AOL’s Advertising Aspirations

What a long, strange trip it’s been for AOL.

The more than 20 year old company that was once at the forefront of Internet community building and defined the online experience for many early Internet adopters, is now experiencing a bit of an identity crisis.

AOL has moved far beyond its famous “You’ve got mail”catch phrase/punch line/movie title. So, then how does AOL define itself ? Is AOL an Internet provider, a media and entertainment company, an ad network, an email provider or a Web portal?

While it’s all of those things in one fashion or another,the company is working toward positioning itself as just one thing – a next generation ad network.

“AOL has reinvented itself so many times. It is hard tokeep track,” says Adam Schlachter, senior partner at media and communications consultancy Mediaedge:cia.

AOL’s ad strategy comes at a time when Jeffrey Bewkes,CEO of Time-Warner, acknowledges there is no future in the dial up Internet. There is increasing pressure as media companies and Web portals aplenty are starting and the future is buying or promoting networks as the next step toward”one-stop” shopping for ad buyers.

Acquisition Spree

In an attempt to reinvent itself, AOL has spent about $1 billion acquiring ad-centric companies over the last several years. (See sidebar). AOL’s first big step into the ad market was its 2004 purchase of Advertising.com for $435 million. Advertising.com made a name for itself selling ad space on websites at a time when few were doing it and is the largest third-party display advertising network.

In 2007, AOL bought contextual advertising company Quigo. It alsosnapped up Tacoda, a behavioral targeting company. It bought Third ScreenMedia, a mobile advertising network and maker of mobile software. It also acquired Germany’s Adtech AG, an international online ad-serving firm and added Lightningcast to its roster of companies. Lightningcast delivers advertising for on-demand, live and downloaded video content on the Internet.

The buying spree continued this year. In February AOL acquired Buy.at, an independent affiliate network based in the United Kingdom, with more than 9,000 international affiliates and merchants such as Butlins, Carphone Warehouse, Capital One, Egg, John Lewis, M&S, Powergen, TMobile and Virgin Media.

In March AOL made a step into the Web 2.0 world by acquiring Bebo.com, the fourth largest social networking site, for $850 million. With more than 40 million members, Bebo’s user base is a far cry from the space’s leader MySpace with 109 million.

The Platform Play

AOL’s Platform A division brings together all of AOL’s ad-related silos under a single umbrella. Formed in September 2007, the division has already experienced a series of executive shakeups. Since November, several Platform A executives have exited including Kathleen Kayse, vice president of marketing; Lance Miyamoto, head of human resources; and Dave Morgan, chief ad strategist.

Curtis Viebranz, CEO of Tacoda, who was brought in as president of Platform A, was removed in March. Lynda Clarizio, a nine year AOL veteran that was previous president of Advertising.com, took over the reigns of Platform A.

Clarizio, for her part, has reportedly jumped in with both feet. She is known to have reveled in the start up culture of Advertising.com. PlatformA insiders say she is looking to infuse the many AOL ad groups with that same startup work ethic. And up until recently, the acquired companies had so many department heads with similar roles that many insiders claim various parts of Platform A were essentially competing with themselves for the same clients.

Clarizio has publicly said she will structure teams so that there is only one sales team, technology team, product and operations team, marketing team and publisher services team. She has also combined the overlapping search marketing efforts by Advertising.com and contextual targeting shop Quigo.

In recent interviews with the media Clarizio focused on the short term goals of the group, rather than the executive turnover and claims of integration difficulties.

“As our technology has continued to advance, we’ve gotten better and better,” Clarizio told the Associated Press.”We can handle a lot of demand from advertisers.”She also told the Washington Post that “this is probably the most dynamic industry in the world right now, the online advertising space. To compete effectively in this space, you have to be constantly pushing, innovating new products.”

Some analysts are giving AOL the benefit of the doubt as it works though integrating all its acquisitions.David Hallerman, an analyst at New York-based eMarketer, says, “It takes a while. This is not just buying technologies. It’s buying human constructs, and it takes a while to work out.”

While Platform A is still in its early stages, its reach is already significant when accounting for all the once-disparate units. According to comScore MediaMetrix, Platform A counted 167 million unique visitors in February 2008 and claims 90 percent of the U.S. online audience. However, AOL as a whole, however, ranks fourth as a Web portal, behind Google, MSN and Yahoo.

AOL’s ad revenue is still growing but not at the same clip as previous years. Its ad revenue for 2007grew 12 percent, off the 37 percent growth AOL experienced in 2006 and the 38 percent growth in2005, according to eMarketer.

“AOL appears to be feeling pressure from aggressive sales targets set against the backdrop of a slowing economy,” says Greg Sterling, analyst at Sterling Market Intelligence.

Advertising.com recently lost its biggest advertiser, University of Phoenix, whose ads accounted for $215 million in 2007 and $157 million in 2006- that’s about 17 percent of AOL’s ad revenue growth last year.

There has also been repeated speculation that Time-Warner may sell off AOL and that the recent acquisitions and formation of Platform A is meant to make the company look more attractive to potential buyers or as a spin off company.

And with Microsoft’s bid to buy Yahoo rejected by Yahoo shareholders, AOL is once again mentioned as a potential merger partner with both of those companies as each seeks to thwart Google’s continued dominance online.

Last September there was talk that Platform A itself could be spun out and become public with an IPO. There was also wide spread speculation in the blogosphere that with the dial up business and its Web portal stagnating AOL might change its name to Advertising.com in an effort to clarify its focus to outsiders.

A Big Plan

A key element in AOL’s ad network strategy is the purchase of Bebo.com. Some industry observers say that in a best case scenario, Bebo can leverage the behavioral targeting capabilities from several of the PlatformA companies to better target certain demographics,and will be able to scale to reach a larger audience with AOL’s Instant Messenger.

While revenue from ads on social networks is likely to reach $1.6 billion this year – up from $920 million in2007 – the lion’s share of that money was from MySpace and Facebook.

“It’s hard to know what AOL is getting,” says Ryan Jacob of the Jacob Internet Fund, a firm that invests in Internet companies.

At the time the Bebo.com/AOL deal was announced inApril 2007 there was some debate in the press that AOL was overpaying for the network, given that Bebo’s traffic over the preceding three months had been relatively flat.The Silicon Alley Insider reported that many AOL senior managers were against the deal and that AOL president Randy Falco and COO Ron Grant alone pushed hard for the acquisition. AOL did not speak with Revenue regarding those issues.

In 2006, AOL’s first attempt at dipping into the social network pool (the launch of AIM Pages) was labeled by industry watchers as a misstep. The project was reportedly slow, weighed down by ineffective JavaScript and patched together from up to seven AOL systems. AOL replaced it with a simpler AIM Profiles platform within six months, aping a Facebook look. Since AOL merged AIM Profiles with its extensive Member Directory it gets about 170,000 page views a day, says comScore, however Facebook gets about 1.2 million. “As soon as it bombed, no one wanted anything to do with it,” an anonymous AOL product manager told TechCrunch.

AOL has also faced challenges on the search front. In2007 AOL went from a results page with links for copy, images, song files and other elements to a cleaner page that looked more like Google’s. Reportedly, the reasoning behind the change was that the diversity of search results was slowing down the pages from loading and that had an impact on revenue per search.

