside them. Members frequent the Web site to write reviews, discuss books via message boards and follow the travels of the books that they “release into the wild.”

Today, the site boasts over 160,000 members and 26 million monthly page views. BookCrossing.com generates up to $2,000 a month in commissions from book sales, and, for good measure, it also sells groceries, ink jet cartridges and gifts that bring in several hundred dollars per month.

When it comes to design, Hornbaker has few hard and fast rules. He stressed that navigation is more important than a hip or modern look. “I’m more concerned with offering a consistent, intuitive navigation interface, combined with a clean, readable content section, that works at all browser window sizes down to 600 pixels wide,” he said. In other words, don’t exclude people just because their monitors are too small.

“The charter is a little place in my head that knows what looks good, and what looks bad,” he said. He’s a fan of simplicity, so he lets text do double-duty for information and navigation. At the same time, he likes to keep a lot of information next to the main content. The deluge of data added to the site each day makes for cluttered pages. For example, each book listing offers seven purchasing links to affiliate sites. He minimizes the clutter by keeping design consistent from page to page and by using small fonts to make these links easy to navigate and easy to read.

“Growing a community Web site is a lot like growing a garden,” Hornbaker said. “You’ve got to lay it out with the right spacing and structure, plant the right seeds, build appropriate trellises to guide the growth, hope for some luck with the sun and the rain (or buy water and fertilizer), and then maintain vigilance in pulling weeds and keeping out pests most every day. The neat difference in this analogy is that a well-planned Web site can continue to grow if tended by only one or a few people, whereas you’ll probably lose control of a backyard garden before it covers your entire block.”

To use another analogy, just try to imagine a library that gets larger and larger without a good index.

CHRISTOPHER NULL is a longtime technology, business, and entertainment journalist. He founded the popular Web site FilmCritic.com in 1995 and is currently editor in chief of Mobile PC magazine.

Taxing Times

The lure of affiliate income is a magnet for people with drive and imagination. It’s particularly attractive to the impoverished, those in debt or people wanting to purchase a home. It’s a powerful draw to women yearning to stay home and for men raising children alone. And, of course, it’s like mother’s milk to the tax collector.

Affiliate income takes many forms. Sometimes, you don’t even think about it as income. Have you joined Amazon.com’s affiliate program just to get a kickback on your purchases? That’s income.

Some affiliates get rich. Most earn little. Regardless of earnings, or whether you think of it as income, there are tax consequences that you very simply just can’t ignore.

Let’s start with a couple of forms of taxation that many people don’t even know about when they start up: your business license and your DBA form.

A business license requires paying a fee that generates revenue for your city and/or county. If you get caught without one, you’ll probably have to pay them back for the last couple of years, like Donna Schwartz Mills did in Los Angeles. She wanted to be at home when her daughter was growing up, so she started FamilyContent.com and a series of related sites to help other parents find ways to make a living from home. What she didn’t know is that her little business needed a license.

Some cities are now starting to compare state income tax filings with their database of business licenses to determine who claimed to be operating a small business and didn’t have a license. In addition to paying what you owed in the past, you also may have to pay a fine and interest. This may sting you, but it won’t cripple you. Some cities are nice enough just to warn you and let you start clean. Still, without a license, if you have any trouble or need to sue, even in small claims court, your case will be thrown out.

In case you haven’t heard the term before, DBA stands for “doing business as” and refers to the process of recording your fictitious business name in the county where you set up shop. It establishes a public record that allows people to look behind the name of your business to find out who owns it. It also prevents anyone else in your county from using the exact same business name.

Sales Taxes

As an affiliate, sales taxes will not be an issue. To sell anything, even as an affiliate, you need to have customers. However, once you have your following, it’s tempting to create solutions for them. The minute you get clever, coming up with a product, sales tax rears its ugly head. And that’s what happened to Matt and Jamie Garrison when they first established Aluria Software LLC.

Matt Garrison was practically living in his car when he met his future wife. Soon afterwards, while partnering with Jamie’s master programmer brother, Jim Kruse, they gambled all they had on an affiliate income idea. CBS had just debuted the Big Brother TV show, and they created a fan site with lots of pop-ups and affiliate links. Within 6 months, they’d earned over $35,000. They didn’t expect that, but it didn’t take them long to see how to capitalize on it.

