Google Hates Affiliates

Back in January 2005 Google changed its Adwords policy to read, “We’ll only display one ad for affiliates and parent companies sharing the same Display URL per search query.” Consequently, affiliate arbitragers who used pay-per-click advertising to send traffic directly to their merchants’ sites saw their ads disappear overnight. Those who hadn’t diversified their incomes by building their own affiliate sites and/or subscriber lists suffered serious hardship when their affiliate commission checks also disappeared – a very bad result, indeed.

The other result (and the reason for the policy change) was more positive, however. Well-informed shoppers who make use of Google’s Sponsored Listings could run a search for “computer” and choose from a variety of merchants’ ads, which was a huge improvement over seeing hundreds of Dell advertisements, as per a comment from a U.K. poster at WebmasterWorld.com.

A spin-off benefit went to affiliates with content sites. As the arbitragers’ ads went by the wayside, content affiliates’ Google Adwords’ listings rose in the ranks and their advertising costs decreased.

Despite the benefits to users and content affiliates, “Google hates us” became a popular refrain on forums throughout the affiliate community, as affiliates who were struggling to cope with the new policy voiced their outrage. Much discussion revolved around ways to exploit loopholes in the policy.

For example, some smart affiliate noticed that the algorithm seemed to be casesensitive, and had failed to remove duplicate ads that shared the same display URL but were capitalized differently, i.e., xyzmerchant.com vs. XYZMerchant.com or xYzMeRcHaNt.COM. Affiliates frantically revised their Adwords campaigns, but the tactic lasted only a short time before the “Google Cashers” were sent back to the drawing board to figure out new loopholes.

Around the same time, affiliate sites were dropping like flies from the Google index. An explanation for the “problem” emerged in June, when Henk van Ess, a Dutch journalist, reported that a Google employee who had broken a nondisclosure agreement with Google confirmed that Google employed human raters to ferret out low-quality sites. The report also stated that raters worked according to specifications laid out in Google’s “Spam Recognition Guide for Raters.” Based on the raters’ findings and recommendations, Google was continually tweaking its algorithms to expedite removal of “thin affiliate” sites from its index. Here is a snippet from the guide:

“Thin affiliate doorways are sites that usher people to a number of Affiliate programs, earning a commission for doing so, while providing little or no value-added content or service to the user. “we’re attempting to identify sites that do nothing but act as a commission-earning middleman.”

Affiliates’ response to the news that Google employed humans to assess affiliate-site quality was phenomenal, with related forum threads spanning dozens of pages. A few suggested that affiliates should work in accordance with Google’s editorial guidelines to improve their sites. The predominant theme again however was that Google hates affiliates.

Affiliates who did not throw in the towel to look for 9 to 5 jobs after their sites were de-ranked and/or de-listed, sought solutions. Software developers responded with improved content-generating software that would create “unique” content pages, complete with RSS feeds and AdSense ads, and all at the simple push of a button. All anyone had to do was give the software an article and a list of keywords, then hit “Go” and like magic, you had thousands of unique article pages to feed and satisfy Google’s spider bots. That solution worked for all of two seconds before Google caught on and proved yet again that it hates affiliates.

But wait – it gets worse. In August 2005, Google Adwords launched quality-based minimum bids. If an Ad Groups’ maximum CPC (cost per click) did not meet the minimum bid, keywords were deactivated and ads would not appear in the Sponsored Listings. Then the big, bad and very mean Google made the process even more complicated in December when it threw a landing page Quality Score into the mix. Both changes resulted in higher minimum bids for Adwords advertisers with poor Adwords Quality Scores.

Fast forward to April 2006 when Google sent affiliate marketers into yet another tailspin with what affiliate Scott Jangro referred to as “some spring cleaning on the Adwords side of the business” in his April 5, 2006 blog entry at Revenews.com.

Google had jacked up the landing page Quality Score algorithm and some advertisers whose ads had previously cost 10 cents to 15 cents suddenly shot up to 50 cents, $1.00, or in some cases, $5.00 per click – and Google showed no mercy.

A July 7, 2006 post on Google’s Adwords blog (http://adwords.blogspot.com) stated, “We realize that some minimum bids may be too high to be cost-effective – indeed, these high minimum bids are our way of motivating advertisers to either improve their landing pages or to simply stop using AdWords for those pages””

Although name squeeze pages (designed to collect an email address before the visitor can see what they were promised), single-page sales letters (merchant) sites and AdSense sites were also targeted, according to the buzz on affiliate forums, ads that linked to affiliate sites were hardest hit by the change.

Developers rushed in again to the hard-done-by affiliates’ rescue, this time with “white hat” push-button software solutions. A flood of new information products promised to reveal the “real secret” to creating Googlicious landing pages.

Affiliates whose Adwords campaigns had improved with higher ad placements and lower advertising costs shared their strategies for success with Adwords. They pointed to both Google’s AdWords Editorial Guidelines and the basic Webmaster Guidelines as the best sources of information for creating quality landing pages.

Yet public expressions of angst and outrage continued into late August. There are even discussions about possible class action lawsuits, and the chorus of “Google Hates Affiliates” grows louder and more shrill.

If you’ve been listening in and think that “Google Hates Affiliates” is a catchy tune, let me warn you – don’t get caught up in the lyrics. Apart from a few good sites that always seem to be caught in the crossfire, most of the sad refrain comes from those who are mad that their free ride on the Google gravy train has come to an abrupt halt.

Google does not hate affiliates. Google couldn’t care less about affiliates, other than to get rid of those who continually spam the index and Adwords with useless stuff that detracts from its users’ experience.

Google is a business. Its first loyalty is to its users, a point that is repeatedly emphasized throughout its various guidelines. Not even advertisers who spend $10,000, $20,000 or $50,000 a month surpass the value Google places on its users – because without users, there are no advertisers.

Affiliates who are now determined to get off the push-button bandwagon and succeed as professional affiliate marketers should take their first clue from Google.

Do business the way Google does business. Put your visitors’ interests before your own. Here’s a really simple formula: First create a page of useful and unique content, and then suggest a choice of relevant products to solve your visitors’ problems. Send traffic from Adwords to the first page and Google will both love and respect you.

Revenue magazine offers more clues. You won’t find the successful affiliate marketers and managers who write for this magazine advocating push-button software, crazy keyword density formulas or other quick fixes. That’s because those aren’t solutions and there are no quick fixes.

Authority content sites have always been, and still are, the best way to earn your visitors’ respect; and quality landing pages make for a smooth ride with Google.

ROSALIND GARDNER is a super-affiliate who’s been in the business since 1998. She’s also the author of The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People’s Stuff Online. Her best-selling book is available on Amazon and www.SuperAffiliateHandbook.com.

Insurance for Conversion Rates

Designing for conversions isn’t rocket science. It’s just the ability to design a website with particular ideas in mind. For this column we’re going to focus on some of the most powerful ways to make a site convert – emotion, unique value proposition and credibility. Master these three basic concepts and you’ll be rewarded with soaring conversion rates.

The life insurance lead generation site EFinancial.com came to us a few months ago with an all-too-common problem. Its site looked much like others in the same industry. While the generic domain name gave people some sense of name recognition, there was nothing else that differentiated the site from its competition. In the online world, that’s not a very good thing.

Combine that lackluster look with the fact that the company needs to collect good information from users to do business and you have a site in need of some conversion design magic. For EFinancial.com, our definition of a conversion is getting a user to fill out the form. And the goal, as always, is to get more people to convert.

Get Emotional

So how can we make this site stand out from the crowd? Or at least, how can we get people to submit their information before leaving to scope out the competition? How do we stop users in their tracks? By creating emotion.

As your stereotypical guy, I’m not real emotional. I don’t do chick flicks and my monotone demeanor isn’t prone to outbursts. But as a marketer, I’ve learned to elicit, titillate and embrace my customers’ emotions. You see, if you can appeal to someone on an emotional level, the chances that they will engage with your product skyrocket. Remember, you don’t have much time to make your impression.

Here is something to keep in mind. Almost every new Web browser on the market offers some sort of tabbed browsing functionality. Now users can stay on one site while they open all their links in new tabs. What this means for marketers and website owners is that it’s now even easier for people to shop around online. I regularly watch users go to Google, perform a search and then open the top four or five results in new tabs. Then they quickly scan the results pages before picking which one they are going to use. This is a scary thought for many pay-per-click marketers because it means more clicks and potentially lower conversions. The call to differentiate or die has never been more compelling.

Show Me the Value

So let’s review the existing site. It’s easy to see that the form is the focal point of the EFinancial site, followed by the family photo and logo. While it’s good the form is front and center, the company is not taking the opportunity to talk about what makes it different from the competition. When designing on the Web, never forget to tell people what makes your organization better.

The EFinancial home page contains no real “about us” text and the main headline appears to be “Start Your Free Life Insurance Quote Here.” That’s hardly an argument for its service. In fact, besides the simplicity of the page, the site doesn’t do anything to sell itself.

I turned to Marty Weishaar, marketing director for EFinancial to find out what makes the company different. He explains that EFinancial definitely does offer some benefits such as being experts at closing tough cases. This is a great point because some people, because of their health, age, lifestyle, etc., have a hard time getting life insurance. This is an audience that should definitely consider working with EFinancial.

Highlight the Credibility

Next, it doesn’t operate on a bait-andswitch mentality, which is something that Marty tells me other companies are notorious for doing. According to Marty, EFinancial will really get you the rate they advertise. Again, this is a solid, unique value proposition and should be highlighted. And its technology automates many of the steps, which makes for a faster process from start to finish, thus satisfying the “let’s get this over with” life insurance shoppers.

Another thing I notice, and one of the points I consider to be low-hanging fruit in the conversion design process, is that the company has buried some strong credibility builders (VeriSign Secured, BBBOnLine, money-back guarantee and privacy notice) under the form and below the “fold” of the page. Study after study shows that having security seals in a prominent place really does boost conversions. While many of us in the online industry understand that these seals may not offer very much in terms of actually making a website more secure, their presence does make some percentage of users more comfortable with submitting their personal information.

Finally, if the goal is to get more users to fill out the form, lose the navigation. Assuming your traffic is fairly targeted, why distract them with links for home loans and auto insurance in the navigation? Getting rid of those will help keep users focused on the task at hand.

For the redesign, we’ve taken several steps to correct the issues identified above. First, we made the family photo larger, and selected a photo and headline that draws more attention to the child. Everyone knows that sex sells, but don’t forget the emotional impact of children as a sales tool. This new image is designed to grab the reader, as opposed to merely decorating the page. That covers the emotional aspect of the redesign.

Next we added bullet points that highlight the EFinancial value propositions and some basic “about us” text that was previously unavailable on the home page. Having and communicating a strong unique value proposition should be a priority for every Internet business owner. Next we moved all those credibility- building seals to the top of the page, where the space was being underutilized anyway, and we moved the carrier logos (AIG, Transamerica, etc.,) to a more prominent position. The security seals, privacy notice and familiar carrier logos should limit users questioning the site’s legitimacy.