But revenue on search in the new format actually dropped to $156 million from $232 million in a previous quarter.

At the time, the top brass at Time-Warner claimed the search improvements would be good for traffic growth. But traffic in the following four months dropped with unique visitors down 0.2 percent from March to May 2008, to 30.6 million in November 2007 from (what), according to comScore.

“It’s troubling that they didn’t know what the impact of the search change would be,” Richard Greenfield, analyst at Pali Research, says. “This raises serious concerns about their ability to run the business and turn it around.”

The Transformation

From a content and functionality point of view, AOL maintains a variety of strong offerings. Its Truveo video search engine sports 100 million videos to search and is on track to total 1 billion by 2009. Its TMZ.com gossip site is on fire with 10 million visitors per month and a spin off TV show. AOL Music’s free music has an array of videos, news and concert tour information and is second only to Yahoo’s music portal.

AOL TV is the only site that hosts shows from all four of the major broadcast TV networks.

One AOL insider, who asked not to be named, says part of the problem is that AOL is unlikely to gain the same type of dominance it once enjoyed and being held to that old standard is unrealistic.

Before the dot com bubble burst in 2001, AOL’s userbase at its height was estimated to be more than 27 million people (it’s now about 10 million) all paying about $19 per month to stay connected. Its biggest coup was the much ballyhooed merger with Time-Warner in 2000. However, things quickly soured and by 2002, the combined company wrote off $99 billion. And, by 2003 the media giant had removed the”AOL” from its name and AOL head Steve Case from his chairman’s seat.

In 2006 AOL seemed to be making a comeback. It became free (it’s all ad-supported) and saw 46 percent ad-revenue growth in a single quarter, 49 percent the following quarter. Its stock seemed to spring back, too, rising as much as 40 percent in a six month period. At it’s height in 1999 AOL’s stock hit about $147. It currently hovers around $15 per share. AOL revenue in 2007 was $5.2 billion and its websites still draw 112 million visitors per month. Plus, it continues to have one of the most recognizable brand names on the Internet.

“If you just look at what AOL has accomplished in the last three years, it is amazing,” the source says. “I just don’t know how anyone can see that as failure. Most companies would kill to have achieved this level of success in online advertising.

Leagues of Their Own

Since the days of the gladiators, sports fans have had an irrational bond with their favorite athletes and teams. Feats of athleticism evoke eruptions of euphoria or a tidal wave of tears as a game’s final play unfolds.These strong emotions create an indelible brand loyalty that remains long after the season ends.

Marketers are learning to exploit these relationships in new ways by expanding the scintillating sights and sounds of sports beyond television highlights to broad online distribution. By enabling fans to personalize their interactions with multimedia content and by bringing the game to their favorite arena – be it a social website or a personalized Web page – sports leagues are creating new online marketing opportunities that are increasing revenue. Typically, online merchandising of memorabilia and apparel is not handled by sports leagues’ online properties and is therefore not addressed in this article.

Sports leagues and their broadcast partners have historically been conservative in granting permission to use video and audio from games online. This idea was based on the belief that making highlights or live broadcasts available dilutes the value of live games and would reduce advertising revenue and attendance. For example, in the late 1990s, local radio affiliates streamed broadcasts of baseball games online for free. But within two years, Major League Baseball ended the process, allowing audio webcasts to be streamed only through the MLB.com website through paid subscription services.

Baseball continues its policy of charging to listen togames online today. Dinn Mann executive vice president of content for major league baseball, says the league listened to fans and for the 2008 season reduced the price of a season audio subscription by $5 to the former price of $14.95. “We tipped our cap to fans who complained,” he says.

Requiring customers to pay for live audio provides an alternative revenue stream, according to Mann. “Having a subscriber base and not relying entirely on advertising is of strategic importance,” says Mann. Subscriptions,which require submitting an email and physical address, provide an avenue for MLB to pursue online and offline direct marketing.

Major League Baseball also charges for video streaming of live games and restricts viewing to any games that are “out of market” from where the customer lives. This protects the lucrative contracts with cable companies and local TV stations that are the bread and butter of their revenue. Baseball game viewing- despite the lengthy 162 game schedule – remains largely a pay-per-view world, Mann says, because “some things are still worth paying for.”

This year is the first time that baseball fans can watch archived broadcasts of full games for free, something that MLB is”experimenting with,” according to Mann. The archived games do not feature advertising, but MLB is “exploring the right relationship,”Mann says.

Growing the Audience

Sports leagues are now taking a page from online marketers’ playbooks by encouraging consumers to personalize their experience in interacting with content. Instead of going the affiliate marketing route, the digital sports media companies are focused on partnering with social networking sites and other media companies that have established audiences of fans. The strategy is to encourage consumers to link to and save content on the sites where they visit on a daily basis, enabling fans to mash-up multimedia content to create something new from existing content. Marketers who join the roster of their online partners will gain a share of the spoils in growing their audience and reaching a new generation of fans.

At the start of the 2008 season, MLB.com announced a partnership allowing Yahoo.com to stream games and highlights.Yahoo will also sell ads against both pay and free content, although thus far the video has been distributed largely without ads. Through this agreement, MLB.com gets access to Yahoo’s large audience and the two companies share revenue from any transactions facilitated through Yahoo.

Professional and collegiate sports leagues have learned that embracing younger audiences on their home turf is the quickest path to rapidly growing an audience. The NCAA, in partnership with CBSSports.com, opened the video streams of its college basketball championship tournament to a wide variety of publishing partners with great success. This enables fans to see the content where they want it delivered.

Just a few years ago, video streams of March Madness games were protected from the majority of the population as if they were enriched uranium. The subscription service generated just $250,000 in revenue annually. But over time online distribution was proven not to be hazardous to the health of television advertising revenue. Subscription fees were replaced with free streams, and then the NCAA/CBSsports.com embraced social networking (See sidebar).

Free live game webcasts have paid huge returns, according to Jason Kint, senior vice president and general manager of CBSSports.com, which manages the online video distribution of the NCAA tourney. CBS Sports created an embeddable media player that contained multiple advertising locations, in-stream ads, and fixed positions sold to sponsors.

Online “consumption is additive and not cannibalistic”of the TV audience of live college basketball, Kint says.The streams were primarily delivered to people who didn’t have access to TV, including office workers. The media player’s “Boss Button,” which instantly hides daytime viewing at the office, was clicked more than 2.5 million times, according to Kint.

People will continue to watch games on TV if they can,he says, as the final championship game was the most watched game on TV and had the smallest proportional share of online viewers. Industry watchers speculate this type of arrangement may lead to new relationships between those who promote other events, such as concerts or entertainment awards shows and affiliates who can deliver a targeted audience.

Content owners looking to maximize their audience for ad-supported content should also spread it far and wide, Kint says. “Don’t expect users to come to a URL – bring the content to them.”

Like its collegiate counterpart, pro basketball also recognizes that working with existing online communities enhances rather than endangers its own digital efforts. For the past two years the NBA has “embraced the idea of distributing content beyond NBA.com” and is partnering with video sharing and social networking sites, according to NBA’s Vice President of Interactive Services, SteveGrimes.

Grimes says working with video sites such as YouTube, Joost and Hulu and social networking sites such as Facebook, Beebo and MySpace has increased fan engagement. The NBA makes highlight videos available to publishers such as Hulu and Joost to strengthen its brand awareness among younger audiences who are consuming a greater majority of their video online.

