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?”

Anne Fognano: The Mother Lode

The old adage that necessity is the mother of invention is certainly true when it comes to this mother.

More than a decade ago Anne Fognano, then a new mom, needed a way to earn additional income while being able to work from home.

She had just completed her master’s degree in clinical psychology when her son Austen was a year old. And while it was her dream to be a therapist working with children, she also loved being a mom and wanted to be home with her kids.

However, she was also used to engaging her mind and needed to keep busy. She was a Prodigy user, and paying for dial-up service she surfed the Web looking for parenting sites and family-oriented Web pages, but found little that was interesting or useful to her. Being an extremely curious person, Fognano began opening up the source code to some of those sites and then taught herself some HTML.

In 1997 she started a website for Beanie Baby collectors after being appalled by the scalping that surrounded the hot collectibles. Although not a massive collector, she just thought Beanie Babies were cute, and was irate about people taking advantage of kids by doing unsavory things like tracking the shipments to Hallmark stores or tracking UPS shipments and stealing them.

She also admits that she had a lot of time on her hands and no specific focus or mission. Her site FunkyMommys.com was designed as a trading board for moms and kids to swap Beanies without fear of being ripped off. At the height of the Beanie Babies craze, the site had more than 2,000 members but Ty, the maker of Beanie Babies, began to enforce its trademark in cyberspace and sent cease and desist letters to those using the word “beanie” and even “beans.”

Although Fognano at the time thought that she could have fought Ty (her message board was called Bouncing Beanie Board), she didn’t have the time or money for a protracted legal battle with a big company. She also could have just changed the name of her board; instead, she pulled down the site and contemplated her next move.

THE COUPON CRAZE

By now it was 1997 and Fognano still had a mortgage to pay and two young children to care for at home. So, she decided to put up an online resale shop for moms. She settled on a doll-house theme (see image) and then spent $2,000 to have an artist and programmer create the site. Fognano was very pleased with the way it turned out and thought the site was beautiful. Moms could post ads and pay her 25 cents for each one. Things were going pretty well. The site was getting some decent traffic and Fognano was adding even more content including coupons from an early dot-com drugstore (PlanetRX.com). The popularity of the coupon portion of the site led her to add a coupon box in the lower right corner of the page. Soon she noticed that 98 percent of her traffic was clicking directly on the coupon box.

But instead of being delighted, Fognano was devastated that she had worked so hard and spent so much money to create this site she loved but people were only interested in the coupons. After she emerged from her funk, she signed up with two of the first merchants to have affiliate programs – Amazon and Barnes & Noble – and she decided that she needed to dump her beloved doll-house theme and concentrate on the coupons.

Currently, Fognano has three very successful coupons sites – CleverMoms.com, CleverDads.com (manly things), CleverBabies (baby and toddler items through 5 years old). She is a super affiliate and works with Commission Junction, Linkshare and Performics. She has one employee. Previously, she had two – one full time and one part time. But earlier this fall, she discovered that she could handle some of the load herself as both of her kids went off to school for the first time.

Fognano had been home-schooling her children because each of them had unique learning issues. Her daughter had a language impairment and Fognano battled the school for years. It now has a program and Haille, who is now 9 years old, can attend classes full time. For the last year a teacher had been coming to the Fognano’s home to help. Her son Austen, now 11, is a very gifted student and there was no advanced placement class for his grade. So, Fognano home-schooled him until the third grade.

THE MOTHERING INSTINCT

“I’m one of those mothers that want things to be perfect for my kids,” she says. “I took care of them when the school wasn’t.”

She likes to take care of people. Fognano’s two employees were both stay-at- home moms that she has never met in person or even talked to on the phone, despite that the one in Portage, Wisconsin, has worked for Fognano for four years and the one in Syracuse, New York, had worked for her for one year.

While she admits it was slightly odd to be paying people to work for her that she’d never met, she says it was a great arrangement. Both of the moms were previously loyal visitors to her site and began sending Fognano deals – sales and coupons – and she decided that she should start paying them for their efforts.

Although Fognano has been an affiliate for almost a decade, 2006 has been a year of changes for her and her business. Sending her kids off to school meant more time to attend conferences, shows and events – something she never had time for previously.

Earlier this year she attended a conference in Dallas for women in business (EWomen Network in June). She referred to the event as “one big Oprah show,” but she heard some great speakers and took home some sage advice. Top of the list was learning to delegate.

While she still admits to having this kind of “do everything yourself” attitude, she realizes that is a vicious cycle since there is always something to be done, which means she would never stop working. She said it was amazing this summer when she felt comfortable enough to delegate responsibilities to her employees and take some time off for the Affiliate Summit in Orlando.

In the past she says she would have been in her hotel room updating her site or running from Disney World back to the hotel to check on things. This time it was a relief to know that someone else could handle all the duties. That freedom meant that she was able to have quality face-to-face contact with her peers – many of whom she’s developed longstanding email or instant message relationships with over the years.

And she’s working less as well, dropping down from about 10 hours per day, which was previously just early in the morning and then again late at night – to about four hours a day. But in that shorter workday she’s focusing on more strategic issues such as branding her site and trying to get media coverage to educate users on how to use online coupons and where to get those savings and promotional codes.

“Many customers really have no idea about online coupons. It’s astounding to me. There is a lot of work to be done to get discounts,” she says, adding that she never shops online unless there is a coupon. “It’s an annoying thing if you know someone is getting a discount and you aren’t. If I see a promotional coupon box and then can’t find a coupon, then I won’t shop there.”

The new schedule is also allowing for many things that have been neglected for years, according to Fognano, such as her daily exercise routine, things she enjoys like sewing and scrapbooking, and nine years of photos in shoe-boxes that need to be organized into albums.

In addition, she’d also like to do some writing about online shopping – maybe for business and consumer magazines. And while her experiences and success story would be good fodder for a how-to book on affiliate marketing, she says that route doesn’t immediately appeal to her.

MEASURING SUCCESS

“There are too many different factors associated with being successful in affiliate marketing. It’s all about being in the right place at the right time,” she says, recalling that when she began there were only a handful of coupon competitors. “You could count them on one hand.”

She claims that most of her visitors are type-in traffic and that she doesn’t get a lot of eyeballs from the search engines. But once people get to your site, you’ve got to give them a reason to come back. Her writing helps in that department.

She already has an email newsletter that she sends out every Thursday to her large base of subscribers. She often writes stories about her husband and kids and things that are going on in her life. These personal stories are not intended to be a marketing trick but a reason for visitors to come back to her site. She thinks getting personal has helped others identify with her on a deeper level and created loyalty.

“It’s just me being me,” she says. “About 70 percent of the time, I try to be funny and mostly I succeed. People are always writing to me to let me know they could really relate to what I was writing about.”

But there are times that she gets some negative comments and feedback on her personal tales, but those are far outweighed by the positive responses she typically receives.

She recalls a story she wrote where she mentioned waking up late one morning and rushing around trying to get the kids ready for school, while her county policeman husband was moving at a snail’s pace. Many people wrote to her saying that she should have never called out her husband in a public forum and “shame on her.” She was shocked at the response.

Regardless, she enjoys the interaction with her customers. “This business is not always about making a buck,” she says. “If I can have something that people look forward to every Thursday, that makes me happy.”

Maybe that’s because she has also far exceeded the goals she originally set for herself when she started out with her doll-house resale site: to make $1,000 a month. Many of her work friends from back then shunned her because she chose the mommy track rather than opting to climb the corporate ladder. Now she makes more money than most of them, although she declined to provide specifics on how much she earns as an affiliate.

“I don’t have to make a specific amount per year. I don’t focus on that. As long as we have our bills paid, then I’m happy with the income the site generates.”

She’s also thrilled to be able to work at home. It’s one of the best things about her job. She says that she’s not exactly the affiliate in her pajamas at the computer, or the affiliate marketer sitting out by the pool, but she’s got a lot of freedom. She can have coffee with a friend whenever she chooses. She can attend a sewing conference. She can have lunch with her husband. She can volunteer at her kids’ schools.

But working at home requires self-discipline. Much of that discipline comes from Fognano’s educational background. She paid her own way through college and graduate school, which took her 12 years since she could only take classes as she could afford them. She used to fly to Vermont for 12 days every six months and the rest of her curriculum was done as independent study. While getting her master’s degree she would drive two hours each way to attend classes. She got straight A’s all through her education because she “couldn’t bear to get a B.”