Want your home page to be the topic of a future edition of By Design Makeover? Send your name, company, contact information (phone, email, etc.), a brief description of your business and its goals, and, of course, your URL to bydesign@sostreassoc. com. Please put “Revenue’s By Design Makeover” in the subject line.

PEDRO SOSTRE is pioneering conversion design and its ability to turn online shoppers into online buyers. He serves as president of Sostre & Associates, an Internet consulting, design and development firm, which also promotes affiliate programs on its network of websites. Visit www.sostreassoc.com to learn more.

Social Bookmarking Is the New Search Frontier

Internet users are finally taking searching and finding into their own hands. The concept of saving, tagging and sharing bookmarks – "social bookmarking" – is no longer a Web 2.0 gimmick or just a convenient way to access your Favorites at the Internet café. Social bookmarking is poised to become the real social search and it promises to be the next frontier for performance marketing retailers.

Social search sounds like the greatest thing since the five-minute WordPress install if you’re a searcher who is sick of searching through spam. After Googling through endless spam sites, it’s a breath of fresh air to soar into those tag clouds where people – not search engine algorithms – are considered the best judges of quality and relevancy. Quality sites far outnumber the junk and you find yourself wondering why you bother with dubious relevance and results from the Big 3 search engine powers.

If you’re a performance marketing retailer with vision and imagination one look at the social bookmarking scene reveals a map of a billion-acre wilderness filled with frontier-style opportunities.

For some time you’ve known that there are online markets you can’t reach with PPC or organic search because even though they need your product, they don’t know it yet. They aren’t looking for it by typing query strings into a search box. Social bookmarking offers the possibility of tactfully and intelligently touching those markets – and making sales – without having to compete against SEO-spam sites.

Your colleagues see thousands of people moving their Favorites from their local computer to social bookmarking sites as just one more Web 2.0 fad, but when you visit sites such as Ma.gnolia.com, you see much more. It’s a shared environment in which word-of-mouth marketing can flourish in the ultimate human-edited link exchange. At this moment, you can insert your online presence in a thousand different places – all without interrupting or alienating consumers.

As a forward-looking retailer, you must penetrate into social bookmarking spaces to gain consumer trust in the future. Although Google, Yahoo and MSN would have you believe otherwise, typing words into a search engine query box is not the be-all and end-all when people make buying decisions.

A study published by the nonprofit Pew Internet & American Life Project in early 2005 showed that close to half of respondents only use search engines a few times a week and two-thirds "could walk away from search engines without upsetting their lives very much."

Another Pew study in January 2006 showed that 34 percent of respondents said the Internet helped them find advice and support from other people and concluded that: "The Internet helps build social capital. … The Internet supports social networks."

The term social networks is a fancy way of saying that real people connect with other real people online. Social capital means that human relationships can be a tangible business asset.

And if you’re a visionary retailer, you realize that social bookmarking generates social proof – that elusive marketing energy that multiplies the power of all your marketing channels. The more social bookmarking capital you own, the more marketing energy you create.

First, organic search engine placement doesn’t have the same impact it once did. With only 10 first-page spots available for any Google keyword, holding a top placement for any length of time seems unlikely. The algorithm must evolve, and you might get devolved with it. But if you offer consumers a great shopping experience and it’s tagged for your keyword by 10,000 social bookmarkers, the backlinks and traffic will continue to flow. And rigging the social bookmark system is virtually impossible. The junk naturally falls to the bottom – instead of the top – of the heap.

Second, the more social bookmarking capital you acquire, the more potential marketing points open up. Pushing your message and interrupting consumers becomes a thing of the past. Tag clouds take care of agility, timeliness and relevancy for you, since real people tag sites based on what’s in their mind at the time. And while your site may get tagged in some quirky ways, quirks are what make the human brain much less prone to manipulation than an algorithm.

And finally, it’s clear that affiliates are the only marketing force that can efficiently generate social bookmarking capital. Your business can’t and shouldn’t spam the social bookmark sites. Commercializing a social bookmark space is generally frowned upon, if not forbidden.

For merchants, your affiliates are really in the best position to plug in to the minds of these social networks and place links to their pre-sales pages appropriately, within a human context of trusted recommendations. Today’s savvy affiliates are becoming experts at navigating social networks for a very good reason: They’ve had their content-filled, high-quality, user-oriented sites shunned by the search engines. Undaunted, they compete by joining grassroots Web 2.0 communities and tucking their affiliate sites deep into the heart of the social bookmarking universe. If you’re a forward-looking retailer, you want these pioneer affiliates representing you now.

 

ANIK SINGAL is CEO of Affiliate Classroom, which he founded in 2004 along with the Affiliate Classroom magazine. He started off as an Internet marketer and an affiliate in 2001 before becoming an online marketing consultant.

The Guerrilla Attitude

The attitude of a guerrilla affiliate toward marketing is dramatically different from that of a non-guerrilla affiliate. More than 90 percent of life is about attitude and an even higher percentage of marketing is all about attitude. It’s one of the first things that your prospects and customers will notice about you. The way they’ll know it is through your marketing efforts. If you don’t do much marketing, people will be unaware of your attitude regardless of how winning it may be. Private attitudes do not equate with profits. You’ve got to go public with your attitude.

Let people sense it through your aggressiveness in the marketing arena. It will be clearly communicated through the visibility granted you by marketing. When it’s time to decide on a purchase, they’ll be drawn to companies with an attitude far more than invisible companies that don’t actively and proudly express theirs.

Your attitude will also be indicated by the professionalism of your marketing materials. If they look shabby, that shabbiness will become part of your attitude. If they inspire confidence, that will express your attitude.

The reach of your marketing also reflects your attitude and so does the frequency. Naturally, your commitment to your program conveys an attitude. Your consistency expresses it as well. Keep switching your media and message, your niche and format, and people will be unclear about your attitude, assuming you’re not even sure of yourself.

Of course, you can’t succeed on attitude alone. Marlboro may not be the best-tasting cigarette in the world, but it certainly has the right attitude. Same for Budweiser compared with other beers. Many product category leaders succeed with attitude more than excellence; attitude more than low price; and attitude more than lavish spending. Every car made can get you from point A to point B, but some do it with a more stylish attitude.

As an affiliate, your attitude must come shining through in all of your marketing. It will come across by what you say, how you say it, where you say it and how frequently you say it. Even the world’s most winning attitude is for naught if it’s not being transmitted. That’s why guerrillas communicate with a big attitude to compensate what they lack in a big budget.

The website of a guerrilla affiliate reflects that affiliate’s attitude in its design, its straightforwardness, its focus on the visitor, its copy and its overall professionalism. There are endless possibilities to convey your attitude with your website and certainly with your blog. That means that there are endless possibilities to get egg on your face. Whatever you do to communicate your precious attitude, do it right or don’t do it at all.

There’s a huge, yawning gap of which you must be aware. It’s the gap between what you think your attitude is and what your prospects and customers think it is. Your job – and it’s not even a tough job – is to close that gap, to manifest your attitude so clearly that prospects and customers think of you the same way you think of yourself.

An attitude that is mandatory if you’re to be a true guerrilla affiliate is outwardness. Inward focus works against you when it comes to marketing. Save that for your analyst’s couch, and shine your light outward- bound when you’re marketing.

The perception that you require is the knowledge that your marketing is not about you. It is not about your business. It is not about your product or your service. I hope you’re clear on that, because if you’re not, you’ll blur the other insights necessary for you to master guerrilla marketing.

There is always a very good chance that what you have to offer will mean a lot to your target audience. And there’s a small but real chance that it will mean a great deal to them right now. Those simple facts ought to mean a lot to you before you plunge headlong into a marketing attack. If you can adapt your mindset to just what your offering can mean to your prospects, you’re thinking properly.

If you’ve got the right attitude about marketing, you’re nearly fixated on providing your customers with precisely what they need. One of the things they do need, as do all members of humanity, is a sense of identity. If you operate from the inside of their minds, you’ll be able to make yourself part of their identity. The fact that they do business with you and have a lasting relationship with you will become part of their identity and it will be very clear to their colleagues and friends.

Since your attitude as a guerrilla affiliate is centered around your customers, other facets of your business will follow suit. Your service will pick up and customers will notice. The people you hire will share your attitude, and again, customers will notice. The way you run your business will never seem stale to them because you’ll be innovativing in ways that deliver customer bliss.

Doing it means you can see the future before it unfolds, giving you an immense competitive advantage. It shows you beyond doubt that the best way to engage in customer-oriented marketing is to continuously innovate and to be the very essence of flexibility. In the past, staying with the tried-andtrue was the way to go. In the future, in which today’s present resides, that’s not the way to go.

A guerrilla affiliate knows that focusing on your customer is the way to go, and that "business as usual" now means "business as unusual" if you’re to be a guerrilla with the right attitude, seeing things from your customers’ point of view, meeting and then exceeding their expectations.

That calls for knowing where you’re headed, what your competitors are doing and what your prospects’ customers are thinking. Then it calls for you to demonstrate the attitude that proves you can see things from their standpoint.

 

JAY CONRAD LEVINSON is the acknowledged father of guerrilla marketing with more than 14 million books sold in his Guerrilla Marketing series, now in 41 languages. His website is gmarketing.com.

The Posh Payoff

Diamonds, private jets, multi-million-dollar mansions, haute couture, luxury vehicles and high-end handbags – customers looking for upscale goods and services could probably find all these items in posh places like Beverly Hills or they could just head to the Web.

The online shopping environment for upscale merchandise has been robust in recent years.

Websites such as NeimanMarcus.com, with annual sales that jumped 30 percent in fiscal 2005, and Diamonds.com, are flourishing.

This climate of vigorous sales is driving merchants, including fashion icons DKNY and Prada, to unveil e-commerce sites in the coming months and incentivizing affiliate sites like American-Luxury.com and Splendora.com to promote high-end merchandise to their niche audiences.

Initially luxury merchants had trepidation about the effect the Internet would have on their brand equity. eMarketer’s senior analyst, Jeff Grau, says, “Because the Internet is often thought of as the place to go for bargains, luxury merchants were concerned that it would cheapen their brand. Luxury brands’ emphasis is on quality and fashion rather than price ” they did not want to be associated with a channel that was for bargain hunters.”

But lucrative benefits have outweighed these concerns – the Internet not only offers a new source of sales and higher profit margins, it is a way for merchants to avoid high overhead costs of paying employees and expensive rents in tony areas. And many luxury merchants that have moved online say they did so to meet increased demand.

LUXE FOR LIFE

That demand is evident in several categories. In 2005, Forrester Research found that jewelry/luxury goods, apparel and health/beauty were making the most inroads into total sales – and the market researcher forecast apparel and home products as the two categories to grow the fastest between 2005 and 2010.

Traditionally the categories that have sold the best online have been computer hardware/software, books, and toys/video games. ComScore Media Metrix found that for the 2005 holiday season, the jewelry and luxury goods and accessories categories showed a 22 percent gain in visitors in December over November.

Apparel: The conventional wisdom about e-commerce was that apparel never would sell well online because people want to try things on before they buy. But more familiarity with a brand’s size and quality expectations as well as easier return policies are causing consumers to buy more apparel online every year, which accounts for a large segment of high-end merchandise.

