Being Ben Edelman

You’d be hard-pressed to find someone more knowledgeable or dedicated than Ben Edelman when it comes to the evils of spyware. The 24-year-old assiduously tracks the proliferation of adware from his own computer lab. He’s a fierce critic of spyware practices and has testified in several high-profile adware-related lawsuits.

Talk about overachievers: Edelman is a Ph.D. candidate at the Department of Economics at Harvard University and a student at Harvard Law School. He currently is analyzing methods and effects of spyware, uncovering affiliate commission fraud and examining Internet filtering efforts by governments worldwide.

DIANE ANDERSON: Where do you do most of your work?

BEN EDELMAN: I work primarily from my apartment. All the equipment is in my office, the second bedroom in my two-bedroom apartment. I currently have six PCs in my lab, though I’ve had more from time to time. In general, I install one spyware app on each PC, then test its behavior under controlled experiments. For some projects, I install spyware in virtual machines on my fastest PC – which lets me return the system to pristine condition for multiple rounds of tests of install-uninstall or for testing of many different programs in sequence.

DA: How did you get started researching spyware and adware?

BE: It was something I had long been interested in. My recent work focuses on the intersection of law and the Internet – generally including writing software to study whatever software I’m looking at. Programs that show extra pop-up advertisements are a natural candidate for study in this way, because by careful testing I can learn which ads are shown when, how the programs get installed, what personal data they transmit and so forth. I was thinking about these kinds of questions as early as 2001. My earliest publication in this field came in mid-2002, when I served as a technical expert in the case brought by The Washington Post, New York Times, Wall Street Journal and others against Claria (then Gator) as to its pop-up ads covering their sites.

DA: There seems to be a lot of confusion about what the differences are between behavioral targeting, adware and spyware.

BE: I think the differences are often surprisingly small. There’s a large class of programs that use behavioral targeting – meaning watching what a user is doing – to figure out what ads to show (an “adware”-type function) while also sending back information to central servers about users’ online activities (which some might call a “spyware” feature). So I see great overlap between the three terms.

The various programs using these methods have a lot in common. For one, users don’t generally want these programs on their PCs. For another, users don’t generally seek out even the most benign of adware programs. Instead, users get the programs through some kind of bundle, or auto-install (“drive-by”) that occurs when users visit certain Web pages. A further similarity: The resulting advertisements cover Web sites with, in general, their competitors’ sites – a result that I found incredibly surprising when I first experienced it, and that in my experience users continue to find surprising. What an odd thought that the ad you see, when you type in LLBean.com (and are otherwise looking at L.L.Bean content), is in fact an ad for L.L.Bean’s direct competitor!

Of course, there are other kinds of contextual advertising. Google shows ads according to what searches users conduct. Sometimes these ads are controversial – sites’ advertising being triggered by direct competitors’ brand names. But Google certainly isn’t sneaking onto anyone’s PC. The Google ads, at least, are within Web pages that say google.com, so even the most inexperienced user can always understand that the Google ads are there because Google put them there.

DA: What should affiliates and affiliate managers know about search engine cloaking?

BE: First, let’s step back for a quick definition: Search engine cloaking is a set of methods whereby sites attempt to boost their search engine rankings, primarily by giving search engines content different from ordinary users.

Cloaking is a risky strategy. It has rewards, but it has a downside too. For those with savvy competitors or critics, who might notice the cloaking and report it to authorities, the risks are particularly pronounced. Google’s FAQ says it may remove sites from its index, permanently, as a penalty for cloaking.

That said, to date the penalties for cloaking have been pretty limited. Cloak for a year, and you might never be caught. Even if you are caught, you might get at most a slap on the wrist, especially if you’re powerful and can convince Google to be lenient. So the fact is, lots of sites are using cloaking.

DA: What are you working on now?

BE: This year I’m finishing my last year of law school, and planning my dissertation for my Ph.D. in economics. I also have some ongoing testing of more spyware and stealware, work I expect to publish on my Web site in the coming months.

DA: What stealware is the most pernicious these days?

BE: It’s hard to know. If I knew which software were most problematic, I’d surely make it my highest priority! Generally, I try to keep an eye on the programs with the largest installed base – figuring that they’re the programs affecting the most users, and that they’re the programs best positioned to show a large number of pop-ups or to falsely claim a large volume of affiliate commissions.

DA: You’ve studied these programs for some time. What do you think are the biggest dangers facing affiliates right now?

BE: I think the biggest danger is complacency. Affiliates would be wrong to assume that all is well in the affiliate marketing space – that they can simply link to merchants, then wait for the money to come rolling in. Fact is, powerful outside forces seek to profit from affiliate marketing and garner their profits by interfering with the referrals made by other affiliates.

DA: What actions would you suggest affiliates take to protect themselves?

BE: I wish there were more that affiliates could do. As it turns out, the major stealware problems are problems for merchants, primarily, and for affiliate networks to the extent that the integrity and value of their tracking systems are called into question. Ordinarily, rule-abiding affiliates lose out when stealware seizes their commissions. But there’s not much an ordinary affiliate can directly do to address the problem.

That said, it’s always good for affiliates to be informed, and to help spread the word. Revenue readers are surely better informed than most. I’m a big fan of ABestWeb, where there’s lots of savvy discussion about which programs are doing what. Those affiliates who have personal relationships with merchants can learn what’s going on and can help keep their merchants in the loop, especially as to programs found to target their merchants.

DA: You write about 180solutions, WhenU, Claria. Which companies are the most egregious violators?

BE: I was, and remain, particularly concerned about the behavior I have observed from 180solutions software. 180’s software was setting affiliate network cookies even on “organic-traffic” type-ins, where users reached merchants’ Web sites directly (not through any other affiliate). So merchants would be paying commissions to 180 for traffic that resulted from their own background marketing efforts. 180 was also overwriting cookies set mere seconds before by other affiliates – so merchants would be paying 180 when the commissions should have gone to other affiliates. These activities had been going on for at least six months when I began to write about the problem publicly. But somehow the existing processes – merchants’ fraud control efforts and affiliate networks’ efforts – had failed to detect what was happening, or to do anything about it.

Claria is notable for continuing to be installed on a huge number of PCs, some 40-plus million, according to recent reports. That’s a lot of users getting extra pop-up ads!

DA: What can be done about them?

BE: To the extent that these programs set affiliate cookies in violation of merchants’ and networks’ rules, I would ordinarily expect merchants and networks to detect the behavior and to issue sanctions, presumably including forfeiture of ill-gotten commissions. Litigation also seems like a possible way forward. After all, merchants might want refunds of commissions wrongly paid six months ago, not just of the most recent months of commissions not yet paid to stealware companies.

In thinking through enforcement options, it’s important to realize that affiliate networks face some odd incentives here. Remember that merchants pay networks a share of the amounts merchants pay affiliates. For example, if a Commission Junction merchant pays $10,000 of affiliate commissions, CJ’s 30 percent fee might be an additional $3,000. Usually, this is a good thing: Networks make more money when affiliates make more money, so networks have an incentive to stop merchants from cheating their affiliates. However, networks also make money when “stealware” affiliates claim commission they’re not entitled to. So networks face an incentive to look the other way and to allow or even to promote programs that claim affiliate commissions in violation of merchants’ and networks’ rules.

Set against this incentive are networks’ overall reputations for honesty and integrity: If the networks try to cheat the merchants too much, or if the networks let the merchants get cheated too much, then networks’ reputations are likely to go down the drain. But these forces are in tension, and my sense is that lots of merchants are coming to question whether they can count on networks to make sure affiliates, especially affiliates using software downloads, are in compliance with the necessary rules.

DA: What role does government play? What are your opinions about the various bills?

BE: I’d love to see legislation that truly addresses the problem of unwanted software getting on users’ computers. So far, though, I’ve failed to see much legislation that addresses the subtlety of the situation here.

The real problem, as I see it, is defining user “consent.” It turns out to be pretty easy to get a user to press an “I accept” button – especially if that button is in a box that looks official, or if it comes as one step in a many-step process of installing some software the user actually wants. But what should we infer from the user pressing “accept”? Can the user, with one quick click of a mouse button, allow a software distributor to claim commissions on the user’s every purchase? Allow the distributor to install whatever software it wants, from whatever third parties, at whatever point in the future? Can the user authorize the software provider to create on-screen advertisement displays that are, to many users, not just annoying but also misleading and confusing, and that many online publishers regard as damaging to their brands?

Then there’s the problem of licenses not actually shown to users. In many drive-by installs, the user gets a message like, “Do you want to, after reading our license (click here to view it), install [program name]?” How should we understand this prompt? If a user clicks on “yes” without reading the license, is the user still bound? What if the link were broken, such that clicking on the license link didn’t actually produce a license? If the unread license claimed “user will pay software provider $100,” I suspect we’d all consider the license unenforceable. What is so different when the license instead says, “We will cause your PC to show extra pop-up ads”?

I’ve been surprised at how many courts have been willing to accept the “consent” argument – giving so much weight to a user’s thoughtless and hurried press of the “accept” button. Most legislation also places great significance on “I accept” – sometimes requiring that users be given specific information before they accept, which I think is a good start, but ultimately letting users accept almost anything, no matter how one-sided. I’m not usually one to intervene in free markets – so I, too, have the instinct that if users actually want this stuff, we should let them have it. But my experience is that few users actually do want it. Instead, they’re just not paying attention when they “accept.” So I think there’s a role for government to be helpful here, in requiring consumers to really think before they leap, to read a few screens of disclosures and to press a few different “accept” buttons in a procedure reminiscent of signing a rental car agreement. The formalism of the multiple steps of acceptance might go a long way to helping users understand that pressing “I accept” is actually a big deal.

DA: What are your biggest current concerns?

BE: The current fight over unwanted software on users’ PCs actually seems to me a very big deal. As a society, how do we make sure that users have the freedom to install what they want on their own computers, yet that big companies can’t trick users into signing away (or should I say “clicking away”) their rights for nothing? In the real world, we’ve built up various kinds of unconscionability laws – a prohibition on various kinds of misleading real-world offers that make a user think he’s getting one thing, when the truth is far removed. Can we find the right online balance? Or will corporate interests run rampant and seize users’ computers for their own benefit?

More generally, I’m interested in the balance between public and private on the Internet. The fight over spyware ultimately comes down to how easily users can give up their own desktops – how much of a showing a software company must make to defend its right to be on a user’s PC, when the user quite likely didn’t actually want it there, but when the company claims the user pressed “accept” and granted permission. We shall see.

DIANE ANDERSON is an editor at Brandweek. She was the managing editor of Revenue Magazine for Issue 4 and she previously worked for the Industry Standard, HotWired and Wired News.

Affiliates Yearn For Standard Bearers

Affiliate marketing is entering its adolescent phase, but the lack of standards for delivering data is inflicting some serious growing pains. If the industry is to grow up as well as out, merchants and affiliate networks need to provide affiliates with consistent methods of accessing the data that feeds their development.

