Less Is More

Ask any guru in the affiliate universe what ValueClick’s acquisition of Commission Junction means, and you’ll get more answers (and more pitches) than you can imagine.

Is it consolidation? “Yes and maybe.” Does it matter? “Perhaps, but let me tell you why it won’t matter to my business.” Is it changing the nature of the affiliate industry? “No, but it reflects the changes.”

It’s all true. And here’s why. This merger is part of an evolution in affiliate programs, from the Fortune 1000-level represented by this deal to the small-business end. The reason behind the merger is simple. There are not only too many cooks, there are too many kitchens. The merger put two cooks – CJ and ValueClick’s BeFree – in the same kitchen under the CJ brand.

When More Was Good

In 1998, the first affiliate marketing conference, Beyond the Banner, featured teenage shadow-boxing between well-financed BeFree, LinkShare and upstart CJ. It was an industry founded in families and friends, from the brothers Sam and Tom Gerace at BeFree, to the LinkShare brother-sister team of Steve and Heidi Messer, to the sudden appearance of Lex Sisney, Per Pettersen and Todd Crawford bonding around an idea called Commission Junction.

In the those days, it was all about more. More affiliates. More free traffic. More sales at little cost. The promise was a good pitch, but the results didn’t match the promise for many Fortune 1000s, although many small businesses find it a cost-effective channel even today.

Those early days and definitions are still what many people equate with affiliate programs. But now instead of families, we see ValueClick acquiring companies. The opportunity for traditional affiliate companies to thrive is still in place. But it’s less of a cottage industry and more in the mainstream of performance marketing.

Now Less Is More

The affiliate industry is splitting in two. Fortune 1000 companies want to work with fewer vendors and build more integrated services, calling it performance marketing. For the rest of us, it’s about small business.

“As you look at the makeup of the client bases of CJ and BeFree, there are some distinct differences,” said Jeff Pullen, general manager of the new CJ unit. “BeFree focused on high-end retail merchants and has continued to be very strong in that market area. CJ has a fair number of clients, very strong in financial services, Web services, ISP market, and very strong in retails as well. If you look at the cross-section of our client base today, it is very comprehensive, which goes to the basic strategy of ValueClick: deliver full service digital marketing solutions.”

Executing that strategy requires an understanding of how affiliate marketing is maturing into performance marketing. “Over time you’ll continue to see services and technology to facilitate that growth and maturation,” Pullen said.

John Ardis, ValueClick’s vice president for corporate strategy, said the lines are blurring between search and affiliate and between media and affiliate marketing. “We tend to think of four main marketing channels: Web, email, search and affiliates,” he said. “These are not distinct channels. Seasoned Fortune 1000s are looking for a solution to simplify their lives, a one-stop place for performance marketing initiatives.”

The First Signs of Change

The affiliate industry is divided between the Fortune 1000 approach and that of small business. The top echelon includes:

  • Commission Junction – Value Click’s beefed-up 800-pound-performance marketing gorilla, with five times the revenue of the competition;
  • LinkShare’s continuing focus on just affiliate programs; and
  • Performics’ agency-performance marketing mix of search engines and agency services, with an emphasis on affiliate programs.

“The CJ/BeFree merger is a long-overdue move toward consolidation driven primarily by two things: elementary, profit-driven economic factors and the need for the affiliate marketing industry to expand beyond its limitations,” said Jeff Molander, president of the marketing firm Molander & Associates. “Simply stated, the market is only so big … featuring a finite number of marketers [and] advertisers, and can support a limited number of service providers.”

Molander believes affiliate marketing was “merely a stepping stone” for Value- Click along the path to becoming a Web-focused marketing and advertising services vendor to large agencies and small retailers. And, like most changes in an industry, the first post-merger steps for ValueClick have been small. Pullen was appointed general manager of the two groups. BFast Express was closed in favor of CJ’s platform for smaller players. Accounting, sales and administrative functions are being brought within ValueClick. Technology integration remains a much more complicated challenge that will take some time, perhaps years, to resolve.