“People are becoming more and more comfortable buying apparel online. For example, denim is one of our top categories – we keep adding more brands due to the demand of what clients are asking from us,” Carel Hearon, eLuxury.com’s marketing and affiliate manager, says.

Accessories/Handbags: According to comScore Media Metrix, the percentage of Internet visitors to Coach.com increased 117 percent in 2005, and a 2005 Women’s Wear Daily poll found that a large percentage of women (48 percent) buy accessories online. Accessories such as handbags and scarves sell well over the Internet because they are not restricted by size or fit requirements.

“Handbags and accessories are our strongest categories. You don’t have to try on a handbag, so there is a lower return rate,” Hearon says. Others agree.

“We get lots of winning bids for eBay on terms like Balenciaga Le Dix and Chloe Paddington for handbags,” says Michelle Madhok, who runs SheFinds.com, which focuses on shopping and fashion. Madhok notes that such handbags retail in the $1,000 range.

Shoes: Madhok adds, “We sell tons of shoes – especially from Zappos Couture” – with an average price point of $250. She says the reason is, “No matter your size, shoes always fit – that makes them especially attractive for Internet shoppers.”

Trisha Okubo, founder of Omiru.com, a style and fashion affiliate, says, “Our best categories are shoes and other accessories, likely because the fit issue is minimized in these categories. Our experience with high-end shoes is that brand name matters. Bluefly has worked for us because it provides discounts on well-known designer names.”

Lingerie: The 2005 Women’s Wear Daily poll found that women like to purchase intimate apparel online such as lingerie because they enjoy the privacy of shopping from home. Underwear is SheFinds.com’s No. 1 category. SheFinds.com partners with BareNecessities, which offers brands such as La Perla and Cosabella that sell bras that typically cost more than $100.

Jewelry: According to comScore Media Metrix, the increase in the percentage of Internet visitors heading to Diamonds.com was 223 percent, and the increase to Zales.com was 163 percent from November 2004 to November 2005.

Eddie Bakhash, president of AmericanPearl.com, which has been in business since 1997, says it has experienced a steady growth of approximately 20 percent annually for the past five years. The top-selling items are rings, earrings and necklaces, and the average price point for a product is $1,000. Brad Matson, chief marketing officer for Bluefly, says it added jewelry “based on demand,” adding, “It is an important and growing segment for Bluefly.”

Home Decor: Forrester predicts that home products will grow 8 percent between 2005 and 2010. Marilyn Olsen, who runs four sites, including American- Luxury.com and French-Luxury.com, sells a wide range of high-end merchandise including furniture, kitchenware, interior design and gardening essentials and is an affiliate for upscale furniture merchants such as Design Within Reach, Frontgate and Horchow.

She explains the success of these categories:

“As people furnish their kitchen, they want to be able to cook and entertain casually in as much style as they do in other parts of the house,” Olsen says. When people visit American-Luxury.com to buy leather armchair barstools that retail at $729 each from Horchow, they can see a Jura Capresso Impressa espresso machine that retails for $2,399 from Sur La Table.

Other Items: The definition of a luxury item is something that adds to pleasure or comfort but is not absolutely necessary – an indulgence. Merchandise in all sorts of categories could match this description – such as spa treatments, luxury travel, upscale baby clothes, gourmet foods and high-end gifts.

For the 2005 holiday season, the leaders in the luxury segment were RedEnvelope with its December traffic (2.4 million visitors) seeing a 62 percent increase over the previous month; and Tiffany & Co., up 47 percent over November with 2 million visitors, according to comScore Media Metrix.

Luxury shoppers, who make up a mere 2 percent of all online buyers, account for nearly 7 percent of online retail sales. According to Forrester, the online shopping revenue reached $170 billion in 2005 – $12 billion (7 percent), was sales luxury sales.

Indeed, some online luxury shoppers are affluent people. In March 2006, Time magazine found that of adult Internet users with household incomes of at least $150,000, 12 percent of respondents said that the Internet was their primary place to shop for apparel and 18 percent said it was their secondary place. And upper-income shoppers have been driving sales for the past two years, noting that luxury goods retailers were the strongest performers during the 2005 holiday season, according to Ernst & Young Consumer Trends Center.

Forrester finds that luxury buyers are comfortable with Internet and Web technologies and have shifted a great part of their spending to the online channel as usability has improved. Luxury buyers, in fact, are 36 percent more likely to be comfortable with online transactions involving their credit cards and are 25 percent more likely to be technology optimists than average online shoppers.

CONVENIENCE IS KEY

And the Internet is an excellent way to reach lucrative clientèle – high earners who work long hours and have little time to shop. American-Luxury’s Olsen attributes part of the growth of her site to this. “I think a lot of it is time constraint,” she says. “The sophisticated customer is increasingly very, very busy and they don’t have time to go to the mall.”

Forrester found that convenience-driven consumers make up approximately 31 percent of all online shoppers and represent nearly 35 percent of all online spending. And many of these convenience shoppers are buying upscale merchandise.

“It turns out it is a convenience thing – most of our customers live in major metropolitan cities – they could have gone to the stores,” says eLuxury’s Hearon. “We thought our top buyers were going to be in places like Des Moines, Iowa, where there were not stores to buy the latest Rock & Republic jeans.”

And for people who live in more rural areas, it is certainly more convenient to shop online than to take long trips to metro areas. eMarketer’s Grau says, “The Internet makes it easier – it brings into reach the items that people in small towns cannot get.”

Jeremy Palmer, QuitYourDayJob.com’s CEO, says he has worked with Zappos.com, and was surprised that there was a market for expensive shoes but reasons that “people in fly-over states like Utah [where he lives] want luxury shoes but are limited in what they can buy – the audience is smaller but there is demand.”

Olsen agrees. “In some areas of the country, it is harder to find upscale merchandise. I think they tend to appreciate Internet shopping more than someone who has access to brick and mortar,” she says.

In addition to convenience, Grau says the growth in luxury online sales is due to the maturation of e-commerce where consumers feel more comfortable buying very expensive things online, so there are more items offered to meet demand.

“Merchants started out with books and CDs and gained confidence to where consumers buy a watch or a ring, whereas a year earlier they never would have. There are three main reasons: trust, education and presentation,” he says.

TRUST BUILDING

The biggest tool for building trust is improved customer service with excellent phone representatives, consistent delivery of quality products and better shipping policies for easier returns.

Madhok says, “Shoe companies are great with free shipping and free returns, so there’s no risk in ordering.”

Hearon adds that, “For apparel, such as denim, people will buy two sizes and keep one and return the other so they can avoid the hassle. We have great shipping policies to do that.”

Grau explains that merchants make it possible to enter into a live chat so there is more hand holding when it comes to buying a high-end product.

“You see on jewelry sites lots of educational information that explain what to look for when buying a diamond ring – how to evaluate quality and what carats mean. They [service representatives] help a customer shop and they gain more trust in the brand that takes the time to educate the customer about how to buy a diamond ring.”

Another important component to luxury shopping online is the presentation of merchandise that websites offer.

Consumers visit websites after they have been in a store since they can often find a great range of color and sizes. Online shopping is not only about pre-shopping, but securing exactly what you want, according to Grau.

Olsen says, “I work like a personal shopper and make it easier for people to find things. I am able to show them all of the options in one place and make their decision making more simple.”

Luxury shoppers do not think of the Internet as limited or the lesser alternative to off-line shopping but as a unique way to shop, according to Bluefly’s Matson.

“At Bluefly, you can see 100 dresses in one color very quickly – you would have to go to 10 stores to see that,” he says. “Bluefly has an engine that lets you look at all of the dresses that are black, size four and between $200 and $400, from more than 365 designers.”

There are some e-tailers that allow customers to enter their physical dimensions and the site will in turn offer up styles that are suited to your figure, Grau says.

Online shopping also serves consumers who want to stay on top of the trends, making it easier to achieve a certain look. Hearon says many of eLuxury’s customers “have high household incomes but some are willing to live in a shoebox to have the latest Louis Vuitton bag and shoes. They are very fashion-conscious and are aware of the trends and want to wear them and will do whatever it takes.”

Celebrity gossip and style watcher websites have brought the demand for “it” labels to cyberspace.

“Now women want the bag they see Jennifer Aniston carrying. Before, to get their hands on the designer item, they’d have to shop in a big city. Now designer labels – even discounted designer labels – can be found on eLuxury, Neiman Marcus, Yoox and Bluefly’s websites,” Madhok says.

Omiru.com’s Okubo says that, “the growing status-consciousness of our culture encourages the gravitation towards luxury brands. What you buy and what you wear is seen as an extension of your personality, really; an extension of you. What does this mean for retailers? People want Prada or Polo, not a private-label brand. Luxury brands have an automatic stamp of approval on them.”

NICHE IS NICE

This phenomenon provides an opportunity for publishers to focus on an area of their expertise, become an evangelist for a brand and reach potential customers – whether it is for premium watches, fine crystal or evening handbags. Moreover, luxury purchasers tend to be passionate and loyal and showy about their brands and this lends itself well to merchants looking for loyalists to endorse their products.

Liane Dietrich, vice president of Merchant Services for LinkShare, attributes the increase in luxury-brand sales online to affiliates.

“There are lots of niche and content sites that are playing the role of ‘recommender’ – they recommend products and merchants to consumers and that is paving the way for luxury brands to take their place.”

Clearly affiliates are attracted to upscale merchandise for the high commissions – many luxury sites do not offer discounts and have limited “sales” or “clearance” sections. Luxury merchants report that paying full price does not deter consumers from buying.

Another reason affiliates promote luxury products is the cache that luxury items offer them.

“I think it’s very important to note that affiliates are attracted to luxury merchants for the perception of high-average- order value and high conversion, as well as the visual value that the luxury connection adds to the affiliate’s site,” Dietrich says.

But affiliates need to be sure they offer the brand that leads a potential customer to their site. Shawn Collins, president of Shawn Collins Consulting, warns, “If unchecked, affiliates will exploit the brand – they will leverage the brand names like Gucci or Dior even if they don’t sell those products. Affiliate managers should kick them out after one or two ‘outs’ if affiliates mess around with the branding. For example, in paid search arbitrage, affiliates can bid on trademarked names such as Dior but these keywords frequently get abused and affiliates drive traffic to their sites when there is no product there.”

SELECTIVE, EXCLUSIVE, DISCRIMINATING

Affiliates should be aware that in exchange for potentially high commissions, the programs are not easy to get into and will require that affiliates not only have a highly trafficked site, but a well-designed site that features other upscale sellers. And they will be closely monitored with their keyword buys and how they present brands on their site.

“Luxury affiliate managers are pretty brand-protective. They are looking for a reduced level of discounting; a clean, visually appealing site; and possibly some other merchants on the site that would help raise the legitimacy of the website,” Grau says.

“Obviously, Rolex doesn’t want to see an advertisement for Rolex watches on a Wal-Mart affiliate site,” Palmer says. “The terms and conditions of luxury programs spell out how they want their brands advertised.”