While nearly anyone with a Web address can create a static storefront with a few dozen links or banner ads, affiliates looking to stand out from the competition are finding it necessary to incorporate near real-time feeds of product information. These feeds allow affiliates to differentiate themselves by displaying daily promotions, available inventory and updated pricing.

Unfortunately, sales sophistication comes at a cost. Because many merchants and their network intermediaries continue to deliver data using 20th century technology and proprietary data formats, affiliates must develop custom applications for each partner relationship. This time- and resource-consuming process detracts from the goal of promoting products.

The State Of Disunion

Today most affiliates receive creative materials for banner ads and product information as text files delivered via email, or by downloading them from a merchant file transfer protocol site or password-protected Web site.

Chris Henger, senior vice president of marketing and product development for affiliate network Performics, says that the current process is one whereby affiliates are mostly responsible for retrieving the information. In cases where the merchants deliver information to affiliates, it’s usually formatted as XML data or comma-separated value files. But there is no consistency of formats or order of product names, categories or descriptions, Henger says.

Performics converts the merchant data into customized files for each of its 75 affiliates, which requires considerable data massaging and some human intervention, he says. However, he notes that even as technology advances, affiliate networks will continue to deliver information in multiple formats because of the lack of technical sophistication of many affiliates.

“There will always be some (affiliates) who are happy with cut and paste,” Henger says. And for affiliates who sign up to offer products from dozens, or even hundreds, of merchants, that’s a lot of cutting and pasting, which inevitably leads to embarrassing errors.

The level of technical expertise among affiliates varies tremendously, according to Kellie Stevens, president of AffiliateFair-Play.com, an industry advocacy group. Stevens says some networks have developed application scripts to somewhat automate the retrieval of data, and frequently affiliates “install them on the servers without knowing what they do.” And while some affiliates have a background in programming, “For some it’s a stretch just creating a Web page,” she says.

But getting pricing information and daily promotional materials aren’t the only items that have affiliates clamoring for data feed standardization. Most also need to get near-real-time data about their specific commissions, click-through rates on banner ads and raw sales data. The largest networks, including LinkShare and Commission Junction, use the same technologies to track those important affiliate statistics, but affiliates may still have to do some of their own number crunching to figure out the top-selling products and those that are merely taking up screen real estate. Some networks with fewer affiliates provide performance feedback via instant messenger.

Because affiliate marketers are by nature independent-minded and have a variety of opinions on how to streamline the data-sharing process, there is not likely to be a single data standard anytime soon, Stevens says. And because there is also no strong industry association to recommend or impose standards, affiliates will likely have to grapple with proprietary data feeds for the foreseeable future.

Networks Eye RSS

However, a few forward-thinking networks are embracing a standard from the online publishing world that simplifies receiving real-time data feeds. The real simple syndication, or RSS, standard was developed to allow news publishers to seamlessly share headlines and article content with other Web sites and is currently used by many media leaders including Yahoo, the BBC and Wired News. RSS standardizes the XML tags used to identify components of an article and is popular with many Web logs, which also use RSS to publish their own content so that other Web sites can link to it. Online marketers realize that the RSS standard could be used to define tags for product and pricing information and reduce the amount of programming needed to extract information. RSS data can be distributed via email or FTP, or automatically streamed to remote Web servers. To view RSS feeds, you need to obtain an RSS reader application, such as FeedDemon or NetNewsWire, or point your browser to a feed-reading service such as Bloglines or MyFeedster.

One of the early adopters of RSS is diamond jewelry seller Mondera of Bangkok, Thailand. Chris Sanderson, Mondera’s marketing and affiliate partner manager, says the company is turning to RSS because email “has started to reach its limit as a useful tool.” Affiliates, like the rest of the wired world, receive a high volume of spam, so they use email filters that frequently block the data files, he says.

“We needed an easy way to reach out to our affiliates that wouldn’t clutter their mailbox, that they could opt into É and that provides easy access to more detailed information,” Sanderson says. Shawn Collins, who runs several affiliate sites and merchant programs, including ClubMom, is making the transition to RSS for his data feeds. Collins recommends that companies disseminating information via email should switch to RSS because it can be used to get around spam filters. Collins uses NewsGator, a news reader plug-in for Microsoft Outlook that enables RSS feeds to be sent directly to folders without screening by spam filters. RSS enables Collins to more quickly manage multiple programs and affiliates. A small number of affiliates are starting to use RSS but, Collins says, “Most affiliates don’t realize that they are missing out.”

Merchants who aren’t interested in developing technology themselves or negotiating with affiliates are turning to consultants and affiliate management companies for guidance. These groups often minimize the technical hurdles of sharing data with affiliates by taking data in whatever format the merchants prefer and finding a method of matching it with the affiliates’ preferred means of communication. Michael Stalbaum, CEO and affiliate manager of UnREAL Marketing, says affiliates get what they pay for in making a technology investment and that many affiliates are happy using email and FTP files to find out how their shops and ads are performing. However, he notes that the quality tracking of referrals through a timely data feed is key in a performance-based industry. “Since you only get paid when you generate leads, you need to understand what is working and what is not,” Stalbaum says.

Affiliate marketers are looking at the networks to organize the data distribution process using standards such as RSS, according to Gary Stein, senior analyst at JupiterResearch. He says that any standardization is likely to come from larger players like Commission Junction, LinkShare and Performics.

Standardization of product and performance data would give marketers more timely insight into their customers and allow them to more quickly make decisions about promotions. “Product feeds are getting more in demand. If you can set up an automatic feed using RSS, you can do all kinds of things,” he says. For example, if prices change, you can automatically rotate the least expensive item to the top of the list. Stein says that while many marketers grab the cheapest technology to get the job done, “20 percent of the affiliates are really sophisticated and passionate” and are willing to invest in technology.

Blogs: The Interactive Affiliates

Blogs, which are often personal opinion, news and rumor Web sites, have attracted huge followings during the past few years, and they are now monetizing their popularity by becoming affiliates. Entrepre-neurial bloggers are now using scripts to combine their RSS-formatted content with affiliate links. This ensures that when another Web site uses content that features text links to merchants, the original blogger is credited with referring the traffic.

Dick Costolo, CEO of data feed services company FeedBurner, says several networks have asked his company to help them create a commerce solution leveraging RSS feeds. Affiliates who receive RSS feeds no longer have to read through emails or check the Web sites of all their merchants to see if new content has been posted. RSS is a “more efficient way of tracking Web-based content,” he says.

There is a substantial business opportunity to combine blogs and commercial publishing traffic with affiliate marketing, according to Costolo. He claims there are currently about 4 million RSS feeds being distributed, 95 percent of which come from bloggers. Affiliate marketers can have their referral IDs inserted into RSS content streams, enabling them to contextually link within articles while maintaining tracking information.

Costolo recently began working with one of the biggest fish in the affiliate stream, Amazon.com. The online merchant is streamlining its affiliate program using RSS to make it easier to track purchases and associate relevant sale items with content. For example, an affiliate that has content about books can scan the RSS feed to find related content that is continually updated. “We are giving publishers more options by enhancing their feeds,” Costolo says.

Merchants At Your Service

Affiliates looking to partner with the largest online sellers may be required to make a more substantial investment in technology, but in the process they can gain experience with the leading e-commerce standards. Amazon and eBay have granted access to their massive inventories via Web services application programming interfaces, or APIs. Web services are platform-independent applications broken into component functions that are used to share information over the Internet.

Amazon and eBay have provided Web Services blueprints detailing how affiliates can query their databases to obtain real-time price and product information using tools common to many developers, including Java, the simple object access protocol (SOAP) and XML. Through Web services, affiliate developers can access product images, perform searches and find related products through standardized APIs. “The focus [of the Web services initiative] is to give programmers the guts of Amazon’s technology so that they can build a storefront on top of it,” says Jeff Barr, program manager for Amazon’s Web services.

Combining Web services with RSS data feeds is a “great example of creativity” that enables affiliates to mass-produce dynamic Web pages, and “this allows small companies to compete with the bigger guys,” Barr says.

But don’t look for Amazon to provide comprehensive tools that enable affiliates to cut and paste some code or download a utility and immediately hang out their virtual shingle. Barr says the Web services method requires some programming, and third-party companies are filling the void by developing applications that are more affiliate friendly. However, affiliates who aren’t afraid to learn a few simple scripts and shop around for third-party tools could put up a basic site within a few days, he says.

Choosing A Path

Affiliates looking to promote products from many merchants must manage the tradeoffs of committing to create custom feeds for each partner with the overhead of implementing cutting-edge technologies such as RSS and Web services. Or, they can take the path of least resistance and join up with a single affiliate network.

“Signing up with an affiliate network is the way to go,” for most affiliates today, according to JupiterResearch’s Stein. He says it is the affiliate networks’ responsibility to be the trusted source “guaranteeing that all the clicks are being counted.”

However, some affiliates are leery of committing to affiliate networks without being able to understand the networks’ proprietary data feeds that are used to calculate their commissions, according to AffiliateFairPlay’s Stevens. She says the networks were created to intervene between merchants and affiliates, but now some affiliates are learning how the data feeds operate so they can police the networks.

Understanding what goes into your feed is never a bad idea.

John Gartner is a freelance writer living in Philadelphia. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com and AlterNet.org.

Converting Visitors to Buyers

While affiliate Web sites can measure how many visitors and clicks they receive and send on through to merchants, that’s only part of the story when making decisions on maximizing revenue potential. There is still that magical measurement of conversions; how many of the visitors that affiliates send to a merchant actually buy something?

“It’s really all about nuance now. Web sites work and are more or less efficient, but retailers [and affiliates] want to know exactly what their customers respond to online,” says Patti Freeman Evans, retail analyst at JupiterResearch.

And “customers,” plural, is the key. There is no one-size-fits-all strategy that can work to attract the interests and buying decisions of a broad range of customers. Instead, affiliate marketers need a multi-pronged plan of attack. It’s not just trying to appeal to the types of products and services buyers want, but figuring out how they go about deciding to buy.

According to Freeman Evans, 60 percent of online buyers do research online before they buy, while the remaining 40 percent don’t like to do research and just want to buy what they like or need and immediately move on.

So how do you convert this wide range of visitors to your site into buyers? High search engine rankings coupled with a landing page can lead relevant buyers to your site, but companies often forget to do the rest of the work. “Once you get a customer to your site, you want to use all the assets merchants make available, like product photos and marketing material, that will help the buying decision,” notes Gary Stein, senior advertising analyst at Jupiter. “Conversion rates go up when companies develop their content and give visitors a reason to be there.”

Content-rich sites with an edgy passion for their subject matter have an advantage. Sites that reflect passionate, informed views, and articles with real value, win the respect of their visitors and often their purchase orders.

For some affiliates it’s almost a Zen-like strategy. Kathryn Finney, founder and owner of TheBudgetFashionista.com, says she’s never tried to design her site to make sales; it’s always been about serving her readers. Started as a blog, Finney’s site has become a smart and sassy provider of unvarnished information for budget-minded buyers of women’s clothing and accessories. Ads from major women’s clothing retailers adorn the site, courtesy of LinkShare.