Merchants seem to favor the merger, as long as the technology change is taken slowly, which is ValueClick’s approach. David Morse, affiliate manager for Network Solutions and a long-time client of BeFree, sees it as raising the bar for all vendors. “Being able to combine two of the strongest affiliate tracking programs has obvious synergies that will provide merchants access to a larger population of affiliates and provides affiliates with more diverse product sets to sell,” he said.

When the smoke clears in a few years, there will likely be a single affiliate entity in ValueClick dominating the high end of the affiliate industry, powered by a stable financial backing and a well-rounded set of performance marketing services for clients of all sizes.

“CJ and BeFree can put out a package in the mid-tier and high-end of the market in the short term,” said Steve Messer, CEO of LinkShare. “It’s a good thing for them, but two separate entities is not a long-term viable entity, which is their challenge.” Messer said he doesn’t consider the combined company a threat. “We never really competed against CJ anyway, they are more mid-market than we were,” he said.

The Small Business Market

The opportunity for the small business networks – the cottage affiliate industry, the ones who can still identify with those sub-Fortune 1000s – is immense. The smaller players may gain more clients as the bigger players associate with bigger companies and small businesses choose the contact and familiarity companies like Kowabunga, ShareASale and DirectTrack can offer.

Of course, if those smaller players find success, they could become attractive merger targets for a bigger network seeking to emulate ValueClick’s approach. And so consolidation could happen in this space, too. After all, the smaller affiliate networks can’t be sustained forever by the small business market.

While small retailers may not generate the sales a LinkShare or ValueClick needs, they do generate a steady revenue for these smaller networks, with monthly fees that resemble the sales of a software vendor. Added up, it creates a healthy business for this group.

Even so, mergers of these smaller networks are somewhat less likely. For one thing, they don’t have enough revenue to attract bigger partners. For another, they don’t have enough cash to attract the owner of a smaller one. While the revenue may not be as scaleable as it is for the bigger players, it does provide a solid business that will continue to thrive.

But does the industry really need so many similar companies? Keith Kochberg of iMarketing believes the smaller networks are so dependent on email that they should already be closely examining their potential for the future.

“In time, publishers will have a major impact on which of these networks are worth keeping,” he said. “The networks that remain should carve out niches and focus on servicing their advertisers and publishers. I bet they could have a nice profitable run that way, but should not think of going public.”

DirectTrack CEO Jason Wolfe also sees potential for the “personal, smaller scale” players. “I don’t see a massive swap meet, or network, where one party controls it in the offline world for resellers. Why would it work in the online world? It won’t long term,” he said.

Wolfe believes there is potential for what he called a “small-scale with a vertical approach,” something that is the core strength of affiliate markets. Yet the verticals are not so much in specific categories, as in sizes of business. The needs of Fortune 1000s are very different, and more complex, than the needs of most small businesses.

The Affiliates

Merger, schmerger. So what does it all mean to the affiliates? Will there be a major effect?

“For the majority of affiliates, this will be the end,” predicted Kowabunga CEO Todd Farmer. “They’ll realize that when they join a network and start promoting merchants, they are actually ‘trying out.’ They can stay where they are on the JV team, and can only move up to the varsity team when they’ve proven that they can play the game.”

However, most of the industry feels the impact on affiliates will be minimal. For the most part, the biggest impact will be that they’ll have to change the links on their sites. Affiliates are an adaptable bunch, but there will be a continuing separation between the needs of super affiliates – those players like eBates that generate high-volume sales – and the small affiliates.

To be sure, affiliates for the Fortune 1000 will be subject to more rules and more scrutiny, but this hardly means the end of small affiliates or networks. In fact Farmer’s company, Kowabunga, is often mentioned as a possible acquisition target precisely because of its cozy relationship with the smaller companies. If a high-end company acquired it and added a strong technology solution, the combined company would be able to serve several levels of affiliate marketing. But is that enough? And do the bigger players really need the small business end of the market, which thrives more on monthly fees than overall sales?