Hearon says, “We are very selective – we have 300 people apply per week and I let in three. I evaluate the ‘look and feel’ of the site and I have an intern look at every affiliate. I make sure we are not on coupon sites.”

“You have to be cautious with affiliate marketing – if you are selling a fine-quality product, you want it to be showcased in the best possible light,” AmericanPearl.com’s Bakhash says. “Consumers evaluate the company and product based on where it is – which is why we really like Yahoo Shopping and Amazon.com.” AmericanPearl is on dozens of other sites through Yahoo Shopping, and Yahoo Shopping is their best affiliate.

Sak’s Fifth Avenue and Neiman Marcus are private programs and currently Neiman’s must approve all photos used on a site, according to Madhok. “I’m hoping as they begin to trust us, this requirement will go away since it impedes the speed of Internet publishing.”

But not all luxury brands are strict.

“Every luxury merchant is going to have a different tack on it. Some luxury merchants are very open to driving revenue that is valuable additional traffic for them – whether it comes from a very high-end affiliate or a small niche affiliate might not be as strong of a concern,” Dietrich says.

Matson says Bluefly has “hundreds of affiliates, which is helping Bluefly to grow. We get 60 [applicants] per week and take 20 or so. We look at quality and fit and examine each affiliate on a case-by-case basis.”

Hearon attributes the success of eLuxury’s affiliate program to “partnering with the right companies and making sure we send out newsletters once a week and communicate as often as possible with our top affiliates [such as] ShopAmex and American Airlines.”

These types of membership and loyalty sites work well for luxury brands by playing up the benefits of being a member in addition to getting the points or rewards. In addition, it plays into the idea of a luxury brand – because of membership, because people are often getting the first crack at a newly released item.

Each of the affiliate networks has a share of luxury merchants. Commission Junction has Bluefly; Performics has RedEnvelope and Frontgate; and LinkShare has eLuxury and Blue Nile. Merchants are looking for networks that are sensitive to where their brands might be, and how their brands are portrayed in any sort of marketing. For this reason, the networks offer a variety of tools that provide merchants with the reassurance that their brand is being marketed correctly.

The days of thinking that companies such as Overstock and eBay, which sell mass-market products like books and iPods, epitomize online shopping are over. The Internet is no longer incompatible with the exclusivity of luxury goods. Retailers of upscale merchandise are and will continue to look to online shopping as an essential sales and marketing channel.

Video Ad Explosion

In early August, Foster’s Beer announced two changes. First, they’ll no longer try to be “Australian for Beer” and, second, they’re moving all their television ad spending online.

Although the decision only affects a $5 million ad budget, it’s a bellwether: Companies are flocking to online video ads as the way to reach customers.

Recent reports claim advertisers will spend $74 billion to buy airtime on TV in the U.S. for 2006. The online ad spend is set to reach $26 billion or 9% of the total US market.

“This [online video ads] could very well become the dominant form of online advertising … probably within the next 18 to 24 months,” says Bob Hanna, senior vice president of sales at Burst Media, which offers a network of publishers for advertisers.

A recent local online advertising report by market researcher Borrell Associates expects local video advertising to become a trackable category in 2007. And the biggest online ad opportunities currently revolve around real estate and automotive. Combined, these two categories comprise slightly more than one-third of all local online advertising, which is expected to grow 31.6 percent to a $7.7 billion category in 2007.

For its new online video ad push, Foster’s Beer is on Heavy.com, the online video site geared toward young males. Prior to Heavy content, which ranges from videos of scantily clad young women to spoofs on America’s Funniest Home Videos, you can find video ads for candy, beer and cars. But the edgier and more risque videos run without pre-roll ads.

Online Is Not TV

Heavy’s motto, “Because TV Sucks,” is instructive. For five years, it has been said that online content is constitutionally different from television: Advertisers will have to change their approach to creating video ads. A panel of online advertising, media and Web executives at the OMMA conference in New York in September agreed the most effective online video ads should be 15 seconds in length or less. The panel also promoted the idea of creating spots specifically for the Internet and digital media rather than repurposing existing television advertisements. That way the ads can be developed to enable consumers to click through to gain additional product information.

Advertisers may also have to be more open about where these ads end up as demand increases.

McKinsey Quarterly, an online business journal from consultant group McKinsey & Co., recently determined that in 2005, 80 percent of online video ad inventory was being used.

“The maximum supply of video ads is currently about $600 million a year – far less than future demand, which we expect to reach $1.4 billion to $3.2 billion in 2007,” the article “A Reality Check for Online Advertising” states.

Still, Randy Kilgore, chief revenue officer for Tremor Network, says, “The juggernaut called online video advertising is here to stay.”

And content providers are rising to the challenge. In August, Google, Viacom and YouTube made announcements about video advertising solutions. Two months later, Google purchased the less-than-two-year-old YouTube for a whopping $1.65 billion.

YouTube, which shows about 100 million videos daily, won’t disclose its advertising fees for visible ad spots. Google, at the end of June, also started testing an advertising model that features some video ads in a sponsored section. Google would also not disclose the fee for those video ads.

Not only are publishers opening up space, but technology solutions are also increasing; for example, Burst Media is now facilitating streaming video within banner ads, and Klipmart, a video ad solution heralded for interesting innovations in video ads for movies, was acquired by DoubleClick in June. DoubleClick is also the parent company of affiliate network Performics. EyeWonder and e-line Technologies are also in the space.

Despite television screens getting larger and flatter, viewers are enticed by the flexibility of on-demand viewing that the Internet enables.

One source for online video placement is on television network sites. Fox is streaming more than 40 episodes of prime-time shows online, with Toyota as the sole sponsor, and other networks are following suit.

That’s because most Internet users have watched online video; 25 percent watch regularly, at least once a week. Users regularly see online video ads and, according to the Online Publishers Association, 44 percent have taken some action after viewing an online video ad. Much of this reach comes during times when people wouldn’t normally be watching TV, given online video’s growing domination of the day-part audience.

And broadening the marketing window into daytime hours can be put to profound use. Thursday-night TV is no longer the last, best opportunity to influence consumers going into the weekend – that title is now held by the Internet on Friday mornings and afternoons.

Within these online shows, pre-roll, mid-roll and post-roll advertising is offered: just like on television. For instance, Heavy.com runs a static ad for Virgin Mobile for five seconds before one of their “Behind The Music That Sucks” shorts. There are also longer, more elaborate ads for Nike and Coors with production quality that is indistinguishable from television ads – and these ads are arguably as good as the content they precede.

Viewers are sometimes unable to fast-forward through “pre-roll” ads. Mid-roll ads crop up in the middle of a video. This format of advertisement would not be practical in a video short but makes sense in a streamed TV show. And, because content is limited, some companies offer ads at the end of videos – post-roll.

New Opportunities

One benefit of streaming prime-time shows and live sporting events is ad opportunities go to marketers who would traditionally advertise with these shows as well as new advertisers who could not afford network television ads. But online video, except in cases like Fox’s shows or news shows like Evening News with Katie Couric (which is being streamed online), doesn’t look like television and should not be treated like television by advertisers.

The bread and butter of sites like AtomFilms, Heavy and Yahoo Video is short video. Most video online is less than five minutes long, and advertisers can’t run one-minute commercials they’ve shot for television.

Companies who have a difficult time understanding that are “trying to apply an old media solution to new media,” says Forrester senior analyst Brian Haven. “In the long run, that’s just not going to be a very successful way to approach online advertising.”

DoubleClick’s vice president of rich media, Ari Paparo, notes that for online video ads, less is more. “You aren’t going to be able to repurpose TV ads – a 30-second ad doesn’t work online. Fifteen seconds is the maximum for a single ad unit.” Paparo suggests a new model: a short preroll spot of three seconds and then the content, then a long post-roll spot. He also believes interactive video ads show real promise, where you can telescope when it’s over to find out more – like for a high-involvement product like a car.

But companies who have strong-roots advertising on television, direct marketing companies, may have other challenges. Edith Bellinghausen, vice president of new media of Razor & Tie, an entertainment company that includes a record label and direct marketing operations, is watching where online video advertising is going but says the company is not ready to rush in.

Razor & Tie will try online video marketing soon “because we have to, but we’ll never move away from TV altogether.” The placement of their spots depends on the product; their children’s music CDs might, for instance, be advertised on Nickelodeon. The documentary Biggie and Tupac was advertised on MTV and VH1, among other cable stations. But sometimes a television campaign is more cost-effective and focused when it’s run on local cable stations.

Potentially, online video advertising could work in a similar way, for focused campaigns for companies with lower marketing budgets.

Bellinghausen notes that YouTube already has videos posted by parents at shows for Razor & Tie’s Club KIDZ BOP. But when considering their children’s CD products, she points out another question facing advertisers who are looking to jump on the user-generated content bandwagon: Are advertisers protected from ad placement next to undesirable content?

“We’re intensely focused on them not ending up somewhere they don’t want to be,” insists Tacoda’s CEO Curt Viebranz. Tacoda sells ad networks based on behavioral segments and YouTube is now in their network. But Viebranz notes, “If you begin to drill down into YouTube’s site, we’re not there. We’re where you enter the site.” Because advertisers are sensitive to being placed near questionable content, Tacoda errs on the side of caution by placing ads near the home page, rather than in the murky underbelly of YouTube’s offerings.

The anarchic nature of user-generated video sites means that brands will have to deal with some uncertainty about placement. “Brands have to think a little more openly about what they’re associated with,” urges Haven. He also believes that online video advertising will cause a philosophical shift in marketers’ approaches: “What YouTube is really doing is issuing a challenge to marketers. You’re not going to just put an ad up on our site, you’re going to have to participate in our community and you’re going to have to be creative about how you do this.”

The shift will force marketers to think more like content providers and will ultimately result in more entertaining creative. The interactive, participatory aspect of the Internet was long held as the reason that television-like ads would not work online. But consumer-generated sites have enabled the ultimate level of participation: consumer-generated ads.

Get Users Involved

While the Coca-Cola/Mentos viral ad on Revver is a great example of a user-generated video that was eventually purchased by Mentos and accepted into their advertising arsenal, companies can go one step further thanks to CurrentTV. CurrentTV, the Al Gore-backed San Francisco-based company that allows users to submit content online for possible broadcast on television, also offers consumers the opportunity to create ads for L’Oreal, Sony Electronics and Toyota.

The first ad to be accepted for television was created by a 16- year-old and sanctioned by Sony. Viewers can rate the ads, which are posted on the site after being thoroughly screened. If the ad makes it to the network, the creator gets $1,000 and is given a licensing agreement. And if the ad makes it to cable or satellite television, the viewer makes $5,000 – for network television it goes up to $10,000.

CurrentTV’s president of sales and marketing, Anne Zehren, says it seems counterintuitive that major brands are the ones participating in this experiment. “At first, people thought the larger brands would have the most resistance because they’d have to give up control as brand guardians. But their marketing departments are now brand hosts; they’re craving innovation and the smart ones want to take a risk, as long as it’s not a free-for-all.” Zehren emphasizes CurrentTV’s commitment to making quality content, with greater control than one finds on other user-produced video sites.