“We are getting cash flow and solid partnerships with retailers, and also our leads translate into offline sales for them,” says Finney. “Our focus isn’t on selling, but by providing valuable, relevant information, we end up a great selling platform.” TheBudgetFashionista will accept only those ads that fit with the focus of the Web site Ð clothing-related items for the budget-minded.

Gimmicks That Work

It’s virtually impossible to appeal to the broad needs of all your visitors even if you have a very targeted site. “The amount of attention a browser receives is staggeringly small,” says Matthew Roche, co-founder of Offermatica.com, a hosted service that runs multiple variations of landing pages and measures which aspects of each are most effective at converting browsers to buyers.

Roche believes a little experimentation can get you a much higher conversion rate. “If someone says they have the perfect landing page, they are just guessing,” Roche says. In general, buyers react negatively to tax and shipping charges and having to register. Free shipping has proven to win sales at many sites, while discount pricing is better for others.

One Offermatica client tried free shipping versus 10 percent off. Offermatica was sure free shipping would win, but 10 percent off proved far more popular for this client. There are additional factors to consider, such as how much to charge for shipping if it’s not free and how much the item costs. Ten percent off on a $1,000 purchase will surely be more enticing than free shipping if you can afford to market that way.

While Offermatica has a range of sophisticated tests and measurements, there are some simple, small-scale alternatives. Offer $10 off to the first 50 search engine respondents and free shipping to the next 50. This can be done in an hour or two if you’re getting enough traffic. But be careful going forward. Ten dollars off may work initially, but what if a competitor offers $11 off? You don’t want to get into a war of competing offers if you can’t win.

Here’s another angle on shipping charges Ð don’t hide them. “Consumers don’t want to wait until the shopping cart to find out there are shipping charges; it’s an unpleasant surprise,” says Lauren Freedman, president of the e-tailing group, an e-commerce consultancy. Also, present recommendations to catch your customers’ attention: “Our experts suggest É” or “Others who have purchased have also bought É .”

Freedman, whose company has done extensive research in cross-selling and upselling, recommends gift cards and gift-giving offers at the shopping cart. After all, if you have a shopper ready to buy, he or she probably has a friend or relative who might like the same item. Gift cards are currently a multi-billion-dollar industry.

Roll Up Your Sleeves

Affiliates have to work harder than ever to get customers, notes Bryan Eisenberg, co-founder and chief persuasion officer at Internet marketing consultant Future Now. Eisenberg says the key to sales conversions is to give your customers a comfort and confidence level with the site the way an effective salesclerk connects on a personal basis with shoppers. He sites five central issues to making Web visitors feel comfortable:

  • Relevance The site has to be relevant or you won’t get to the first click in the sales process.
  • Trust The site should be well designed and convey trust with a voice or focus that speaks to the potential customers.
  • Security You don’t need to use valuable, high-profile space to detail what encryption technology you use, but place a brief two- or three-word reminder near the shopping cart or other relevant area that your site is “hacker safe” or “secure shopping guaranteed” (assuming this is true).
  • Value This is completely relative to different shoppers, but know your audience and communicate appropriately. For example, a site for bicycle enthusiasts might be more concerned with safety and warranty issues than rock-bottom prices.
  • Privacy Eisenberg says to put “we value your privacy” or a similar promise right next to the Subscribe or Submit button to emphasize your commitment in this area and to reassure customers.

Also, don’t count on a copycat strategy of blindly following what other sites do. Eisenberg sites the example of Amazon. com. The online retailer had a button that let shoppers later remove items placed in the shopping cart. Amazon replaced the feature and used the space to promote its used books. Eisenberg says “remove it later” is a useful feature that helps with conversions because it helps shoppers feel comfortable that they aren’t committing too soon to a purchase. However, many sites dropped it when Amazon did; yet Amazon had specific reasons for doing so that didn’t apply to the other sites.

Of course, there are also features well worth copying. Staples, for example, makes its shopping cart a component of every page instead of whisking the customer away to a separate shopping cart page every time they add an item. Analysts and Web veterans say building your site’s unique appeal is a key to conversions.

“Affiliate marketing is the ultimate contextual selling,” says Stephen Messer, CEO of LinkShare. He gives the example of high-end retail clothier Nordstrom, known to lavish attention on customers. An effective affiliate is like an online version of Nordstrom in that online visitors are much more ready to buy in an environment simpatico with their interests and needs.

“I believe the main reason for shopping-cart abandonment is that the customer hasn’t been sold,” Messer says. “When you go to a kite-boarding site, the banner ad for kite boards on sale is a call to action that speaks to that audience. The site provides an environment and content relevant to what’s being sold, and the reader is, in a sense, pre-sold.”

By comparison, having a one-paragraph description of a blender at a consumer goods site isn’t much of a call to action. “Affiliates convert better because they add value,” Messer says.

World Choice Travel, a division of Travelocity, runs an aggressive affiliate network through travel-related sites (some 4,000 Web sites in 40 countries). The company pampers its affiliates with site evaluations, search engine templates, free consulting, marketing newsletters and other helpful tools. Rick Schneider, VP of global business development at WCT, says it has the most sophisticated back office in the online travel space to help track conversions.

Schneider says there’s been a leveling off in the number of affiliates WCT supports as the company looks toward quality over quantity. “The affiliates that are and will be successful work to develop their business and work at keeping it unique,” he says.

For merchant Sierra Trading Post, the big attraction is discount pricing. The clothing vendor has thousands of affiliates ranging from specialty mom-and-pop Web sites to large shopping-comparison engines. “Our most effective affiliates get our value proposition across best, which is that we sell the broadest range of famous name brands for less,” says Andy Newlin, affiliate manager at Sierra Trading Post. The average conversion rate for its affiliates is consistently over 14 percent, according to Newlin, far above the rest of the industry, and the average order size is over $100.

A program called Sling Shot has been successful in helping affiliates with online tracking and marketing tools. Sierra hopes to tap the expertise of its affiliates with cash prizes to the affiliates for creativity, bringing in the most new customers and best presentation of Sierra’s value proposition.

From Offline To Online And Back

All in all, the secret to converting customers into buyers in the online world isn’t that different than in offline retailing. In fact, there are some indications that online sellers may someday get more credit for sales help they give their offline counterparts. “Everyone acknowledges advertising on the Internet has an impact beyond online,” says Tom Miller, Internet analyst with the Dieringer Research Group. “But how do you prove the impact or effectiveness?”

Some companies offer online coupons with bar codes that can be printed and redeemed at retailers who can track and credit which sites the coupons came from.

A recent DRG study showed that in the past year, US consumers spent $1 online for every $1.70 they spent offline after conducting online research. Clearly sites can do more to capture the purchases of the shoppers they’re attracting.

The bottom line is that offline or on, customers want a good selection of products, to feel they are getting a good value for their money and that they can trust the seller. Relevant content, and a relationship with your customers (encourage feedback), will help you raise your conversion rates.

DAVID NEEDLE has been covering the high tech industry since the 1980s as both an editor and writer for such publications as Infoworld, InformationWeek and Forbes ASAP. Based in Silicon Valley, he can be reached at davidneedle@yahoo.com.

Off the Mark

Affiliates and Web publishers who sell goods from the most popular brand name merchants are losing traffic and revenue to Web sites that lure consumers by deceiving them with unauthorized use of trademarked products.

This happens when a Web publisher embeds the most popular brand names into their site in order to attract consumers who are using a search engine to find specific products. These visitors are often directed to Web sites that sell similar products, but not the specific ones they were looking for. Instead, consumers see rival products.

For example, a consumer types “Nike” into a search engine and is directed to a Web site that sells sneakers made by rival Reebok, but not those made by Nike. In this scenario, the consumer may get frustrated and move on to another site that does sell Nikes. Or they might buy one of the competitive offerings. This means the offending Web site profits and has less incentive to stop these deceptive practices.

This very common tactic has upset consumers, the makers of popular brand name products, as well as affiliates authorized to sell these products. In an attempt to stop such behavior, there have been several high-profile lawsuits in which brand names such as Gucci, Louis Vuitton, Nike and Geico Insurance have sued specific Web publishers and search engines to control their own brands on the Internet.

These lawsuits raise a key question: Can one corporation prevent another from linking to its trademarked, for-profit Web site?

The answer is not easy to determine. Many companies are testing the limits of trademark law by suing alleged Internet trademark abusers for infringement. So far the results have been mixed.

Terence Ross, a partner at Gibson, Dunn & Crutcher, a Washington, D.C., law firm, has represented plaintiffs in cases against adware makers Claria and WhenU. “Unfortunately, there is no more certainty as to what the law is than a year ago,” he says. “There have been a number of court decisions on either side of the issue.”

An August 2004 decision by the US District Court for the Eastern District of Virginia delivered a blow to search engine giants Google and Overture Services in their efforts to defend ad sales of trademarks as “fair use.”

But that changed in December when a federal judge ruled that Google’s advertising policy doesn’t violate federal trademark laws. Google will now be allowed to sell ads to rival insurance companies whenever Geico’s name is typed into the Google search box.

Geico sued Google and Overture in May 2004, saying that use of its trademarks when selling advertising in search engines constituted trademark infringement and raised various state law causes of action. Google filed a motion to dismiss the case on the grounds that it had no legal merit and that the state claims were insufficiently pleaded.

The August ruling, which allowed insurance giant Geico to sue Google and Overture for allegedly selling advertisements linked to its trademark, could have threatened the livelihood of the search engines. Overture, which is owned by Yahoo, and Google make money by selling ads linked to keyword-triggered search results, and many commercially driven searches are tied to trademarked brands such as Geico or Nike.

Google attorneys cited the U-Haul International v. WhenU case, in which the moving-truck company alleged trademark infringement against WhenU for displaying rivals’ pop-up ads over its Web page. The court found in favor of WhenU, because it only used U-Haul’s marks for “pure machine-linking function,” Google argued.

For its part, Geico cited the Playboy v. Netscape and Excite case, in which the Ninth Circuit US Court of Appeals in San Francisco found that the two online portals created consumer confusion when using Playboy trademarks to sell banner ads. That suit took five years to settle.

More Legal Battles

Many of the cases are settled before they ever reach the court, with smaller sites often removing the trademarked terms to avoid a costly legal battle. There are some high-profile cases that are still pending. Many are closely watching the trademark suit filed by American Blind and Wallpaper Factory against Google along with its partners Netscape and Ask Jeeves.

The suit, filed in January 2004 in a New York federal court, claims Google’s practice of selling text ads related to keyword search terms takes advantage of American Blind’s trademarks, because rivals’ ads can appear on results pages turned up by searches for “American wallpaper” and “American blind.”

American Blind had threatened to file the lawsuit last year. That, in turn, prompted Google, in a filing with the US District Court for the Northern District of California, to argue that “American” and “blind” and other words American Blind was claiming as trademarks are descriptive terms and shouldn’t enjoy trademark protection.