The NBA is encouraging fans to create their own highlight reels by mashing up content available only on NBA.com and embedding it on their social networking sites. “Fans that love the NBA will come to NBA.com, but those who like it will visit other sites,” Grimes says.Widgets that enable sharing of content are delivering interactivity to sports media. NBA’s widget page (www.nba.com/widgets/) contains embeddable code for showing highlights, up-to-date-scores and photos. The NBA has sponsorship deals with companies including Lenovo and TMobile for some of its widgets to gain revenue from content that sits on other sites, Grimes says. The league has also launched a fan application on Beebo to reach its audience.

“(Sports) sites are starting to realize the power of how content can be aggregated across the Web (using widgets),” says Tad Greenleaf, the media team lead, for Omniture Consulting. Greenleaf, whose company has measured fan engagement for the websites of all of the professional leagues, says that while some leagues have hesitated on widgets and distributing content to other sites, they will do so as long as they can maintain some control.

By contrast, MLB has not released any widgets as yet because “we haven’t reached the point that the content needs to reside on their (fans) pages,” says MLB.com’s Mann. “… We have taken a long term view and not just rushing to the tool of the day.”

Measuring Success

Most of the sports leagues are more concerned about building traffic and fan engagement than selling tickets or jerseys through their partnerships with publishers, according to Ominture’s Greenleaf. His company built a social networking website for the Indianapolis Colts (www.mycolts.net) that greatly increased traffic to the NFL’s Colts site by enabling fans to comment, share content and create their own blogs. The leagues want to measure views of videos to see how they can be used to retain consumers, Greenleaf says. “How much can a piece of content drive people into the site, or are they hitting and leaving?” He says sites want to see if the relationships have “velocity” and are encouraging users to “dive deep” into the sites.

Greenleaf says another strategic play is for leagues to buy keywords about teams, players or about timely topics in the news because the leagues “don’t want them going to other places on the Web.”

“The key thing is that you need to control [the environment] if you are the owner of the content,” says Robert Tuchman, the President of TSE Sports and Entertainment, which develops corporate marketing programs around sports. Tuchman says those who market sports leagues have yet to capitalize on the legion of diehard fans that follow their sport. “They have to get behind their existing market or other organizations will control their inventory.”

Tuchman says while social networking around video highlights is the hot topic today, it should be part of a larger strategy that integrates all media. “Social networking is just one aspect. You need to sell combined media packages” that include TV, print and outdoor, according to Tuchman.

Scoring With Mobile

The days of learning how your team fared by reading the morning paper are long gone. Now fans want to know about scores, injuries and trades immediately, and the league sites are marketing to this perceived need. Through mobile-device enabled websites (WAP) and SMS and text-messaging services, sports leagues including the NHL, NBA and MLB are generating revenue from on-the-go consumers.

For the 2008 season, MLB.com added video alerts to its text alerts subscription service. The alerts highlight great catches or home runs from a fan’s favorite team that will be sent to handsets within three minutes after a play happens. The NBA’s “mobile to go” service offers team and player text alerts as well as a service customized for fantasy league fans.

Quattro Wireless launched the mobile version of the NFL Draft site for the annual draft, which took place in April. The site, which included photo galleries,articles, draft prospect pages, player analysis, and the full draft order, was updated in real-time as the college players were selected by NFL teams.

“The NFL is trying to continue to give their fans more coverage wherever their fans may be,” Lars Albright, vice president of business development for Quattrosays. “The NFL found that the draft is turning into something of an event … It’s becoming a marketable event.”

Sports leagues and news services originally charged subscriptions for notifications to mobile phones and handhelds, but they are starting to shift to ad-supported services, says Eric Eller, senior vice president of products and marketing for Millennial Media. Eller, whose company operates two mobile advertising networks (CPM and CPC) that aggregates demand, says one of the big trends is in-game mobile marketing.

For example, during a game, fans in attendance can be shown messages on their mobile phones that are linked to messages being shown on the big screens that sit high atop the stadiums, Eller says. Mobile phones “will play an important part of sports marketing around events,” he says.

Sports leagues have learned that by making highlights more widely available and engaging on their favorite online destinations, they can grow both their television audience and put more fans in the seats.

Marketing in Action: Q & A with Seth Godin

If you’re in any way involved in marketing – online or off-line – chances are that you’ve read at least one of marketing guru Seth Godin’s best-selling books. He is the author of 10 books, including “Meatball Sundae,” “All Marketers Are Liars,” “Purple Cow,” “Permission Marketing” and “small is the new big.” Armed with a degree in philosophy and computer science from Tufts University, he began his career as brand manager for Spinnaker Software in Cambridge, Mass. Godin is also founder and CEO of Yoyodyne, an interactive direct marketing company, which was acquired by Yahoo in 1998. More recently, he founded Squidoo, a recommendation website, in 2005. Revenue’s Editor-in-Chief, Lisa Picarille, talked with the author, blogger and in-demand speaker about his unique views on marketing.

Lisa Picarille: How would you characterize the current state of online marketing?

Seth Godin: It works! It’s always worked, but now it really does. And, at the same time, off-line marketing is not working. We regularly see the results marketers are getting with big campaigns fail to meet expectations. At the same time, the power of social media continues to expand.

LP: What are the most important components of successful online marketing?

SG: Making something people want (choose) to talk about. They have power, not you. Also, delivering anticipated, personal and relevant messages to those that want to get them. And finally, treating people with respect.

LP: Can you give some examples of companies (and/or people) that are getting it right, and why?

SG: Talk about the importance of social media in online marketing – it’s becoming increasingly clear that messages that spread from person to person are far more powerful than those that come straight from a company. So, social media is powerful, but not if it’s manipulated. Then it fails.

LP: Are there aspects of social media that work for online marketers more effectively than others (Facebook, Twitter, blogs, vlogs, etc.)?

SG: Social media doesn’t work for marketers. Social media exists for the users. Sometimes there’s a positive side effect for a marketer who makes something worth talking about.

LP: You often post multiple blog entries each day; where does all your inspiration/topic matter come from?

SG: I look for things that are broken and then talk about them!

LP: If you were to give advice to someone that is just starting out in online marketing, what would you tell them to do as a first step?

SG: Start a blog. It’ll make you humble. And a better writer.

LP: Your book “small is the new big” is a huge success. But do the “Big Guys” really get it? It must be a whole new concept for many companies to grasp that success doesn’t directly correlate to size. That goes against everything they were taught.

SG: Yes it does. That’s where the meatball sundae comes in. This is a new time, a new era and a new industrial revolution. Not everyone will play by those rules, but that’s okay, because those that do will thrive.

LP: I’m curious what role you think customer service plays in marketing, and are online marketers leveraging that facet to their advantage?

SG: Customer service is part of the product now. So, amazing service (e.g., Amazon) is a valid replacement for advertising.

LP: What role do you think mobile marketing will play in the future of online marketing?

SG: Mobile marketing demands permission. You can’t do it as a spammer.

LP: What are the three trends that online marketers should have on their radar for 2008?

SG: Make great stuff. Get rid of the factory. Measure.

LP: What are the top challenges and hurdles that marketers are facing right now?