Of course, users have been creating (unsolicited) video ads for companies and posting them on YouTube but most have yet to be formally embraced by the marketing departments of those companies. At the same time, it is certain that brands participating on YouTube’s brand channels will host their own contests to create video ads now that YouTube has announced the creation of brand channels as a way to monetize the site. Initially, sites like YouTube attracted movie advertisements – streaming trailers on such sites makes sense.

And short-content format is ideal for music videos: Warner Bros. has announced that they will promote Paris Hilton’s music debut on YouTube. But YouTube also seems to be a draw for small businesses, companies that would never have the budget for a television campaign.

Several months ago, Allison Margolin, an attractive, young, Beverly Hills-based criminal defense attorney, posted a video advertising her services on YouTube which voiced her disagreement with marijuana laws. The question is, how many people watched the ad before a Los Angeles Times article about her in August mentioned it?

Viral video is also a big deal. Lured by the prospect of reaching millions of consumers without also spending millions of dollars for television airtime or space in print media, companies have shifted more ad dollars to the Net. Video viral marketing has expanded from a negligible piece of the advertising pie to a $100 million to $150 million industry, researchers estimate.

“We’ve recently engaged top talent to help us build viral videos for brand awareness during the off-season, produce training videos to help our online partners to sell our product and to create product videos that sell the features and benefits of TaxBrain. All of these videos are intended primarily for online consumption,” Todd Taylor, manager of business development for TaxBrain, says.

Measuring Up

Right now one can only guess how many people are watching online, especially compared with the number of customers reached with television ads. There are two unresolved issues: online video advertising’s reach and the ability to track it.

“What’s missing right now is what is the return on investment and all the technology surrounding this. How are we sure it’s been placed contextually?” asks Forrester’s Haven.

But Tremor’s Kilgore, the former vice president for Dow Jones Online, disagrees and says, “Audience accountability is a significant advantage for marketers when they consider online video advertising.”

He claims that advertisers can count actual viewers of video when they are actively watching – not getting up for a snack. The other advantages are the ability to track completion rates and geographic data, frequency and targeting based on historical behavior and optimization of spots based on real-time effectiveness – where there’s no need to wait for the focus group. Also, with companion units, online video advertising can offer immediate user interaction. Advertisers can choose geotargeting, demo targeting, behavioral targeting, day-parting, etc.

Hotspotting

Five years ago, there was speculation that hotspotting would be the way to monetize online video advertisements. That is, brands would partner with content creators for product placement in online videos. Viewers could click on items on a counter or an actor’s sweater and be whisked off to a site to purchase it. Hotspotting is finally here, but not widely adopted yet. But if a viewer were watching some cartoons online, would he really click on the Coors ad to get a six-pack of beer delivered to his house? Hotspotting only works for particular products.

Hotspotting did make sense, however, to French clothing company Shai. Their online porn video ads have caused a minor sensation, but not necessarily more customers. Viewers can click on the clothes the actors are wearing as part of an interactive catalog. Before they take them off, that is.

With improved measurement capabilities, big brands jumping on the bandwagon and cheaper costs, video and video advertising are becoming a staple of doing business.

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for the Industry Standard, Brandweek, HotWired and Wired News. She lives in San Francisco.

KATHI BLACK is a professor of philosophy (ethics) at The University of San Francisco. She was previously an online entertainment reporter and senior researcher at the Industry Standard.

Sex Education

You may or may not approve of what they are marketing, but nearly everyone can learn something from the strategies that the adult industry uses to capture consumers online. The thriving adult industry has a history of pioneering many online marketing techniques and continues to provide useful lessons in how to attract and convert an audience.

From the creation of the affiliate model to monetizing user-generated content, where sex sites go, mainstream marketers often follow. The selling of sex products and content has grown to become a more than $2.5 billion annual business, according to publisher AVN Online, as each year 72 million people visit the more than 4.2 million adult content websites.

Spoil Your Partners

While search marketing and display advertising provides most of the traffic in many industries, affiliates drive most of the visitors to sex sites. Adult affiliates are treated more like partners, and publishers are unafraid to show their gratitude. Keeping affiliates happy is paramount in the hyper-competitive adult world, says Clark Chambers, general manager of adult affiliate network NicheBucks.

Like many consumers, affiliates don’t have much brand loyalty and will work the partners that offer the better returns if they aren’t satisfied. Chambers, who got into the business because a friend needed someone to oversee his exploding affiliate program, rewards his best affiliates with gifts on top of their generous commissions. He has given jewelry, video games and digital music players to his best affiliates, including one teenager in Russia who makes more than $7,000 a month.

Affiliates do the primary search engine marketing and optimization, which reduces the risk for publishers and eliminates competing with them for the same keywords. Chambers makes sure that his affiliates have access to current conversion statistics and a variety of marketing tools, including a steady stream of images through RSS feeds to attract new customers. Adult sites will even host the affiliate websites for free, according to Chambers, who has been managing adult affiliates for eight years.

Adult sites will pay more than the first month’s subscription fees in commissions to keep the traffic coming, according to an adult industry consultant who asked that his name be withheld (he says his family doesn’t know where he works). The payouts are very generous to prompt affiliate webmasters to work harder for the program, and because they can easily find other content sites to promote, the consultant says. Publishers also emphasize the personal touch by being readily available to their affiliates and quickly responding to their phone calls, and by meeting in person at industry events.

Promoting Competitors

The adult industry has not only nearly perfected the art of affiliate relations, but also grows stronger through publishers earning extra revenue by also acting as affiliates themselves. “Co-opetition” is the practice of promoting competitors’ websites when visitors try to exit a website without buying something, according to Jim Lillig, president of marketing consultancy Synergy Intermedia. “It’s a last resort after exhausting all the other ways to monetize” visitors, he says.

While many publishers may not be willing to promote competitors by acting as an affiliate, Lillig says publishers may be able to earn more revenue from those who don’t buy from them than those who do. Lillig, who helped to build Mr. Skin, a subscription website focusing on celebrity nude scenes, into a successful franchise says, “98 percent of customers leave most websites without buying something.” Admitting that you may not have a product that suits every taste is a difficult but significant realization for publishers looking to maximize their revenue.

Ed Kunkel, the chief operating officer of SexSearch.com, agrees that pitching competitors’ products helps to grow sales across the industry. “[Competitors] have the audience you need and vice versa,” Kunkel says. “It’s a huge world you have access to; there is plenty (of demand) for everyone to make enough money. … Since there is no way of completely dominating a market, you might as well share the wealth amongst each other.”

Analyst Greg Sterling of Sterling Market Intelligence says that publishers who link to their competitor’s sites can benefit. “Intercepting a person before they leave a site in an unobtrusive way would be successful in capturing some number of sales,” according to Sterling. He says applications developers such as customer relations management software company LivePerson are experimenting with displaying competing products as a last resort.

By acting as an affiliate for niche adult publishers (such as sites focusing on older women or those of a specific ethnicity), publishers can also track the conversion rates of different types of content and then develop their own competing sites, according to Lillig. He recommends creating multiple niche sites to highlight areas of content as well as to learn more about consumer habits. Also, publishers who present information about competing products gain credibility with their audience, he says.

Analyst Sterling says companies can increase their reach by parsing their content and creating niche websites, such as search technology vendor Marchex’s development of local search sites from a single database. “The creation of niche sites is a good idea if it can be done skillfully and it’s not just spam,” Sterling says.

The adult industry is a tight-knit group who know each another and “form a big circle,” referring traffic to each other in the belief that it’s better if consumers buy from a competitor than if they don’t buy at all. Adult publishers who trade links with competitors can increase their traffic without having to purchase advertising, Lillig says.

However, that circle often traps customers by generating pop-up windows when customers try to exit, an annoying practice that continues to get some adult publishers in legal trouble. Lillig says that while the pop-ups may be frustrating, adult sites studied the practice and identified the exact number of pop-up windows to maximize revenue. Though pop-ups are still in use, many adult companies now ban affiliates who create pop-ups that trap users with unending windows.

Leading the Technical Charge

Lillig says Mr. Skin was one of the first companies to watermark an image and allow it to be spread around the Internet as viral marketing to enhance branding. Mr. Skin reached millions of potential customers by putting its logo on images and by embedding pre-roll ads into celebrity videos that were circulated via email and through peer-to-peer networks. “They became moving ads,” he says.

The adult industry also popularized giving free sample content in exchange for customers providing valid email addresses and co-registration, which gives customers the option of simultaneously signing up for newsletters from competing adult sites, according to Lillig. He says adult marketers took an early lead in tracking email performance, including who opened emails and where they clicked.

Adult sites have also been adept at identifying seemingly unrelated trends in entertainment and integrating them into their product. For example, one of the fastest-growing segments is “reality porn,” an imitation of reality TV programs that has prompted adult publishers to launch dozens of niche sites.

Another cultural phenomenon being integrated into adult sites is gambling (see article on page 66). Playboy.com will open its first Internet casino by the end of 2006, and 121 Gaming Inc. this summer launched GrandNevada.com, which features naked card dealers.

Publishers need to study the latest trends and find complementary ways to expand their reach, says 121Gaming president and CEO Howard Mann. “We saw an opportunity to go in a different direction with something that added entertainment value,” says Mann, of his combining gaming with nudity.

Adult content publishers are frequently the earliest adopters of technologies such as streaming video and webcams that later are adopted by other industries. “The VCR became popular because people wanted porn, and VHS won out because that was the format that porn adopted,” Mann says. Media companies who are currently evaluating which of the new high-capacity DVD formats (Blu-ray or HD-DVD) to sell should watch to see which technology the porn industry favors.

In addition to technology and cultural trends, adult marketers are also quick to turn the latest publishing trends into tools for deriving additional income. Affiliates are authoring blogs about the adult industry to increase their natural search result rankings, and publishers are creating MySpace profiles for their rising acting stars to differentiate their brands, according to NicheBucks’ Chambers.

The Upper Hand

Of course adult sites have a distinct advantage over their general audience counterparts – sex sells, and the demand for content is almost limitless. “If there is one thing that is universal, it’s that men love to look at naked women,” says 121Gaming’s Mann. Even without any marketing, millions of people will search for adult content. “I know adult networks that get similar traffic to Yahoo,” he says.

Conversion raters are higher on adult versus PG personals searches, according to Mark Brooks, the editor of Online Personals Watch. The “conversions are best when people are looking for sexual connections,” he says. Brooks, who previously worked for AdultFriendFinder, says adult publishers can make back the commissions paid to affiliates to acquire a customer within one month, while it may take three months or more for mainstream personals.

However, because of the generous payouts on adult personals sites, publishers have to spend additional time managing their affiliate relationships. “You have to look after [the affiliates], allow them to call you on the phone and take their requests seriously,” Brooks says. Publishers also have to be steadfast in making sure their affiliates do not damage their brand by being overly aggressive. While he was at the company, AdultFriendFinder stopped allowing affiliates to do email marketing because there was too much abuse.