The company disagrees. “We spend millions of dollars annually to build brand awareness and cannot stand idle while Google allows our competitors to ride our coattails,” according to a statement from Steve Katzman, CEO of American Blind, which says it has spent more than 50 years and $70 million building its reputation.

American Blind says the outcome of this suit will have repercussions for other businesses that include generic words in their names, such as General Motors and National Car Rental System, which could also be targeted for keyword-based advertising.

What About The Networks?

And while some affiliates are relying on the courts to protect them, others think it is the responsibility of the networks to stop this practice. However, some say the networks gain from helping affiliates profit from brand confusion.

“These people are interested in making money, and when a trademark is infringed on, they are still getting paid,” said one affiliate who asked not to be named. “It’s not in their best interest financially to enforce or police rules to try to stop these unethical practices.”

One affiliate manager says that networks are supposed to be the trusted party in this equation, and they must try to uphold fair business standards.

“The industry is failing to recognize that there is widespread use of trademarked keywords,” says Alan Schneider, president of R U on the Net, an affiliate manager, who has stopped many of his affiliates from using trademarks.

However, he also notes that when affiliates in his network were asked to cease and desist from using trademarks or competitors’ URLs in their advertising, their sales often dropped by as much as 80 percent.

Search For Tomorrow

Search engines are also profiting from brand confusion. Both Overture and Google allow marketers to bid for keywords that may be trademarks or linked to trademarks. Some say they are not eager to police trademarks because they risk losing thousands or tens of thousands of dollars a month on lost pay-per-click revenue.

Paid search is one of the fastest growing and most closely watched segments of the online advertising business. According to Jupiter Research, paid search will grow from $1.6 billion in sales in 2003 to $2.1 billion in 2004, and it will continue to grow at a compound annual rate of 20 percent through 2008.

In addition, more than half the total searches are for branded keywords such as Wells Fargo, according to comScore Networks, a market research company.

The search engine companies have long had ambiguous policies on trademark-related advertising. Most refuse to actively police infringements. Instead, they opt for a hands-off approach, acting only if there is a complaint from a trademark owner.

More than a year ago, Overture changed its policy and posted a trademark notice on its site, informing advertisers that it is their responsibility to respect the trademark rights of others.

“In cases in which an advertiser has bid on a term that may be the trademark of another, Overture allows the bids only if the advertiser presents content on its Web site that refers to the trademark … or uses the term in a generic or merely descriptive manner,” according to the policy.

It’s All About The Meta Tags

Meta tags are HTML code embedded on a Web page used to identify its content. Meta tags are powerful tools because they have a direct effect on the frequency with which many search engines will find a Web site. When a search engine finds a search term in a meta tag, it indexes the Web page for display in its search results.

In the early days of Internet search engines, Web page programmers influenced Web searches by spiking the meta tags with the same word over and over to improve their standing in search engine results. Most search engines have since been trained to largely ignore these repetitions.

But not every meta tag use of another company’s trademark is illegal. When the trademark is used only to describe the goods or services of a company or their geographic origin, it is permitted under trademark law as “fair use.” For example, if a site delivers content such as music from the Amazon region of South America, it may use the word “Amazon” in its meta tags. This use would not infringe the Amazon.com trademark because the term “Amazon” is being accurately used to describe the goods offered.

Unfortunately, there is no clear test for proving fair use, and even a merely descriptive use of a trademark in a meta tag may trigger a lawsuit. Legal experts say, “When in doubt about using a trademark in your meta tag, leave it out.”

The Resolution

Most agree this issue is going to take some time to be resolved.

“I think it’ll take a couple of years,” says Jeffrey Riffer, a partner at Jeffer Mangels Butler & Marmaro, a law firm in Los Angeles. Riffer was the lawyer for defendants Excite and Netscape when Playboy sued them for trademark infringement. Playboy prevailed in that case.

“There needs to be some appellate court rulings on this before it will settle down. We are still at the beginning. There was nothing like the Internet before, so the courts didn’t know how to deal with the issue. There was tension between what the search engines want to do and what the trademark holders want. But there are still more of the fights that will happen in the trial courts.”

Riffer says that when everything finally does settle down, he believes that search engines will be allowed to sell keyword advertising.

“It’s good public policy to allow advertisers to sell advertising to the audience that is most likely to be interested in that advertising,” he says. “It’s good for consumers, pro-competitive and the right application of trademark law. Under the law a trademark holder doesn’t have a monopoly on the trademark. They are only allowed to stop other companies when there is a likelihood of confusion.”

But what if things don’t shake out in favor of the search engines?

“The world will go on if things go the other way, but it’s bad public policy, and at that point the search engines should hire a lobbyist and go to congress,” Riffer says.

Barry Felder, a partner head at Brown Raysman Millstein Felder & Steiner, a New York law firm and Playboy’s counsel in the suit against Netscape and Excite, says he expects that traditional trademark analysis will be applied, but in the context of the Internet, over the next one to three years.

“I expect guidelines for both the search engines and the trademark holders,” Felder says. “They will both have to be familiar with and adopt the appropriate conduct. I don’t know that one party or the other will prevail. The analysis will turn on whether the use [of the trademark] is confusing.”

Attorney Ross says that absent congressional action, the earliest he expects guidance from the appellate courts is late 2005. “The problem is that in the meantime, businesses need to figure out how to operate in an uncertain environment,” Ross says. “And that is creating a mess.”

Lisa Picarille is the editor of Revenue.

Planning Future Growth

Matt Ranta has not been an affiliate for very long. In fact, his Web page still has some kinks in it. He says he gets about two or three pages coded on weekends. In his off hours he is a musician, so he sells musical instruments on his affiliate site. He’s not unlike a lot of affiliates out there – passionate about what he sells and hungry for commissions. The main difference is that Ranta was affiliate manager for two and a half years for Vanns.com Inc., an online seller of electronics.

He knows he is going to succeed, not because he has managed affiliates but because he has a business plan. “Any time a business has goals written down, you will always be more successful,” he says. And even though he has eight years at Vanns.com, headquartered in Missoula, Mont., and recently became marketing manager, he had never been an affiliate until now. He says he wants to see it from the troop level – he can’t possibly know what to expect from affiliates if he’s never been one.

What he’s finding is, it’s challenging. Ranta knows that some affiliates expect to toss up some links, sit back and let the cash come in. And for a few, that’s exactly what happens. But without a concrete plan for what to do with those commissions, some affiliates opt for personal bling-bling, invest in the wrong software upgrades or hire help during the slow season.

A business plan can map out when the high season is and how much time and effort you’ll need to spend in the busy times versus the slow times. A plan can tell you what other similar sites are bringing in and how you compare. A plan can lay out how to make your site visible so the sales don’t go to the other guy.

“Like anything else,” says affiliate guru Rosalind Gardner, “if you fail to plan, you plan to fail.” She is author of The Super Affiliate Handbook: How I Made $436,797 Last Year Selling Other People’s Stuff Online. In addition to telling you how much she makes, she will also tell you how she started selling dating service memberships online as an affiliate with no business background, no plan and no long-term goal. “Nowadays, you have to write it down,” she says.

A good business plan is the same as a good recipe, and affiliates should follow it or risk unappetizing returns.

“Whether you are generating $100 in monthly earnings or $100,000, a business plan enables you to not only sustain revenue, but grow it,” says Kerri Pollard, director of publisher development for Commission Junction, an Internet affiliate aggregator based in Santa Barbara, Calif. “It forces you to take a critical look at your efforts, identify future opportunities and the associated strategies, and assign a realistic timeline to the established tactics.”

The most important step to take before starting a business plan, says Ranta, is to realize that it is not a complicated thing. Sure, some people work for a year or more on a business plan before opening up shop, but Ranta says there are some core elements you must have: a mission statement, a marketing plan and revenue goals.

The mission statement can be as simple as a single sentence, a description of what you do: I sell sneakers online. You can refer to this statement if someone wants you to sell shoe polish, replacement heels, shoelaces or other after-market shoe doodads. If you decide there is great monetary promise in the shoe accessories, then you can rewrite your mission statement: I sell sneakers and associated accessories online.

With that done, coming up with a marketing plan would be next. This sounds intimidating, but shouldn’t be if you know where to get help. Ranta says he gladly assists wannabe affiliates who call asking for help drawing up a plan. He even seeks out Vanns.com affiliates who have potential and offers to help them get sales. If he spots a site with a lot of click-throughs but few sales, Ranta will suggest products that might get better responses. With a plan, affiliates can connect the dots before the merchant has to tell them what they need to do.

Kathy Hermanowski, affiliate program manager at cable TV’s A&E and the History Channel, does the same thing. “For affiliates with great potential, we do contact them,” she says. “We look at affiliates who work well with the brand and who have customers in our demographic base and who have really good traffic.” Then she goes the extra mile to help them make the sales. She handles a few thousand affiliates who sell more than 5,500 products such as DVDs, videos and books of A&E and History Channel programs.

“A lot of the little guys [become affiliates] for fun and extra income,” says Hermanowski. “It would be smart to have a business plan to help focus on what sells the best.” About 20 percent of her affiliates bring in the most sales, she says, and assumes they all have business plans. “I don’t have a formal outline of what makes a good plan,” she says, “but they should set goals and be realistic about what they can accomplish.”

Pamela Metivier, co-author of Affiliate Selling: Building Revenue on the Web, says the degree of business planning really depends on a few things. It depends on the goals of the affiliate: Does the affiliate want to add some affiliate links just to generate enough commissions to cover the cost of hosting the site? If so, they really don’t need a business plan per se, she says. But a high-traffic site should have a detailed business and marketing plan. “The reason it becomes important is that they’ll want to compare the amount of revenue that they generate via affiliate commissions to other revenue.”

Also, Metivier says, it depends on whether the affiliate is an individual or a business that needs to communicate the plan to an entire team. Companies that plan to count on “affiliate relationships” as a source of revenue need to map out the “how” and the “how much.” She says that affiliates who have high-traffic Web sites may have no choice but to write down new business goals, with the primary goal being “make profits.”

Unlike buying into a franchise, becoming an affiliate doesn’t come with a one-stop resource of information. You have to go to several sources, such as Gardner’s book or others on affiliate marketing. “Wouldn’t it be great if they handed you a binder like they do when you open up a McDonald’s franchise?” asks Andy Rodriguez, named 2002 Affiliate Manager of the Year by ABestWeb.com, an international affiliate marketing online forum. He’s been an affiliate for five years and says that before you make a plan, settle on what you are. Are you a coupon site or a search site? The search site will require more attention. Add that to the plan. Rodriguez says you can base your plan on what others have done before in the same space. Most important, a successful affiliate needs to “get close to the merchants themselves,” Rodriquez says. “The closer you get to the merchant, the more they will think of you for promotions and other things.” He uses instant messaging to stay in touch with his merchants. He has about 400 contacts on his list.

As far as revenue goals, Ranta says he will not tell one affiliate what another affiliate is making, but will guide them with ballpark figures and facilitate creating benchmarks. He says putting a time limit on all the goals is important: set your first year’s revenue goal. When you meet it, set the next year’s higher and so on. “I can help you define what is realistic,” Ranta says.