Since then, they’ve formed Aluria, with offices in Florida, to develop their own products. Sales taxes came into play as soon as they sold their first copy of Kid Surfer, a Web browser they designed for youngsters. These days, they operate on a budget of about $50,000 a month, and sales taxes are a big part of that budget.

Simply put, sales taxes are based on the destination state. So, if the Garrisons only ship to Florida, they collect Florida sales taxes. On the other hand, if they ship to California, they must know the tax rates in the city and county, too. California has a different sales tax rate almost everywhere you go. Watch out: your state might have several rates, too.

Starting out small, you’ll probably file sales tax returns annually. But you’ll collect sales taxes from customers all year long. To avoid shock when paying the annual bill, keep good records. Make sure the sales tax money is set aside monthly. Coming up with a year’s tax money at the last minute really hurts.

Remember, this isn’t your money. You collected it from customers. The government isn’t friendly when you’ve squandered their money.

If you haven’t been paying sales taxes, don’t worry. You won’t go to jail. You’ll simply have to pay it. Some states insist you pay several years’ taxes. California audits your sales for the life of your business. Few other states are as aggressive. Generally, you may expect to pay approximately three years’ back taxes.

Avoid all this trouble by simply keeping books and filing returns, even if you plan to just dabble in being an affiliate, using affiliate codes for personal purchases. Jamie Garrison advises that all affiliates should set up their operations like a business from the first day. Then, if it suddenly takes off as her business did, you won’t have to scramble to catch up with government and licensing requirements.

Bookkeeping Isn’t That Hard

Looking at the volume of transactions Schwartz Mills decided she could track the activity without a costly bookkeeping system. FamilyContent.com is maintained in QuickBooks and spreadsheets, as needed. For the longest time, Aluria accounting was scribbled on worksheets. With most income coming from affiliates or ClickBank.com, the Garrisons got quick summaries of income. Matt Garrison simply added expenses at year’s end.

That’s perfectly fine. You needn’t spend a fortune if you can use a spreadsheet (whether paper or electronic) to list your checks and income. Go to the office supply store. Pick up a Dome bookkeeping record book. Many small businesses use them. They’re inexpensive and understandable.

For many people, paper systems are too unstructured, while the big, full-featured accounting programs are too complicated. There is a really nifty, very basic program, The Internet Tax Helper [InternetTaxHelper.com] for accounting-phobes. It’s perfect if you are not reporting to banks or investors. Most people never need a balance sheet.

Are you willing to tackle double-entry? There’s QuickBooks, Microsoft’s Money, Peachtree, One-Write Plus or other software packages. All offer a panoply of capabilities in addition to bookkeeping – invoicing, payroll, banking, electronic bill paying, fancy graphs, cost accounting, complex financial statements. They’re remarkably versatile.

Accounting software produces information for tax returns and financial statements any time. When refinancing your home or trying to get a business loan, you needn’t rely on your accountant or tax professional. Simply print off a report.

Don’t go it alone. Have a professional review your work quarterly. Verify that your entries are done properly. Otherwise, you might think you have a loss, then suddenly learn you have a profit of $50,000 or more.

For some, like the Garrisons, not paying taxes until they file their return is a deliberate strategy. They don’t use bank loans or other debt to cover their operating expenses throughout the year. Instead, they use the money that should go towards quarterly payments. With IRS interest rates as low as 7 percent, this can be cheaper than bank loans, even with a possible penalty and they didn’t need to qualify. This is their choice, but a risky one. It’s against regulations,and if you don’t have the cash to pay the tax and penalties, you may find yourself in more trouble than you avoided.

Donna Garrison deals with estimates by having her husband increase his payroll withholding to cover her profits. That’s easier than remembering to make quarterly payments. But if you don’t have a working spouse, remember, payments are due in April, June, September and January, each year.

Employees or Freelancers?

Being in business means you may need help. Jamie and Matt hired staff, on payroll, with benefits. They didn’t go cheap, treating employees as freelancers. That kind of thing usually backfires. If you have freelancers, give them a Form W-9 to fill out, with their names, addresses and Social Security numbers. In January of each year, send out Form 1099-MISC to each freelancer.