That discipline, coupled with Fognano’s desire to help people and her love of being a mom, is the driving factor in her success. She also has a strong sense of what’s right for her.

“I could not stick an offer up for a quick buck – like something for a gambling site,” she says. “What if someone got hooked on gaming? I just wouldn’t be able to sleep at night. I make sure to deal with ethical people that are not spammers. I want things to be ethical, honest and up front.”

The bottom line: “I’m just a mom doing this. I thought I’d never be in sales and never in marketing. I’m just a mom who opened a resale shop online hoping to make money and the coupon site is a fluke or should I say, a blessing. I love doing it.”

The title on her business card says it all – Mama in Charge.

Performance Marketing Prognostication

It’s that time of year again when we ask industry movers and shakers to look back at the past 12 months and forward to the next year in performance marketing. Here’s what those in the know have to say.

Looking back, what do you think were among the most significant themes to emerge in 2006 in the performance marketing space?

“There has been a huge shift in traffic sources – with two main groups – the first being PPC, which has been a major source of affiliate traffic in 2006 and has brought with it significant issues such as “Brand Bidding.” The second being blogs, which I believe will be a major driving force in the coming years.”
– Brian Littleton, founder and CEO, ShareASale

“When the situation calls for it, affiliates and affiliate managers can band together and stand their ground on an issue.”
– Scott Hazard, president, Brightside Media

“No truly new themes emerged. We saw click fraud penetrate the consciousness of the mainstream media at the same time there is a growing sense of animosity (possibly jealousy?) towards Google inside and outside our industry. Some merchants are reviewing their trademark bidding terms and looking to accommodate affiliates. Finally, you did see a lot of affiliates publicly say they were moving away from black hat and toward white hat activities.”
– Brook Schaaf, principal, Schaaf Consulting

“The desire to achieve better scale (less overhead, more revenue) drove every major corporate merger as well as CJ’s failed LMI project. It’s what makes Adwords attractive and successful.”
– Jeff Molander, CEO, Molander & Associates

“Just how vibrant and powerful the performance marketing community is. This can be seen in the response to LMI, the upward trend in budgets for performance marketing by advertisers and the growth in publications, events and forums serving the community.”
– John Grosshandler, event director, eComXpo

“The re-emergence of brand as an important part of the marketing equation after years of focus on ROI and search.”
– John Battelle, founder and chairman, Federated Media Publishing

“Google actively trying to squash private-label PPC arbitrage affiliates in the name of ‘better user search experience.'”
– Tim Ash, president, SiteTuners.com

“Cooperation. 2006 displayed greater willingness by merchants, publishers and networks alike to adopt ‘cooperative selling’ strategies.”
– Kurt Lohse, founder and CEO, KeyCode.com

“New trends such as the use of video and advertainment continued to grow in 2006 but pose challenges for strict ROI/CPA advertisers.”
– Joshua Sloan, director of online marketing, 1and1.com

“Search is a bigger part of affiliate marketing than many people thought.”
– David Lewis, president, 77 Blue

“Clearly 2006 will be marked by what some are calling ‘The Affiliate Massacre of 2006’ where Google updated their quality score rankings in Adwords and started placing penalties on affiliate landing pages. In many cases this caused minimum cost-per-click fees to go from 10 cents to $5 or $10 on many keywords. This effectively shut down PPC advertising for many affiliate landing pages. This change is causing many merchant advertisers to rethink their policies for PPC marketing since publishers who were running large-scale campaigns and linking directly to the merchant’s site using the merchant display URL and an affiliate link were largely unaffected by the recent change.”
– Adam Viener, president, imwave.com

“A few years ago, you could quickly tell whether or not an online marketer ‘got’ affiliate marketing by discussing affiliates. Those that ‘got it’ conveyed respect for the affiliates. Those that didn’t, well, they tended to use adjectives like ‘little’ or ‘questionable’ when describing their role in the model. In 2006 the performance marketing community witnessed affiliates asserting their right to be treated respectfully. It is no longer acceptable to be a participant in this space and not get it.”
– Lisa Riolo, online marketing professional

“Affiliates/publishers are in the driver’s seat now, not merchants/advertisers. Affiliates have money, power and traffic and their requirements; business practices and needs dominate the relationship. Merchants need them more than they need merchants who are unable to comply or cooperate with terms. They can deliver the goods; can merchants respond adequately to their demands? If not, NEXT!”
– Linda Woods, president, PartnerCentric

“Behavior targeting seemed to be a popular buzzword but I never heard too many real success stories. Online marketers are actually getting comfortable with the basics and are now casting an eye toward testing and optimization to squeeze out better results.”
– Greg Schraff, director of strategy and business development, Brooks Bell Interactive

What will be the ‘big thing’ that we can expect to happen in 2007 in online marketing?

“A return to the importance of new-traffic- generating affiliate marketers.”
– Brian Littleton, founder and CEO, ShareASale

“Yahoo and Microsoft will debut new products to compete with Google.”
– John Battelle, founder and chairman, Federated Media Publishing

“I expect to see many more super-affiliates stepping up to the plate and saying, look, we need to take responsibility for engaging in upright business practices. You’ll see them become open to educating newcomers in the industry. It won’t be about cutting out your competition, but developing a bigger and more powerful affiliate workforce. And I expect to see managers becoming excited about the possibilities of capturing the loyalty of those affiliates by becoming truly affiliate-friendly.”
– Anik Singal, CEO, Affiliate Classroom

“Performance models such as CPO and CPA are the main driver. Advertisers as well as networks/providers realize that success-based commission models are king and key for success. Globalization is the most important issue. Globalize or die.”
– Holger Kamin, executive account director, Zanox

“There is no doubt in my mind that user-generated content will really start to take fire – especially around video. Still, merchants will have to be innovative to get beyond the sheer volume of media – music, podcasts, pictures and now video in circulation.”
– Wayne Porter, senior director special research, Facetime Security Labs

“User-generated content such as short online videos will proliferate at an even larger scale and pace and show that it can convert as advertisements.”
– Jim Kukral, publisher, ReveNews

“Video ads will continue to grow in popularity as traditional marketing agencies attempt to maintain their grip on ‘their’ industry as they gripe all the way to Congress.”
– Todd Taylor, manager business development, TaxBrain.com

“2007 will bring far more practical offline marketing applications online. It will also signify the beginning of the ‘big shift’ to correct the disproportional ad spend on the traditional mediums.”
– Kurt Lohse, founder and CEO, KeyCode.com

“Social e-commerce will emerge with innovations focusing on peer group favorites and recommendations. The ‘wisdom of crowds’ will begin to drive serious transaction volume in niche markets.”
– Jeff Molander, CEO, Molander & Associates

“Social media marketing strategies that spawn, leverage and influence consumer- generated media are the hot thing at the moment. Companies and affiliates that create environments where their target audiences can gather, share useful information – and don’t overtly interfere with the experience – are those that will be the most successful.”
– Rob Key, founder and CEO, Converseon

“More off-line ad channels (print/radio/ TV) will wake up to the growing importance and measurability of online advertising while more online advertisers will wake up to the branding potential of online marketing despite confusion and difficulties with performance tracking.”
– Joshua Sloan, director of online marketing, 1and1.com

“I think the launch of Microsoft Vista may change the landscape of search marketing and make Microsoft AdCenter more important than it is today. I also think that Yahoo’s Panama project will be a big shift for search marketers. There will be a lot of adjustments as platforms change and traffic starts flowing more towards Microsoft.”
– Adam Viener, president, imwave.com

“The emergence of mobile phone marketing in the U.S. It’s just a matter of time before affiliates worldwide are able to promote affiliate links via digital and print signage. Consumers will then utilize their video-capable mobile phones to transact with merchants.”
– Shawn Collins, president, Shawn Collins Consulting

“I expect Google will continue to morph into other non-search areas. Under this scenario, Google will begin to offer tools that very much resemble an affiliate marketing or CPA network. This will put many traditional affiliate marketers directly in competition with Google for customers. Those non-branded entities relying solely on search will be hurt the most. Such a move is likely to trigger a rash of online mergers and acquisitions as big names and even traditional brands circumvent the search engines and buy their way into bigger pieces of the pie.”
– Mike Allen, president and chief executive shopper, Shopping-Bargains.com

“Technological innovation will become even more important in 2007. Between the growth in online video, broadband adoption and new tools for contextual advertising, behavioral marketing and detecting fraud, the gulf between those who leverage the newest trends and tools and those who rely on yesterday’s approaches will widen.”
– John Grosshandler, event director, eComXpo

“Video, video and more video.”
– Matt Ranta, affiliate manager, Vanns.com

“Continued decline in the effectiveness of current search engine optimization methods. Traffic building through social networking media will continue in effectiveness and popularity throughout 2007.”
– Rosalind Gardner, super-affiliate and author

What are the major challenges in the performance marketing space moving forward?