Conversely, Gardner says if you are a mom-and-pop operation, you probably don’t need to write anything down. Your goals should be simple and obvious. She says finishing one site before starting another is a good objective you won’t need to write down. Some affiliates, she says, spread themselves too thin too fast.

“If affiliate marketing is just a little hobby … instead of worrying about a business plan, I reckon your time would be spent more efficiently doing research, creating a Web site and earning your first affiliate commissions,” says Allan Gardyne, who runs AssociatePrograms .com, an online resource for affiliates based in Australia.

Industry experts make the point that failure may not be so catastrophic. Lacking a plan early on may not be so bad. Since startup costs are minimal, having your affiliate business fail probably means very little cash out of pocket. But affiliates who want to carve out their own destiny need to cross all the T’s. The only way to do that – to turn your mom-and-pop business into commissions you can live off of – is to move beyond the three core elements outlined above and add more detail.

Here’s a business plan checklist commonly used by people in the industry. First, decide on the market or the item within a given market you want to sell. Then, set up house, such as a way to receive payments and how to keep track of your income and site numbers. You’ll need a domain name (e.g., sellitall.com or everythingelectronicgadgets.com), a place to host it, Web page-building software and a way to check for any trademark or copyright conflicts. Make sure your site is designed attractively and that all the right content, links and graphics show up and work correctly. Join an affiliate organization, find merchants to partner with and shop around thoroughly for the right networks and programs before committing.

That all sounds basic, but it should be in your business plan. Treat it like a to-do list. Ranta says that once you have a first-year plan, you can break it down into mini-goals, such as what you will do this month, this week, today.

Next would be a list of how to get noticed and how to get business. Try to get reciprocal links with everyone and anyone. Research how your site can get the highest results from search engines and find the best places to get your site listed. Start a newsletter. Rewrite your email signature to promote your site. Consider advertising offline.

Once you are up and running, the work doesn’t stop. You should list in your business plan what site maintenance is necessary. For example, read up on the new kinds of spyware and adware. Know the rules about spamming. Have a monetary threshold to denote when you should invest more money to get your name out there and when to fold up tent. Get to know your industry by receiving newsletters and alerts. Meet people in your industry when you can. Publicize your awards and milestones.

Only after doing all the above can you chart out your future. Explain how you are going to reinvest in your site. Map what you are going to do with every cent of your income. Be aware of all possible tax implications.

Rodriguez suggests that there are merchants who could use a good business plan. Some, he says, will sign affiliates and expect the money to come in overnight. “The merchant and the affiliate expect instant results, and that’s not the way it is.”

That’s why Ranta decided to become an affiliate. “You need to realize that a plan is not set in stone either, and must change with the market. Change the goals as you meet goals that push you into the next level.”

With your T’s all crossed, you are now ready to make a true leap of faith. Gardyne says anyone who’s contemplating a business plan needs to not just create a business, but “Create a lifestyle. Figure out what you want and what you’ll enjoy doing and the steps you need to take to get there.”

ERIC REYES lives in the San Francisco Bay Area and writes about technology and business. His work has appeared in Business 2.0 and Worth magazine. He has directed and contributed to Web sites such as Amazon.com and Excite.com.

iPod, Therefore iTunes

Affiliates interested in offering digital music downloads should pay tribute to Apple for legitimizing an over-hyped and under performing market that was close to flaming out before it ever got off the ground.

Despite the continued existence of freely available music through peer-to-peer networks, Apple has sold more than 125 million songs through its iTunes online store since it opened in late 2002, according to the company.

Apple’s iTunes dominates the industry, representing 70 percent of all music files downloaded legally between December 2003 and July 2004, according to market researcher NPD Group. Napster, with 11 percent of the market, was the second-largest download seller, followed by MusicMatch, RealNetworks and Walmart.com.

But how long can Apple top the download chart? Analysts say Apple’s continued leadership of the non-free world of music downloads is largely tied to the success of the iPod, which is both asset and encumbrance for the Cupertino, Calif., company. According to Apple, the company sold 2 million of its industry-leading iPods during the quarter ending in September 2004.

Apple was able to grow and dominate its market because of the company’s product design skills and because consumers and the music labels felt comfortable with them, according to Mike Goodman, a senior analyst at the Yankee Group. Apple was the first digital music distributor to be fully supported by the recording industry, Goodman says.

“They were the first to have access to the (music) libraries needed to make a successful online music service,” he says. The company that offers the largest music catalog, as Apple does with more than 1 million tracks, has an advantage in attracting consumers, according to Goodman.

Apple is unique in selling both the songs and the music players, which gives the company an advantage, according to Goodman. “The iPod received the blessing of the youth as the coolest music player,” he says, adding that the iPod’s interface and ability to manipulate it with one hand distinguish it from the competition.

While other music download services try to eke out a living on the slim margins offered by selling songs for less than a buck apiece, Apple makes a hefty amount of its profit on hardware sales via the iPod, Goodman says. Apple is turning the model of selling razors to make money on razorblades on its ear because “iTunes exists to sells iPods,” according to Goodman.

“Apple will continue to lead as long as they continue to innovate with hardware,” says Tim Bajarin, president of analyst firm Creative Strategies. He says that with 92 percent of the hard disk player market, Apple has a large customer base ready to purchase music. “Because the iPod is one of the most elegant music players, people want to get out there and use it,” Bajarin says. “It’s viral.”

Orchestrating The Future

While these numbers are impressive for a market fractured by a variety of incompatible file formats and hundreds of generic portable music players, the market penetration has been small and the potential for growth enormous. Accord-ing to NPD Group, less than 1 percent of US households legally downloaded music in July of 2004.

The Yankee Group’s Goodman expects iTunes to keep humming along in the short term. Although he says the market will heat up through competition from new services developed by music seller Virgin and online portal Yahoo, “I don’t see [Apple’s dominance] changing in the next six to 12 months,” Goodman says. Because its dominant iPod portable device will not play most other file formats, Apple doesn’t have to worry about competition to iTunes today, he says.

Companies would have to either license Apple’s FairPlay digital rights management or reverse engineer it, as RealNetworks has done, to enable songs encoded in its file format to play on the iPod, Goodman says.

However, Goodman argues that iTunes may eventually have to outgrow the iPod if Apple wants to continue to grow with an expanding market. He says that only 30 percent of music downloads end up on hard disk devices today, so Apple is limiting iTunes’ potential reach.

Goodman is not convinced that tying a music service to a proprietary hardware device is the best strategy if viable iPod competitors are developed. “Over the long term, just selling to the iPod will not be successful.” Tracks can be downloaded to Macs or PCs through the iTunes Web site, but users cannot copy them to devices other than iPods.

Apple recently began to increase its hardware reach by creating more versatile iPods and agreeing to allow mobile phones to play iTunes. Apple hopes to attract a new audience with the recent introduction of the iPod Photo, which includes a color screen and can store up to 25,000 digital photos. Apple also licensed the iPod to Hewlett-Packard to sell to Windows users, and Motorola announced it would introduce handsets capable of storing and playing iTunes in mid-2005.

Network Competition

Every download seller has an affiliate program in place to try to increase the overall market by encouraging links from other Web sites. Apple launched its iTunes affiliate program in September with affiliate network LinkShare. The company provides tools that enable affiliates to directly link to single tracks and albums and will offer special promotions to encourage sales

According to Apple spokeswoman Liz Einbinder, the company pays a 5 percent commission on all sales stemming from affiliate leads. The company sends out checks 45 days after the month in which an affiliate accrues $25 in sales. Einbinder says the company does not disclose details about the number of affiliates who have signed up for the program.

Nathan Wright, who runs music Web site MonkeyCube.com, says it took about three days for Apple to approve him as an affiliate. “It was a very easy process,” he says. MonkeyCube made the cut because it does not include offensive content and has sufficient traffic with more than 800 unique visitors per day, according to Wright.

Wright says that while he did not earn any commissions through the first 60 days of being an Apple affiliate, he is happy to include links on his site to Apple products. “Apple has been a great brand and company to associate with. If I could chose any (music seller) to partner with, I’d choose Apple.

Michael Sullivan of FreshTuneage.com signed up to become an iTunes affiliate on the first day, but he says Apple wasn’t fully prepared to partner at the beginning. “They kind of stumbled out of the gate,” Sullivan says. Apple initially offered links only to the iTunes page, but set up a program for linking to individual tracks within a few days.

FreshTuneage also has links to buy albums on Amazon.com and CDBaby .com, says Sullivan. He is hopeful that readers will be attracted to iTunes because they can download tracks immediately instead of having to wait for CDs to arrive in the mail if they purchase from another of his partners. Sullivan also suggests that Mac enthusiasts such as himself might prefer to buy from iTunes instead of other services because of their passion for the brand. “There is some inherent snobbery,” he says.

So far no one has purchased any iTunes by clicking on his links, Sullivan says. He says the music reviews and news bloggers he has spoken with have not successfully converted their traffic into music download sales.

Music download competitor Buy.com pays 10 percent, a higher commission than Apple. And like Apple, Walmart.com also pays per track sold. MusicMatch, Napster and RealNetworks pay their affiliates based on their ability to locate new subscribers for their monthly fee services. RealNetworks offers incentives ranging from $2 to $11 for corralling new subscribers for its services, and MusicMatch offers bounties of $7 to $10.

The Yankee Group’s Goodman does not believe that the subscription model will be successful. “The negative backlash will intensify as consumers realize that when they end their subscription, access to their music goes away,” he says.

Goodman doesn’t expect Apple to launch subscription services. Streaming services won’t help them sell iPods since the devices do not directly connect to the Internet. “The rental model works for movies, but not for music,” according to Goodman.

The Early Innings

As the New York Yankees painfully discovered in 2004, even commanding leads can be surpassed, and Apple has a competitor that may prove as tenacious as the Boston Red Sox. Microsoft, which has its own protected music format and an unequaled bank account, has been upping the ante by developing a new mobile device platform and revamping its music service.

Microsoft recently rolled out the 10th version of its Windows Media software for playing audio and video files, and several hardware partners announced portable devices that can play them. Through MSN Music, consumers can download music videos, single tracks or albums from more than 3,000 independent labels. Microsoft updated its music service to better integrate with its Windows Media Player software that is included with all Windows PCs as well as 70 handheld devices, including PDAs and smart phones.

“There are far more devices that play Windows Media files” than iTunes, says Michael Gartenberg, vice president of research at Jupiter Research. “The challenge is for one of the [Windows hardware] vendors to come out with an iPod equivalent,” he says.

“In the marketplace now the digital distribution of protected music files is strongly determined by the device,” according to Gartenberg. “For now it’s the iPod, but it is hard to predict the future.” Digital music sales are expected to double to $270 million in 2004 and could reach $1.7 billion by 2009, according to Jupiter Research.