Lessons Not Learned

The adult industry has mastered how to tempt consumers with just enough content to prompt them to purchase without compromising sales, something that most retail sites have been reticent to experiment with thus far. Adult publishers successfully convert traffic by providing affiliates with free samples of their content, a strategy that publishers should adopt, says Shawn Collins, co-founder of the Affiliate Summit conference.

In the adult world, the profits are in the video content, and affiliates lure and hook customers by showing image galleries (often thumbnails) of naked people, and then directing them to the publishers who sell unlimited access accounts. Collins says video, audio or print media companies could greatly expand their conversions by using affiliates to distribute free samples of their content.

For example, the television networks or movie sellers could distribute clips from their sitcoms or films to affiliates to pique consumer interest, which enables customers to realize the value of the content, according to Collins. Media companies have yet to exploit the power of distributing content through affiliates, Collins says, and were slow to team up with video search engines such as YouTube.com to increase their exposure.

This strategy of partnering with large search engines and requiring users to register is the opposite of the niche marketing that has been critical to the adult industry’s success. Video search engine sites have too much content to successfully promote niches (such as British comedy or period-piece dramas) that would convert well as independent affiliate sites.

“Showing teaser videos and allowing them to be distributed virally” could boost the sales of online video, Collins says. Online music stores should allow affiliates to host and play select songs for free, and Amazon should share its technology for previewing a few pages of a book with affiliates. Reuter’s news is one of the video services that allow affiliates to display its content, but the company keeps all of the revenue from its pre-roll ads, which takes away the incentive from affiliates.

As the adult industry has shown, whetting consumers’ appetites by letting them peek at the goods goes a long way in prompting conversions. Adult publishers prove that by working closely with affiliates, innovating by embracing technology and treating competitors as assets, publishers can create new products and increase their revenue.


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

Gambling Stakes Rise

You can’t drive on the highway, watch TV or go to the supermarket without being reminded of America’s obsession with betting. Casinos are popping up faster than you can say “double down,” the World Series of Poker has become a prime time television spectacle and Powerball payoffs are reaching the size of state budgets.

Cashing in on a booming industry that offers some of the highest payouts around might seem like a good bet for affiliates, but not when that business is illegal. Gambling law experts say federal law makes it fairly clear that operating Internet sports books is a crime. But the law is not quite as clear regarding the issue of other Internet games, such as poker and blackjack.

Revenue from, and public support of, gambling (or “gaming” as the industry prefers) in all its forms has never been higher, but pressure from the federal government increases the odds that online gambling marketers may be putting their money and freedom on the line.

The policies of the federal government and some states are, broadly speaking, at odds with the rules governing online betting parlors in many countries, like Costa Rica and Antigua, where most casinos have their operations. The current regulations also put law enforcement in conflict with millions of Americans who place bets online, using their home computers to wager on sporting events and games like blackjack and poker.

Poker is hot right now and poker revenue at brick-and-mortar casinos in Nevada and New Jersey may have jumped 37 percent in 2005, according to the American Gaming association, but Internet gambling is the fastest-growing segment of the gambling market, according to a Pew Research report from March of 2006. Ignorance – whether real or feigned – leads to blissful betting, as nearly 20 percent of Americans surveyed by Pew denied knowing that online gambling is illegal.

More than 80 percent of Americans either support or don’t object to gambling, and last year between $10 billion and $12 billion were bet online globally, according to William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming and professor of economics at the University of Nevada, Reno. Even though online gambling is illegal in the United States (with the curious exceptions of state-approved horse racing and lotteries), approximately half of the total online wagering comes from inside the United States.

Despite its popularity, even those who support gambling are reticent to admit it and many recognize its addictive powers. Less than five percent of Americans admit to gambling online, while 70 percent of Americans say that legalized gambling encourages people to spend money they don’t have, according to Pew Research.

Since no online bettors have been prosecuted, individuals log on without fear for all-night poker games, and some confident folks have even quit their day jobs to earn their living betting.

While online gambling may become a $25 billion annual industry by the end of the decade, legislative changes and more vigorous enforcement could prompt many U.S. gambling marketers to fold. However, some legal experts claim that online gambling will not end unless U.S. authorities prosecute every one of the 50 million Americans who bet online every year.

Sports Booked

In July, the “handcuff-click heard ’round the world” took place at a Dallas airport, where BetOnSports CEO David Carruthers was arrested following an indictment for racketeering, conspiracy, fraud and violation of the federal Wire Act. Carruthers, whose company was headquartered in Costa Rica, was charged along with BetOnSports founder Gary David Kaplan and four alleged co-conspirators who worked for U.S.-based DME Global Marketing and Fulfillment. BetOnSports later closed its Costa Rican office.

The arrest forced many companies who participate in online gaming to shuffle their strategy as they awaited trial, and to see if indictments against other organizations would follow. Proprietors of online gaming sites stopped traveling to the U.S., and a much-anticipated gaming conference in Las Vegas was scaled back.

Seven weeks later, law enforcement agents in New York arrested Peter Dicks, chairman of Sportingbet, which offers online sports betting and is traded on the London Stock Exchange. Sportingbet is one of the largest online gambling operators in the world with revenue of $193 million, for the year ended in July, with two-thirds of that coming from the United States, according to the company. Agents of the Port Authority of New York and New Jersey arrested Dicks upon his arrival at Kennedy Airport, acting on a warrant issued by the state police in Louisiana. The arrest was the first time that officials at the state level had adopted similar tactics and pursued charges against a director of a publicly held Internet gambling company.

“The best advice is to stay away from [online gambling],” says attorney Linda Goodman, founder of the Goodman Law Firm, a practice focusing on Internet compliance. Goodman, who primarily represents affiliates and advertising agencies, says this first-time indictment of a marketing company that promotes online gambling opens the door for other affiliate and ad networks to be prosecuted. “If you pick up one of those [gambling] clients on your network, they can charge you with conspiracy.”

Marketers minimally need to include language on their websites stating that advertisements are not intended for American audiences, according to Goodman. Gambling websites should not accept payments if the customer who attempts to set up an account lives in the U.S., she says.

Goodman believes the federal government is more actively pursuing online gambling agencies because the potential pot for taxation is getting sweeter. “Billions of tax dollars are going out the door,” she says.

Online bettors who live outside of the state of Washington probably need not fear as law enforcement’s limited resources prevent targeting individuals, according to Goodman. The Washington legislature passed a law in June of 2006 that upgraded the penalty for running a gambling site from a gross misdemeanor to a felony, and provides gross misdemeanor and felony penalties for betting online in the state.

Patrick Smyth, the president of Gaming Transactions, Inc. and CEO of Keno.com, says that marketers and online gambling companies can operate without fear if they follow one rule. “As long as you don’t take phone bets, you are fine,” says Smyth, whose wife Kate Kozak worked as brand director at BetOnSports (Kozak has not been charged).

Smyth says the Department of Justice only pursued BetOnSports because founder Gary Kaplan was alleged to have run a sports book in New York before heading to Costa Rica.

Because gambling is illegal in the U.S., many of the proprietors who accept wagers from the United States are headquartered in Costa Rica or Antigua and may have offices in Canada, as is the case with Smyth’s company. “I pay taxes in Britain, but I should be paying taxes in the United States, which is where my customers are,” says Smyth.

The BetOnSports indictment accelerated a change in the marketing of online gaming sites, according to Smyth. To help its partners avoid prosecution for promoting illegal gambling, online wager sites have created fun-only gambling sites with “.net” web addresses to supplement their existing .com gambling sites. The .net sites don’t outwardly promote online gambling, but once registered, participants will be asked if they would like to open an account on their pay-for-play sites, Smyth says.

Hedging Bets

The creation of .net sites provides a defense that has yet to be tested in court. Online casinos and poker sites are transitioning to promoting either just their .net sites, or promoting only the brand name, such as is the case with Bodog and PartyPoker, which operate both .net and .com sites.

Despite the potential revenue, the large networks have historically shunned online gaming, prompting the formation of gambling-specific networks. “We do not have any gambling sites within our affiliate network, nor do we allow any affiliates to link to gambling sites,” says Kristin Hall, product marketing director at Performics.

Gambling networks such as CyberSuccess Group, CasinoBlasters and MainStreet Affiliates have been happy to pick up the slack and offer generous commission programs. For example, PartyPartners.com offers signing bonuses of $75 for each new account opened, or a revenue share of 25 percent or more of gambling losses.

Christopher Shawn, vice president of business development at CyberSuccessGroup, says very few affiliates have closed because of the indictments. “Affiliates, however, have expressed concerns about sending traffic to sports books that accept telephone wagers, as this could be a violation of the United States Wire Act, which is directly related to the BetOnSPORTS Indictments.”

In addition to the potential legal penalties, affiliates could also earn nothing if the gamblers they refer win. Dave Johnson, CEO of WagerWeb.com, says his company pays commissions once a week, and any losses by the gambling sites are carried over until customers lose.

Johnson, who has been operating WagerWeb from Costa Rica for seven years, launched an affiliate network that now boasts 1,500 members. Some of his affiliates who reside in the United States told him they were nervous about continuing operations during the new climate of prosecution, but he argues that the risk of prosecution has not really changed. “The potential [of being indicted] isn’t greater now than seven years ago, there is just more exposure,” he says.

Each state has its own rules about online gambling that marketers should be aware of, Johnson says. If an affiliate were torn about the risks, he “would recommend that they go another way.”

Marketing companies are also distancing themselves from online gambling activities. Mike Shopmaker, CEO of Virtumundo, Inc., says his Overland Park, Kansas, company draws the line at gambling sites that require customers to provide credit card numbers to play. Companies such as Virtumundo client GoldenArchCasino.net, a Cyprus-based gaming site, that offer both pay-for and free gaming, are acceptable, but Virtumundo only “occasionally” markets for gaming companies.

Crapshoot

A new law that makes it illegal for financial institutions to process transactions for customers of Internet gambling sites may reduce the amount of virtual wagering. Congress surprisingly passed the Unlawful Internet Gambling Enforcement Act as part of unrelated legislation during an early hour session, and President Bush signed it into law a few days later.

While most U.S.-based banks and payment processing companies such as PayPal have not been accepting payments to gambling sites from domestic customers, the new law all but guarantees they will stay away.

In the wake of the new law, Sportingbet sold its U.S. operations for $1, and electronic transaction processing company FirePay, which along with Neteller transferred U.S. payments to many online gambling companies, said it would no longer send funds from U.S. customers.

However, Goodman says lobbyists for the online gaming industry could ensure that more restrictive laws are not enacted and may eventually use their influence to erode the current laws. The gaming industry could ask for legislation with more exemptions or challenge the existing laws in court. Also, a desire to tap in to the billions of dollars of potential tax revenue from online gambling could prompt the federal government to change its policies.

Gambling expert Eadington says U.S. lawmakers’ stance on Internet gambling will be increasingly hard to maintain. The exceptions in the law that have been “carved out” for betting on horses and pay-to-play fantasy sports leagues, as well as interest from state lotteries in accepting bets online, have opened the door for more exceptions that would ultimately doom online gambling prohibition, he says. Consumers who support gambling and don’t have a voice in the political process could also become more vocal in opposing new laws, according to Eadington.