SG: This whole thing about “prove it,” and show “ROI” is totally bogus. There’s no ROI on TV or other traditional media. Why do I have to prove that the measured thing is better than the unmeasured?

LP: I keep wondering if marketers will become the new “celebrity chefs.” Do you see a time when marketers will be garnering more PR, praise and adulation than CEOs?

SG: I see a time (now) when the great marketers are the CEOs. Like Steve Jobs of Apple and Howard Schultz [chairman and CEO of Starbucks] and Sir Richard Branson of Virgin Corp.

LP: Is there an industry, vertical or niche that is poised to benefit more than others from the evolution of online marketing?

SG: The only people who won’t want to play in this space are those that make commodities, because it makes it more brutal. The neat opportunity is that almost anything can stop being a commodity (bottled water, micro steel mills, etc.)

LP: What is your vision of online marketing five years from now?

SG: When online is everywhere, all the time, it’s all online marketing.

Searching for Alternatives

It was a cold night in Pennsylvania when Leila Crooks was on Digg.com, the community-based popularity site, and came across a story about a "slanket" – a fleece blanket with sleeves that offers the freedom of arm movement so people can play video games or surf computers while snuggling under a blanket.

Crooks was intrigued, bought one, loved it and sent the link to three of her friends who all bought them. At $50 a pop, the maker of the Slanket was benefiting from Digg. The number of sites for finding information online – that are alternatives to search engines – is growing and the traffic to them is increasing. People go to them for different reasons: to find experts who can provide the best possible information, to have material presented in a different way, to see what other users value as important and to find information they know will be relevant to them specifically.

The Slanket example illustrates the difference between search (or "recovery") and discovery. Search (or recovery) is when you are looking for something specific – a confirmation of information that you know already exists, such as information about the governor of New Jersey or a recipe for meatloaf. Discovery is when you find something you were previously unaware of, weren’t specifically looking for or didn’t know that you’d have an interest in. It’s akin to reading additional stories in the newspaper because of the proximity to the article you wanted to read.

Amanda Watlington, founder of Searching for Profit, says social media sites like Del.icio.us or Reddit.com are organized to present information in different ways, which can appeal to people "depending on how their brains work." Users go to the Most Popular section of these sites and check out what others deem to be interesting.

Internet marketer Carsten Cumbrowski says he passes time on StumbleUpon.com, a browsing engine, to find sites that other online marketers find useful as well as to find sites that entertain him. He says it has a good filtering system – "if I say I don’t like something, I never get anything similar again."

Online marketers that want to leverage StumbleUpon can try its advertising system, which includes the link of the advertiser’s website in the regular StumbleUpon rotation. When a sponsored site is shown, a green button on the toolbar appears. However, some advertisers who have placed requests to get visitors in their category have received notices from StumbleUpon that there are not a sufficient number of people to view the ad in the category selected. Skeptics wonder if this is because StumbleUpon does not want to deal with a low ad spend or if they are overstating their traffic numbers.

Cutting Through the Clutter

As users become savvier in locating information, they realize that search engines are heavily monetized and loaded with nearly as many marketing messages as sought-after information, and they seek out alternatives, according to Sam Harrelson, general manager of the East Coast U.S., for Clicks2Customers.

Others agree that "less noise" and the struggle to find relevant information on search engines often lead people to alternative sites.

For example, if users are looking for tax help, they might go to Digg and read an article like "five ways to get your taxes done" rather than entering "tax help" into a search engine, which yields promotional sites about tax services, according to Chris Winfield, president of 10e20, an Internet marketing company.

Users often go to review or opinion sites to find information to complement what they have found on search engines. Winfield says he will search Google for a dentist in New York to get some names and then go to Yelp.com to look at their reviews. Searching for Profit’s Watlington says she searches for hotels in New York and then goes to TripAdvisor.com for the reviews.

Tim Mayer, vice president of product management of search at Yahoo, explains that when users don’t find the answers they want on search engines, they can ask a question on Answers.com. The site includes 4 million answers from publishers, original content created by its editorial team, community-contributed articles from Wikipedia and answers from WikiAnswers.com.

WikiAnswers is collaboratively written by volunteers "in the spirit of growing information for the public good," according to its website. For contributions that users find to be worthwhile, users vote with Trustpoints, which are indicators of how trusted the last contributor is as a member of the WikiAnswers community (as opposed to a measurement of how much you can trust the actual answer to a question). Trusting a user’s reputation is vital to not only WikiAnswers but to all social sites where users provide information or indicate the value of information (such as through tagging, bookmarking or ranking).

Just like in off-line world, the value put on information depends on who is giving it, and for this reason, users’ profiles can be weighty and influential. If you are reading an article about JavaScript on Del.icio.us, you look to see what other articles a user has saved – it gives you an understanding of that person’s knowledge base. It is similar to looking at someone’s book or record collection – it lends credibility and perspective.

Trust Me

Techmeme.com is one of online marketing expert Jim Kukral’s favorite sites because it decides what news is important as opposed to a site that simply aggregates feeds. "Techmeme saves me time. There is no need to go to a ton of blogs to figure out what is going on. That’s power to me," he says.

Techmeme works differently than other news sites. GoogleNews, a news aggregator site, uses its own software to determine what stories to display, but the sources are selected by a team of editors. Similarly, SFGate.com, the online version of the San Francisco Chronicle newspaper, also features stories decided on by editors. Techmeme creator Gabe Rivera explains that Techmeme uses a proprietary algorithm, which changes frequently, to analyze posts to determine what Web pages are being discussed or cited most often on the Web.

Blogger Robert Scoble (www.Scobleizer.com) explains that Rivera started by selecting 1,000 of the world’s top tech bloggers, put them in his server, studied their linking behavior and created a "fabric" that now includes thousands of blogs and websites. When Apple’s iPhone came out, high-profile bloggers in the fabric such as Michael Arrington (www.TechCrunch.com), Guy Kawasaki (http://blog.guykawasaki.com) and Scoble were all blogging about the new device. Because of this, the iPhone headline stayed up on Techmeme almost 24 hours a day over the summer. Scoble says he believes that information from a site like Techmeme is more valuable than information from Google because it’s more SEO-resistant – it is much more difficult for its links to be bought. For these top bloggers to link to each other, they must trust each other. "If I trust Arrington and he trusts Kawasaki and he trusts Joe Smith, then I am going to infer that I trust Joe Smith because my chain has trusted him. It would be very hard for a search engine optimizer to break into this chain," he says.

Dana Todd, president emeritus of SEMPO and SiteLab co-founder, says that she thinks it’s rather limited thinking to assume that all SEO is harmful and that SEO is the only market manipulation tactic on the Internet. "In any market, there are marketers – and they do exactly what marketers do. They attempt to find hype-holes in the system and exploit them." She notes that it took about 15 minutes for users of Digg to start manipulating the results. The findings of a September study by the Project for Excellence in Journalism (PEJ) warn that just because a news story is popular at a website (or within a certain community) does not mean that it is the most "important" story.

The PEJ study compared the headlines of user-driven news sites (including Digg and Reddit), and Yahoo News, which offers an editor-based news page and three lists of user-ranked news (most recommended, most viewed and most emailed), and compared these with the news agenda found in mainstream news outlets.