Gartenberg said that because portable audio players have penetrated only 5 percent of the American market, “discounting Microsoft or RealNetworks at this stage of the game would be extraordinarily foolish.” While iTunes is the leader today, “the online music offerings aren’t all that different in terms of content, selection and usage rights,” according to Gartenberg.

Microsoft has been less aggressive and forthcoming about its plans for teaming with affiliates. The company has a “preferred partner program” instead of an affiliates program. Spokeswoman Sarah Williams says the company does not provide financial information about relationships with affiliates.

Since Microsoft’s primary focus has always been selling software, the company may use its music service as yet another avenue for selling devices powered by Microsoft applications. The MSN Music service integrates links to download sellers Napster, Walmart.com and MusicMatch and CD site Amazon.com.

Microsoft has frequently let other companies compete in a nascent industry before pouncing on the opportunity, as it did with spreadsheet and word processing software. The company also has established a reputation for getting things right after the third or later generation of software, so the landscape could change, according to Goodman. “Microsoft is probably better off being out of the box late rather than early,” he says.

ITunes’ status as the download service front-runner will depend largely on the iPod’s dominance over devices manufactured by consumer electronics companies who often partner with Microsoft, so the pressure is on to continue the company’s initial success. As Goodman says, “In a market-share business, everything can turn on a dime.”

JOHN GARTNER is a freelance writer living in Philadelphia. He is a former editor at Wired News and CMP.

Targeting Affiliates

Name: John Hobson
Job: Manager, Online Advertising, Target.com
Date of Hire: September 2002
Previous Job: Manager, Online Advertising, Fingerhut

Target’s program is powered by LinkShare and earns affiliates 5 to 7 percent on purchases based on volume. The program currently has a 10 percent commission offer for October 1 to December 31.

DIANE ANDERSON: How did you come into the world of affiliate marketing?

JOHN HOBSON: Fingerhut was an early adopter of affiliate marketing. Commission Junction was started in Minneapolis, and Fingerhut was part of the early days. When I joined Fingerhut the program was in place, so our team expanded the CJ program and then added Dynamic Logic (Performics) to the mix.

DA: What is the best thing about Target’s program?

JH: The Target program continues to evolve and change with our business. These changes allow us to continually update our program to better serve our affiliates.

DA: How many people work on it?

JH: There is one full-time person committed to the program and two supporting team members that dedicate a portion of their time to the program.

DA: Why should affiliates work with you?

JH: The power of the Target brand coupled with strong site promotions and an aggressive commission structure should result in increased revenue for the affiliates. Also, we are listening to what our affiliate partners are suggesting and want to create lasting partnerships. This is evident by the updates we have made over the past year. Keep the suggestions coming!

DA: How many active affiliates do you have?

JH: Can’t disclose.

DA: How often do you update creative?

JH: We have great promotions on our site that update as frequently as weekly. We update our creative to reflect these site promotions. We also have a standard, more general set of creative that is updated every two to three months.

DA: What sorts of promotions do you run?

JH: Target.com has a very robust promotional calendar that includes free shipping and percentage off offers. The affiliate program supplements this with activation campaigns, stretch-goal campaigns and category-specific campaigns for increased commissions.

DA: What sorts of sites should think about affiliating with you?

JH: Being a general retailer with such a selection of products allows us to appeal to a wide variety of affiliates. I think coupon and deal sites do really well with us because of our aggressive pricing. Target.com carries products that appeal to a wide spectrum of customers on affiliate sites. The key is for us to work closely with the affiliate site to get the right messaging and creative in front of their customers.

DA: What do you do to help boost conversion rates?

JH: Supporting our strong site-promotion schedule with appropriate banners and text links for affiliates as well as providing affiliates with information on best sellers in each category help boost conversion rates.

DA: What accomplishment at Target are you most proud of?

JH: Within two months of starting, we launched Target’s first affiliate program in time for Q4.

DA: What trends do you see in the industry for 2005?

JH: Continued growth. I see more and more great affiliates popping up each year with new and unique business models that keep pushing the affiliate space. For as much controversy as some of the business models cause, I appreciate the innovativeness.

DA: What will be the hottest products in 2005 that your affiliates should think of promoting?

JH: We have some fantastic new products in our Home category. The merchants have a great eye for new furnishing items. We are also expanding our Gift category to include some very unique, global items that will be exclusive to Target.com. And as always, our Electronics department will be carrying the latest in cool gadgets.

DA: What advice do you give your affiliates?

JH: The two biggest tips that I can give our affiliates are: Read our weekly news- letters to make sure you are up to date with the latest site promotions, hottest selling items and any changes to our program; and continue to give us feedback. We want to hear from you and hear your suggestions. One of the toughest problems we are currently having is how to best communicate with affiliates. Email newsletters are a great way to share a large amount of information with everyone, but affiliates receive emails from each of their merchants making it difficult to cut through the email clutter. I can’t imagine being an affiliate and reading every single merchant newsletter. In the next year we will be testing a number of new communication tools, but I would enjoy hearing from more affiliates regarding this issue and their suggestions.

DA: What’s getting heavy rotation on your iPod?

JH: Sting and John Mayer are staples. Current heavy rotation includes Franz Ferdinand, The Killers, Spymob and Switchfoot.

DA: Where do you live?

JH: Minneapolis, Minn.

DA: Who do you live with?

JH: I live by myself.

DA: What is your most treasured possession?

JH: I don’t really have a most treasured possession, but if I had to pick I would most likely say a collection of items that were left to me by my grandparents (books, mementos, etc.).

DA: Which person currently living do you most admire?

JH: My sister.

DA: Which person currently living do you most despise?

JH: Really depends on the day. Most days it is that really slow driver in the left lane holding up traffic.

DA: How would you like to die?

JH: Peacefully after a long and fulfilling life.

DIANE ANDERSON is an editor at Brandweek. She was the managing editor of Revenue Magazine for Issue 4 and she previously worked for the Industry Standard, HotWired and Wired News.

Stumped About Stopping Spyware

Tuan Le is mad. And when he’s upset, he speaks quietly, deliberately and very thoughtfully. He’s hardly a hothead. But nothing gets him more riled up, if you can call it that, than knowing he’s losing a large percentage of revenue from his two affiliate Web sites to other affiliates that are acting in unethical and unfair ways.

Le, who’s been an affiliate for the last few years and owns wholesaler.com and findcheapauctions.com, has spent a lot of time researching spyware and adware and has many times considered taking legal action against the companies that use spyware or somehow interfere with his affiliate commissions. But he’s been reluctant to make waves.

“I think there is a percentage of what is supposed to be coming my way that is being diverted,” he says. “I want to do something about it, but I’m not sure what I can do.”

And Le isn’t alone in this. Whether you call it spyware, adware, parasiteware or any of the many other names used to describe the software that positions itself between Web publishers and their merchant partners, the pernicious applications are causing thousands of affiliates to lose a lot of money.

According to an industry watcher who asked not to be named, affiliates are losing up to 40 percent of their annual revenue to illegitimate affiliates (often called bad actors) that entice end users to download free software in exchange for being served advertising.

Le estimates that figure could be as high as 50 percent.

“It’s the most horrible thing on earth. It’s intrusive, evasive and it’s just a very nasty thing to do; and it’s fast becoming one of the hottest ways to generate traffic on the Net,” says Jason McClain, president and CEO of PrimeQ Solutions, an Internet marketer and lead generator.

Once loaded onto the user’s desktop, these free applications often replace ads, redirect links and disable existing browser cookies. That means the ads that users see are not those paid for by affiliates – a consumer is often clicking on another affiliate’s advertisement to make an online purchase or going to a competitor’s site to buy goods. For affiliates that means a loss of commissions and traffic, which ends up hurting their revenue stream.

This issue has been a huge one for affiliates for more than the last four years, according to Kellie Stevens, president and founder of the affiliate marketing resource Web site AffiliateFairPlay.com.

“Affiliates feel the most pain – their cookies are being written over, the merchants are then paying out commissions that are not warranted. The merchants feel the second level of pain,” says Gary Stein, a senior analyst for online advertising and marketing at JupiterResearch.

At the crux of the issue is, who owns the desktop, the browser or the application?

Those companies that derive the bulk of their revenue from selling advertising on free downloadable applications take the position that the user owns the desktop and that consumers have a right to decide for themselves what is displayed on their own computer screens, not publishers.

Thomas Storm, vice president for online services at VentureDirect Worldwide, a performance-based marketing firm, claims the desktop doesn’t belong to a publisher, and if a user agrees to receive an ad, that is their choice. He acknowledges, however, that user agreement licenses for the free software are often so complex that few people actually read them. Or, if they do, few know exactly what they are agreeing to. Still, Storm believes it is the responsibility of users to make sure they understand what they’ve read before they agree.

“If there are three or four steps in the download process and users don’t read through all of them, then that’s their fault,” he says. “You can’t get away with claiming ignorance in a court of law. That won’t fly.”

A Big Problem

Although most market researchers who follow this space do not have specific numbers on the size of the spyware market or how much revenue is generated by the traffic, they agree the market is huge. Anecdotal evidence puts the spyware market at nearly $500 million, and some oft-quoted figures claim that nearly 90 percent of personal computers are infected with spyware or adware.

“It’s very hard to get a sense of how big it is, but it is big, and the perceived impact is significant,” says Stein, who notes that a quarter of the advertisers Jupiter surveyed are “philosophically opposed” to adware. Furthermore, 7 percent said their respective companies issued mandates prohibiting them from buying adware.

In October, EarthLink, along with anti-spyware and system utility software maker Webroot Software, published their SpyAudit Report, which scanned more than 1.1 million PCs for the period of July through September and found an average of 25 spyware-related applications running on each system. That is a slight decrease from the instances of adware and adware cookies, as well as a decrease in the number of system monitors and Trojan horse applications, on Internet surfers’ systems for the period of January through March 2004, when the average was 26.5 percent.

This downturn was attributed to the increased awareness of spyware and adware infections and the increasing number of software tools available to fight the threat. Antivirus vendors, including Symantec and McAfee, have been adding some level of spyware and adware detection and removal tools to their software.

Defining The Problem

It’s hard to fight something that is not defined. One of the biggest issues is one of the most basic – defining what is and isn’t spyware. Spyware is a catchall term typically used to describe computer programs that are designed to stealthily install themselves on people’s computers – often when the users attempt to download seemingly legitimate programs. The most benign spyware programs – also called adware – simply serve up a barrage of pop-up messages, while the most intrusive ones can track online movements, steal passwords and hijack sensitive data.

The fact that different groups use different terminology to describe these malicious programs (see sidebar) has made it difficult for various entities – especially the government – to curb the problem, according to Steve Messer, CEO of network service provider LinkShare. “Everyone’s definition is different. There is not a definitive answer,” Messer says. “Managing this problem will depend on how the community comes together.”

There are a handful of companies that are most often named as perpetrators of these types of acts, including Claria (formerly Gator), WhenU and 180solutions. All say they are not spyware and are legitimate advertising networks (see page 44).

Still, many are upset at the practices employed by these and other firms.