“Still getting online marketers beyond just keeping their heads above water, for example, just running the actual marketing< campaigns so that they have the bandwidth to concentrate on performance factors and tactics they can employ to improve performance.”
– Greg Schraff, director of strategy and business development,
Brooks Bell Interactive

“Volume. How to sift through the masses to identify the diamonds in the rough, whether they are advertisers, affiliates or partners. Emails and newsletters no longer get through, and when they do, are seldom read.”
– John Grosshandler, event director, eComXpo

“Effectively and ethically integrating the use of video ads into affiliate marketing.”
– Matt Ranta, affiliate manager, Vanns.com

“Keeping up with the speed of innovation on the Internet!”
– Linda Woods, president, PartnerCentric

“Globalization and multichannel approach to reach each and every possible market on this globe.”
– Holger Kamin, executive account director, Zanox

“It boils down to an emphasis on quality and restraint and the need to mature beyond the ‘growth at all costs’ mentality as well as adjusting merchants’ expectations and teaching them to think long term so that system pollution doesn’t kill the environment in which we all do commerce, operate and converse.”
– Wayne Porter, senior director special research, Facetime Security Labs

“Consolidation and intense competition due to a changing marketplace where search engines no longer do only search. With shareholder pressures on the ‘big 3’ engines to continually grow revenues at nontraditional paces, there will be new efforts to go after non-search money wherever it can be found.”
– Mike Allen, president and chief executive shopper, Shopping-Bargains.com

“The need for improved accountability. It’s all well and good for affiliates to have considerable discretion to find novel and creative ways to promote merchants’ offers. Indeed, that independence is the essence of affiliate marketing. But how can a merchant make sure its offer is presented appropriately, ethically, lawfully and in a way that offers fair value to the merchant as well as to users? At present many affiliates keep their methods secret, and affiliate networks don’t do as much as they could to tell merchants what their affiliates are doing. Increased transparency would improve affiliate accountability, helping merchants feel confident that affiliates’ behavior is appropriate and lawful.”
– Ben Edelman, anti-spyware consultant

“The affiliate industry can no longer rely on arbitraged search traffic. It’s a diminishing resource. Instead, it’s absolutely incumbent upon smart affiliates to morph rapidly into the new frontier of online marketing – word of mouth, viral, social media, blogging and other consumer-generated approaches that companies are only now beginning to grapple with. There are myriad opportunities for those that embrace the Web 2.0 world.”
– Rob Key, founder and CEO, Converseon

“Self-regulation is key in 2007. It’s not in our best interest to have the federal government legislate issues for us. Instead, we must band together and squash the bad actors.”
– Shawn Collins, president, Shawn Collins Consulting

“I see all the Web 2.0 trends making a huge impact on not just performance marketing, but all online marketing.”
– Anik Singal, CEO, Affiliate Classroom

“The two sides – affiliates and merchants – have different goals. It is a constant challenge for both parties to try to find a common goal which isn’t always as simple as just “sell more stuff.”
– Brian Littleton, founder and CEO, ShareASale

“Keeping links from being whacked by ad blockers and trying to set our sites apart from those in the space which
give the space a bad name.”
– Scott Hazard, president, Brightside Media

“The biggest challenge moving forward is Sarbanes Oxley and the network aggregators. There has to be absolute tracking integrity within all the affiliate networks – or the model will ultimately become extinct and be replaced with direct (and auditable) relationships.”
– Mary Beth Padian, senior director, Upromise

“Brands will attempt ‘ubiquitous messaging’ regardless of whether the focus is to increase awareness or generate sales. I think a big part of this stems from the promise of behavioral targeting. Look at the popularity of MyYahoo or Netvibes – and how, with respect to content, the users’ ability to bring preferred publishers’ material to them changes their online navigation. Users can browse in the comfort of their own home page. What does this mean for advertisers? I think you’ll see increased effort by the advertisers to create a presence within user-generated content. Subtle or otherwise, ethical or not, the marketers will not settle for a possible ad to appear over on the right margin in the Google AdSense block. No, they’ll be pushing for coverage in blog posts or a logo in a video.”
– Lisa Riolo, online marketing professional

What’s the one word you would use to describe the current state of online marketing?

“Irrelevant”
– David Lewis, president, 77 Blue

“Burgeoning”
– Greg Schraff, director of strategy and business development, Brooks Bell Interactive

“Transitory”
– Lisa Riolo, online marketing professional

“Disconnected”
– Matt Ranta, affiliate manager, Vanns.com

“Fabulous!”
– Rosalind Gardner, super-affiliate and author

“Turbulent – as always.”
– Tim Ash, president, SiteTuners.com

“Exciting”
– Joshua Sloan, director of online marketing, 1and1.com

“Evolving”
– Shawn Collins, president, Shawn Collins Consulting

“Important”
– Adam Viener, president, imwave.com

“Heretical”
– Rob Key, founder and CEO, Converseon

“Immature”
– Jeff Molander, CEO, Molander & Associates

“Vibrant”
– Todd Taylor, manager business development, TaxBrain.com

“Crowded”
– Mike Allen, president and chief executive shopper, Shopping-Bargains.com

“Momentous”
– Kurt Lohse, founder & CEO, Keycode.com

“Nascent”
– Wayne Porter, senior director special research, Facetime Security Labs

“Rocketing”
– Anik Singal, CEO, Affiliate Classroom

“Flux”
– John Battelle, founder and chairman, Federated Media Publishing

“Growing”
– Brook Schaaf, principal, Schaaf Consulting

“Fast”
– Brian Littleton, founder and CEO, ShareASale

“Dynamic”
– Scott Hazard, president, Brightside Media

We asked a wide range of industry gurus, experts, affiliates, consultants, program managers and industry watchers four seemingly simple questions about the state of online marketing.

  1. Looking back, what do you think were among the most significant themes to emerge in 2006 in the performance marketing space?
  2. What will be the big thing that we can expect to happen in 2007 in online marketing?
  3. What are the major challenges in the performance marketing space moving forward?
  4. What’s the one word you would use to describe the current state of online marketing?

Here’s a look at what each one of them had to say, in no particular order:

 

Joshua Sloan, director of online marketing, 1and1.com

  1. New trends such as the use of video and advertainment continued to grow in 2006 but pose challenges for strict ROI/CPA advertisers.
  2. More offline ad channels (print/radio/TV) will wake up to the growing importance and measurability of online advertising while more online advertisers will wake up to the branding potential of online marketing despite confusion and difficulties with performance tracking.
  3. Fighting over trademark PPC bidding continued and continues to keep advertisers and affiliates on their toes. What’s legal in one country isn’t necessarily so in others. Ethical and legal dilemmas for companies and affiliates still exist. Click fraud and other forms of online fraud do not seem to be getting better.
  4. Exciting.
 

Shawn Collins, president, Shawn Collins Consulting

  1. Affiliate 2.0, the next generation of affiliate marketing tactics and technologies, was a predominate theme in 2006.
  2. The emergence of mobile phone marketing in the U.S. It’s just a matter of time before affiliates worldwide are able to promote affiliate links via digital and print signage. Consumers will then utilize their video-capable mobile phones to transact with merchants.
  3. Self-regulation is key in 2007. It’s not in our best interest to have the federal government legislate issues for us. Instead, we must band together and squash the bad actors.
  4. Evolving.
 