The study illustrates how the news looks different when audience members pick what story they want to read or recommend, as opposed to when a professional journalist makes the selection. The study found that the most popular stories on user-driven news are more fleeting and often draw on a controversial list of sources and reflect the interests of the participants in the community – stories on Digg and Del.icio.us tend to be more about technology, which is why they are popular among online marketers.

User-driven news isn’t new – in October the site Slashdot celebrated its 10-year anniversary as a site where users could scrutinize science, science fiction and technology- related news. It is credited for being one of the first sites to provide forum-style comments alongside user-submitted news stories. Just like Del.icio.us, you wouldn’t go to Slashdot to find out information on the latest U.S. billion-dollar defense policy bill.

In a post on his blog, Gaping Void, Web 2.0 writer/cartoonist Hugh MacLeod posits that if he were looking for a Vietnamese restaurant in Phoenix, he could Google "Vietnamese restaurant Phoenix" and possibly end up at a bad restaurant. Or as a blogger with a good-sized audience, he can ask about his dinner plans on Twitter or Facebook.com and get a couple of good recommendations within minutes. "Because I know these folks, or at least, they know me " there’s a certain amount of trust and bonhomie that comes with the recommendation," says MacLeod.

Social networking site Facebook has received lots of buzz and high financial valuation because of the "social graph" – a reference to graph theory that models the connections between things. Facebook founder Mark Zuckerberg says Facebook is not a social network but a tool that facilitates the information flow between users and their connections. It is the ability for users to get more out of their connections that people find compelling.

The Power of the People

According to Scoble, Facebook, Techmeme and Mahalo – a human-powered search engine that creates comprehensive and spam-free results for the most popular search terms – will kill Google in the next four years because users will get their information from these types of sites where trust is more than what algorithmic search results provide.

In October, Facebook added Facebook Flyers, which offers two different advertising options to the social network. Flyers Basic enables marketers to run ads on a $2 CPM with targeting based on age, gender and network. Flyers Pro lets marketers use pay per click with a minimum of 1 cent per click. As with other PPC ad buys, a higher max price per click increases the chance your ad will be shown. Online expert Kukral says Facebook Flyers "is basically Google AdWords within Facebook." He says that as an online marketer in Cleveland, this gives him the ability to do things like drill down to specific demographics with Facebook and target those users for a local "event."

"I can create an event in Facebook and then look at all the people on Facebook that are in the area and maybe have certain political or religious beliefs [based on their Facebook profiles] and then invite them to participate in an offer or event," Kukral says. "That is powerful and it could be the next big thing."

Part of trusting someone’s advice or being receptive to marketing messages is awareness of users’ tastes. David Rodnitzky, vice president of advertising at Mercantila – a collection of hundreds of online specialty stores selling to U.S. and Canadian consumers – says StumbleUpon and movie site Flixster.com are popular because they leverage collaborative filtering.

Here’s an example of how collaborative filtering works, according to Rodnitzky: Two users rate 200 movies on Flixster, and 90 percent of the time the ratings of the same movie are consistent (user A gives "Star Wars" a 10, user B gives it a 10). So if user A wants to see a Chinese-language movie but has never seen one before, and user B has seen five of them, the odds are good that whichever Chinese-language movie user B ranked a 10 will also be a movie that user A likes. When user B types in "best Chinese movies," the results are tailored to his specific likes and dislikes.

"Over time, if a collaborative filtering engine gains enough information about an individual user, it’s possible for the results to be very powerful – and far more accurate than what you get by just doing a search on a search engine," Rodnitzky says. However, the collaborative filtering engine first needs to have enough users to make those ratings viable.

Wikipedia.com is a popular search alternative that has garnered enough users to make it worthwhile. It reached 2 million answers in the English-language version in September 2007. Since starting in 2001, more than 100,000 registered users have made at least 10 edits each to Wikipedia articles. It is in the search toolbar in the Firefox browser and the sixth-most-visited network of websites worldwide. Internet marketer Cumbrowski claims Wikipedia is exceptional because it lists references – users can find out what experts think are the best resources for a topic – which obviates the need to research a topic any further.

Specialization

Finding the best information from the most informed user base is driving the growth in specialized communities and vertical search engines. Cumbrowski says there will be more specialization. As good examples of that, he points to BUMPZee.com for the affiliate community and Danny Sullivan’s Sphinn.com community for search information.

The explosion of content available on the Internet is fueling this specialization. Although Web 2.0 has made creating connections easier, it has made searching for information more difficult than ever. Because users’ queries are usually ambiguous, Google cannot serve the needs of every user. In turn, that has brought about an increase in the number of vertical properties, which restrict the scope of a search (see sidebar, Page 46).

Stephanie Agresta, a founder of the Conversation Group, says social networking sites such as Facebook and Twitter fill in the gaps. They allow individuals to tap in to different levels of networks of people to get information from someone who knows about a particular subject. Sites such as Mahalo and Squidoo.com enable users to view information through a specific user’s lens – the movement now seems to be toward a custom feed based on an individual’s friends and context, and away from algorithms.

But SEMPO’s Todd says it took only about 20 minutes for her to get bored with Facebook "because of all the ridiculous plug-ins and faux human interactions." She says that search engine optimization is not really the issue here. Google dominates that area because it caters to the very lowest common needs of users, and does so very elegantly. "It’s a tool, not a destination."

Moving forward, more of these types of sites are expected to pop up. Mixx, a new social news site – a cross between LinkedIn, Reddit and MyYahoo – is a social network that lets users find and share news based on their interests and location.

Another social network service is Ning, an online platform for creating social websites and social networks. Ning helps Web publishers create social networks around their content – more than 100,000 sites have used Ning’s tools to add their own networks. The sites range from a network of family members sharing content and photos to large networks such as Indiepublic, a social network for independent designers and artists.

Social sites are limited to certain topics, as several industries don’t have enough people using them yet and it’s tough to find any long-tail information on social sites, according to Web strategy consultant Cameron Olthuis. He expects that search engines and "alternative sites" will be completely necessary for people to continue to find information.

Power Plays

By their brief descriptions – “online auction website” and “Internet searching and online advertising company” – it does not sound like eBay and Google are rivals for the same business. But behind the boilerplate company descriptions, many experts claim that as these giants seek to grow even larger, they are going after the same types of acquisitions, which is exacerbating tensions that already exist between them.

In June, Google planned to throw a “Freedom Party” in Boston for users of Google Checkout. The event, which was to protest the exclusion of its Checkout service from the list of accepted payment providers on eBay’s sites, was to coincide with eBay Live, a conference for users of eBay.

Irked by the timing and the name, eBay pulled all of its U.S. ads for a week from Google. Later eBay reinstated “limited” ads on Google but reallocated ad dollars to Google rivals Yahoo, AOL and MSN, a move that industry watchers say served as a proof point of the simmering tensions between the two Internet powerhouses.

To date, eBay has been one of the biggest buyers of keyword ads on Google AdWords – financial analysts estimate eBay has spent just shy of $25 million per quarter on it. It is believed that eBay has been Google’s single largest advertiser, responsible for nearly 5 percent of Google’s revenue. Despite pulling its ads, eBay claimed that its traffic actually went up that week – inferring that the ads were meaningless to their business. eBay Power Seller Skip McGrath says eBay’s decision “woke a lot of people up” – causing those who spend money on AdWords to rethink their spending – in fact, he moved his spending from Google to Yahoo PPC, Miva and Seven Search after disappointing results.

