Coupon Hoopla

You’ve been there. You’re at the grocery store to buy one single item. You have your groceries on the counter, your cash in your hand. But the person in front of you has a never-ending stash of coupons. The cashier enters in code after code. You start looking for an open clerk, cursing the customer ahead of you.

Well, coupons aren’t nearly as annoying online. Frugal shoppers can save money in the privacy of their own homes, redeeming as many coupons as their hearts desire. And it doesn’t slow other shoppers down one bit. Everyone wins. Especially people like Mike Allen.

Allen not only has an eye for a bargain, he loves to offer good deals to others. “I saw that coupon codes sure could save you a lot of money,” says Allen, who speaks in a slow, soft Southern accent. “But they sure are hard to find.” That’s why he decided five years ago to devote an entire Web site to online coupons. Shopping-Bargains.com features 500-plus merchants.

Coupon sites say their revenue varies widely month to month, but some gross more than $10,000 a month and the ones contacted by Revenue say they’re expecting a whopper of a holiday season. EdealsEtc says months in the fourth quarter sometimes result in six-figure revenue.

“Q4 is always good for us,” agrees Joel Comm, who runs DealOfDay.com. “But 2004 is gonna be the best year for coupons so far.”

The uncertain economic outlook combined with a long-running trend toward value shopping has created vast opportunities for affiliates to promote sales by providing coupons to people who just can’t live without them. In 2002, according to Forrester Research, consumers downloaded 242 million grocery coupons, coupons they print out and take to brick-and-mortar stores. That’s almost one coupon per American, and that’s just for groceries.

A raft of online coupon sites exist. Large sites like CoolSavings and CouponCart.com let you print coupons to redeem in offline stores. Others like FatWallet, UPromise, Spree.com, eBates and KeyCode offer cash-back incentives or rewards to shoppers. If a merchant gives an affiliate, say, a 5 percent commission, the affiliates might pass on 2 percent of that to their customers.

But even the sites that offer savings on online purchases range from small niche hobby sites to larger companies like CouponMountain, which employs eight people in Los Angeles, has 750 merchant partners and does a lot of marketing. And with about two-thirds of the US households now online, there’s still plenty of room for affiliates who can build a site that rises above the crowd.

Adam Schwartz and Craig Nelson were eating sushi in San Francisco and saw an ad on the window that read: “See our coupon on the Internet!” They thought online coupons were a great idea and started CouponSurfer in September 1998.

Brad Wilson started DealsDuJour.com with his brother Campbell in 2001. The 20-something brothers bought things, mostly electronic gadgets, online and when they scouted a good deal, they told their family and friends about it. Their hobby started as a pastime, soon blossomed into an email newsletter and then later became a business.

How many sites are devoted to online coupons? A lot. DealzConnection tries to list destinations for online bargain hunters. It lists 42 with forums, 41 that have price comparisons and 232 other bargain sites, plus 104 dead sites (not all coupon sites survive).

Site Design

As in many other areas of affiliate marketing, design is critical. Having a home page that is fresh every day is a great start. The best coupon sites list the deals in a variety of ways so that consumers can easily find what they want.

Many have current deals ranked and listed by popularity. New coupons occupy their own space; expiring coupons are placed somewhere else, so users can find deals before they’re no longer valid.

Many sites let you search alphabetically by merchant to find the store you prefer. And most have a category breakdown, so you can scan that to find a coupon for a gift for your Aunt Hilda’s birthday, whether you are looking to get her a karaoke system or a trip out of town.

Affiliates need to think more about aesthetics and the user experience. “Sites aren’t making it appealing and clean and idiot-proof,” says Wilson. “I sit my mom down. She is absolutely useless online. I see if she can make it through the user interface and if she can navigate, then we go with it.”

“A simple interface that has agreeable color schemes is important,” agrees Travis Bowman, president of EDealsEtc.com. “You also need to optimize for speed and test for speed and multi-browser compatibility. A good logo is also critical.”

But design and navigation aren’t the only considerations. Deals are ever-changing, and keeping up in the coupon biz definitely isn’t for the faint of heart.

Update Your Deals

“You cannot neglect it for one minute. You have to be on top of it,” warns New Yorker Abe Rapaport of JumpOnDeals .com “There are merchants whose coupons are expiring. Others are putting new deals out there. Customers contact us with their concerns. We have to keep up with all of them.”

Keeping up and using legitimate coupons is a full-time job. There’s nothing more frustrating to consumers than taking the time to pursue an offer that already expired. Burn your customers, and you’ll burn yourself.

“You need to link deals into a searchable database,” offers DealOfDay’s Comm.

Shopping-Bargains.com’s Allen and his wife revamped their site and hired ColdFusion programmers to help make the static site dynamic with a database that automatically schedules coupons to expire. Since they relaunched in January, keeping the site updated has been “dramatically easier,” says Allen.

“Users expect accurate and current deals,” says Allen. “They want a comprehensive listing. It’s very hard work to keep merchants happy and users happy.”

But once you have a site that is designed well and is updated regularly, you’re ready to tell people about it.

Marketing Moxie

Sites that focus on online deals must do a lot to separate themselves from the pack. Wilson says his goal is to give consumers the better things in life at a better price. The company’s motto: “Shop smart, live rich.” Wilson says it still takes a lot of work to get attention.

“Paid search can work but you really need the right metrics,” says Wilson. “Search engine optimization is incredibly competitive but it’s always worth the effort.”

Many of the affiliates contacted by Revenue simply love search engine optimization. Tagging pages properly isn’t easy, and getting someone with expertise to help can be expensive. Bidding keywords and buying PPC advertising – Google has a 5 cent cost-per-click minimum; Overture has a 10 cent minimum – are also tested tactics. But they aren’t for everyone.

“Keyword placement is too expensive for this niche,” argues Comm. Instead, he’s syndicating content. That way, his site gets double the exposure, and search engines are twice as likely to pick up his pages.

A few sites like PhatDeal.com and eDealsEtc.com say they are even considering buying offline advertising -newspaper ads, billboards or radio time in their local markets to attract traffic, a tactic described in Issue 3 of Revenue (Beyond Search Engines).

The smart coupon sites also let you sign up for an opt-in newsletter that gives shoppers links to popular deals, turning first-time visitors into repeat buyers. And many use “Tell a Friend,” which lets users click on a link and do the viral marketing for them.

“The best is when an affiliate manager recommends us to other merchants,” says Bowman. “Word of mouth works for consumers as well as retailers.”

A few sites have added email notification systems that help convert browsers into customers. Bedford, Mass.-based CouponSurfer.com has set up a “Coupon Butler” service that informs users when a particular product they are interested in is available at a discount. Such newsletters and notices help.

But the best means of attaining visibility? Word of mouth. “The goal is for people to have an easy experience, become repeat visitors, sign up for emails and tell their friends and family about us,” says Wilson. “One of these visitors is worth five of the other kind.”

Everyone loves loyal customers. That’s why many sites encourage visitors to click a link to bookmark their sites as a favorite, sign up for an opt-in newsletter and tell a friend.

DealsDuJour.com recently received the Titanium award at the LinkShare awards ceremony, which Wilson says has helped it to garner a lot of positive attention. Mentions in the press don’t hurt either. Dan Baxter founded DealCatcher.com, which gets 3 million page views per month and promotes more than 500 merchants. He says appearances in the The Wall Street Journal, PCWorld and USA Today have been boons to his business.

But even if you get the best media attention and the greatest industry awards, you are still going to have to work hard. Your challenge is to get people interested and coming back. Content is important, too.

“You have to save your members either time or money or both time and money,” says CouponSurfer’s Schwartz. “You have to offer them value.”