“California and Utah have given Gator and WhenU a clean bill of health, spyware-wise. Now these two guys are legitimate in those states,” says Haiko de Poel, president of ABestWeb. “But parasite- wise they are dirtier than hell.”

Claria, 180solutions and WhenU have all been named in suits that involve improper use of trademarks or unfair trade practices related to advertisements and targeting. Gator’s activities have prompted more than a dozen legal challenges from companies including the New York Times, The Washington Post, Extended Stay, Hertz, Lending Tree, Overstock.com, Quicken Loans, Six Continents Hotels, TigerDirect, UPS and Wells Fargo, among others.

One merchant, who asked not to be named, says he had to drop 180solutions. “I made a lot of money with them working with us on an affiliate basis, but my sense in talking with other retailers is that they were avoiding them like the plague.”

Who Is Responsible?

So whose responsibility is it to try to stop spyware: the government, affiliate networks, the affiliates themselves, end users, anti-spyware vendors? Most think the answer is all these groups.

PC makers have recently joined the fight against spyware in order to control their technical support costs and avoid any legal repercussions, according to Russ Cooper, senior scientist with TruSecure.

Forrester Research analyst Jonathan Penn says a spyware-related support call can cost $15 to $45, and a company may lose business if end users believe the spyware problems are related to its products. “Security is a component of loyalty,” Penn says. “People want all these various services, but they expect security to come with it.”

Yahoo, EarthLink and AOL have all begun offering spyware-detection tools. Hewlett-Packard and Dell also offer limited free trials of anti-spyware software preloaded on their systems.

Messer says he is shocked that some people truly believe the spyware situation can be resolved. “This problem is never going to be solved. It’s like spam or the war on drugs or illiteracy. You just have to manage it and do the best business you can.”

He adds that the concept of obliterating spyware is one of those lingering ideals from the early days of the Internet. “The idea that the Internet would be this free, safe, great place still lingers, but the reality is that we will have to deal with [spyware] for the rest of our lives. So, we need to work together to manage it.”

“I agree that we are not going to solve the problem, but we can minimize it,” says Trey Barnes, president of Public Policy Partners, a Washington, D.C. legal firm, and president of the Consortium Of Anti-Spyware Technology Vendors, a nonprofit organization of anti-spyware vendors that addresses the issue of spyware.

Barnes adds that the solution has to be multifaceted and must include the anti-spyware vendors, legislation, have a consistent code of conduct from the network service providers (see page 36) and focus on education.

“We need to get the word out about the risks of spyware to all the impacted parties without scaring them,” Barnes says. “Education is pre-emption, and pre-emption then goes a long way to help manage the problem. Spyware is not going a way, but if we don’t get it under control then it will threaten the commerce and growth of the Internet.”

Steps To Stop Spyware

Even though the affiliates are most impacted by spyware, they have not been able to mount a concerted and cohesive effort to fight it. Most are like Le. They are aware of the problems, but don’t want to make waves at that level. They fear repercussions from the networks or the spyware companies that could mean the loss of even more revenue.

In addition, there are so many affiliates, each with different strategies, varying levels of technical and business acumen and different opinions, that group efforts have yet to result in a consensus.

“Affiliates are an independent lot,” Stevens says. “Every group effort seems to fall apart due to differences in opinion. And individually they are not effective.”

The affiliates that are most impacted are mom-and-pop Web publishers. This group is not typically technically savvy, and some may not realize how much they are losing.

“Some affiliates don’t have any idea how much revenue is being lost,” Stevens says. “They figure that they are making $5,000 per month and paying their bills. But they are not put in the context that they could be making $12,000 per month. Most of these are smaller affiliates that started with this as a side income and were then able to quit their jobs. This is the first time they’ve been self-employed, and they don’t have as much experience with management.”

Many, like Stevens, believe the networks are in the best position to combat spyware problems. “The networks haven’t taken all the necessary steps,” she says. “Maybe with pressure from the affiliates they will do more. Maybe if the affiliates scream loud and long enough something will happen.”

While all the major networks have anti-spyware policies (Performics and Commission Junction have adopted a code of conduct, while LinkShare has its own contractual effort to curb spyware see page 36), some say those policies do not go far enough or are not enforced with regularity.

“Codes of conduct don’t mean beans if they are not enforced,” de Poel says. “And many times these guidelines are not enforced.”

Le says he believes the networks are dealing with the threat of spyware by setting up departments that are supposed to monitor and handle any inappropriate activity, but he also worries they are just a corporate façade.

“These are things they need to put up in order to get new accounts. They can say they have an enforcement department that exists, but if it’s not at all effective then that’s the issue,” Le says.

Stevens calls the networks’ policies related to spyware shortsighted. “When spyware and adware applications started, the networks were struggling,” she says. “Then they started to see revenue and traffic increases, and now they are top performers and have some really good statistics to attract more merchants. It’s like they were boxed into a corner.”

Others say blaming the networks is misguided.

“It’s not the networks’ fault that illegitimate marketers are trying to come up with ways to surreptitiously get to users’ desktops,” says Tim Hickernell, vice president at META Group. “Unlike spam and email, spyware and adware do not correlate to a service that users consider valid. With email, users thought it was a valuable service. Nobody said, ‘let’s do away with email’ to get rid of spam. It’s not the same for spyware. Consumers don’t understand the value at all.”

“As long as [spyware companies] are clearly stating that they will install a program and it’s easy for the user to understand what they are installing and say no, they don’t want it – and as long as users can clearly uninstall the program – then they are legitimate marketers,” he notes.

Still, the networks have not had an easy time policing their affiliates. In September, LinkShare awarded – and then revoked – its $15,000 Titanium Award to the affiliate with the highest quarterly percentage increase because the recipient, TheDesktopShopper.com, was accused of using spyware.

LinkShare took back the award after other affiliates complained on AbestWeb, an advertising/affiliate marketing chat site, that TheDesktopShopper.com had been blacklisted by several watchdog sites. To date, TheDesktopShopper.com has not been kicked out of LinkShare’s network. This was the second time LinkShare had to revoke its Titanium Award because an affiliate allegedly used suspect practices.

And while some companies with reportedly offending practices often remain in their respective networks, many note that trust between the networks and the affiliates may be eroding.

“The networks themselves are in a great position,” Stein says. “They are getting all the traffic, getting all the commissions, but they are degenerating the trust of the network. And when that trust goes away, the affiliates will abandon the network.”

Many, including de Poel, make no bones that the bottom line for all of this is money.

“The networks aren’t doing anything about it, because they are making money off of those guys. It all boils down to the dollar, the dollar, and the dollar,” de Poel says.

de Poel suggests that action is more likely to be taken when parasites start impacting the merchant’s organic traffic and not just the affiliates. “The merchants need to make the networks do something or they should leave. This left-handed administration of the programs just isn’t working, and the networks are not trusted third parties anymore.”

For Le, the turning point will be when merchants get real proof they are paying out unnecessary commissions. “That’s when this will come to a head,” he says.

Spyware-Free Networks

Brian Littleton, president of ShareASale, says spyware is a large overall problem. That’s why his affiliate network provider will not allow any affiliates to sell downloadable software applications.

“It’s a customer nuisance, and I didn’t want our company and my brand and me doing business like that,” he says. “As we saw the problems it was causing affiliates and merchants on other networks, it reinforced the view that we wanted to stay away from it.”

He says it’s not a difficult stance to take. Instead, it’s about working only with those companies that make you feel comfortable. “Financially speaking, you’re better off accepting those affiliates, but that will not change our stance.”

Littleton feels for the other larger networks in their struggles to determine who is complying with their regulations and code of conduct. “It’s not an easy task with so many people trying new tricks, but I have confidence in the other networks that they want to enforce it. It’s very difficult to do so.”

KowaBunga Technologies, a provider of private affiliate tracking and management solutions, has also taken a stance on spyware. Although the company was not able to mandate that its clients become free of adware and spyware, it sent a message to its more than 1,800 merchants alerting them to the findings of an August 2003 study by Harvard graduate student and antispyware activist Ben Edelman (see page 50). The study focused on the practices used by 180solutions (also known as MetricsDirect) and Claria.

“This affiliate/company [180solutions] has recently been exposed as engaging in possibly fraudulent activity ” ,” the KowaBunga memo stated. “In summary, this company encourages users to install software on their computers, often in exchange for MP3 downloads or other incentives. This software, once installed, will track the user’s browser activity and, most importantly, will attempt to take credit for any hit to your Web site, regardless of how the visitor finds your site. In this scenario you are rewarding this affiliate for a commission even if the visitor actually found your site through another affiliate, or even if they simply typed your domain into their browser. We believe that these practices not only cheat your other affiliates, they cheat you directly.”

“We received hundreds of responses from our clients and saw that the majority of them removed this ‘affiliate’ from their programs” after KowaBunga sent out the message, says Rachel Honoway, vice president of sales and marketing.

KowaBunga has placed 180solutions and others like them in its Fraud Watch center, an area within its software that allows merchants to alert one another of possible fraudulent activities and the appearance of spyware and adware tactics.

The Upside

However, some think this method of advertising has its strengths and is a very viable tool.

VentureDirect’s Storm says that targeted marketing is a great vehicle as long as the user’s experience is not disrupted. From a consumer’s perspective, they are more likely to get more targeted ads that are helpful if the technology is used properly.

“We’ve got to make sure that we’re forward thinking and tomorrow will come and we will be still be in business. If spyware is wiped out, the end result is that we will be taking away an advertising route,” PrimeQ’s McClain says.

It’s a very effective advertising vehicle, according to Scott Delea, senior vice president and general manager of e-marketing services at Digital Grit. “We are aware of the issue from an industry perspective, and we are trying to be respectful. You don’t want to cross the line; it waters down the overall advertising vehicle and will eventually lead to its demise.”

He notes that affiliates have to be conscious of the brand they are involved with and the product they are selling. Otherwise, targeted advertising is “teetering on the brink of a large abyss where this is no longer a viable marketing channel,” he says.

Even Barnes, who represents anti-spyware vendors, claims that there needs to be consumer respect for distribution methods. “The reason there is not a monetary cost is because the ads are paying for that. My big concern is that all advertising on the Internet is suddenly deemed inherently bad. We need to be more thoughtful than that and focus on types of applications – but not all software that serves ads is bad,” says Barnes.

Ethical Or Technical Issue?

Most claim that the issue is both ethical and technical.

Robert Deignan, business development director at Stopzilla, an anti-spyware software provider, calls the programs that perform browser hijacking and take over a user’s desktop extremely technically savvy. Stopzilla is putting out updates on a daily basis to make sure users have the most current software to render the spyware applications inactive.

Deignan also says “big bucks are at stake” for these spyware vendors. Some of these peer-to-peer programs can easily reach more than 300 million downloads. That means the market for anti-spyware and adware has ballooned over the last two years as well.

AffiliateFairPlay.com’s Stevens says the boom in adware blockers is a no-win situation for affiliates. The affiliates can promote the removal applications to their users to get their computers clean, but then it removes the affiliate’s tracking cookies.