Adam Viener, president, imwave.com

  1. Clearly 2006 will be marked by what some are calling “The Affiliate Massacre of 2006” where Google updated their quality score rankings in Adwords and started placing penalties on affiliate landing pages. In many cases this caused minimum cost-per-click fees to go from 10 cents to $5 or $10 on many keywords. This effectively shut down PPC advertising for many affiliate landing pages. This change is causing many merchant advertisers to rethink their policies for PPC marketing since publishers who were running large-scale campaigns and linking directly to the merchant’s site using the merchant display URL and an affiliate link were largely unaffected by the recent change.
  2. I think the launch of Microsoft Vista may change the landscape of search marketing and make Microsoft AdCenter more important than it is today. I also think that Yahoo’s Panama project will be a big shift for search marketers. There will be a lot of adjustments as platforms change and traffic starts flowing more toward Microsoft.
  3. From the affiliate’s perspective, performance marketing companies are maturing, and dealing with the growth of the business while keeping up with the constant changes in the marketplace will continue to provide major challenges for performance marketing entrepreneurs.

    Setting the right policies for their programs that will enable them to continue to attract the talented performers who can make a difference in their campaigns. To do this a good affiliate manager needs to understand the numbers, the cost per acquisition of a new customer or sale from ALL of their channels, and craft policies that will enable the company to maximize sales at the best possible cost. In today’s market the old decisions to not allow affiliates to use the company’s display URL in search engine ads needs to be reanalyzed.

  4. Important.
 

Rob Key, founder and CEO, Converseon

  1. Performance marketing is growing up and morphing, although perhaps a bit too slowly. LinkShare’s vision, ValueClick’s growth and Google’s new forays demonstrate that performance marketing is going mainstream and can no longer be seen as a stepchild of the overall media efforts. Performance marketing has always meant accountability. We’re seeing our approaches becoming increasingly adopted by more mainstream media entities. The issue for the traditional affiliate marketing world is how to play with the more mainstream media, and how to get a seat at the table so that it’s taken as seriously as possible to ensure integrated efforts and minimize channel cannibalization. Affiliates has to become fully integrated with search strategies, word-of-mouth initiatives and CPM media buys. With a few exceptions, the big media entities are still slow to embrace affiliate marketing as part of their mix. Part of this is simply terminology and lexicon. It’s time that affiliate and media started speaking more of the same language.
  2. Social media marketing strategies that spawn, leverage and influence consumer-generated media are the hot thing at the moment. They’re also the strategies that many companies are grappling with most. Consumers want to hear from consumers, not traditional marketers. Businesses want to hear from other businesses. Companies and affiliates that create environments where their target audiences can gather, share useful information – and don’t overtly interfere with the experience – are those that will be the most successful. But this world is moving fast. Discrete content communities, social networks, blogs and other CGM venues are emerging daily. These venues are becoming micro-media properties, and like much media, those that get the audience first and provide ongoing compelling content, will be difficult to dislodge. I expect a land grab for these long tail communities by companies and affiliates alike. Both have equal opportunity to spawn these communities. The question is, who will be the quickest and most effective?

    Essential to success here is the ability to listen and map to this consumer-generated media conversation. New technologies, like Converseon’s Conversation Miner that scour and analyze this CGM conversation, are becoming essential elements to any online marketing campaign. After all, if you can’t understand the landscape and listen, as well as talk, you’re going to be talking past audiences, and perhaps overlook the most important constituents. Companies will indeed have to “join the conversation.”

  3. Affiliate marketing has historically been successful because it provided services and capabilities that companies themselves were either unable, unwilling or ill-prepared to tackle. But as merchants becoming increasingly sophisticated, especially with natural and paid search strategies (including long tail search, the affiliate industry can no longer rely on arbitraged search traffic. It’s a diminishing resource. Instead, it’s absolutely incumbent that smart affiliates morph rapidly into the new frontier of online marketing – word of mouth, viral, social media, blogging and other consumer-generated approaches that companies are only now beginning to grapple with. These online strategies are where search marketing was two to three years ago. My advice to affiliates who want to flourish in this environment: Evolve rapidly, now. Darwinism won’t be kind to those who rely on the same old tactics for success. On the other hand, those affiliates who do dive successfully into this new world will provide that value-added marketing dimension that companies are hungry to embrace. There are myriad opportunities for those that embrace the Web 2.0 world.
  4. Heretical. Nothing is sacred. We’re in a state of incredibly accelerated evolution. What can be demolished probably will be. And like in all evolution, there will likely be several mutated states before new stabilized species emerge.
 

Jeff Molander, CEO, Molander & Associates

  1. Scale: The desire to achieve better scale (less overhead, more revenue) drove every major corporate merger as well as ValueClick/CJ’s failed LMI project. It’s what makes Adwords so attractive and wildly successful. Reduction of inventory: Ad inventory is becoming even more scarce and prices are rising, especially in search.
  2. CPA will trump CPC pricing models. Innovative product search players like Jellyfish.com and Snap.com will cash in. Google and Yahoo Search will manage to enter the game although success will be limited and hindered by class action lawsuits focused on click fraud and “bad clicks sold” arising from failure to disclose (and reprice clicks from) low-quality distribution partners.

    Driven by the popularity of MySpace, Facebook and social media, affiliate managers will rush to tap into the long tail of affiliate-related transactions. Social e-commerce will emerge with innovations focusing on peer group favorites and recommendations. The “wisdom of crowds” will begin to drive serious transaction volume in niche markets.

  3. Scale: Retailers experienced in performance marketing are aching to figure out how affiliate marketing can be scaled upward (more leads, more transactions) while concurrently generating a better return on customer retention spending (repeat sales via affiliates) at a fair cost.
  4. Immature.
 

Todd Taylor, manager business development, TaxBrain.com

  1. Even more large companies have entered or are considering performance marketing and Revenue magazine went bimonthly and most importantly there was actually enough slush money in the industry to have a golf tourney at AS06 East – therefore, it must be real!
  2. Video ads will continue to grow in popularity as traditional marketing agencies attempt to maintain their grip on “their” industry as they gripe all the way to Congress.
  3. Second-tier advertiser merchants who enter the industry may have trouble creating affiliate brand awareness for their program, as they must compete for mind-share and visibility against the larger or more established programs.
  4. Vibrant.
 

Mike Allen, president and chief executive shopper, Shopping-Bargains.com

  1. Affiliate marketing went mainstream in 2006 in that major brands and media companies are now willing to invest in and support the pay-for-performance model. After demonstrating strong Q4 successes in 2005, many traditional retailers now see affiliate marketing as what it is – pay for performance – and a way to maximize their advertising dollars with predictable expenditures and results. No traditional media buy can deliver a guaranteed minimum ROI. In 2006, the skeptics of performance marketing began to have a change of heart.
  2. I expect Google will continue to morph into other non-search areas. Under this scenario, Google will begin to offer tools that very much resemble an affiliate marketing or CPA network. This will put many traditional affiliate marketers directly in competition with Google for customers. Those non-branded entities relying solely on search will be hurt the most. Such a move is likely to trigger a rash of online mergers and acquisitions as big names and even traditional brands circumvent the search engines and buy their way into bigger pieces of the pie.
  3. Consolidation and intense competition due to a changing marketplace where search engines no longer do only search. With shareholder pressures on the “big 3” engines to continually grow revenues at nontraditional paces, there will be new efforts to go after non-search money wherever it can be found. Google Checkout is only the beginning. I predict search engines will find new ways to become intimately involved in the performance marketing space themselves.
  4. Crowded.
 

Kurt Lohse, founder and CEO, KeyCode.com

  1. Cooperation. 2006 displayed greater willingness by merchants, publishers and networks alike to adopt cooperative selling strategies.
  2. 2007 will bring far more practical off-line marketing applications online. It will also signify the beginning of the big shift to correct the disproportional ad spend on the traditional mediums.
  3. The major short-term challenges are search engine bias against online marketers and net neutrality laws.
  4. Momentous.
 

Tim Ash, president, SiteTuners.com

  1. Google is actively trying to squash private-label PPC arbitrage affiliates in the name of better user search experience.
  2. International affiliate programs. There is now Internet critical mass in many other countries.
  3. Improving the conversion rates of offer landing pages. If you don’t, you’re dead.
  4. Turbulent – as always.
 

Ben Edelman, anti-spyware consultant

  1. What I hear most from affiliate merchants – not to mention attorneys and even regulators – is the need for improved accountability. It’s all well and good for affiliates to have considerable discretion to find novel and creative ways to promote merchants’ offers. Indeed, that independence is the essence of affiliate marketing. But how can a merchant make sure its offer is presented appropriately, ethically, lawfully and in a way that offers fair value to the merchant as well as to users? At present many affiliates keep their methods secret, and affiliate networks don’t do as much as they could, to tell merchants what their affiliates are doing. Increased transparency would improve affiliate accountability, helping merchants feel confident that affiliates’ behavior is appropriate and lawful.
 