Thinking about your audience is the key to success in the discount game. Luckily, online retailers are always trying to invent and offer new promotions. DealsDuJour.com’s Wilson has witnessed an increase in merchants in 2004 getting their holiday marketing plans in place earlier this year.

Work With Merchants

“I’ve been impressed. Merchants were already concerned in July about Q4,” says Wilson. “The usual suspects think ahead. Overstock.com and those guys are really focused on affiliate channels.” Then again, Overstock.com has 10 people focused on affiliates (see story page 40). But other merchants would be wise to think about offering discounts and disseminating deals.

“Merchants mistakenly think people will buy no matter what,” says Rapaport. “But if you aren’t offering deals, your competitor is. So you really need to offer coupons to people.” Rapaport suggests giving visitors a variety of coupons from which to choose – whether it’s a dollar amount off, a percentage off or free shipping. “Test and see which codes do better,” he says.

So what sorts of deals perform the best for merchants? Rapaport thinks free shipping offers are better than no special offer at all, and JupiterMedia’s Patty Evans hails them as a great deal to offer, especially this time of year.

“Free shipping is the master plan. It is consumers’ top concern; they react to it better than other discounts, even if they aren’t saving as much as they could with different offer,” says Evans. “It’s tangible and definitely priority around the holidays.”

Work Around The Clock

“It’s a juggling act,” says Joel Comm of DealOfDay.com. “It’s nearly impossible to keep up with all the offers. There are so many merchants and there’s so much competition.”

Maintaining a coupon site is so much work that Mike Allen realized last year he needed to make a choice between his job as a marketer and his job as a governmental training specialist at Mississippi State University. So he quit his university job and devoted himself full time to being an affiliate this year. Because he has four kids at home, he had to rent office space. “It’s too noisy at home,” he laughs.

And the business has ups and downs. Online savings affiliate sites see their business fluctuate with retail cycles. It’s not predictable income, and you have to be prepared to work when the shopping fevers strike.

“This is the hardest easy money you’ll ever make,” says Allen. “It’s only easy because you aren’t sweating.”

Keep in mind if you want to dance in the discount disco, you better be ready to work your tail off. There’s no break in this business. Says Rapaport: “We will be here on Christmas and the day after doing the after-holiday sales.”

DIANE ANDERSON is managing editor of Revenue.

Affliates Wanted

With 8.2 million Americans looking for jobs, Jeff Testerman isn’t worried about losing his. He’s co-founder of brokerhunter.com, a job site for the insurance and securities industries that features affiliate links to everything from resume writing to trade journals.

“Hiring started to pick back up in the last quarter. ” Hiring is definitely in the forefront now and in the future,” Testerman says with confidence, and he may be right. Analysts predict the first quarter of 2005 will be the best time for job-related Web sites, with some predicting growth of up to 15 percent.

Jupiter Research found that online job postings accounted for $923 million in revenue in 2003, and it expects revenue will climb to $1.1 billion for 2004. And a wide variety of job sites are offering affiliate programs, including the big three: Monster, CareerBuilder and HotJobs.

In the struggle to be No. 1, both CareerBuilder and HotJobs are revamping their affiliate programs, adding new benefits and promotions for affiliates to drive traffic their way instead. It’s a good move, considering the underlying level of power that affiliates – a virtual salesforce of thousands – can have on a company’s bottom line. To compete, less recognized sites are strengthening the additional services they provide to job seekers, most of which offer additional commissions back to affiliates.

Beneath it all, a new type of online job search strategy is emerging. A few sites are offering all-in-one service: Job seekers post their resumes there, and the site will use its advanced technology to almost instantly repost the resumes, in correct format, to every related job site, corporate recruiting site or job board out there. Consequently, it’s never been a better time to be a job-search-site affiliate.

“I’ve seen our network grow from 60 partners in February 2000 to more than 1,500 Web sites that drive traffic through Commission Junction (CJ) and another 400 integrated partners that we have today,” says Amado Izaguirre, CareerBuilder’s vice president of affiliate partners. Some of those 1,500, he said, are making more than $10,000 per month. “We have created an environment on CareerBuilder .com and all our affiliate sites that encourage users to search for jobs and apply online without having to register on the site or deposit a resume into a database,” Izaguirre says. “We want users to concentrate on finding the best jobs. In turn, our affiliates benefit because CareerBuilder users are encouraged to perform the activities that they are compensated on.”

Through CJ, CareerBuilder pays 50 cents on applications rather than resumes; job seekers can send as many applications, for free, as they like. Affiliates are paid $1 for job alert sign-ups, $50 for one job posting and $175 for four. They can also post any article the company owns, like ones on writing great resumes, top interview mistakes, coping with a bad boss, starting a job search or managing your career. CareerBuilder also occasionally runs special affiliate promotions.

HotJobs, meanwhile, has seen double-digit percentage increases in resume postings each year. “I think we’re going to be the big one when the dust settles, because we’re the only one that is wholly owned by one of the biggest brands in the country and one of the leaders in search,” says Marc Karasu, HotJobs’ vice president of marketing. Its new union with Yahoo gives it a big leg up in the name recognition department: HotJobs is featured in an “Inside Yahoo” box above the paid listings on a job-related Yahoo search.

Ads Trumped

HotJobs is also doing a lot of conventional advertising these days: from TV ads to billboards. In September it launched a two-season co-branding campaign with The Apprentice, the hit career television show featuring Donald Trump. Applications and behind-the-scenes footage can be found at the HotJobs site, and fired contestants get into a HotJobs-branded cab at the end of each episode. Cabs sporting HotJobs toppers have also rolled into service in eight urban areas: New York, Miami, Washington, Boston, LA, San Francisco, Atlanta and Philadelphia.

“We’re thinking of ways to pull parts of our affiliate program into The Apprentice promotion,” Karasu says. HotJobs pays $1 for resume postings and pays $50 for employer job postings. It’s now focusing on building strategic affiliate relationships with sites that are focused on health care, information technology and human resources.

Despite losing its planned purchase of HotJobs to Yahoo, Monster.com has retained the top position among job search sites. It offers worldwide job search capabilities, centered around Asia/Pacific, Europe and North America, and boasts more than 490 of the Fortune 500 companies as clients. Of the big three, Monster.com has the most commissionable items. It pays $50 for job postings, $1 for resume postings, 70 cents for Monster Networking Accounts and $15 for Networking VIP membership, all through CJ.

Then there are those sites that aren’t yet a household name but provide solid services and have good affiliate programs. There’s FlipDog (encroaching on the big three), SoloGig, Brass Ring, Jobvertise, Job.com, Vault, Freelance Work Exchange, The Ad Net, Employment911 and many others with products and commissions across the board. FlipDog, which searches corporate sites and claims it has “five times more employers each week than other job sources do in a year,” pays 50 cents only for visitors creating a FlipDog.com membership.

Jobvertise.com, on the other hand, focuses on employer listings. “Turn your Web site into an instant community jobs board and charge others to post jobs to it!” it pushes on its site. “Anyone browsing your Web site can enter job and credit card information for instant authorization – the jobs are automatically posted on your Web site.” Affiliates decide how much they will charge users. Jobvertise handles the entire transaction and, once total commissions top $50, cuts quarterly checks for 50 percent of the total revenue.