Online gambling is growing internationally as nations including the United Kingdom, Sweden and Italy are regulating and taxing the leisure activity, Eadington says, making the current U.S. laws politically untenable. “Can the United States continue its prohibition strategy when the rest of the world is moving in another direction?”

A complaint started by a tiny nation in the World Trade Organization (WTO) could ultimately result in the United States reconsidering its position on Internet gambling. American Jay Cohen was operating an online gambling site on Antigua and Barbuda, a Caribbean nation of two islands, when he was convicted in 2001 of violating U.S. gambling laws.

Antigua complained to the WTO that the United States was violating a trade principle known as “national treatment” that requires foreign companies are treated the same as domestic organizations. Since it was legal for U.S. companies to accept online wagers for horse racing, Antigua argued that gambling websites there should also be allowed to take bets. Antigua has been victorious in nearly all aspects of their complaint through several levels of appeal.

However, the WTO lacks the authority to force governments to comply with its ruling, according to attorney Goodman, so the United States could continue to prosecute foreign gambling organizations. But Antigua is likely to ask the WTO for permission to ignore U.S. copyright laws as a penalty for its noncompliance. If the WTO grants the action, Antigua could begin selling movie DVDs and music CDs internationally, that are produced in the United States, which Goodman says could result in the entertainment industry using its extensive influence to persuade Congress to legalize online gambling.

Wagering On Mobile

The next innovation in gambling will be play-by-play gambling from mobile devices, according to Gaming Transactions’ Smyth. Companies such as LiveHive Systems are creating services that enable bets on each play, such as whether a golfer will successfully sink a putt, from mobile phones or handheld computers.

Also, if China legalizes online gambling, the demand for online gambling will skyrocket, says Smyth. “There is still so much room for growth.”

Whether or not online gambling is made legal in the United States, the industry will continue to expand, according to Smyth. If American affiliates and marketers no longer support the industry for fear of prosecution, international organizations will happily take their place.

Disclosure: Revenue magazine accepts a very limited number of advertisements from online casinos in each bimonthly issue and only if those advertisers are promoting an affiliate program and not actual gaming enterprises.

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

Taking A Stand: Q & A with Brian Littleton

ShareASale is an affiliate network that has taken a hard stance on spyware, adware and parasite-ware by not allowing any downloadable applications into its network. That business model has won legions of affiliate supporters. ShareASale is growing, and is still considered the smaller, nimbler, more fun network – throwing memorable parties and playing host for standout social events. The company’s founder, president and CEO, Brian Littleton, is committed to affiliate marketing and creating a successful business by building strong relationships and sticking to his beliefs. He recently won AffiliateFairPlay.com’s first-ever Fair Practice Award (see Revenue September/October, page 18). Meanwhile, he, and everyone around him, is having lots of fun making it happen.

Lisa Picarille:What made you decide not to allow downloads or applications within your network?

Brian Littleton: Several years ago when the issue first came up to us, we took a look at how some of the software download applications worked – and it was obvious to me that they didn’t belong in any affiliate channel that I had any control over. As an affiliate network, our main job is to track a consumer from the point of a “click” to the point of a “sale” and commission the referring affiliate. Based on our testing, it’s impossible to accurately track this and commission the proper affiliate if there is a download or application in effect. Further, we witnessed some extremely disturbing distribution methods and behavior from some of the players in that market. Thus, to ensure that ShareASale is not party to any practices that contradict our values, we do not allow any downloads or applications within the network.

It is my opinion that these downloadable applications, most of which involve customer loyalty of some kind, should be a completely separate channel from the affiliate channel, one that is tracked and commissioned differently. They perform an entirely different service than that of an affiliate – and actually remind me more of the type of action such as using my “Reward Miles” credit card for a purchase as opposed to a “sales generating” affiliate. I love consumers, but it has never been my understanding that a consumer has the right to dictate where a commission on a sale should go. That doesn’t make sense to me. A lot of times, loyalty applications and affiliates could actually help each other out if they were properly channeled, but that may take time for affiliates to welcome back into the clickstream a party which has, in the past, taken money out of their pocket.

LP: What are the pluses and minuses to that business stance?

BL: The only minus is the occasional client who wishes to work with an affiliate who we do not work with. In those cases, we try to convince the client why partnering with a download or application is disadvantageous to their affiliate strategy. If that doesn’t work, we guide the merchant to another network. We don’t really see a financial downside to that, because our ultimate goal is to be a sustainable and long-term “sales focused” network. Also, it’s our view that the loyalty channel, which is essentially what most of the download applications are, does not belong in the affiliate channel. The affiliate channel should be focused on bringing in new customers, new businesses. Affiliates are able to extend beyond the brand and seek out different demographics. The purpose of a loyalty marketer is to drive consumer loyalty; it’s a different goal.

LP: Is there any other type of business/entity that ShareASale doesn’t work with; religious groups, sex sites, etc.?

BL: We review each and every application into the ShareASale Network – and have done so for as long as we’ve been in business. While I don’t want it to be our job to prejudge anyone’s ability to become a successful affiliate, it is important to me that we keep a certain level of quality in the affiliate applications. To that end, we screen for things such as adult content, hate groups, etc. More important to us than the actual site content is being able to verify an affiliate’s contact information as well as their ownership of the site that they have applied with. Because of the effort we put into this process, I feel we offer a great value to merchants in taking as much time as we do to verify affiliate information. Beyond that, we believe in every affiliate’s right to “start small,” and tend to err on the side of the affiliate in deciding if their site should be accepted for content reasons.

LP: You seem pretty tight with the ABW crowd. How has that relationship impacted your business?

BL: The ABestWeb community is a great friend to ShareASale, and I hope to continue to participate there as long as they will have me. I don’t have any explanation as to why our network has become popular there except to tell you that I think it is because we make a dedicated effort to take every request seriously without regard for whether an affiliate generates $5,000 per month or $5. Every business has “big” clients that are important, and obviously we have some relationships that garner more of our attention at times; however, one of our greatest assets is the collaborative expertise of all affiliates and merchants in this industry who are willing to give us advice on each issue we come across – and I’m always grateful for the advice that they have given me over the years.

LP: People cite ShareASale as the fourth-largest affiliate network. Do you aspire to be among the “big three”?

BL: I aspire to put together the best product that I can for the market that we serve. If you take a close look at the individual networks that are out there, I think you will find that each has strengths within its individual market that makes it as successful as it is. For us, we started out with the hopes that we could provide a solid technology platform and a network of quality affiliates to a market that was being mostly ignored by most networks. We wanted to provide an alternative, mostly for small to mid-size companies, who didn’t feel like their needs were being addressed, and to that end we’ve been fairly successful. Our goal isn’t necessarily to become one of the “big three” but just simply to continue improving both our technology tools and network of affiliates. There are distinct markets within which we compete very well, and within those markets we want to be not only the best solution available but also a solution that our customers are happy with.

LP: Do you any feel pressure to expand?

BL: I founded ShareASale in the year 2000, and have been able to launch and run the company without the assistance of outside capital. A close friend of mine in this business, and I, often discuss the pluses and minuses of being “independent” and I can tell you that I don’t feel any pressure to expand outside of what I feel we do best. We’ve added people nearly every year, but we do so within the realm of what we need. Expanding a business isn’t an important goal of mine. Doing what we do, and doing it well, is important to me.

LP: How many merchants are in your network?

BL: At the time I am writing this there are 2,071 merchant offers in the network. That does include some merchants who may have multiple offers so the true number of merchants is a little lower than that. Of the 2,071, there are 1,866 who are participating as “pay per sale” merchants – which is our focus. Pay per sale could indicate a revenue share, such as a percentage of a sale, as well as a flat dollar amount.

LP: How many affiliates?

BL: While we do discuss some numbers with merchants who call to ask, I try to avoid discussing the size of the network mostly because I think concentrating on the numbers isn’t a very good way to describe to a new merchant how affiliate marketing works. It is my personal feeling that merchants are mostly responsible for their own success whether they participate in ShareASale or any other network. Using a number like “100,000 affiliates in the network,” for example, is misleading to a prospective merchant because there is really zero likelihood that all 100,000 would ever become sales-generating affiliates in their program. For some merchants, one or two affiliates can make a successful program, and for others, it is 1,000 or 2,000. … ShareASale has been a successful platform for both of those types of merchants.

LP: Would you consider a merger or acquisition to grow the company?

BL: As a businessman, the potential for mergers/acquisitions is always a discussion that I would be open to. It isn’t, however, our main focus. We want to finish our own goals in putting together the best technology that we can, coupled with a quality network that merchants can grow with. I feel like there are large opportunities for growth even without considering the possibilities of M&As.

LP: Performics and Zanox are both based in Chicago, like ShareASale, and Zanox would give you a presence abroad. Would you consider teaming up with another company to expand your business?

BL: I’ve been lucky enough to meet with the folks both at Performics and Zanox, as well as LinkShare, who also have offices in the Chicago area. We’ve got quite a good group of affiliate marketers in Chicago including several merchants and affiliates. It should probably be renamed “Affiliate Row” as there are about five companies specifically concentrating on affiliate marketing within a five-block radius or so in this part of Chicago.

LP: Are there any plans to expand into other geographic areas?

BL: Geographically, I can’t say that we do – but in terms of markets we are hoping to have a full Spanish-language site available soon so that we are able to move into markets that otherwise would not be open to us.

LP: So, it’s a Hispanic version of ShareASale? When is that happening and what prompted that move?

BL: In my opinion, just taking the United States as an example, Spanish-language populations are and will continue to be important avenues for economic growth. It is one of my personal goals to learn Spanish myself – as well as a goal of this business to be able to provide a product for that market.

LP: What are the biggest challenges facing ShareASale over the next year?

BL: Growth puts a huge strain on resources both technological and human. Over the next year we expect to continue on a fairly high growth curve and thus will be faced with continual challenges to remain ahead of the curve. Things such as database design, fault management and even something as simple as timely payments can be affected purely by the scale of their scope – so we’ll be quite busy just tackling those challenges. Affiliate marketing itself is also becoming more challenging for merchants, and ShareASale will be providing tools to merchants to counter those challenges. Take, for example, the collision between the “affiliate channel” and the “loyalty channel”; we will need to provide better tools to merchants so that they can separate, track and commission these two channels differently without conflict, so that the two channels can be complementary and help each other grow. There are countless examples just like that one, where a technology provider has opportunity for innovation and we will be working on each one.

LP: What are the goals for the company over the next year or two?

BL: As has always been our goal, we want to put together the best product we can. Our affiliates tell us that they want more and more brand name merchants, so we are working on that. Our merchants tell us they want better reporting tools and methods for multi-commissioning a sale, and we are working on that. In our particular industry, I haven’t found it to be too effective in laying out goals too far in advance, due to the ever-changing landscape. Being a relatively small company, we have used to our advantage our ability to be flexible – and customize our solutions for merchants and affiliates as they need them. That is probably one of our biggest advantages; actually, as we get a lot of feedback from clients who tell us we were the “only one who would do what we needed,” etc.