IRS uses a list of 20 points to decide if someone is an employee or not. (You will find the list and explanation at http://www.taxmama.com/Articles-cur/semyth2.html)

The importance of each quality on that list is subjective. IRS looks at each item, applying it to your outside staff. IRS decides if you’re an employer.

Here are questions to ask yourself:

  • Carefully examine your working arrangement with freelancers. Do they work just for you? Do they have a key to your office? Do they use your telephone, your equipment, your supplies? Do their business cards have your company’s phone number?
  • Do they have a “risk of loss?” Are they using your facility, but paying you rent? If they don’t come in, do they still have to pay you rent? Do they buy their own computers and software? Work from their home or office? Pay for their own education? Can they simply quit at any time with no consequences? Or would they be in breach of contract?

If you answered “yes” to questions in the first group, or “no” to questions in the second group, then run, don’t walk, to the nearest qualified tax professional.

What if you didn’t put your buddy on payroll and got caught?

There are “safe harbor” provisions in the law. While you won’t get out of paying the payroll taxes, you might reduce some taxes, penalties and interest. It will help if you can prove your freelancing friend actually reported the income and paid taxes.

How far back will they go? IRS will go back for three years. States may go back even more. If auditors contact you, treat them well. Don’t be rude. Don’t yell, don’t accuse them, and don’t blame them. Be respectful and courteous. Ask them to help you. Typically, they’ll go as easy as they possibly can.

Lots of Affiliate Income – No Tax Returns – Don’t Worry

It’s not uncommon for people who start dabbling in affiliate income not to realize what they’re earning. Starting with no business intent, you join dozens of programs, receiving small checks from each. Perhaps no company sent you a 1099 because no single company paid you $600 or more.

Overall, perhaps you earned $300 each from 10 companies during the year – $3,000 – and didn’t realize you had to file a tax return. You did.

And perhaps you’ve now expanded to 50 programs, still not keeping track. You’ve been so busy, you’ve never realized your earnings are $20,000 per year from these little bits of commissions.

Here’s a good rule of thumb: If you covered your rent, ate, wore new or clean clothes, and drove a car, you certainly had substantial profits and you will owe substantial taxes.

Suddenly, a letter comes from IRS. They want tax returns. You never kept records. You panic. Where do you begin?

Don’t worry. It’s fairly easy to reconstruct this data. Start with your bank statements. If you don’t have them, they’re easy to get. Ask the bank for copies. Even if they charge you, there are only 12 statements each year. That’s not too expensive.

When you get the bank statements, add up all the deposits for the year. Deduct anything that is obviously not income: cash advances from credit cards, loans from family, money drawn from savings, inheritances, child support. Whatever’s left is your income.

If you cannot get bank statements and all your income came from affiliate programs, send an email to each merchant. They have records. Usually, they can run a report summarizing your earnings from them.

Canceled checks, though, are expensive to replace. You must pay for each check. Hopefully, you still have those stashed in a box somewhere. On the other hand, credit cards are great for purchases, as long as you pay the bills each month. Practically all credit card companies will provide free copies of prior year statements. Since many of them also offer lovely summaries, get those printouts. Half your bookkeeping will be done for the year.

If you’re unable to recover the data (you never had a bank account, or the bank was destroyed in storms or riots, with all records), do your best to estimate the expenses. Make a list of all the things you pay each month. Remember your Internet connection, Web host, telephones, cell phones and other expenses.

If your list makes sense and the numbers are reasonable, the IRS must accept them based on the Cohan Rule, named after George M. Cohan, the entertainer. Since Cohan was always on the road, he couldn’t carry huge filing systems. In his day, there were no Pocket PCs for tracking data. Cohan established that even without receipts, if your expenses are “ordinary and necessary,” the IRS must take them into account.

While it’s really in your best interest to do it all right, don’t worry about messing up. There’s usually an easy fix. All you’ll have to do is pay the bills, which, in all fairness, you do owe. If you do the right thing, you won’t go to jail. If you try to cheat, well, things may go a little harder on you.

If you are so hard-up that you can’t pay, there are even ways to cut a deal. But we’ll have to save that for another day.

EVA ROSENBERG, MBA, is publisher of TaxMama.com and an enrolled agent, licensed to represent taxpayers before the IRS. She has a quarter century of experience dealing with tax issues faced by small and Internet businesses.