Employment911 has perhaps the widest selection of commissionable career-related services. It started as a small, 5,000-circulation magazine for employers in 1997 and moved to the Web later that year. Today it’s still a homespun site, but its internal software gives Employment911 the searching and resume posting capability to make it one of the largest job posting networks online, pooling from 7,000 employer Web sites and employer-industry-specific news groups. So, although it’s not a Monster, it does provide strong services for job seekers and employers. Affiliates are paid between 12.5 and 25 percent, based on volume, for job seekers buying its resume writing services, resume distribution service or resume blasting tool. They also receive a payment per job posting and 25 to 50 cents per resume posting lead. “Web people are earning substantial revenues just by promoting our resume posting,” says owner Jake Fannin. Employment911 also has free job search articles for posting and an HTML job search box that can be put right on an affiliate’s site. Searches not only cover Employment911, but also 21 other sites, including the big three.

“Anyone who has a small amount of traffic, of any type of targeted market, should receive at least $100,” Fannin says. Employment911 has 5,000 affiliates and counting. Its top affiliates have earned more than $5,000 a month, and up to $9,000. “Those are people that have a real targeted audience, they have prominent links or they’re in a co-branded relationship with us.” Employment911 affiliate BrokerHunter.com, for instance, generally pulls 30 cents or more per click.

Job Securities

Recently voted by TopJobSite.com as the No. 1 securities industry job site in the US, BrokerHunter.com runs its own insurance and security industry job list with 40,000 job seekers and a couple of thousand job postings from security and insurance companies all over the US. Its affiliate income then, comes from auxiliary services, like Employment911’s resume writing. It promotes resume writing in a banner at the bottom of its home page, and includes a pitch for the service in its monthly newsletter to 70,000 insurance industry job seekers (its 40,000 members plus 30,000 more that have come to the site and opted in). “The services go hand in hand,” says Testerman, from BrokerHunter. “We’re such a niche job board, that it’s really of benefit to the job seekers out there. Being able to put their skills effectively in a resume is why this is such a good fit.”

There’s also the new breed of job search sites that don’t post jobs at all. Instead, they send users’ resumes to the sites that do. “ResumeRabbit will post your resume to over 100 job boards,” says Lee Marc, president of ResumeRabbit parent company eDirect Publishing. “If you’re looking for a job, you probably should put your resume on Monster.com, HotJobs, CareerBuilder and a hundred other Web sites that employers and recruiters search every day to find candidates. What ResumeRabbit does is one-stop resume posting to 100 career sites.” ResumeRabbit.com pays $20 for every order.

What sites benefit most from this type of service? “Clearly sites that are catering to job seekers are a natural fit,” Marc says. “However, we find that there are a lot of sites on a variety of topics that seem to promote ResumeRabbit solely because there are a lot of people in the world that are looking for a job or are unhappy with their current one.” It’s posted more than 1 million resumes for more than 100,000 time-crunched job seekers since 1999. “And they’re all real happy,” Marc says. Interested in email or longer copy? Just ask for it. ResumeRabbit has 3,000 affiliates through CJ, and consistently ranks in the top three for CJ’s career category commission in terms of revenue per click.

Insiders say that it’s fairly easy to make the most of job site affiliate programs. After all, nearly everyone who visits any Web site is a potential user. CareerBuilder’s stats show that 2 percent of a site’s front door traffic will engage in some sort of career activity, if it’s offered and if the banner is at “the top of the fold.” “Above the fold” was once a newspaper-only term, describing the part of the first page that’s seen at newsstands. It now holds true online as well. If you want conversions, make the job search option one of the first things site visitors see. HotJobs even suggests an L rack or “monster-sized” banner.

Productive affiliates send confirmation emails to job seekers, outlining merchant offerings they may have missed at the site. And they have a dedicated following of visitors loyal to their cause, employment related or not. “The more niche you can carve out for yourself, the more successful you become,” Testerman says. The best sites are industry-specific sites, focused on nursing, accounting, IT or any variety of professional topics. Those easily convert, say insiders, with just the addition of a “Career” page with an article on finding careers in that profession and a link to a tracking merchant site. But even general sites can tap into the 2 percent conversions by adding a career section.

When it comes to creatives in this industry, “banners alone don’t work,” Fannin says. Instead, draw users in with articles provided by merchants or job seeker testimonials, and convert using text links. “This provides content for search engine optimization and provides the best possible method for sales and conversion rates,” Fannin says. Affiliates who do the best take the time to study their merchant’s sites to really understand the product – it doesn’t take much time – and find a way to describe it in their own words for their own audience.

While many people are looking for jobs around the country, many people are also looking for a job around the block. Research from Belden Associates found that 65 percent of job seekers check their local newspaper sites, while only 55 percent hit Monster.com. Hence, the industry is responding by “going local.” Yahoo’s new Local product, in beta testing, will roll out HotJobs postings specific to a city or region. Other programs are expected to follow.

The online market for job-related services is going strong, and some would say it’s booming. Merchants and affiliates are starting to think long term. Rather than focusing solely on short-term metrics such as clickthroughs, registrations and purchases, they’re tracking long-term metrics such as predictive behavior, referrals and branding. This should play out as increased traffic and better conversions for affiliates. In the interim, the big three – Monster, HotJobs, CareerBuilder – will continue to fight it out to be the biggest job site out there. With Yahoo’s HotJobs scooping up top search engine placements, one might ask if there will be room for new entrants. “There is absolutely room for new entrants,” says Karasu at HotJobs, which doesn’t prohibit its affiliates from buying search words in its category.

And analysts predict further consolidation among the second-tier sites. “In the meantime,” says Fannin at Employment911, “we’ll just continue to try to produce good results.” It’s a motto echoed throughout the burgeoning online job search market, and one that will serve affiliates well.

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

Killer Content Brings in Money

There are three main factors that determine the success of your Web site:

  • Effective site optimization;
  • Site popularity; and
  • Great content.

Site optimization is the process of placing your keywords in the right places and making sure your Web site is accessible to search engine spiders so that they can find you and index your content more easily.

Site popularity can be achieved by online and offline marketing (mainly good PR) and the number of people who link back to you. This is often confused with page rank, but page rank is only one factor in determining your site’s popularity.

The best long-term solution for high search engine ranking, and the factor that is easiest to tweak, is to create first-rate content. You don’t have to be a Pulitzer Prize winner to do it. You just need to focus on addressing the needs of your customers, and by doing that effectively you will also attract search engine spiders in droves.

Many search engine marketers would have you believe that the best way to get high search engine rankings is to stuff your pages full of keywords and use tiny text at the bottom of the page to create great spider fodder. They don’t focus on the usability of the page or think about how users want to view your copy.

This may be a good short-term strategy, and may get you good rankings, but in the long term that’s not a good idea. Spiders are getting smarter. They know when you are trying to spam them. From your customers’ perspective this also does a lot to minimize the credibility of your Web site.

We have all been to sites where the copy was poorly written and grammatically incorrect. It looks sloppy and leaves customers questioning the wisdom of giving you their credit card numbers. It doesn’t matter how many clicks you get or what your rankings are if you can’t convert a visitor to a buyer. First-rate copy serves all of your audiences – spiders and customers alike.

As far as high quality content goes, remember that it should offer significant value to your customers and other sites. Why other sites? Because they’ll link to your site. Good content should also be unique and be updated regularly, so that people will come back to your site often to see what’s new.

Structuring Your Content

When thinking of how to structure your page to make it usable for both spiders and customers, a good rule of thumb is to start to think like a newspaper publisher. The same rules apply when determining what your Web site copy should look like. The newspaper editor focuses on the way readers like to view content. The editor knows that users typically scan the headlines first and then, when something piques their interest, they zero in on the content they want to read.

If you structure your pages the same way, it will increase the usability of your site and also make it more spider friendly. Make good use of headline sizes to clearly identify to your readers what is the most important copy on your pages. Direct them to where you want them to go by allowing them to see at a glance which items are the most important. Include your keywords in your headings to reinforce the focus of the page for both users and spiders.