Jim Kukral, publisher, ReveNews

  1. User-generated content such as short online videos will proliferate at an even larger scale and pace and show that it can convert as advertisements.
  2. Supercalafragalisticexpialadocious.
 

Wayne Porter, senior director special research, Facetime Security Labs

  1. Oddly enough a few years ago the answer to that question is whether or not enough people would even bother to shop online. Clearly they have no problems doing so.

    Merchants are beginning to pick up on how sophisticated the fraud issues really are. The key for the winner will be the ability to balance scalability and click/lead quality. Players like Google have relied heavily on being able to machine scale, but have had increasing trouble with quality control and rogue elements that grow more sophisticated all the time; nor are they alone. It is a bit ironic that PPCSEs are not held to as high a standard as traditional affiliate networks.

    I look for Yahoo and MSN to attack this front heavily next year as click fraud control becomes a differentiator. We should also reflect on revenue and technology risk. ValueClick via CJ had to rush the LMI issue to provide an alternative to the patent wars, and clearly from Google’s filings there is an extreme concentration risk via JavaScript, which usually is benign. However, there has been increasing hostile attacks on legitimate networks and through an array of vectors – even IM.

    If you coupled that with the frailty of cookies either through malware scanners removing them, users actively deleting them or natural cache attrition as surfers are more active – the performance marketing industry faces some severe risks on multiple fronts moving forward.

  2. There is no doubt in my mind that user-generated content (UGC) will really start to take fire – especially around video. We already see this happening with the popularity of YouTube, Google Video, click-based Revver and innovations like community-powered video such as Magnify.net which can offer large brands the messaging in a format they are accustomed to. Still, merchants will have to be innovative to get beyond the sheer volume of media – music, podcasts, pictures and now video in circulation.

    The indie film thought shapers have been waiting for this inflection point for a long time and they are poised and ready with rifles raised. The traditional gatekeepers still remain in place, but there are now powerful forces to be reckoned with in terms of UGC disrupting the traditional top-down communication stream – much like blogs have done. In addition the emphasis will be on interactive, immersive ad campaigns that cross between the real world and the virtual one. From Second Life grids to the Web to a dead drop on a country road. Users want to be entertained and they want it to be sophisticated.

    This does provide an opportunity for enterprising affiliates who often have better creative DNA than merchants if they can move away from the myopia of simplistic deal structures. Smaller affiliates will continue to feel the squeeze of the powerhouses, but should do OK by dominating niches and working with mid-tier or emerging brands.

  3. The problems are myriad and affect different groups. The erosion of the once-fertile CPA space will happen as the market has become super-saturated with dozens of networks and they must start to shrink unless they too specialize. Co-registration, another once-lucrative market, will suffer. Most “thin” arbitrage players will also get knocked out of the game and affiliates will rise up and realize it really is about being unique and having content. Controlling partner sprawl and the problems inherent with this phenomenon will continue to plague large affiliate networks and PPCSEs. Advertising powerhouses will be forced to provide more visibility into their networks as premium merchants demand to know where and how their brand is being presented. Some are starting to care.

    Once again the rise of a tough and well-funded rogue element is looming – the mass tide of botnets, experienced fraud rings, rampant content theft, aggressive Web agents and the lot are rapidly gaining contextual marketing skills and sociological and technical sophistication. If the e-commerce industry in general ­ – both PPCSE, merchants and network aggregators – do not rise up and clean things up, security companies or perhaps legislation and litigation will do it for them. I am not bullish on this cooperation based on past experience, but it is possible. If security firms, e-commerce firms and law enforcement worked in tandem, the tide could be turned.

    It boils down to an emphasis on quality and restraint and the need to mature beyond the “growth at all costs” mentality as well as adjusting merchants’ expectations and teaching them to think long term so that system pollution doesn’t kill the environment in which we all do commerce, operate and converse.

  4. Nascent.
 

Holger Kamin, executive account director, Zanox

  1. MSN Search Launched; MySpace working with Google; eBay and Yahoo; Web communities and blogs are on the rise. Big mergers are changing the landscape of this industry.
  2. Performance models such as CPO and CPA are the main driver. Advertisers as well as networks/providers realize that success-based commission models are king and key for success. Globalization is the most important issue – globalize or die.
  3. Globalization and multichannel approach to reach each and every possible market on this globe.
  4. Paradigm Shift.
 

Anik Singal, CEO, Affiliate Classroom

  1. Two themes jump out at me, and they are intimately related to each other: transparency and professionalism. The entire industry seems to be waking up to the fact that both sides of the affiliate marketing equation – merchants and affiliates – need to open up to each other about their business practices.

    Every day I talk to forward-looking merchants and managers who are eager to hold themselves to the same standards of transparency that mainstream bricks-and-mortar businesses do. They’re also actively seeking affiliates who are willing to play by the rules of fair business practices. They want affiliates who are well-versed in best practices, diversified marketing methods, compliance and good old-fashioned ethics.

    Which ties into the theme of professionalizing affiliate marketing. The history of business has proven that you can’t have transparency without professionalism. I see merchants and affiliates literally thirsting for professionalism in every aspect of affiliate marketing. They want to raise the bar and see those professional standards become part of their online careers.

    More and more affiliates and managers tell me they actually view the affiliate marketing industry as a lifetime career . To me, that says professionalism will become one of the most talked-about ideas in our industry in 2007.

  2. As an entrepreneur in the field of affiliate education and training, I believe 2007 will be the year in which merchants and affiliates both realize affiliate marketing has been a very lucky industry. We’ve seen massive growth in spite of the fact that all the players have been learning the game – even developing the rules – on the playing field. It’s been very rough and tumble and a wild ride, yet we’ve evolved our own business models, practices, culture and conventions while learning on the job.

    But with that growth – and all that money at stake – all of us, including the biggest players, now need to hold ourselves to higher standards. We must do that if we want our revenue to grow without interference from the outside. That’s why transparency and professionalism will literally force themselves upon us in 2007. The stakes keep getting higher.

    So I expect to see many more super-affiliates stepping up to the plate and saying look, we need to take responsibility for engaging in upright business practices. You’ll see them become open to educating newcomers in the industry. It won’t be about cutting out your competition, but developing a bigger and more powerful affiliate workforce.

    And I expect to see managers becoming excited about the possibilities of capturing the loyalty of those affiliates by becoming truly affiliate-friendly. They’ll be doing that through innovative and humane management practices, such as offering comprehensive and innovative training and development programs.

  3. Many people will disagree with me, but as I work with affiliates in the trenches I see all the Web 2.0 trends making a huge impact on not just performance marketing, but all online marketing. Interactive communities and “spaces,” social bookmarking and social search – those are grassroots trends being developed by audiences that spend lots of time and money online.

    Web 2.0 is not just about teens and college kids any more. Research by organizations like Pew has shown that a significant percentage of grown-up people with grown-up incomes could live without search engines. Who can blame them when the results are relevant one day but off-kilter the next? Spam is also making email a less-reliable form of communication.

    But people have realized that Web 2.0 can satisfy your need for self-expression plus help you build and communicate with a whole network of like-minded friends. That’s why all kinds of people today are blogging, sharing their favorite links and shout-boxing their ideas about everything, including products. While I might be too young to have experienced it, I’m told this is a trend back to the early days of the Web.

    That’s when a list of links on a Web page wasn’t scraped with automated software, but handpicked with care. People want to be able to have that kind of trust in websites. And they are realizing that the only way to reclaim that trust is by finding which sites their online neighbors turn to.

    For the smartest people in performance marketing today, those Web 2.0 micromarkets represent a massive opportunity. Yes, reaching them is not just a challenge, but probably impossible through traditional marketing channels. But it’s the perfect fit for affiliates, especially affiliates who are well-versed in those spaces.