It seems the affiliate industry has separated into two separate worlds – that of big business and small business. Both are strong markets, but it is rare for a company to play both ends of the game, which is the challenge for ValueClick.

Is LinkShare smarter just focusing on affiliate programs, while BeFree/CJ and Performics become agencies with an affiliate emphasis? Only time will tell.

After the Merger

Are the old ways of affiliate marketing gone? Yes and no. For the Fortune 1000, the appeal of affiliate programs has always been too small. But with this merger, there is now an entity with the revenue, financial stability, public exposure, technical savvy and integrated opportunities to truly be called performance marketing.

Yet that very growth may intimidate the smaller market which will flock to the more friendly, cost-effective solutions. The roots of the affiliate industry are in that group. While they may not go public, and there will be fewer of them soon, the smaller players who survive will find it a bright future.

Like the early pioneers of affiliate programs, these smaller companies are more like families than agency monoliths. Being small can be as good as being large, depending on your goals. For ValueClick, LinkShare and Performics, the goals are loftier.

But for Kowabunga, ShareASale and DirectTrack (plus the absolute multitude of other smaller companies in the battle), the goal is just revenue and generating a good business. While there are other players in this industry, there will be fewer in the small business end and the high end.

This merger is the first sign of a long overdue consolidation, one that can only lead to a more effective affiliate industry powered by tradition and evolving to meet the demands of the biggest companies, and the smallest.

DECLAN DUNN was one of the earliest Internet marketers and is the author of two e-books, Winning the Affiliate Game, and The Complete Insider’s Guide to Associate & Affiliate Programs. He is CEO of DemandLab.com, a training program focused on Internet marketing.

Wanted: Affiliate Manager

Here in the midst of the fearsome jobless recovery, one job remains hard to fill: affiliate manager.

And nobody seems surprised. After all, online affiliate marketing is still a relatively new field. While thousands of corporations have established affiliate programs, many still haven’t figured out the skills required to manage the programs well, much less what they’re worth.

Can you blame them? Anyone who has ever tried to explain affiliate marketing to a friend knows the very concept can be, well, a bit abstract. But now some very large companies are starting to notice there is real money flowing in from that strange little group of people in the affiliate marketing area. And the pressure is on to find someone who can lead them to greatness.

But what exactly goes into that job description? What skills are required? What experience is needed? And how much, exactly, should the affiliate manager earn? Is this a technical job or a marketing position? Or does it require an MBA?

We set out to answer those questions after we discovered salaries spread out, pretty evenly, from $40,000 to $250,000 – a range that reflects a great deal of confusion. (About one in eight AMs makes more than $120,000 annually.) With the help of many experts, we also learned there are some common elements to great affiliate managers. Revenue is proud to present the top 10 traits that the folks in HR absolutely must list when placing an ad that reads: “Help Wanted – Affiliate Manager.”

1. Great Communicator

Perhaps the No. 1 skill desired in an affiliate manager is the ability to communicate well through many media to many affiliates. Affiliates need to know about your products, prices, promotions and a whole lot more. “Tell your affiliates when you’re having a promotion, tell them what your hottest products are,” said Matt Ranta, affiliate manager for electronics retailer Vann’s. “Don’t make them go out and find it.” Monthly or weekly newsletters and regular emails are key to that communication.

Carolyn Tang, AM for CollectiblesToday.com, uses informal, usually weekly, text emails to communicate affiliate stats, merchandising ideas or details on the merchandising manager’s “hot product” picks. “Communication isn’t just the writing,” Tang said. “It’s the ability to communicate with affiliates on different levels, from casual to complete professional, like making sure checks get paid on time and problems are solved.”

Since affiliates come from many backgrounds – single parents with children at their feet, retirees, home-based entrepreneurs and companies sometimes larger than the merchants themselves -“we put marketing tips in the newsletter, from ‘How to increase conversion rates’ to ‘How to increase your average order size,'” Driscoll said.