The same rules apply whether you are building landing pages to submit to paid search engines or for organic traffic. Users and spiders want clear, grammatically correct copy that helps them to find the value in your pages fast. You only have about 13 seconds to catch your users’ attention, so every page on your site should focus on one message, and include a clear call to action. It’s really just following the basics of direct response marketing and applying that to your Web site.

Once you have created great headlines, pick one topic per page and write decent articles that appeal to your users. More pages equal more spider food and more specific landing pages where you can send users for one-click information. What works for one Web site in terms of content may not work for another, so you’ll have to keep testing until you see what mix of copy makes users want to stay on your site, return again and convert to a sale.

Here are some examples to help you start thinking about what valuable content might look like:

  • CD retailer: Provide reviews of new releases and bands;
  • Accounting: Offer regular updates about legal changes that affect your clients;
  • IT trainer: Show IT folks how to train their internal clients, or offer some free online training or white papers;
  • Gardener: Show beautiful gardens from around the world, and offer tips on gardening;
  • Travel agent: Offer reviews of hotels, restaurants and attractions on different areas.

As you may have realized by now, creating and updating your content is a lot of work. It’s also hard to stay motivated if you don’t see immediate gains. It takes a very long time for word to spread about your Web site. Just as with paid placement, you have to test creative frequently. With paid placement you can see results immediately whereas with this, you need to wait a long time to get feedback. You need to hang in there and over time you will see that it really does pay off.

Another relatively pain-free way to offer frequently updated content is to create a blog. There are many great inexpensive blogging tools out there that will integrate well with your Web site and allow you to update your content on the fly. Savvy search engine marketers are rushing to add them to their sites. But be sure the quality of your blog is high. Blogs are easy to set up and are proving to be very spider friendly. After all, what the search engine wants to see is just what your users want: frequently updated, quality, relevant content. Nobody wants to read yesterday’s news, least of all search engine spiders. Increasing conversion is what it’s all about, and that’s what makes a successful Web site.

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

A Show-Stopping Performance

In times when change comes quickly, many things can keep online marketing managers up at night. The question is: What should keep them up?

Some grapple with balancing their own search marketing efforts against affiliates’ or understanding which marketing strategy delivers a better yield in terms of marketing cost as percentage of sales (CAPS). Others struggle with an increasing need to spend on customers more than once, through multiple advertising venues, in order to earn the final purchase.

Looking forward, e-commerce executives must plan to actively deal with two critical issues: embracing integrated performance marketing and adjusting their goals, success metrics and tactics. While this sounds simple enough, the risks behind making the wrong choices continue to rise.

Performance marketing surrounds us and has converted Web marketing from a grand experiment into a must-have for direct, retail and brand-focused marketers. Given this hyper-focus on performance, savvy marketers and the agencies they employ are playing in multiple facets of online marketing ranging from traffic-focused cost-per-click, to awareness focused barter arrangements, to cost-per-sale/action campaigns.

Other interesting trends include the emergence of geographically targeted and “day part” search buys wherein pre-set business rules help to automate decision making behind campaigns. Contextual marketing technologies like the UK’s Vibrant Media or Quigo also offer potential leveraging strategies that employ text-based ads and use content relevancy to place them.

If they could, marketers would choose a single, reliable, integrated technology or agency partner that offers vital insights, reduces friction and streamlines media buying. Centralization of campaign data across multiple advertising strategies offers the potential of an information-rich environment to make short- and long-term decisions. It also opens the door for rule-driven automation that enhances the productivity of already constrained human resources. This is integrated performance marketing, or IPM.

Moving forward on such an approach requires an appreciation for complex legislative, technical and operational issues that shape today’s performance-focused strategies. Many marketers have surface-level perspectives on how, as an example, affiliates actually generate legitimate (or illegitimate) sales or return on advertising spending on key search terms. Making the leap to IPM will provide marketers with insights needed to streamline decision making.

Until then, reality demands marketers must plan, execute and optimize their campaigns with fragmented tools. Marketing managers responsible for numerous performance initiatives will continue to be at the mercy of disparate technology solutions. Tracking campaign performance within individual spheres – email, affiliate programs, CPC media buys, etc., – is simple. But centralizing data is difficult, making it harder to work smarter or faster. Search marketing company iProspect created iSEBA to address these needs.

Concurrently, in an environment filled with change, executives are forced to come to grips with mergers and acquisitions among vendors. (See story, page 60). Industry consolidation inside the affiliate, search management, ad-serving and comparison shopping spaces serve as examples. As companies like ValueClick, DoubleClick and aQuantive continue to cobble together performance-focused technology and service providers, the market is forced to ask itself, “Why?” and “What’s in it for me?” Time will tell, but IPM looms on the horizon.

Not So Simple

There is agreement in that performance strategies are not as simple as they look. Marketers are suffering through the intertwining of performance strategies such as affiliate and search marketing. A more sophisticated approach to measuring and benchmarking the effectiveness of individual strategies is needed.

As an example, although affiliate marketing is perceived as purely performance based, experience dictates otherwise. Specifically, what appears on the surface to be affiliate-generated sales oftentimes result from multiple customer behaviors, unscrupulous tactics or other marketing campaigns. Efficacy of each is clouded.

By assuming an integrated perspective and focusing on how customers end up arriving on their Web site, savvy marketers are discovering that customers are being driven to purchase based on multiple online and offline ad/marketing spends. As an example, individual orders generated by customers may involve multiple media interactions such as radio advertising, a shopping comparison portal and, finally, a cash-back affiliate site. Today without the proper tools, it’s difficult to see such trends. With an IPM approach, it is possible both to spot them and to adjust media spending accordingly so as to significantly lower marketing CAPS.

Seeing Through New Glasses

Brand awareness and direct response advertising can coexist and must plug into corporate goals shared across the e-commerce team. IPM can help. Inside these different marketing realms, campaign-level spending and objectives are measured in different terms yet both intersect with overarching business objectives such as CAPS and lifetime value (LTV) of customer. These measures drive strategic decision making (i.e., media budget allocation) offline and online; they must be understood clearly.

By aggregating data cross-strategy, decision makers can hold various types of media spends up against each other using a common, business rule-driven yardstick specific to their goal. The marketer may be interested in hitting a predetermined marketing CAPS and/or LTV number. In either case, centralizing results data yields new perspectives on cost efficiencies of each particular strategy. While a handful of marketers are able to engage in such an approach and reap the benefits, costs may very well outweigh the benefits.

Embrace And Adjust

More and more, we see the need for technology solutions to facilitate streamlined IPM. In order for marketers to develop smarter media spending plans, a cross-strategy viewpoint aimed at good, better and best strategies is needed. Yet many struggle by integrating existing and homegrown solutions.

Search management and performance-marketing agencies like Advertising.com, AvenueA and iProspect are beginning to roll out solutions in which business rules drive media buying decisions under a single strategy. In order to make the best media spending decisions, it is paramount to measure effectiveness across multiple types of performance campaigns in real time. This requires a tactics-level understanding of the details of each strategy, such as how affiliates generate sales numbers. Equally important, marketers are being forced to identify quickly which marketing vehicle delivers results better than others and why.

JEFF G. MOLANDER is CEO of Molander & Associates Inc., a Chicago-based publishing and consulting firm that helps multi-channel retailers, catalogers and service companies to manage their affiliate programs.

Keeping Design Simple

When building a Web site to convert sales, one must make the visitor very comfortable and try to avoid the frustrating pitfalls that commonly plague online merchants.

It’s important to remember that keeping visitors on a Web site and guiding them through the sales process is just as important as getting them there in the first place. Here are several simple tips for attracting visitors, retaining them and getting your site to make money and reach profitability.