“Programs are getting more clever. Every day they are finding more sophisticated ways to get around protections and to exploit holes,” says Ron Davies, president of joepro.com, which develops affiliate marketing system and trains affiliate marketers and retailers.

“They are using the technology to their advantage. The ideas are usually good, and then they get perverted. Remember, pop-ups used to be the darlings of marketing; now they are the scourge of the industry and people can’t get enough of pop-up blockers.”

Davies is particularly concerned about drive-by downloads, where users don’t even know an application was downloaded on their machine. This can take place in a single step or multiple steps. He likens a three-step drive-by download to a gun.

Some seemingly harmless JavaScript code is downloaded to a user’s system (the rifle). The next day additional code is downloaded, the equivalent of a bullet. So far, those two components are not harmful. But on the third day, the user downloads code that is the trigger. Now all three components click together and become harmful.

Still, Davies believes the issue is more ethical than technical. “A good marketing company has to make the decision of how far are we as a company willing to go to make money,” he says.Clay Lingo, vice president of marketing at Illuminations states emphatically, “I just think it’s poaching. Some say it’s a natural synthesis of search. Someone is searching for a product and a pop-up appears providing a more focused return on what the end user is looking for.” Jupiter’s Stein says it’s an ethical issue, where technology is the weapon. He calls it an “arms race with either side using technology to get ahead.” Others fear the future of affiliate marketing hangs in the balance. “I don’t see affiliate marketing doing well if the thievery and the unethical behavior continue to be condoned and rewarded financially,” says de Poel. Meanwhile, Le says he’ll stay calm. Spyware will remain one of his main concerns, and even though it might not be immediately apparent, he’s fuming. “It is beyond belief. It is bad and it is wrong.”

LISA PICARILLE is the editor of Revenue. She has more than 15 years of experience as senior writer and editor at CMP (as executive editor of TechWeb.com), IDG and Ziff-Davis.

The Journey to Become an Affiliate

Malcolm Lubliner contacted me in early November, just a month into my taking over the duties as editor of Revenue. He was looking to our magazine as a trusted source to give him some advice about getting started in the world of affiliate marketing. I was also in the process of trying to learn everything I could about this new market I would be covering. I responded to Malcolm’s email with a handful of links to sites that had information about affiliates that had been helpful for me as an editor and journalist trying to get up to speed on a new subject area. I also passed along some names of authors and books, some interesting articles I had encountered in my research and my sincere wishes of success.

I didn’t expect Malcolm to continue to correspond with me and update me on his progress, but I’m certainly glad he has. So I thought it might be interesting to keep tabs on Malcolm’s journey to become an affiliate – the problems, the progress, the successes and the lessons he’s learning along the way.

Malcolm Lubliner has been a commercial photographer for more than 30 years. Before that he was a painter. He’s a self-described “visual person” who didn’t find my advice of reading all the information he could find about affiliate marketing – then reading some more – all that helpful.

Malcolm wanted someone to just lay out the basics. He says everything he read about the world of affiliate marketing assumed a certain level of knowledge about the fundamentals that he readily admits he did not possess. “I just wanted someone to hold my hand for five minutes,” he says.

What he wanted was basic information about how to take his Web site and turn it into a sustainable online magazine about urban life and culture. Malcolm has owned the domain name cityvisions.com for more than eight years and was originally using it as an online portfolio to showcase his work focusing on product, industrial, architectural and advertising photography.

Malcolm admits that a magazine covering urban issues is not a novel concept, but he believes that his unique perspective and passion are what could make the site a success. For the last three years he’s been focused on how to take this passion and make it a reality, but he wasn’t sure how to make enough money to support the magazine.

Although he doesn’t have a business plan mapped out, Malcolm has spent a lot of time thinking about this transition. One of his initial steps was to trademark the cityvisions.com domain name. Meanwhile, he continued to be plagued by the thought that in order to support the magazine he needed to generate money.

Then about a year ago he saw something on TV. It was an advertisement for a book promoting affiliate marketing as a tool to make money. The book was The Super Affiliate Handbook: How I Made $436,797 Last Year Selling Other People’s Stuff Online by Rosalind Gardner.

“I had never heard about the concept before. I knew about pop-up ads on Web sites, but didn’t know much more than that,” he says. “I had no idea this was a viable way to make money.”

But, the book cost $75, and Malcolm thought that was a bit too pricey considering he was still a little skeptical about the concept. That’s when he made the decision to conduct his own research. He spent hours scouring the Internet, doing Google searches, and what he found is that “nobody tells you the nuts and bolts.”

His limited experience in marketing and advertising made it hard to figure out his first step. “I just don’t know where to put my foot down first,” he says. “No one puts all the steps down in real simple terms that you need to follow steps A through Z to get started.”

It was overwhelming for him to try to decipher the language and the jargon associated with affiliate marketing that he found on the Internet. “The world of affiliate marketing is all so mysterious,” Malcolm says. “It’s like learning a new language. At first glance just not knowing all the terminology made me very uncomfortable.”

Malcolm is perplexed by the lack of affordable consultants that can be hired to help small publishers sort through the process of starting an affiliate site.

“How come I can hire a computer guy to come over to my house and help fix my computer, but I can’t hire a consultant that is affordable to come in and help with this?” he asks. “Most of the consultants are guys looking for big bucks and work with big companies.”

In mid-November, Malcolm called Commission Junction to inquire about the networks’ affiliate programs. “I remembered their name from my research, and I think that book I never bought was authored by a woman who works there,” he says.

The phone call gave Malcolm some fundamental information about Commission Junction’s services and the basics of signing up to be an affiliate. He also feels that talking to a live person rather than just reading about these concepts clarified a lot of issues. He claims that the call made “it all seem so easy.”

He’s going to sign up as an affiliate within a month, but in the meantime he says there are three things he’s concentrating on – design, driving traffic and acquiring content. And to complicate matters, Malcolm would also like to figure out how to give a portion of any profits he might make to charity.

To date, he’s had some problems finding a Web site design that satisfies him visually and is likely to entice people to navigate the site and ultimately click on the affiliate links. He is also concerned about how to best promote the site. He knows that he needs to start driving traffic before he can expect to generate any revenue. To do that, he plans to advertise in mediums other than the Web. He also wants to try to connect with like-minded companies or individuals with “an altruistic interest” that may help drive traffic to his site. An email newsletter is also in the works to help promote the site to previous visitors, former clients and others who might be interested in his concept.

He is continuing to acquire content for the online pictorial publication. He’s trying to keep his costs down by getting people to submit content. He’s focused on trying to get travelers to submit photos and journals, as well as those that live in cities big and small to contribute their pictures and stories.

Malcolm has thought about creating links to travel sites or book publishers that have travel books. He’s also contemplating putting links for subscriptions to travel magazines on his site.

Ultimately, he believes letting his site evolve organically, rather than following a rigid business plan, will be more conducive to an artistic venture.

Malcolm spent the entire month of November gathering even more information about affiliate marketing and preparing to launch his site. By the beginning of 2005, he expects to be a full-fledged affiliate. In forthcoming issues of Revenue, we’ll keep you posted on Malcolm’s progress.

Lisa Picarille is the editor of Revenue.

Know Your Audience

When designing a Web site, you must take the intended audience into careful consideration. Whether the Web site is business-to-business or business-to-consumer, the design will require a format that caters to the desired type of visitor, and it must also guide them through the intended process as comfortably and efficiently as possible.

First, take into account whether the target demographic is business- or consumer-oriented. In the B2B arena, and particularly in the business service industry, the primary goal is to establish trust in the prospective client.

Business-to-business Web sites usually avoid the kind of hype and pizazz that a consumer Web site may have. A highly sales-oriented site promoting an immediate purchase is simply not appropriate for establishing trust to promote a sale that may require a large risk on the part of the purchaser. The prospective purchaser will perceive this risk as being higher when little information is given to back up any claims that have been made.

It is best in this case to provide easily accessible information to the visitor to make them feel more comfortable with the offer before presenting any extensive hype about the product or service. It is also advisable to make testimonials or case studies available to the visitor, as well as comparisons of the competition.

Instant Visual Clues

In addition, a more visual tactic for establishing trust would be to present the logos and names of well-known clients. These provide instant visual references for the visitor and can help keep their interest long enough to make the sale or establish contact. If the product or service is complex or the value is not immediately obvious, it may be advisable to lead the customer to call and talk to someone one on one. Highly specialized services and products are likely to raise a lot of questions in the customer’s mind. Most of these questions would be best answered over the phone rather than having the visitor perform a tedious search through FAQ pages.

In contrast to business-oriented sites, consumer-targeted sites offering low-risk purchases should make the process of buying as easy and straightforward as possible. Clear presentation of a good offer on the home page will help establish a different kind of trust in the visitor than that of a B2B site. This type of trust tells visitors that they are receiving a fair price and quality service. A simple two- or three-step sales process will encourage the customer to return to make more purchases. In consumer-based Web sites, ease of use and good value mean everything for customer retention, and customer retention means everything for robust profit margins.

Knowing how much information to present about the product or service is critical in working with the attention span of the consumer. First, take into consideration the financial risk that the product presents to the consumer. Obviously, a customer looking to purchase asset protection online, for example, would not jump into the purchase without knowing that he or she can trust the service. This scenario presents a huge financial risk on the part of the visitor. In this case, you would want to provide complete information about the service and comparative information regarding the competition. Presenting a low price point immediately in this case can actually break down any trust that has been established as it cheapens the offer and its reputability. The consumer may have many questions as well. For this reason, the entire emphasis would be to establish enough trust so that the visitor calls or acquires some form of consultation.

By contrast, a low-priced item such as a magazine subscription can be sold with very little information because it does not require a large financial risk on the part of the visitor. Also, if a product is well known due to extensive branding, the visitor may not need as much information before being pushed toward the purchase. In these cases, the emphasis should be put on the value of the offer and the price point.

Visual cues such as starbursts, arrows or bright red writing can capture the visitors’ attention just long enough to present the offer to them. Save these tactics for impulse buys, and use the information you acquire from the visitor to promote other offers on your site through auto responders or newsletters.

Purchase Price Is Key

You must also take into consideration the wealth of your average visitor. Most sites are aimed at a middle-income family. However, there are products and services that cater toward very high-end customers. If this is the case, price point is not nearly as important. In fact, wealthier visitors tend to directly correlate price with quality. Because of this, a low price may actually deter a wealthy visitor from the purchase. For wealthy visitors, don’t present the price immediately, but make it available, and pay much more attention to the style and artistic aspects of the site.

Designing for the proper demographic is one of the more difficult aspects of creating a site that converts well to sales. There is so much to take into account, including the audience, the industry, the financial risk of the visitor and more. These suggestions are just the beginning as far as special considerations that must be made to ensure high conversion rates. Be as aware as possible of the state of mind of your visitors. Jumping into the visitors’ shoes, so to speak, is the best way to really know what will work. In fact, a great way to do this is to simply research your competition from a visitor’s perspective.

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