Greg Sterling, founder of Sterling Market Intelligence, notes that tensions between Google and eBay existed before June. He says that eBay has long considered Google to be a rival – more so Google considering eBay to be a rival. In fact, a popular sentiment among experts is “eBay needs Google more than Google needs eBay,” Sterling says.

Matt Hulett, CEO of MPire, an online meta-shopping service, points out that eBay is a marketplace without a search engine – making it dependent on Google. It is estimated that 15 to 20 percent of traffic generated for eBay starts at Google and that 60 to 70 percent of online shoppers start at search engines. Marketing Pilgrim founder Andy Beal notes there are few companies that can say, “If I don’t get any traffic from Google, it won’t matter.” Beal agrees that eBay, like most other companies, needs Google for revenue and users.

That seems confirmed by Google’s second-quarter earnings report showing that the pulling of eBay’s ads did not hurt Google’s business. Beal says that the amount of revenue from eBay is pocket change to Google – it’s the perception of losing eBay that could potentially damage Google’s brand, he says. “It’s more a fear of a domino effect. The last thing that Google wants is for other large companies to think there is life beyond Google.”

Rising Tensions

Scott Wingo, CEO of ChannelAdvisor, explains that Google and eBay’s relationship can’t be described in black-and-white terms – Google and eBay have areas of competition and areas of partnership (e.g., Google powers links for eBay in non-U.S. countries). He says it is new to both parties and they are feeling it out but that it has created a complex relationship that goes beyond “friend or foe.”

With its clear lead in the search market, Google is focused on determining which high-margin online business to try next. As Google looks for new areas of monetization, it has gone into some very similar businesses as eBay.

Some say this is intentional – Google wants to beat eBay specifically in its core areas. Others believe it was inevitable that Google and eBay bump into each other as each expands its empire. “When two 800- pound gorillas are in the same cage, they eventually are going to step on the same banana,” Kevin Ryan, vice president of global content at Search Engine Strategies and Search Engine Watch, says about the companies going into overlapping/competing areas.

Google Checkout vs. PayPal

One such area of contention is online payments. eBay owns PayPal, which generated a fourth of the company’s revenue in 2006. PayPal has become more important to eBay as auction sales growth has slowed. Second-quarter revenue for PayPal grew 34 percent to $454 million. It shows little sign of slowing down.

In June 2006, Google introduced the alternative payment system Checkout. eBay President and CEO Meg Whitman claims she is not worried about Checkout’s ability to make serious inroads, and says that eBay does not offer the use of Checkout because it is an unproven service. According to a J.P. Morgan Securities survey of 1,000 consumers in January, 44 percent of PayPal users reported “Good” or “Very Good” service experiences; only 19 percent of Google Checkout users said the same.

But most everyone agrees that Google has the strategy, talent and programming needed to catch up to eBay. Google has attracted users to Checkout by offering cash incentives and it is very visible at many high-traffic online retailers such as Buy.com. Checkout is putting its icons next to their paid listings and Ryan says that, “Studies show there is increased click activity ” that’s a big advantage over PayPal.”

Google has done a good job of seducing top retailers by offering margin incentives so that it’s cheaper to deploy, according to MPire’s Hulett. A study by Internet Retailer shows that 26 of the top 200 online merchants, or 13 percent, now accept Google Checkout, as of June. But in terms of users, PayPal is by far the leader in the space.

However, PayPal has others also vying for its top spot. In early August, Amazon.com opened its payment system, called Amazon Flexible Payment System – to other websites – a move that pits it squarely against PayPal. Market analyst Scott Devitt of Stifel Nicolaus wrote in a note published August 6 that he anticipates alternative payments to be one of the most active areas in the online retail sector for the next several years.

“In the long term, we believe that the card companies and certain categories in the traditional retail channel have the most to fear about the activities by technology-driven online innovation,” Devitt wrote.

Shopping Spree

Another area where Google could steal eBay’s thunder is its comparison shopping offering, Google Products, which was previously named Froogle. Sterling says that last year Google took down Froogle on its home page in favor of video but predicts that once Google starts promoting Products, it will be a top shopping site.

According to David Rodnitzky, vice president of advertising at Mercantila, for those selling products online, it doesn’t make sense not to use Google Products because it is offered for free, as opposed to CPC pricing for eBay’s Shopping.com. Google monetizes Products through AdSense, and (ironically) Shopping.com generates some of its revenue through Ad- Words, he says. “With this in place, Google can give Products away forever and cause Shopping.com’s margins to compress as a result,” Rodnitzky notes.

SES’ Ryan agrees that Google Products can make a run at eBay’s Shopping.com because shoppers do a tremendous amount of research. When users shop for electronics, for example, they go from comparison engine to brand site to dozens of product pages across many sites.

Going Off-line

Another potentially big battleground for Google and eBay is the arena of off-line advertising, where both companies have made moves in the past year. Google offers radio ad inventory to advertisers using its AdSense platform, and in April struck a deal with Clear Channel to sell ads across its 675 stations. In June, eBay began auctioning radio spots – providing advertisers the ability to buy unsold radio inventory from 2,300 radio stations in the top 300 media markets.

In April, Google got into TV advertising by announcing it will sell ads for the 125 national satellite channels on the Dish Network of EchoStar Communications through Spot- Runner. In March, eBay launched its media auction system designed to allow buyers of national TV ad time to bid for slots via the Internet.

The motivations behind Google and eBay’s move into off-line advertising efforts are very different. eBay may ultimately be trying to persuade its huge base of online sellers to promote their goods off-line – like on the radio. ChannelAdvisor’s Wingo says that eBay’s foray was put together to try and auction off TV ad time by large advertisers – the buyers would be Toyota, Wal-Mart and Microsoft and the sellers would be the networks such as ABC, NBC and CBS.

On the other hand, Marketing Pilgrim’s Beal says Google is diversifying into off-line channels as additional ways to serve small companies. By streamlining the off-line advertising model, Google enables small companies to tap in to radio, print and TV with the same efficiency and ease as signing up to advertise with AdWords.

Wingo predicts that because eBay has a team of only two or three people doing some experimentation and Google is spending hundreds of millions on their initiatives – Google will likely win this battle. But Mercantila’s Rodnitzky says it will be quite some time before we see an impact.

Skype vs. GrandCentral

Telecom is ripe for another turf battle between the powerhouses. In July, Google acquired GrandCentral Communications (for $50 million), which allows users to combine all of their phone numbers and voice mail into a single number. There is buzz that Google could build the unified communications and call-handling functionality of GrandCentral into Google Talk, its computer application for VOIP and instant messaging.

If Google successfully integrates these features with both its Gmail and Google Apps and offers them for free, Skype will be unable to compete, according to Rodnitzky. He also notes that this tact by Google could be a very effective way to reduce eBay’s ability to monetize Skype, which the company purchased for $2.5 billion in late 2005.

Lately Google has been making headlines because company officials say Google wants to spend billions to build a new, open network that would loosen the grip telecom operations have over how consumers use their cell phones. To do so, Google plans to extend its tools, which include email and video, to the rapidly expanding mobile phone market.