Design

Aesthetically, a site should be clean, clear and attractive to the eye, saving bright colors only for important sales process features such as the headlines, offers, important details and purchase links. Avoid offending visitors with vibrant animated GIFs or flash advertisements. They are not only disruptive of the sales process and may lead visitors away from your site, but they also distract and annoy the visitor causing many to abandon your site before buying. That is not what you intended.

Dimensions

Different screen resolutions require that you test your site to make sure that all relevant information is available at as low as 800 x 600 pixels. Make your site no wider than 750 pixels to ensure that no side scrolling will be necessary. A visitor that has to scroll for every line of text will likely leave. Use your space wisely. It’s probably better to have a small amount of empty space than to cram every detail into a small area. On the other hand, you don’t want to leave out any valuable information.

Load Time And Compatibility

Be sure your site loads efficiently and correctly on all the major browsers over a dial-up connection. Many novice site designers are reviewing their work over broadband connections. Just because an image is small does not mean the file size is also small. It is recommended that you compress your images so that your site loads in less than five seconds on dial-up when it is not cached on your drive. Try using JPEG format for images containing gradients or many colors such as photographs. Use GIF-formatted images for buttons and text art containing only a few colors. Also, try to use HTML color whenever possible instead of images.

Sales Process

Clearly present an attractive offer such as a discount or free sample and establish a sense of urgency. Your offer is your hook. Make certain it is attractive or you have nothing to help you stand out against your competition. Accompany your offer with a testimonial or guarantee to establish trust and summarize the features and benefits of the product. You can provide more details about the product on a different page for those who want to know more, but it is advisable to keep the front page of your site simple and sales oriented. Purchase links should always be visible.

Purchase Process

Be sure your purchase process is simple. Remember, at this point you have the sale. You should be doing everything in your power not to lose it. A visitor should be able to get from your home page to an order confirmation in no more than three clicks. This may sound difficult, but it can greatly increase your conversion. A huge mistake that is being made in online marketing is the long and involved registering process and subsequent requirement of customers to log in. The so-called benefits of this feature are to save customer information and acquire opt-in information. However, this process can greatly affect conversion. If you must have customers register, gather their information after they have entered their credit card number and avoid having them enter the same information twice.

Billing information should always be gathered first. Make the customer commit to the purchase prior to entering shipping information or upselling to other products.

Monetization

Monetization means squeezing additional revenue from sources on your site other than your primary offer. Unfortunately, many have misconstrued this concept to mean that one should place affiliate banners throughout the site through which commissions can be earned. This is a huge mistake. Try placing related offers on the order confirmation page or exit pop-under window. This way you can sell your product and make affiliate commissions without disrupting the sales process. Additionally the purchase can be followed by auto-response emails with special offers or reminders on a periodic basis to retain customers.

You can also earn additional revenue or gather valuable information from a non-buyer. For example, if customers do not have a cookie in their browser indicating they purchased from your site, a pop-up could be displayed which offers them an entry to win a product if they sign up for a newsletter. This is an offer many can’t refuse. Choose something you can afford for your sweepstakes, and don’t give it away until you know that the information you’ve gathered is worth the wholesale price of the product. You can then promote your product in your newsletter and retain the ability to promote your offer in the future.

Monetization can also be achieved through the use of an upsell. Upselling items allows you to offer the visitor a complementary item during the purchase process. These items should require a minimal commitment on the part of the customer and minimal explanation on the part of the merchant. For example, if a customer were purchasing a snowboard online, a snowboarding magazine could be offered at the point of purchase. This should only require the customer to click on a single button indicating that they want the additional product. The information can then be fed securely from the form on the merchant’s site to the purchase form for the product on the partner’s site through an affiliate link so that the merchant can earn commissions and thus monetize the site.

GREG SHEPARD is CEO of NetTraction, an online marketing company found at GotRevenue.com. He has eight years of experience in online marketing and 16 in business development.

Four Ways to Make More Money

Have you ever wondered why big Web sites like AOL, Yahoo and MSN don’t run many cost-per-action (CPA) deals in their ad spaces?

It’s simple: They don’t have to. They make much more money selling ads based on impressions rather than the number of customers or leads generated. Who wouldn’t prefer to get paid for just showing the ad instead of having to rely on it really performing?

If a large property can’t sell all its ad space, even at discounted remnant ad rates, it might throw in a CPA deal here and there, but that’s a rare exception.

On the other hand, the most common way to compensate an affiliate is through a CPA deal. A merchant who runs an affiliate program can pretty much choose its own acquisition cost because it only pays for results. It’s rare that an advertiser’s affiliate program has the highest acquisition cost of all its channels. Instead, affiliate programs are seen as a way of acquiring customers at the lowest possible cost. And there’s nothing wrong with that.

But the same company might be willing to spend two to three times the fixed CPA acquisition cost to acquire the same customer from CPM-based (cost per thousand viewers) ads on large Internet properties. Why? Because low-cost affiliate programs offset the costs of higher CPM campaigns and offline channels. Together, they result in an acceptable overall acquisition cost.

I’m not saying that you should start hiring sales reps and putting together a media kit for your sites. But you might be very well served by looking at additional revenue streams such as CPM and CPC income, or something called coregistrations.

Here are four potential additional revenue streams for your site.

Use An Ad Network

It makes all the sense in the world for a smaller site to outsource ad sales. There are a lot of advertising networks out there that will sell your ad space for you for a cut. If they have good advertisers, your smaller site may become part of large ad buy by a well-known brand.

Of course, there are some downsides. You might have to give up as much as 50 percent of the ad revenue. And it can take forever to get paid, because you get paid after the ad network gets paid. But, all in all, joining an ad network might be very worthwhile if you can get accepted.

How do you qualify for that? Well, requirements vary. It helps if you can show you have relevant traffic, focused content, high traffic and a professional look and feel.

Pay-Per-Click Search

Another way to generate income is to get accepted in a content network for contextual advertising. You drop a piece of code onto your pages, and the advertising network will serve to your site text-based ads that are relevant to your content. Take a look at pay-per-click engines such as Google, Overture, Kanoodle and FindWhat.

You will then tap into a pool of advertisers who might not even have a standard affiliate program, but who are willing to pay a premium to get the clicks your pages have to offer.

Most pay-per-click networks only display the top three to four bids on a specific keyword on syndicated sites like yours. This ensures that you always get the highest earnings per click that the search engines have to offer for a specific keyword.

Even after you split the revenue, it can turn out to be a very good deal.

Also, the classified ad format that pay-per-click engines uses tends to work very well. Why? Users like them. They have blue links. And blue hyperlinks are the only ad formats that have consistently worked since the early days of the Web.

Sometimes you might make more from the revenue from the contextual text links than the main offer you’re promoting on the page. You need to test and watch your numbers carefully though.

Build A Quality Email List

If you only make money by driving traffic to advertisers who pay you on performance, then why not get some repeat revenue from them?

Build an email address list to make repeat offers. Good email is not dead. If you have a visitor to one of your sites, you should provide them with enough value so they give you their email address to stay in touch. Make sure your visitors opt in, so that you’re not contributing to the notorious spam problem.

Think about what would appeal enough to your visitors to make them want to hear from you again. Is it content on a particular topic? A special report featuring a buyer’s guide of the top 10 gadgets in your particular space? Special offers or coupons from your advertisers? Getting names and addresses for snail mail is even better.

Add Quality Coregistrations

What are coregistrations? Basically it means that you’re adding a number of checkboxes to your email form so that partners or advertisers can feature their offers. You get paid for every name your form generates for your advertisers.