  4. Can I make up a word? Rocketing.
 

Brian Littleton, founder and CEO, ShareASale

  1. There has been a huge shift in traffic sources – with two main groups. The first is PPC, which has been a major source of affiliate traffic in 2006 and has brought with it significant issues such as “brand bidding.” The second is blogs – which I believe will be a major driving force in the coming years as well.
  2. A return to the importance of new-traffic-generating affiliate marketers.
  3. The two sides, affiliates and merchants, have different goals. It is a constant challenge for both parties to try to find a common goal, which isn’t always as simple as just “sell more stuff.”
  4. Fast.
 

Brook Schaaf, principal, Schaaf Consulting

  1. No truly new themes emerged. We saw click fraud penetrate the consciousness of the mainstream media at the same time there is a growing sense of animosity (possibly jealousy?) toward Google inside and outside our industry. Some merchants are reviewing their trademark bidding terms and looking to accommodate affiliates. Finally, you did see a lot of affiliates publicly say they were moving away from black-hat and toward white-hat activities.
  2. I don’t see as much of a buzz around an idea like RSS or rich media as the continued entry into the marketplace of more content and paid search publishers. For their part, merchants will continue to experiment with new channels and partners.
  3. This is a competitive marketplace. Publishers must continue to adapt in order to perform and marketers must manage more and more relationships.
  4. Growing.
 

John Battelle, founder and chairman, Federated Media Publishing

  1. The re-emergence of brand as an important part of the marketing equation after years of focus on ROI/DR/search.
  2. Yahoo and Microsoft will debut new products to compete with Google.
  3. Understanding how to integrate with conversational marketing online, and learning the new “hybrid” model of both performance and creative/branding-driven marketing.
  4. Flux.
 

Scott Hazard, president, Brightside Media

  1. When the situation calls for it, affiliates and affiliate managers can band together and stand their ground on an issue.
  2. Not sure, but I’m afraid it will center around Google.
  3. Keeping links from being whacked by ad blockers and trying to set our sites apart from those in the space, which give the space a bad name.
  4. Dynamic.
 

Mary Beth Padian, senior director, Upromise

  1. Confirmation yet again of the value of relationships.
  2. RSS feeds for special offers and coupons becoming more commonplace on affiliate sites – even loyalty sites!
  3. The biggest challenge moving forward is Sarbanes-Oxley and the network aggregators. There has to be absolute tracking integrity within all the affiliate networks – or the model will ultimately become extinct and be replaced with direct (and auditable) relationships.
  4. Nascent.
 

Linda Woods, president, PartnerCentric

  1. Affiliates/publishers are in the driver’s seat now, not merchants/advertisers. Affiliates have money, power and traffic, and their requirements ­ – business practices and needs – dominate the relationship. Merchants need them more than they need merchants, who are unable to comply or cooperate with terms. They can deliver the goods; can merchants respond adequately to their demands? If not, NEXT!
  2. Tools, tools and more tools for affiliates. With the announcement of CJ’s Web services and many other players creating technology tools to either improve reporting, functionality or efficiency, the next “big thing” is, who can provide what to better service affiliates’ growing hunger for technology tools?
  3. Keeping up with the speed of innovation on the Internet!
  4. Exciting!
 

David Lewis, president, 77 Blue

  1. Search is a bigger part of affiliate marketing than many people thought.
  2. A shift to the extremes. Merchants will begin to completely embrace or flat out reject publishers utilizing search. Past decisions will not be factored in. New decisions will be made and there will be no way to predict where anyone will stand on the issue on December 31, 2007.
  3. Trust. People do not pick their partners wisely and misjudge “the other side.”
  4. Irrelevant.
 

Rosalind Gardner, super-affiliate and author

  1. White hats came into style in a big way, and were even more prevalent after Labor Day.
  2. Content authority and visitor-optimized sites are now all the rage … and everything old is new again as the meaning of “value-added” gains ground amongst the gray-hat set.
  3. Continued decline in the effectiveness of current search engine optimization methods.
  4. Traffic building through social networking media will continue in effectiveness and popularity throughout 2007.
  5. No change here. Getting heard and getting seen. Affiliate managers and merchants will have to work increasingly harder and smarter to put their products in front of affiliates who will actually promote them. Rewards and incentives for top affiliates will increase while commission rates for less-productive affiliates will decrease.
  6. Fabulous!
 

Matt Ranta, affiliate manager, Vanns.com

  1. Video, video and more video.
  2. Effectively and ethically integrating the use of video ads into affiliate marketing.
  3. Disconnected.
 

John Grosshandler, event director, eComXpo

  1. Just how vibrant and powerful the performance marketing community is. This can be seen in the response to LMI, the upward trend in budgets for performance marketing by advertisers and the growth in publications, events and forums serving the community.
  2. Technological innovation will become even more important in 2007. Between the growth in online video, broadband adoption and new tools for contextual advertising, behavioral marketing and detecting fraud, the gulf between those who leverage the newest trends and tools and those who rely on yesterday’s approaches will widen.
  3. Volume. How to sift through the masses to identify the diamonds in the rough, whether they are advertisers, affiliates or partners. Emails and newsletters no longer get through, and when they do, are seldom read.
  4. As President Bush likes to say, “Strategery.”
 

Lisa Riolo, online marketing professional

  1. A few years ago, you could quickly tell whether or not an online marketer “got” affiliate marketing by discussing affiliates. Those that got it conveyed respect for the affiliates. Those that didn’t, well, they tended to use adjectives like “little” or “questionable” when describing their role in the model. In 2006 the performance marketing community witnessed affiliates asserting their right to be treated respectfully. It is no longer acceptable to be a participant in this space and not get it.
  2. Brands will attempt “ubiquitous messaging” regardless of whether the focus is to increase awareness or generate sales. I think a big part of this stems from the promise of behavioral targeting.

    Look at the popularity of MyYahoo or Netvibes – and how, with respect to content, the users’ ability to bring preferred publishers’ material to them changes their online navigation. Users can browse in the comfort of their own home page. What does this mean for advertisers? I think you’ll see increased effort by the advertisers to create a presence within user-generated content. Subtle or otherwise, ethical or not, the marketers will not settle for a possible ad to appear over on the right margin in the Google AdSense block. No, they’ll be pushing for coverage in blog posts or a logo in a video.

  3. Revenue Science, Tacoda and BlueLithium represent a possible disruption for performance marketers. The assumption of many is that the budgets will shift away from other display ads. I think behavioral targeting may also disrupt search and affiliate because it is equally data-driven and ROI-focused. The advantage of behavioral targeting is that it focuses on all aspects of the consumer’s buying behaviors, not just the research and purchase decision phases typically pursued by the performance marketers.
  4. Transitory.
 

Greg Schraff, director of strategy and business development, Brooks Bell Interactive

  1. BT seemed to be a popular buzzword but I never really heard too many real success stories. My observation is that online marketers are actually getting comfortable with the basics and are now casting an eye toward testing and optimization in order to squeeze out better results.
  2. Following my comments above, more structured and strategic testing and optimization efforts. A/B, multivariate and companies that provide these services.
  3. Still getting online marketers beyond just keeping their heads above water, i.e., just running the actual marketing campaigns so that they have the bandwidth to concentrate on performance factors and tactics they can employ to improve performance.
  4. Burgeoning.

The Mobile Marketing Monster

Tony Phillip will tell you the exact moment he knew that mobile marketing and advertising – predominantly via cell phones – had crossed over into the mainstream.

It was when American Idol, the extremely popular TV singing contest, allowed viewers to vote for their favorite singer via text message – and more than 50 million did in 2005 versus 21 million in 2004, according to the CTIA – The Wireless Association. Also in 2004, 46 percent of text messaging votes for a new pop star sent in was from wireless subscribers using text messaging for the first time, CTIA figures state.

Less than a year before, UpSNAP had a deal with ABC to allow text-message voting during the Academy Awards. It was basically a disaster, according to UpSNAP CEO Phillip, who notes, “If viewers didn’t have text messaging, they weren’t going to use it.”

What a difference a year makes. There is little doubt that mobile marketing – that including text-message ads displayed with a mobile search or via opt-in, coupons sent via cell phone, video and display ads interwoven with downloads or streaming from cell phones or other handheld device connected to the Internet – has arrived.

More major brands, agencies and start-up companies are putting their energy and dollars into exclusive campaigns and technologies aimed at mobile marketing, and for some it is already big, big business.