Acquisition Fever

Wingo says that with the exception of Skype, eBay has focused on acquisitions that enhance their core offerings. For example, eBay recently bought StubHub.com, which expands its marketplace of ticket sales. And eBay also just acquired StumbleUpon, which gives users a way to bypass search engines – it’s an alternate means of finding information online. Rodnitzky says this could be a very smart move considering Google has won the search engine war.

Speculations about eBay’s next purchase run the gamut – some say eBay could acquire advertising network ValueClick so it can compete as an ad network. Others speculate that eBay may buy a video site and compete with YouTube.

MPire’s Hulett says it could be likely that eBay forms deeper partnerships with Google’s direct search rivals – such as Yahoo. Wingo agrees that long term, it makes a lot of sense for eBay and Yahoo to merge to form a supersized entity that provides balance to Google’s rapid ascension.

And Marketing Pilgrim’s Beal speculates that Google is going to acquire companies that will achieve its goal of dominating as many advertising channels as possible. ChannelAdvisor’s Wingo agrees and notes that, “If you look at their acquisitions from that point of view, they make a lot of sense.” Google also wants to serve small to medium-sized businesses and has made acquisitions in those areas to help it do that.

Google made nine major acquisitions in 2006, and as of July had already acquired 11 companies in 2007. So far they have been comfortable paying large sums to explore uncharted territory, but some people point to YouTube when they talk about an acquisition that has yet to turn a profit. Still, most experts say it’s almost impossible to figure out the next company that Google will buy – anything from a software developer to a network to a hosting company.

The one thing that most industry observers agree on is that the turf wars between Google and eBay are only going to get more heated as each jockey for the powerhouse position online.

The Affiliate Lifestyle

For many aspiring affiliates, the phrase Affiliate Lifestyle conjures up visions of big beautiful homes and shiny new sports cars. Graphic images on affiliate training sites encourage visitors to imagine themselves at their desk, dressed in pajamas and smiling the big happy smile as hundred-dollar bills miraculously fly from their computer monitor. Those images often include a picture of the loving spouse standing in admiration somewhere in the near background. Another popular image of the “rich affiliate” shows her relaxing in a lounge chair on a long stretch of almost-deserted white sand beach, a laptop perched atop her knees and some tasty tropical drink at hand.

Cynical home-based business opportunists and experienced affiliates alike may snort, snicker or even guffaw at the idyllic portrayal; however, with two exceptions, that is an accurate picture of this affiliate’s lifestyle. The “hundred dollar bills” are in fact four- and five-figure checks delivered by snail mail, and I would never bring my laptop to the beach where it might be exposed to the dangers of sand and water. Actually, I’m reluctant to tote my VAIO with me on vacation as I so rarely use it.

Case in point: I spent the month of March touring Vietnam and Malaysia. Although the resort in Sabah on the island of Borneo, and each hotel in Singapore, Kuala Lumpur and Ho Chi Minh City (Saigon) provided free or inexpensive access to high-speed Internet, I spent less than three hours at my computer during the entire trip.

I was not working during that time. I spent it uploading vacation pictures to Flickr for my personal travel blog at Roamsters.com and GoogleTalking with family and friends. The few emails and responses I sent to friends in the industry were primarily to feign sympathy for their ugly early-spring weather and to talk about enduring three-and-a-half-hour spa treatments and swims in the 86 degree Fahrenheit (30 C) waters of the South China Sea.

My month-long vacation wasn’t the “once in a lifetime” trip about which many people dream either. It was the trip I take every fall/winter. Moreover, the winter trips represent only a small percentage of my annual vacation time. In 2007, I will spend at least 4 months away from home for pleasure travel and family events – not to confuse the two. Furthermore, to make the best use of our short Canadian summer, I will work only a few hours per week during June, July and August.

Do I tell you this to gloat? Not at all! OK, maybe a little. But what’s really important here is for you to know that, a) the fabulous Affiliate Lifestyle is possible, and b) you need to define your version of the lifestyle and choose to live it before you hamstring yourself with some crazy 24/7 business that won’t allow you the time of day (or night) to enjoy what you achieve.

Take for example my friend Ray (not his real name). Ray earns seven figures a year as a search affiliate. He works with a paid assistant in rented office space where, for eight to 10 hours a day, they scramble to investigate new product offers in a vast array of markets, create static landing pages, write and place ads, and monitor their conversions to sales. His workload doubles during the ramp-up to major holidays. Simply talking to him about his frenzied business at Christmastime left me feeling frazzled and I was in the midst of a three-week break.

Despite all that money, Ray still can’t relax with his family at the cabin for the weekend without working evenings at his laptop. He told me that it was a major effort to ready his business for a week’s absence during a family emergency, and when Ray heard about my latest foray abroad, he replied by saying, “I really wish I had more time to travel.”

Ray would have more time to travel if he made more time to travel, something he could easily do if he adopted a few content publisher strategies. Although I too research new offers, write product endorsements, create landing pages and place PPC ads, I dig much deeper into far fewer markets, which means less email to read and fewer offers to research. Placing 10 to 30 offers that run dynamic ads on one theme site is considerably less time-consuming than placing thousands of individual product ads that must be constantly monitored and revised.

Rather than chasing offers, content affiliates concentrate on building relationships with potential customers through information and entertainment. Delivery is simple and cheap via blogs, email and RSS feeds. Moreover, blogging, podcasting and making videos are way more fun than ad writing. The biggest advantage, however, comes from the ability to plan our publishing schedules well in advance.

So if I suddenly required an uninterrupted month of time to respond to a family emergency or to take advantage of an extraordinary travel opportunity, I would log in to my blog, select four draft articles and queue them up for delivery – one per week. The same articles would be queued in the same order for delivery through my autoresponder. To keep my business humming along for four weeks would take about five minutes per site, or less time than it would take to pack my bags.

Making even a partial switch away from the search affiliate to the content publisher model should be easy for Ray. He could start with an existing niche in which he has had success, preferably one of an evergreen nature such as dating, skin care or weight loss. In as little as a day, he could rework and load seven of his best product reviews into an autoresponder series and put an email capture form on the applicable site. He should also take a minute to install a blog on that site, and spend $20 to $50 to have a designer work his existing template into the blog.

Next, Ray should reallocate just one day per week of his pay-per-click ad writing time and devote that instead to writing articles and product endorsements. By producing just four short articles per week, in three months Ray will have populated his blog and autoresponder with a year’s worth of messages to be published and delivered to his subscribers every week. As the size of his subscriber lists grow, not only will Ray’s income increase, but he will also be able to lower his pay-per-click advertising costs substantially.

And if Ray’s perpetual pay-per-click ad writing has left him short on prose, he could hire a ghostwriter to write those articles. Better yet, he could hire a team of ghostwriters to write articles in a half dozen of his best niche markets and get his affiliate business to the “set it, forget it and go on vacation” stage more quickly.

The last step in the process – taking a vacation – might be the most difficult for workaholic affiliate Ray, as he may be tempted to use his newfound “free” time to build an even bigger empire.

If you’re like Ray, listen up! Whether you are an aspiring affiliate or a seven-figure affiliate, making time to rest and rejuvenate body, mind and soul is the best thing you will ever do for you and your family. When you are refreshed and focused, you become even more efficient and productive in your work. So leave the laptop at home and go have fun. With practice, you’ll soon discover that living the Lifestyle and taking vacations is as easy as FTP.