There has been quite a bit of trading and selling of names with coregistrations that has diluted the quality of coregistration data and has sometimes given coregistrations a bad reputation. But the basic concept works as long as you don’t abuse it with 15 or 20 prechecked boxes on your form like many sweepstakes sites did in the past.

The best route to go is probably outsourcing. A number of companies let you add coregistrations to your registration path that completely blend into your own design.

That means your visitors will both sign up for your list and be added to a number of other lists through a third-party-hosted registration script. You’re basically outsourcing the whole management of coregistrations on your site to a company that will get advertisers and manage the data for you.

Bottom Line

You deserve to get paid as much as possible, don’t you? Try adding these other revenue streams in addition to the standard CPA ad. You might be pleasantly surprised by the results.

OLA EDVARDSSON has extensive experience as an affiliate. He is also CEO of the Internet marketing agency Performancy Inc.

What Clicks At Performics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Search For Tomorrow

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

It was morning in paid search country.

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

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

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

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

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

Personalization Per Click

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

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

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

Automate To Elevate

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

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

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

Making A Vertical Leap

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

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

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

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

On Your Mark. Get Rules. Go!

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

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

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

Don’t Jerk That Knee

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

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

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

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

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

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

The Other Trademark Issue

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

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

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

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

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

It’s The Brand, Stupid!

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

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

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

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

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

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

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

Gone are the days of pray-per-click.

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

The Overstock Obsession

Every so often, there’s a company, a person or a philosophy that attracts such a rabid following it can be only be described as a phenomenon.

In music, the Beatles and Elvis come to mind. It’s hard to think of either without envisioning ecstatic throngs of screaming, teary-eyed fanatics who would do anything for a souvenir to link them forever to their idol.

In technology, Apple Computer has survived as much (or more) on the strength of its zealous customers as on more mundane considerations like operating efficiencies or distribution channels. A piece of advice: Never try to tell a Macintosh user there are any advantages to using a PC.

In dieting, the current rage is Atkins. Eat all the protein and fat you want, but lay off the bread and pasta. Want to know more? Just ask someone who’s on it. They’ll talk the pounds right off you.

Overstock is like that in the affiliate world. Although it’s a nascent company that is far from perfect by some business measures, its customers, affiliates and employees simply ooze adoration for the fast-growing e-tailer and its undeniably magnetic CEO, Patrick Byrne. It’s not just that they like the company. This is unbridled zeal. It’s the kind of blissful rapture one expects from saffron-robed monks selling flowers at the airport.

The numbers show the love. Gross merchandise sales jumped 88 percent to $96.6 million in the company’s second quarter from the year before. And more than 3 million consumers have now bought something from the site, thanks in large part to Overstock’s 35,000 evangelistic affiliates. To put that last number in perspective, Macys.com has only 2,000 affiliates, or less than one for every 16 that Overstock claims.

After only five years in business, Overstock has blossomed into the 18th largest e-tail site. It attracted 9.3 million unique visitors during July alone.

Much of that success can be attributed to Byrne, a sort of existential capitalist whose top-tier schooling (BA at Dartmouth, MA at Cambridge, PhD at Stanford) has left him with a penchant to quote philosophies ranging from the Bible to Sun Tzu to Obi-Wan Kenobi. He often speaks in adages colored by a metaphysical hue.

“If you treat people well and customers well, you’ll be rewarded,” he says describing the “virtuous circle” of the retail world. “You can’t cheat karma. The karma police will always get you.”

He’s first to admit his company’s shortcomings in a way that enhances his credibility. In the company’s last earnings report, for example, he expressed his disappointment with Overstock’s “Daily Deals” promotion. “I am not giving up,” he said, “but this has been a dud.” He also admits to worrying about “bottlenecks” and declared outright that “B2B has been a disappointment.”

“Cynics claim that my candor is but an attempt to pump my stock by drawing investors looking for someone who does not pump his stock,” Byrnes wrote in the company’s recent earnings report. “I am flattered to have attributed to me such Machiavellian subtlety!”

Byrne grew his company the hard way after “getting turned down by 55 VCs (venture capitalists)” in his quest for funding. Overstock went public in 2002, using the same Dutch auction process that Google adopted this year.

The Art Of Affiliates

He’s so dedicated to building his affiliate program that he’s given Affiliate Manager J.T. Stephens a force of 10 assistants to build it. Byrne required them all to read Sun Tzu’s The Art of War, which he views as the “textbook on Internet affiliate marketing.” And, although Overstock’s commissions are relatively low at 3 percent to 7 percent (many merchants pay 10 percent to 12 percent), affiliates love the company for its highly personalized support.

“It isn’t always the commission,” says Sandy Breckenridge of SlipCovers- Fabric.com. “Higher commission sites don’t come near Overstock when it comes to support and personal attention.”

Another devout affiliate, Asif Malik of Plaza101.com, strayed from the Overstock flock for a while until one of its managers came after him like a shepherd looking for a lost lamb. “For a while, I dumped them,” says Malik. “But I got a call from Adam Russo and that changed.” Now the two work closely on updates, sometimes talking several times a day to make sure Malik is doing all he can for Overstock.

“It makes a difference,” says Malik. “I email or call and they respond right away. I email or call other companies and sometimes never hear from them. Or I get a message back telling me they don’t provide tech support.” Malik scoffs. “I don’t need tech support. I have technical know-how. I am just trying to help generate revenue for them. They are fools and I drop them. If they are too busy to talk to an affiliate like me, they lose.” And Overstock wins.

“No other merchants are calling them,” says Stephens. “We call them. We’re like a free marketing consultant, and affiliates are all ears.We tell them our best sellers and suggest placement. We give them the resources and tools to make money.”

Industry Advocate

The company also won admiration from many affiliates for filing the first suit under Utah’s groundbreaking Spyware Control Act. The suit alleged rival SmartBargains created ads that popped up over the Overstock Web site. (SmartBargains had filed its S-1 for an IPO. At the time of publication, it was in a quiet period and could not comment.)

“I love them,” said affiliate Connie Berg of FlamingoWorld.com, who recently shared LinkShare’s award for “Most Vocal Advocate” with Overstock’s affiliate team. “If they can get some spyware stopped, it helps people in other programs, not just Overstock’s.”

Byrne sees his raft of affiliates as his not-so-secret army to do battle with larger rivals like Amazon.com. “It’s a war of the fleas against the elephant,” he says. “A few years ago, affiliates did $150,000 in sales a month. Now they do millions It’s not yet $10 million a month, but it will be by the end of this year.”

While many companies trim inactive affiliates from their ranks to concentrate on their top producers, others see them as a source of potential growth. LinkShare CEO Steve Messer, for example, believes that once an affiliate shows interest in a company, “there’s always a chance to reactivate them.” (See Issue 3, Share And Share A Link.)

Overstock never cuts affiliates, meaning many of those 35,000 soldiers are ghosts that occasionally come back to life. One “inactive” affiliate who hadn’t generated any sales for Overstock in more than three years recently turned in $10,000 in one month.

Overstock champions the little guys, small affiliates who generate between only $500 and $3,000 in sales per month. The superaffiliates may generate more sales per affiliate, but they also demand higher pricing, flat fees and enhanced commissions, which makes them more expensive and harder to work with.

“We like the medium and small affiliates. I’d rather have 10,000 of them anyway. We try to do well by our affiliates. At this point, we think of them as jedis and padawans,” says Byrne, referring to the fully trained warriors in Star Wars and their young apprentices. “They are a mercurial bunch and they react quickly to good treatment.”

Stephens, meanwhile, translates the focus on the smaller affiliates to hard cash. “When you work to get 50 affiliates to add even $1,000 to $2,000 each in sales each month, it ends up affecting the bottom line,” he says. “Everyone else is cutting down and we are building out. Other companies limit themselves. But their loss is our gain.”