As people in the U.S. become more reliant on their cell phones, mobile services such as mobile search and Web surfing will become commonplace. Consider the following facts according to The Pew Internet & American Life Project:

  • 52 percent of adults have their cell phones turned on 24/7.
  • 30 percent of adults say they want to Web-surf from their cell phones.
  • 47 percent say that mobile maps and driving directions are a must on the next phones they plan to purchase.

MOBILE IS GLOBAL

Mobile marketing adoption is shooting through the roof. Worldwide mobile ad spending is expected to top $870 million by the end of this year, according to Informa Telecoms & Media. Meanwhile, The Shosteck Group predicts mobile marketing will be worth $10 billion in the U.S. by 2010.

Furthermore, 43 percent of U.S. marketers are using or about to use mobile marketing in the next 12 months, according to Forrester Research. And nearly 90 percent of major brands plan to market to mobile phones by 2008, according to a survey by Airwide Solutions.

“It’s happening faster than anyone expected,” Laura Marriott, executive director of the Mobile Marketing Association (MMA), says. “2006 is certainly a year that more and more brands are getting involved but so much more can happen. Response rates from mobile are very high. There’s great engagement from the consumer.”

That sounds like a giant wellspring ready to gush, but the U.S. is not even in the lead here. Most of Europe is slightly ahead in the adoption of text messaging because of the availability of cheaper cell phones. In March, mobile phone users in Britain sent more text messages than they ever had before – 3.19 billion or about 103 million per day. That’s a region with only about 60 million people in it.

In Japan, NTT DoCoMo recently pulled in $2.5 billion in the first quarter of 2006 in non-voice revenue. About 35 billion text messages are sent each month in China, where about 426 million people have cell phones – that’s like giving one and a half phones to every person in the U.S.

Pay per text has also taken hold in the U.K., where users can request a text message of a phone number when calling directory assistance or have directory assistance send the number automatically. Phone numbers and special-offer text ads are sent when directory assistance is asked for a keyword such as “travel.”

“[Mobile marketing] can be a big cash cow for any company,” Holger Kamin, country manager USA for Germany-based Zanox, a multichannel commerce provider, says.

The ease with which so much of the world outside the U.S. has embraced handsets to communicate in ways other than phone calls means the choice for advertisers is simply how to reach out to them. Of cell phone functions available, the surprising choice for marketers so far has been the simple text message.

“We always go back to what the consumer knows,” says Marriott of the MMA, “and what is already available in handsets.” She says text messaging has made a pretty natural rise to the top, but also wants to make sure “we don’t get ahead of ourselves in technology.”

While Americans may own 200 million cell phones, marketers wonder if all these people are using even the simple functions on their phones. While 75 percent of U.S. teens (age 15 to 17) own a cell phone, according to eMarketer, only 36 percent ever send or receive a text message. These conflicting statistics are what may be holding back the really big advertisers from designing campaigns for mobile en masse.

It was only two years ago the CTIA – The Wireless Association introduced cell phone short codes, which are 5-digit numbers that text-messagers use to send their message instead of a standard 10- digit phone number. The short codes were designed to help marketers reach out to brand customers via mobile phones. Anheuser-Busch, Dove soap and Daimler-Chrysler are just a few of the major brands that ran successful short code campaigns to get customer feedback via cell phones.

CAMPAIGNS TO GO

That will not stop the innumerable mobile ad companies from vying for your attention.

MobileLime CEO Bob Wesley, for example, thinks of it as developing a one-to-one relationship. “This is all viral now,” he says. So far MobileLime has used radio ads to get opt-ins and serve coupons to cell phones. It is not only paving the way for m-commerce (paying for an item through your cell phone), but gathers rich data for the advertisers, such as if recipients opened the coupon, when they did, what they used it for and for how much, Wesley says.

Currently, some companies such as Bango enable payment via mobile phones through a deal with PayPal, but the selling merchant must sign up for Bango’s service to allow the capability. Other companies such as JumpTap aim at launching a mobile search index to challenge Google. Carriers join the search index and online auction platform and serve it to their customers.

Of course, in the online world, coupons are big business and they are not being left behind in the mobile arena. Mobile coupons are making great inroads to the electronic platform because of the “sheer inefficiency of paper coupons,” says Peter Sealey, CEO of consulting firm The Sausalito Group. He says with redemption rates for paper coupons at only 3 percent, advertisers realize they save more cash going electronic. The marketer pays only when someone prints a coupon, eliminating distribution costs. “Marketers after the 2000 dot-com crash said, ‘Thank God that’s over,'” Sealy says. “We can go back to TV and radio.” Now, mainstream marketers are embracing the full bloom of mobile marketing again, he adds.

Sealey predicts that within five years, the paper coupon will be as good as dead. Search giant Google recently said it would start to offer local coupons in conjunction with using Google Maps. Online coupons in general have already taken hold with as much as 50 percent of online coupons being redeemed, according to some estimates. Companies such as CoolSaving, Coupons, Inc. and Zixxo do well marketing coupons over the Internet. Sealey says as more marketers accept electronic devices as a viable vehicle, the better adoption rates will get.

Some mainstream advertisers and companies are already rolling out robust campaigns to cell phones. Strawberry music stores on the East Coast are text-messaging promotions and deals to mobile handset users who sign up to receive alerts and geographic-based special deals. While Strawberry has relatively few stores in its network, Starbucks with thousands of locations has run a scavenger-hunt-style loyalty promotion where cell phone users signed up to get questions via text messages, the solving of which could send five chosen players on a vacation to Costa Rica.

Recently named No. 2 carmaker Toyota spent $10 million on a mobile campaign targeting Hispanic cell phone owners to watch funny hidden camera clips on their phones featuring the 2007 Camry. And Google is undertaking significant testing for its own mobile ads on its mobile search results and to launch a version of AdWords for mobile. Google is testing the search ad in the U.S., the U.K. and Germany.

Popular eateries McDonald’s and Subway are also getting their feet wet by offering some promotions via mobile phones. Even Net vet AOL has had its Mobile Search Services up since December 2005 with search, a shopping comparison module and a Yellow Pages feature.

MOBILE ON TARGET

Firms with mobile technology know-how are not the only ones seeking to cash in on mobile marketing. AirG, for example, sets up social networks on its platform and has found great success in sending mobile promotions to its base of users. They worked five years to get 5 million users and in the last eight months that has bounded up to 10 million. AirG’s display ads and ad-sponsored games for handsets capture detailed demographics and consistently get a more than 28 percent response rate. Receiving the ads can be turned off and on at will and are all opt-in.

Along the way, AirG discovered they had a significant Hispanic demographic, so they customize certain promotions to target only those groups. Frederick Ghahramani, AirG co-founder, says he can find the Latino males in New York City who are single and send only them an appropriate promotion or coupon electronically.

“What’s been lacking isn’t the enthusiasm [for mobile marketing],” he says, “but the ability to target the active base of customers.” They share personal information with each other and find like-minded people. AirG brings relevant targeting to the table, he says, noting, “The industry has had the ambition but now is waking up.”

There is nearly universal agreement that the key element for the continued success of mobile marketing is targeting. Third Screen, the largest U.S. mobile ad network, got the jump on everyone when it started four years ago and has only recently said that targeting mobile ads has finally reached a kind of maturity. The company has stated that the next achievements in mobile marketing will be privacy standards for all carriers, predicting more detailed demographics from broad information and more and better mobile ads based on real-time location of the handset user.

With the popularity of buying and downloading ringtones and entering online auctions via cell, companies like Ad Mob want to make sure you can reach users based on their region, platform, device capabilities and even manufacturer. If you want ads to reach only Nokia users on MIDP 2.0 devices in Europe, AdMob, who also has polyphonic ringtone support, states they can do that. Of the many companies that now have a mobile marketing component, better targeting is their crown jewel, the company claims.

Some companies have come up with original ways to engage people via cell phones. Vibes Media has its Text-2- Screen that invites concert-goers to text to the Jumbotron screens at stadium-sized pop concerts. The text they send to the screen is displayed on the branded screens with messages such as “Get ready 2 rock!” and “Happy birthday, Sarah J.” Irvine, Calif., company go2 recently launched go2 SpeedPoll, which conducts surveys sent via cell phone that ask about attitudes toward certain brands – with results viewable in real time.

MOBILE PERFORMANCE

Affiliate marketing powerhouse LinkShare won’t be left behind. President of LinkShare Steve Denton says its parent company Rakuten of Japan is having considerable success with mobile commerce. He says that at LinkShare Japan, a significant percentage of affiliate purchases are coming from mobile commerce.