“I am in contact today with 400 to 450 affiliates that I consider to be the top producers in the industry,” said Andy Rodriguez, an outsourced affiliate manager and owner, Andy Rodriguez Consulting in Miami, Fla. “Our conversations include ‘How’s your family, how’s your dog?’ It’s that information I can draw upon when I bring a new affiliate aboard.”

2. An Entrepreneur

In true entrepreneurial form, AMs must be self-motivated innovators who can create a custom blueprint for growing the merchant’s affiliate program, follow and forecast revenue, select affiliate tracking technology, understand contracts, manage data feeds, and represent the merchant’s brand and interests through the affiliates – often with little support from others within the company.

“The affiliate manager is basically CEO of this little slice of pie within the bigger program,” Driscoll said. “They basically get to run their own show, their own business, with their own sales force through the affiliates.”

Todd Daum, vice president of marketing for Overture, added, “Being able to recognize an opportunity, such as a high-potential affiliate or an opportunity for a new promotion, will go a long way in helping differentiate one affiliate manager from another.”

3. A Bit of a Nerd

Of course, it’s not enough just to be a hotshot entrepreneur. Great AMs should also be, well, a little geeky. They’ll need to understand html, search engines, coordination of search keywords and search URLs. They’ll need to provide quality control for the Web site, as far as researching availability of images, scanning images and uploading images.

It also pays to have hands-on experience with BeFree, Commission Junction, LinkShare and/or Performics management interfaces. And, of course, the AM should be a whiz at communications tools such as instant messaging, PDAs and online chats. Online forums are great learning tools for uncovering current tech issues, such as new parasites and new pop-up or anti-virus software. So managers may want to hang out in some.

Many AMs also are affiliates themselves, giving them the experience of working with technology from the affiliate’s point of view. “Have your own affiliate site, or set up a test account in Commission Junction [or other network interface],” Ranta said. “Go in and see what an affiliate has to go through to get a text link, a banner or individual product links. That way, [you] can walk new affiliates through the process.”

4. A Marketing Maven

Hear ye, hear ye: AMs must be able to sell affiliates on using their program, and sell internal Web designers on creating a site that makes sales once people discover it. “If you’ve got the qualifications [for being an AM], and it’s apples to apples, what breaks the tie is chemistry – someone who could really keep the affiliates motivated and pass on that enthusiasm for our products to them,” Driscoll said.

Marketing goes one step further: “You want to give your affiliates good sales tools – not just banners – that really work,” said Jim Gribble, an outsourced AM and managing director of LinkProfits.com and PartnerIndustry.com. That includes links coded to product tracking information, so affiliates don’t have to log onto a management interface and go through the rigmarole of downloading each individual product.

It also includes having real, personal relationships with at least your top 20 affiliate partners, Gribble said. “Then spend at least 25 percent of your time prospecting for partners. Even if the program is going well, [you should] always be looking for new partners.”

5. Resourceful

AMs face constantly moving challenges: forming alliances with key players who can move the merchant’s program forward and finding creative ways to reach decision makers on the sites they want to partner with. “Maybe pick up the phone, or use regular mail to get their attention,” Gribble said.

The AM also has to know how to adjust quickly to increasingly sophisticated affiliates. “There’s more and more (affiliates) who are really getting smart about their business,” said Michael Brucker, affiliate manager for Yahoo. “They are placing the search engine bids. They’re coming in and asking really targeted questions, and they’re challenging us: What’s our conversion? What are our proprietary keywords?”

6. Good with Numbers

It pays to keep track of sales numbers. “I monitor that on a daily basis,” said Jack Boulant, affiliate manager for InsureMe.com. “We have an amazing IT department, so we can really see the affiliates that are drivers for us.” How does Boulant reward his superaffiliates? “Increase their payouts,” he said. “A fair thing is to pay them 45 percent of what we make – so we’re both making a profit. Together we are growing this company.” AMs also must take care of financial reporting, figure commissions, cut the checks, and analyze what clickthroughs are legitimate and what could be fraudulent.