And the company does try to treat them well. “You can never lose sight of the fact that affiliate marketing is a symbiotic relationship,” says Stephens. This focus on affiliate appreciation seems to be paying off for Overstock. Affiliates like knowing they are talking to someone who specializes in their category (see list).

“Overstock is one of the easiest ones to set up and start earning money with,” says Gabriel Lam, who runs GotApex.com. “They have a wide range of products and very good pricing.”

Less Than Perfect

Of course, just as Elvis had a weakness for fried peanut butter and banana sandwiches, Overstock has a few flaws, too. Its immense expansion had led to some growing pains, and the company has yet to achieve profitability.

Some affiliates report that Overstock’s coupons get posted but don’t work right away, which they say happens very infrequently with other merchants. And Overstock spends a lot on advertising: $5 million in 2003 and $2 million in January through July 2004. It acquired 744,000 customers during 2003, but the cost was high – $13.30 per customer.

Overstock handles all advertising internally, a risky venture for a company dependent on brand awareness and national media buys. (It had to back off its “Big O” campaign after Big O Tires complained.) And Wall Street analysts remain wary. Only two analysts follow the stock and both are from investment banks that do business with Overstock.

In a research report published in July, analyst Tom Underwood of Legg Mason Wood Walker rated the stock as a “hold,” roughly the equivalent of a grade of C in school. “Success is not only still unassured,” he said, “we can’t quantify potential financial results around the business with any accuracy.”

And then there’s the area of search engine ranking. Overstock does its own optimization and could use some improvement. In a recent Google search for “discount shopping,” Overstock didn’t even appear on the first page for sponsored or unsponsored links. (The sponsored links included Target and SmartBargains. Curiously, Connie Berg’s FlamingoWorld .com topped the unpaid list.) Because Overstock describes itself as selling “name-brands at clearance prices,” Revenue ran a search for “name-brands clearance prices.” Again, Overstock was a no-show, paid or unpaid.

‘Smitten’ Buyers

Some affiliate managers find that some of their best customers are their own affiliates. It makes sense given that affiliates want to support their merchants and earn a commission on their own purchases. But Overstock’s cultish shoppers have been known to turn that model around by becoming affiliates simply because they love shopping at Overstock.

That’s the case with an affiliate named Beverly C. Lucey, editor of the blog WomanOfACertainAgePage.com. She has affiliate links to Amazon because, as an educator she wants to encourage reading. She turns down other business ventures offered her – from manufacturers of Viagra, weight loss products and “anti-aging goop.” But she decided to provide a link on her site to Overstock.com. “They didn’t ask me to,” Lucey wrote in an e-mail interview. “I’ve been a happy customer for the last four years.”

Of course, she swoons, there was another factor: After hearing an NPR interview with Patrick Byrne, she became “smitten.”

Byrne seems to have that effect. “Everything he touches turns to gold,” gushes Stephens. And Marketing Vice President Kamille Twomey says, “He is an exciting and convincing man. ” I came in to talk to him and a few minutes later, I was working for him.”

Special Treatment

The company runs network-wide promotions with tiered bonuses, but it also brokers one-on-one deals with Web sites, letting affiliates sell, say, a Burberry scarf, for less than Overstock does. Many affiliates who Revenue interviewed said special deals were a great incentive.

“I call Overstock and Amazon the Masters of Promotion,” says Michael Conley of Amazing-Bargains.com, who has been working with Overstock since 2000. He also likes their dependable and cheap shipping, which is usually $2.95 whether users buy a book or a couch, and sometimes is free. The symbiosis should help around the holidays.

The holidays are critical to Overstock. “In 2003, half our sales were in the fourth quarter,” says Twomey. In the late summer, the company employed about 500 people. With seasonal help, that number will jump to 2,500, up almost 80 percent from the 1,400 working for Overstock last holiday season. Clearly, the company is preparing for sales of biblical proportions.

“We’ve been thinking about the holiday season since January,” says Byrne. “In past Novembers we finished the ark by wading in waist-deep water pounding nails in the rain. This year our ark will be complete before the first raindrop falls.”

Spoken like a true believer.

DIANE ANDERSON is managing editor of Revenue.

Land Rush

Suddenly, Joe Speiser’s phone rings more often than it used to.

The calls are coming from venture investors and executives at some “very familiar companies” who’ve taken a sudden interest in buying all or part of AzoogleAds.com, the performance marketing company that Speiser co-founded four years ago.

“It just kind of started,” he says, somewhat stunned by all the attention. “A lot of advertisers right now are just getting used to the idea of performance marketing. A couple of years ago, they didn’t understand the concept.”

Speiser is hardly alone. Since Revenue last looked at the consolidation trend six months ago, mergers of online marketing firms have created the sort of frenzy that hasn’t been seen in the online universe since the dot-com explosion of early 2000. Suddenly, large portals and advertising networks seem intent to acquire affiliate networks, search engines and interactive ad agencies in a quest to create end-to-end performance marketing products.

The numbers explain why. The online ad market, which was pronounced dead in 2000 when the average CPM rates dropped by more than 90 percent, rose like Lazarus to claim $6.6 billion during 2003, according to JupiterResearch.

What’s more, it’s expected to reach $16.1 billion by 2009 thanks largely to the emergence of marketing techniques that give marketers a low risk, highly measurable method to draw in new customers. Simply put: If a big advertising company can’t offer performance marketing to its clients, it won’t be big online.

“If you look at the marketplace today, I would say all the other players out there – the Yahoos, the Googles, the traditional ad guys – are feeling the pressure of what the affiliate marketing world has created, which is the ability to actually give back an ROI and to give back measurable success,” says Steve Messer, CEO of LinkShare, the largest privately controlled affiliate network. “You can’t get away with CPM alone anymore.”

ValueClick helped light the bonfire by purchasing the BeFree network just before snapping up Commission Junction. In other high profile deals of the past year: DoubleClick snared Performics; AOL bought Advertising.com; Yahoo acquired Overture; aQuantive grabbed Go Toast and SBI.Razorfish; Digital Impact took over Marketleap; and Agency.com absorbed Exile On Seventh.

While those names represent a diverse mix of online businesses, together they represent a crazy quilt that patches together every facet of performance marketing. From New York’s Madison Avenue to San Francisco’s Multimedia Gulch, companies are courting one another as the long-elusive promise of online marketing moves closer to reality.

“More and more players are looking at companies that survived and thrived in the downturn and are seeing them as great opportunities for the future,” says Jeff Pullen, general manager of CJ, now part of ValueClick.

While this activity may result in substantial rewards for determined entrepreneurs who built better models for online marketing, it also raises questions about the effect such mergers will have on affiliates, the companies, their services, the public, ad rates and competition in the marketplace. Are the lofty valuations offered in these acquisitions justified given the fast-changing nature of the performance marketing field? Will the lack of competitors result in higher rates and fewer options for performance marketers?

The real benefits (and drawbacks) of these mergers won’t be known for years. But our survey of industry executives found agreement on two points. First, it’s highly unlikely that a few big players will dominate online marketing the way they have dominated radio, billboards, TV and print publications because, unlike other media, cyberspace isn’t bound by frequency spectra and distribution channels. Second, the performance marketing space will continue to evolve for at least another decade, suggesting that some of today’s acquisitions may turn out to be tomorrow’s folly.

To be sure, mergers represent enormous gambles. If expensive acquisitions don’t perform, the strategies behind them can turn into nightmares for senior managers, employees, customers and, of course, the shareholders who financed the gambit. Case in point: the AOL-Time Warner debacle.