“Our customers live and work and play in a world without boundaries,” Denton says, “and we must find ways to exchange with our customers, and then we need a platform for that; then mobilize.”

Japanese m-commerce is exemplified by someone shopping in a mall who finds a cool jacket, takes a picture of the UPC code on the tag, sends that to a browser and makes the purchase via cell. In addition, that customer can mobile email the code and a picture of the jacket to as many friends as he or she thinks would also like to buy it.

Denton says he has no doubt that “affiliates could plug this into their business models very quickly. But the infrastructure is not there yet.” He adds that publishers have great house lists but are not using text or cell phone numbers from their customers. “Cell phone numbers will be more valuable than email addresses in five years,” he says, adding that LinkShare in the U.S. will have some key additions to mobile in the near future.

But even as the adoption numbers keep steadily rising, there are still some gray clouds out there. For example, for a country with so much Internet usage, only 16 percent of U.S. mobile phone subscribers use their Web-enabled phones for the Internet. Some ad networks only work with certain brands of cell phones and even companies that say their platforms work across all brands and telecom networks can’t guarantee that the service will work for consumers consistently.

While marketers are very eager to reap the financial benefits mobile promises, some critics have said that not enough is being done to erect coherent marketing strategies. In the rush to go mobile, some companies are grabbing whatever firms are offering and not building their own goals, figuring out how to follow the metrics, putting up privacy standards or discovering a solid plan to get people to opt in. “Some companies are so decentralized,” says Zanox’s Kamin, “that they don’t even know they have [offices] in Europe.”

Other critics say a patchwork of partnerships keeps true standards from emerging. In the realm of mobile search, a giant like Google can go out on its own with few partnerships because most go to Google anyway, but other search companies (Yahoo, MSN and others) must become allies with a carrier to get the best traffic. These kinds of deals can shut out some cell phone owners from getting the right information when they want it. There are also bandwidth inconsistencies as there are with general cell phone reception depending on location and interference. SEO firm Oneupweb has noted that the myriad of technical issues with mobile commerce and advertising will smooth out for the next generation of mobile surfers and searchers because the interfaces will gradually become less technical. It will be like operating your TiVo or your iPod.

“Unlike a year ago – the early days,” says Phillip of UpSNAP, “search [via mobile] didn’t make a lot of sense, but now they will do what is relevant to their mobile lifestyle – comparison shopping, for example, before you get into your car.”

Marketers are also just beginning to realize that the mobile lifestyle cuts across socioeconomic barriers. Most people in the U.S. – even some of the most poor – have a cell phone. With 200 million handsets out there and growing, the young and old and rich and poor and racially diverse pretty much covers everyone who can participate in mobile marketing.

Hybrid Auctions Are Taking Over

As author Robert C. Gallagher observes, “Change is inevitable – except from a vending machine.” And so it comes as no surprise that paid search engines are changing too. The biggest change is one of the most fundamental, affecting which paid ads are shown first in the results. The tried-and-true high bidder auctions, pioneered by Overture (later acquired by Yahoo), are being phased out in favor of hybrid auctions, introduced by Google.

High-bidder auctions are just what they sound like – the search marketer who bids the highest per-click amount for each search keyword gets the top spot in the paid search rankings. But high-bidder auctions are starting to seem so 20th century.

The new thing is hybrid auctions, which set the paid search rankings based on a combination of the bid, the clickthrough rate and sometimes other factors. For example, if one search marketer bids $2 per click to show an ad with a 1 percent clickthrough rate, another bidder could outrank the first with a lower bid – perhaps by bidding $1 for an ad with a 3 percent clickthrough rate. In a high-bidder auction, the $2 bidder would always rank higher than the $1 bidder.

Google has been using hybrid auctions for years, but until recently, all other paid search engines were the high-bidder type. That’s all changing now. Earlier this year, MSN Search introduced new paid search technology that uses a hybrid auction. Yahoo has announced plans to follow suit late this year or early next year. Given Google’s longstanding use of hybrid auctions, the changes at MSN and Yahoo will transform the paid search industry, and nearly a whopping 97 percent of all paid search queries will use hybrid auctions.

Hybrid auctions usually provide more relevant results to searchers, because the most-clicked ads tend to rise to the top of the rankings. And hybrid auctions make the search engines more money, because the combination of clickthrough rate and bid price maximizes the total fees paid by search marketers.

More Complex Planning

If you’re a search marketer accustomed to planning paid search campaigns for high-bidder auctions, hybrid ones bring you some new challenges. With a high-bidder auction, you can see what your competitors are bidding at all times, and can take an educated guess as to what bid could get you ranked No. 1, for example.

Hybrid auctions, however, demand pure guesswork; not only don’t you know your competitors’ clickthrough rate, but you don’t even know your own, so you can’t predict where your ad will land no matter what the bid. Without that information, you can neither project the number of clicks your campaign will get, nor the amount you’ll pay in total, which hamstrings your ability to plan your paid search campaigns.

Google and MSN could help predict the number of clicks you’ll get with your bid, but they don’t, instead merely projecting the number of clicks to expect with an average bid. If your bid is higher (or lower) than average, you’re out of luck.

In contrast, Yahoo has publicly stated that they will provide predictive information based on your bid when they convert to a hybrid system, so we may be able to use Yahoo to help plan campaigns.

Simpler Operations

While hybrid auctions can pose new campaign planning issues, they also make operating your paid search campaigns far easier than high-bidder systems do.

To understand how much is changing, we need to remind ourselves of the work required to manage high-bidder campaigns. The very predictability of high-bidder auctions that aids campaign planning also makes operations tougher than with hybrid approaches. Because changing your bid in a high-bidder auction directly changes the search rankings, search marketers can use bidding tricks against their competitors to manipulate those rankings.

These high-bidder tricks include bid jamming (intentionally bidding 1 cent below a competitor’s bid to force them to spend as much as possible); gap surfing (bidding 1 cent more than a competitor to steal a higher spot); and friendly URL (bidding just under a specific opponent to avoid a bidding war).

Search marketers managing campaigns in high-bidder auctions must be aware of these techniques and must use them for highly competitive keywords. These techniques require constant monitoring and tinkering, raising operational costs for high-bidder campaigns.

In contrast, none of these tactics are needed for hybrid auctions, because the rankings can’t be changed simply with a new bid. And because clickthrough rates can’t be adjusted at will the way a bid can be, hybrid auctions are far less volatile than high-bidder auctions. The combination of fewer bidding tactics and less volatility means that search marketers can spend less time monitoring every ranking fluctuation.

A New Fraud

But all is not rosy. Search marketers are familiar with click fraud, but hybrid auctions have spawned a new kind of fraud, called impression fraud.

Impression fraud is almost the opposite of click fraud. With click fraud, competitors or unscrupulous search partners use low-paid workers or automated bots to click on paid search ads, draining the victim’s search marketing budget. Impression fraud occurs when competitors enter search terms to display your ads and then don’t click on them.

Confused? Stay with me now, because this is a bit tricky. Because hybrid auctions consider clickthrough rate in their rankings, anything that lowers your clickthrough rate helps your competitors. So, when they cause your ad to be shown and then don’t click on it, your clickthrough rate declines, which lowers your rankings (or forces you to bid higher to retain your ranking). It may scare you that some folks have nothing better to do with their time than to dream up such schemes, but it’s apparently the case.

While some observers estimate click fraud to affect as much as 20 percent of all paid search clicks, no one knows how rampant impression fraud may be. Because impression fraud cannot enrich anyone, it is likely less prevalent than click fraud, but its rise demonstrates how every change in search technology has unintended effects.

Despite the specter of impression fraud, the shift to hybrid auctions is generally a boon to search marketers, by making campaigns less work to monitor and operate, even if they are more difficult to plan for. The less time you spend in short-term bidding tactics, the more effort you can devote to improving your clickthrough and conversion rates and finding new keywords your competitors have not yet discovered. It’s better to focus on being more effective than more efficient, and hybrid auctions help you do that.

MIKE MORAN is an IBM Distinguished Engineer and the Manager of ibm.com Web Experience. Mike is also the co-author of the book Search Engine Marketing, Inc. and can be reached through his website (MikeMoran.com).

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.