LP:Why did you put together Think Tank? What are you looking to accomplish at this event?

BL: The ShareASale Think Tank is an event that we are putting together for November 4, 2006, at the Wynn Las Vegas – despite various unofficial events, parties and get-togethers. … This will be our first organized event including both sessions and social activities. Our goal is pretty simple: We want to bring a select group of ShareASale merchants to the Think Tank and allow them the opportunity of “pitching” their program in front of some of the best and brightest affiliates in the industry. Affiliates in attendance will be able to critique individual offerings, brainstorm new ideas on conversion/creatives/etc., all leading to an improved program for the merchant as well as a new personal relationship with those affiliates in attendance.

Of course, true to ShareASale, there will be social events to keep everyone from feeling like they are at a conference. If things all go well we are hoping to put on a Think Tank event every six months or so with different focuses to encompass all of the diversity that is an affiliate network.

LP: Tell me what you consider to be ShareASale’s greatest differentiator in this marketplace.

BL: To me, it is simply the willingness to work with our two greatest assets: merchants and affiliates. Affiliate marketing technology isn’t something that you can create and put into a box to sell off the shelf. Each new merchant who comes on board has the opportunity to work with us directly to make sure that they are getting exactly what they need in terms of specific reporting, creatives or even payment setup. Affiliates are treated the same way if they have specific needs that we are able to accommodate. Our ability to be flexible has allowed us to not only win client contracts in areas of competition, but also strengthen existing relationships. Especially with merchants, it has been really helpful for some of them to be able to deal directly with me on certain issues such as customized technology and contracts. We also have been able to continue to provide a level of support to our clients that has remained high despite the increased growth in number of merchants and affiliates – and this is something that is important to us going forward as well. Everyone at ShareASale pitches in and helps us where we need help on a given day; it isn’t unusual.

Leading the Way

Online lead generation gets no respect. Online lead generation affiliates less so. While the sector is growing by leaps and bounds – 290 percent over 2005, according to the Internet Advertising Bureau – people like Peter Martin and Robert Jewell just seem to drag its reputation through the mud. These guys had the honor of being sued by New York State Attorney General Eliot Spitzer in March for selling the private details of up to 7 million customers to marketers when they said they wouldn’t. Spitzer called it the “largest deliberate breach of privacy in Internet history.”

“There are people that don’t do things on the up and up,” Dan Felter, chairman of the recently formed Online Lead Generation Association (OLGA), says. “Online lead generation, when done properly, can be done well,” says Felter, who is also CEO of Opt-Intelligence, a lead generation firm.

High-profile busts like Spitzer’s only give a black eye to an industry trying to police itself and keep undue regulation at the door. Last year the online lead generation machine brought in $753 million, according to the Internet Advertising Bureau (IAB), which predicts over $1 billion for the lead gen space in 2006.

Revenue for online lead gen made a healthy gain to reach 6 percent of all Internet advertising spending during the first half of 2005, according to the IAB. That’s $347 million. Go back to 2002 and it was only 2 percent of Internet advertising spending in the first half of that year, or $114 million. But that is a year-to-year increase of 204 percent, IAB figures show.

DEFINING THE SPACE

Just the phrase “lead generation” also means different things depending on who you’re talking to.

When an advertiser needs new potential customers to sell to, one method of getting names and ways to contact these people is to buy a list. This list of people is called the leads. Generally these people have already expressed an interest in the product – be it iPods, real estate, cars, mortgages or other retail goods – and have agreed to be contacted by the advertiser. This is also known as permission-based marketing and in some cases it is called co-registration.

The most popular online lead gen technique is the “opt in.” This is where a customer registers online to join a free newsletter or newspaper or social network and sees a page where he can request to receive additional newsletters or marketing from third-party companies. Generally, you check a box to say it’s okay. Interaction with that page is sometimes required to complete your registration.

Some companies also practice “double opt in,” where you check a box but also must follow a link in an email as a way to confirm your email address but also, in essence, asking you twice that you really meant to opt in. Popular opt-in trends include an effort not to ruin your surfing experience by serving you multiple pages of opt-in options and by allowing you to bypass offer pages.

Suspect practices that used to be commonplace but are now considered intolerable are “opt out,” where you are automatically signed up for other offers and you must uncheck the boxes to refuse; pages where offers outweigh content; offers of free products for forwarding the offer to others; free offers that still involve a fee; offers that require the downloading of adware or spyware; and, of course, offers that do not explicitly say they will not sell or give your private information to other advertisers.

Since there is a commission for every lead generated, it becomes attractive to enter a pay-per-lead or pay-per-sale contract with an advertiser. And with that model being very much like the affiliate marketing model, affiliates have flocked to lead gen. The flood of lead gen affiliates in the online world – like anything – breeds bad eggs and good.

POLICING LEAD GEN

Enter OLGA. Chairman Felter helped start the trade group when he realized what a stench surrounded the word co-registration, or co-reg. When describing what his company, Opt-Intelligence, does he tries to avoid the word co-reg. “If you could see the people’s faces at conferences when they finally got what I did,” he recalls.

OLGA currently has more than 25 lead gen companies as members and considers its mission to define best practices and champion transparency in the industry. Felter boasts that lead gen could become “almost as valuable as search.” However, he adds, “barriers to enter the market are pretty low.” Hence, the surge in online lead gen affiliates operating in a sometimes-ethical vacuum. “It’s the cutting corners that give lead gen affiliates a bad name.”

Felter says, early on, when opt-out was more common ,”advertisers all got burned by co-reg.”

The offers would end up on disreputable sites – such as porn – and the advertiser would essentially receive a “data dump”: raw lead information with no indication if the leads were from opt-in or opt-out and no way to measure the quality of the lead. That’s why Felter hates using the word co-reg, but also why the industry is poised to explode as burned advertisers come back to the well.

And as they return, now is the opportunity to prove that this time around advertisers, publishers and lead gen companies can all get along and share the wealth. “There is something called common sense,” Shai Pritz, CEO of Unique Leads, says. “If somebody is doing shortcuts, it will come back to bite them.”

Jim Vines, CEO of LeaderMarkets.com, agrees that it isn’t really very hard to figure out when someone on your network is doing wrong. “Having been an affiliate myself, I know the way traffic should look.” He claims to know when something doesn’t look right. Usually it is too many leads over a short period of time coming from a single affiliate. Vines says he goes the extra yard by talking to all their affiliates on the phone before sending any offers. “I have to personally see if they know what they are talking about before I send them anything.”

It might stand to reason that an industry that requires so much policing is inherently ineffective. “There is nothing wrong with the tool but how you use the tool,” Vines says. He adds that policing just comes with the territory. At least to Vines, the fun of it all is the personalization. “Leads are just the icing on the cake,” he says. “Whenever an affiliate calls, we know them. Our job is to help our affiliates find the campaign that is working the best for them. We can help them figure out what list is best for them.”

GOOD LEADS

Matt Hill, CEO of eForce Media, says they apply technology and science to matching leads to clients. Others, he says, create leads by traffic driving – but so many requests go unanswered because there is no matching. A guy looking for a mortgage deal ends up getting a thousand calls by mortgage brokers, Hill says. Or leads come but no calls are made because the company can only afford to buy so many leads per day. “Most companies in this space only sell about 50 or 60 percent of their inventory,” he says, “so it doesn’t matter if leads fall on the floor.”

Pritz at Unique Leads also aims high, which is why he runs a closed network. “The affiliate managers will say what offers they want and we create the links for them,” he says. “The control is better that way. There are human beings involved; we do what we can to make sure the system works.” Unique Leads likes to see website screenshots and have an understanding of UI experience of each site they sign and they always make the users sign privacy policy forms.

“Like every industry on the Internet there are black hats and white hats,” says Hill. “It’s a business that’s been around longer than the Internet. But since the Internet, it is becoming more sophisticated.” He says his lead gen company’s mission is to find the most perfect match between leads and clients. He says there are still some big companies who do opt-out co-reg because the volume they get is so big it cannot be ignored – but in the end, he says, “those companies will weed themselves out.”

“Some websites say, if I throw a few opt-outs on my page I make 20 cents more,” says Felter, adding that the websites figure a few opt-outs won’t be noticed. And some companies will turn a blind eye to it all because the sheer numbers of leads (regardless of their quality) are meeting their quotas.

Chris Jeffers does B2B lead generation as CEO of netFactor and says that his buyer is a marketing executive. “They are frustrated because less than 2 percent are converting and completing online registration,” he says. “This is critical for sales – sales says, ‘give me quality’ but marketing is rewarded for providing tonnage.” This means sales and marketing are effectively operating against each other. Quality leads can help close the gap.

GUIDELINES AND BEST PRACTICES

That is another aim of OLGA: to define the best practices for the whole industry. The founding members of OLGA include Felter; Stephan Pretorius of Acceleration eMarketing; president of Feedster, Chris Redlitz; and Kitt Collier Odukoya, director of marketing at EarthLink. Member companies include Active Response Group, CoReg Media, eForce Media, Flatiron Media, Innovation Ads, LeadVerifier, MediaWhiz, Monster Worldwide, ON24, SendTec, Unique Leads and WiseClick Media.

Initial guidelines that OLGA endorses include that advertisers always know where their offer is being placed; that advertisers clarify that they are buying an opt-in only; that the leads did not come from offers “forced” onto customers via opt-out or opting in as a requirement of registration; that it is easy for customers to bypass all offers if they prefer; that the registration process in general is about the content and not all about signing up for offers; that an auto-respond email include opt-out and unsubscribe links; and that it is always clear what exactly the customer is signing up for.

If trade associations and policing succeed there is no doubt the industry will grow even more than it has already, provided there are no more high-profile debacles that could trigger a call for federal regulation. No one wants that. “We need to keep rules flexible so that people can operate their businesses,” says Sujay Jhaveri, CEO of Flatiron Media. He says “pro-business people in the business world” will take care of tempering regulation. He notes that the CAN-spam legislation passed in California was much stricter than a version that went federal. Testing the limits of regulation will probably continue. “You are dealing with a marketplace that is very profitable,” Jhaveri adds. “Online multilevel marketing will mimic off-line eventually.”

Other events to look forward to in online lead generation will be consolidation. Hill of eForce says there are many lead gen companies that have maybe 10 employees who are operating in niche areas that are ripe for acquisition. In fact, eForce just completed funding for that very purpose, he says: to add companies’ expertise to what they do. And, he adds, the transitions are very easy since the employee counts are so low; you see an immediate profit increase by applying the traffic you acquired.

Vines of Leader Markets says being a former lead gen affiliate helped him be a better president of a lead gen network; that is, he wants to remain small. “Some affiliates can do six figures of traffic per month,” he says. “They don’t want to feel like they have come to a cattle call.” That’s why he wants to keep it personal with his network. “I’m not looking to become the next CJ or LinkShare,” adding that while the challenges are many, so are the rewards. “If someone is gun-shy, they probably shouldn’t be in it,” he says.

OLGA’s Felter says the key terms are transparency and awareness. “You’ve got to watch your metrics. What are you getting and is it valuable?”