After the companies announced their plan to merge in the fall of 1999, Time Warner shares soared to an all-time high in the upper 90s. By mid-2002, Time Warner shares had fallen below 10. More recently, they’ve been trading in the upper teens, off about 80 percent from their highs. Over the same period, the Dow Jones Industrial Average has lost only about 12 percent.

Driving Forces

As philosopher George Santayana pointed out, those who forget the lessons of history are doomed to repeat them, and some companies will pay too much for too little. But the financial motivations for buying performance-based companies overshadow the risks for some industry players.

“Performance marketing is an enduring trend that is going to force the marketing community and their advertising agencies to embrace performance. It’s a different DNA set than the traditional advertising agencies have embraced,” says Rich LeFurgy, who serves on the executive committee of the Interactive Advertising Bureau, the group he served as founding chairman. LeFurgy’s view may be biased by his position as the principal of Archer Advisors, a San Francisco-based marketing firm. Still, he makes a strong argument for long-term change in the way advertising is valued.

As a stop gap measure, LeFurgy says Madison Avenue firms are working with consulting firms to develop economic models that show traditional advertising is returning an acceptable ROI, but that model won’t work for long. “I think it’s very much the lobster in the lobster pot where the heat is slowly being turned up in terms of performance expectations from marketers,” says LeFurgy.

As more media properties acquire performance- based expertise, media buyers negotiating ad contracts will demand more empirical evidence that ads are working. “That is going to trickle down from the marketer to the agency to the media property. There are companies, for example, that are looking not just for performance and ROI, but whether ads run at all,” says LeFurgy.

Another force driving consolidation is the economic recovery. To survive the downturn many performance marketing firms became lean, mean, competitive machines. They pared excess costs, closed offices, developed efficient technologies and bid jobs with a focus on winning and retaining top clients. As a result, these firms are attractive takeover targets because it’s faster for bigger players to buy them than to develop those capabilities internally.

“As the established players look to expand, they’re doing it through acquisitions, and these [performance marketing] guys are pretty close to the top of the list,” says Gary Stein, senior analyst for Jupiter Research. “They figured out a way to make the ads more effective, whether it’s through behavioral targeting or through an affiliate network where the affiliate guys are going to reach into niche audiences or do something clever with the brand.”

The most attractive targets, Stein says, are those that offer search-driven features or performance marketing abilities such as affiliate networks. Performics, recently taken over by DoubleClick, offered both.

“As any industry picks up, one of the methods for growth for larger companies is acquisition,” says Performics CEO Jamie Crouthamel. “So they look to acquire things that are complementary or additive to what they’re doing. In the case of affiliate marketing, it was additive in CJ’s case. It was complementary in our case.”

The Limitations

Aligning expectations with realities is a challenge following any merger and, without exception, there are surprises on both sides. Integration is always tricky. Perhaps the cultures don’t mesh, or the technologies prove problematic or the talents fall short of expectations. Quite often, the acquiring company will expect to save money by scrapping redundant operations, or by cutting back unprofitable lines of business. Other times, the acquiring company will invest more capital to grow certain capabilities faster than the smaller company could have grown on its own. Crouthamel says that is what’s happening now at Performics.

“In our case, DoubleClick had neither search marketing nor affiliate marketing,” he says. “So you wouldn’t reduce any services or people in a business that’s growing as fast as our segment is growing. You actually see more resources put against it.”

In the case of ValueClick, the acquisition of both the BeFree and CJ networks raised the potential for consolidating the two into a single, more efficient network while reducing redundant operations. “Commission Junction and BeFree have been integrated. ” We’ve done away with the BeFree brand name,” says Pullen, who now leads the combined entity.

“My personal sense is [ValueClick] is going to sunset the BeFree technology. Then you’ve got a lot of people who thought they bought the Maybach but found out they got a Mazda,” says LinkShare’s Messer. “People who picked BeFree actively chose not to pick CJ, and now it’s being imposed on them. So it will be interesting to see over the next few quarters how that plays out.”

Pullen notes ValueClick is still delivering BeFree products, which include the BeFast platform, and adds: “We’ll continue to do so. But at the same time we’re looking at ways to improve upon it and operate it more cost-effectively.”

The shifting dynamics in the affiliate arena mean good news and bad news for Messer. First the good news: He’s got two big competitors instead of three. Now the bad news: The two remaining competitors are backed by bigger companies. Still, he seems confident, almost to the point of being cocky.

Messer also takes a shot at DoubleClick, saying, “They’re talking about Performics as their great white hope for a company that’s struggling.” However, Crouthamel responds like a man preparing for a war, promising his affiliates a cache of new weapons as a result of the DoubleClick- Performics combination. “You’ll continue to see innovation and other things available to affiliates because the marketers want it,” he says. “Consolidation isn’t always a bad thing.”

Beyond Affiliates

The intramural sniping isn’t limited to the affiliate space. At Adteractive.com, Diego Canoso, the agency’s vice president of sales, raises questions about AOL’s decision to acquire Adteractive’s bigger competitor, Advertising.com. He noted the deal changed the playing field because Advertising.com has historically bought ad inventory from many companies and now may face limits.

“The interesting question now is whether Advertising.com can continue to structure big bulk contracts with the other big portals. Is MSN wanting to sell their inventory, essentially, to AOL?,” he asks. AOL declined to comment on that question, but in a June news release announcing the acquisition, the company appeared more concerned with building a performance marketing monolith than with buying remnant inventory from AOL’s competitors.

“We now have all of the pieces in place – premium inventory, a strong and growing search business and the ability to deliver customized pay-for-performance programs,” Michael Kelly, president for AOL Media Networks, said at the time.

Questions about the value of search engines also exist. Just five years ago, Yahoo was the undisputed heavyweight champ, then Google showed up. Yahoo’s purchase of Overture appears intended to make up some lost ground, but there are literally hundreds of smaller search companies fighting for market share.

“We’ve met with a number of publishers in the past couple of months who are coming up with Web-based, contextual-based platforms designed to compete directly with the Google AdSenses of the world, and some of these contextual models are desktop based,” says Tom Storm, VP for online sales with VentureDirect Worldwide, a marketing company. “If that model continues to play out, I think it will take market share away from some of these search engines who probably have more than they should.”

Executives at Yahoo and Overture declined to discuss their strategy for coping with that, but previously have spoken about Yahoo’s focus on building “the largest position in the rapidly growing Internet advertising market.” Between Yahoo’s bravado and Google’s rapid growth, the niche engines will need to fight to maintain their positions or grow, according to Scott Delea, a senior vice president of the Web management consultant DigitalGrit Inc. Delea also sits on the search engine committee of the Interactive Advertising Bureau.

“Look at Google’s mission statement – ‘to organize the world’s information,'” Delea says. “If I were an engine, I’d feel threatened. ” For a niche engine, as long as their content is unique, or their audience is unique, they will survive. Other than that, I don’t think they have too much to stand on.”

Who’s Next?

Enterprises such as VentureDirect, Adteractive, AzoogleAds and, of course, LinkShare all may be candidates for consolidation, along with dozens of others. But none would admit the prospect of sudden riches has altered the way their companies are run. “Everybody has a price,” says LinkShare’s Messer, “But that’s not what we’re looking at. We have a mission, and we’re executing very well on our mission.”

Meanwhile, Hagai Yardeny, editor of the marketing newsletter Digital Moses, points at a possible side effect as the merger craze rolls forward, one that portends more challenges for affiliates.

“With any kind of consolidation, there is less choice,” he says. “With less choice, there is less competition. It could adversely affect affiliates by lowering the bounties for the different advertisers.”

Tom Murphy is Editor in Chief of Revenue.