7. Graphically Inclined

An AM must come up with fresh banner ads and provide design input for Web sites in order to increase sales. “They must know how to work with a designer, or have Photoshop experience,” Ranta said, “and be able to do quite a bit yourself or communicate what’s needed to the design staff.” A 30-day version of Adobe Photoshop can be downloaded for free at Adobe.com. AMs will need to create special storefronts for seasonal events, size and process new images, research and load missing images, and coordinate photography of new products with the photo studio and designers.

8. Respectable

AMs must have a commitment to doing the right thing: being truthful, ethical, and quick to resolve problems. “Be true to your word,” Ranta said. “Your word is your bond.” For instance, Ranta recently made a mistake in a contest he was running and errantly told one of his affiliates that she was the winner. “I gave her the prize anyway, and told her in person that I had made a mistake,” Ranta said. “If you tell your affiliates you’re going to have a new data feed available, or you’re going to go in and do new creatives, you need to follow through in a timely fashion. Don’t say something just to get them off your back.”

Because affiliate managers are salaried plus commission, rumors abound that “doing the right thing” with affiliates is held back if that means AMs could lose money on their sales charts. “But it’s been proven that once they do the right thing, such as dropping parasitic relationships, the sales numbers just blow up,” de Poel said. “It doesn’t matter what your competition is doing; it doesn’t matter what search engine optimization guys are doing. It matters what you are doing for your channel, treating your affiliates appropriately and rewarding your affiliates for the business that they drive.”

Remember, said Tang, “We all make mistakes. The ability to say, ‘I’m sorry,’ and make up for it is where all the respect comes in.”

9. Contactable

By returning toll-free calls, emails, forum questions or instant messages within 24 hours, affiliates feel like telecommuters and part of a team. Even if the affiliates aren’t contacting you, it’s a good idea to be checking in with them: “I always check in with my affiliates, some more than others,” Boulant said. “I at least try to do it on a monthly basis; some of our top affiliates I talk to on a weekly basis, some more than that.” But what about those affiliates who don’t like to be bothered and are happy just being paid on time? “It’s all part of the relationship process: you have to learn what your affiliates want,” Boulant said. “What I do is I send new affiliates a welcome-mail, and then leave them a voicemail just to introduce myself so they know that there is someone here just to help them. If I get a response by email, I know they’re more responsive to communication that way. Some call, and I respond the same.”

Said Rodriguez: “You have to be able to go home at night, and think that you have people working until 2:30 or 3 in the morning for you, placing links and banners on their pages to sell your products. Be accessible to them, even at that time.”

10. A Team Member

The best AMs can work with cross-functional teams including customer service, sales, technology and administration. “Excellent affiliate managers should have the ability to work closely and effectively with account managers,” said Daum at Overture. “Taking the time to develop those relationships is imperative.”

AMs must also treat affiliates well, be good relationship builders, and know how to reward but not “manage” their affiliate sales team. “The long and the short of it is maintaining and building a relationship with an affiliate,” Boulant said. “Good or bad, it should be ‘Tell me and I’ll take care of it.'”

It boils down to this, said Rodriguez: “Be sure that the merchant and the AMs are on the same page. Treat your affiliates as partners, they are your salespeople. Be sure you have open communications to build a level of trust, so that when everything is going great, everyone is on the same page, but when you have a problem, you can go to them and say, ‘Everything is going to be fixed’. It’s no different than a marriage, [except] the goal here is for everybody to make money.”

JENNIFER MEACHAM, managing editor of Revenue, has been writing about business and technology for more than a decade. She was named the Region X Journalist of the Year by the US Small Business Administration in 2002.

No Free Lunch For Merchants

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

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

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

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

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

Micro Management

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

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

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

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

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

Hidden Costs

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

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

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

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

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

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

The Creative Touch

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

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

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

Crying Game

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

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

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

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

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