Oh, and one last thing. When making your travel reservations online, remember to book through your own affiliate link.

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.

Stop the Presses

Extra! Extra! (click here)Prepare the obituary: The era of the daily newspaper as the news source is over. The Daily Tribune, Inquirer and Journals of the world have been recycled, replaced by multi-platform (online and off-line) entities that engage readers and operate around the clock. This rebirth is good news for advertisers big and small who will be able to more effectively target a growing audience.

Newspapers have been increasing their online operations in the past few years in an effort to replace falling revenue from diminishing print subscriptions as more people turn to online news and bloggers for their daily digest. Now they are going on the offense to expand their audience and build loyalty.

Publishers have been hemorrhaging print advertising dollars as retailers have been moving online. Print advertising was down by more than $11 billion (2.6 percent) in the third quarter of 2006 from the previous year. While online advertising on newspaper sites grew by $638 million during the third quarter of 2006, that is less than 6 percent of the print deficit, so the pressure is on to grow online revenue to make up the difference.

Publishers see engaging their audience through community and social collaboration features – which are part of the so-called “Web 2.0” technology wave – as the keys to driving traffic and advertising revenue growth. By incorporating “community” aspects from blogs and websites such as Digg, MySpace, YouTube and del.icio.us, publishers hope to increase reader loyalty and become the epicenter of their online news activities.

COMMUNITY PAYBACK

The Washington Post Newsweek Interactive (WPNI) Company saw this change coming and started to incorporate community participation into its websites two years ago. The company saw online revenue jump 24 percent during the third quarter of 2006, and by more than 31 percent for the year.

WPNI vice president of marketing Tim Ruder says bringing readers into the news process can enhance readership as well as the quality of the editorial. “Publishing is no longer in the realm of the exalted few, and to ignore the potential [of reader contributions] is suicidal,” he says.

Because reporters are generalists it is difficult for them to match the expertise of individuals on all topics, according to Ruder. “There is somebody out there who knows more” about nearly every topic, he says, and publishers can profit from giving them a forum for participation.

During the first quarter of 2007 WashingtonPost.com will introduce social networking, Ruder says. Readers will be able to create personalized Web pages to link to, comment on and share content, including articles, images and video. These new features will enable errors to be corrected and generate comments and new story ideas that can be used in print, he says.

Ruder believes that adding social networking features will increase traffic and give the company more online inventory to monetize through advertising. While adding one social aspect “won’t make us a million dollars,” collectively creating a dialogue with readers “will separate us editorially from others” and greatly increase reader loyalty, Ruder says.

Austin, Texas-based Pluck enables publishers to add social media aspects to their website without requiring programming. Pluck’s “Sitelife,” service includes the ability to attach comments to articles, create forums and blogs, and enables readers to post photos, according to general manager Eric Newman.

Pluck hosts the social areas on its servers, but the content is thoroughly integrated, according to Newman. Social networking elements “promote additional discovery on the website, which equals reader loyalty and page views,” he says.

Brad King, assistant professor of media informatics at Northern Kentucky University, says publishers who create a community by allowing readers to contribute could see “astronomic” growth in Web traffic. King warns, however, that publishers must provide oversight of the comments and user contributions so that advertisers will feel comfortable in having their ads alongside the content.

Publisher Gannett, which prints 98 regional newspapers plus the national paper USA Today, is among the most aggressive when it comes to redesigning its editorial and sales process around its community of readers.

Michael Maness, vice president of strategic planning for Gannett, says all of its newsrooms are being transformed to “information centers” that operate around the clock and will heavily rely on user contributions. “The future is pro-am, as in professional- amateur,” Maness says. Readers are asked to provide assistance in obtaining documents and images relevant to investigations and videos of breaking news events.

Maness says the Ft. Myers, Fla., News- Press got readers involved in investigating sewer utility rates, and the “crowd-sourced” investigation resulted in uncovering price fixing. At Gannett’s NYK.com, readers in the Northern Kentucky metropolitan area post information about local events and community stories, enabling Gannett to connect with a younger demographic of readers who primarily go online for news, according to Maness.

While the morning paper and nightly television news used to be the dominant sources of news, the Internet is becoming the go-to place for news for many Americans. According to the Pew Internet & American Life Project, the majority of people with broadband say the Web is their first choice for science news.

Peter Negulescu serves a technology-savvy readership in his role as the vice president of digital media at the San Francisco Chronicle’s SFGate.com. Inviting readers to contribute will attract a desirable community of participants for advertisers and make the content more valuable, he says. “The role of the new media arm is to aggregate content to tell a more complete story.”

By recruiting “citizen journalists,” publishers can add to the breadth and depth of their content. Publishers most commonly offer fame as compensation, so the major cost is vetting all of the contributions to find those that are newsworthy.

By enticing readers to return to the website consistently and provide demographic information about themselves through the registration process, Negulescu says SFGate is increasing the ability to understand and deliver targeted advertising to its readers. “From a revenue perspective, adding social media engages readers more deeply,” he says.

At the end of 2006 SFGate launched Community Blogs, a section where a select group of readers write about topics of interest, and in early 2007 the website will allow readers to post comments to its news articles. Negulescu says adding reader input to the website “gives advertisers an opportunity to understand what people are talking about and how it fits with the marketing message.”

For example, an advertiser that is included in a restaurant guide or mentioned in a food review could respond to negative or positive comments. Negulescu does not expect that all marketers would want to advertise against user-generated content, so they will be able to specify the pages upon which they appear. Reader participation requires registering and providing some basic demographic information that can be used for target and email marketing.

What used to be considered newspaper websites can become information-based centers of community that provide unique value to advertisers, according to media consultant and blogger Susan Mernit. Readers/contributors can provide first-person accounts of unfolding events that will entice people to become loyal readers.

Posting reader commentary and images from the scene of a natural or man-made disaster can be more compelling than stories composed by professional journalists, Mernit says. Publishers could post pictures similar to the first images that were captured in the aftermath of the London subway bombing, says Mernit. “You want the equivalent of that picture for your audience.”

The plethora of choices for online content makes it a challenge for local advertisers to know where to go to reach potential customers, but newspaper sites are part of the daily reading regimen for many people with Internet access. Publishers that provide a community around local news can capture a loyal audience that makes for an attractive demographic. Adding user ratings of local businesses for entertainment events could enable news sites to best the local search sites such as directory services or CitySearch or Yahoo Local in capturing the community voice and attracting advertisers, according to Mernit.

HITTING LOCAL TARGETS

Advertising in print newspapers provides access to an audience that is generally located in limited geography, but online news sites can reach a wider swath of the population. Publishers that track where their audience lives can provide more targeted advertising to both local and national advertisers.

SFGate’s Negulescu says that 80 percent of his readers are in the Bay Area. The website’s servers automatically check the IP addresses of readers’ computers so that geotargeted ads can be delivered to either national or local audiences as requested by the advertiser, he says.

Gannett’s Maness says buying ads from newspaper publishers now resembles a TV purchase more than it does a print buy. “It used to be ‘How big of an ad do you want, and for how many days?’ Now it is all about audience reach.” Gannett has integrated its print and online sales so that the company can package a demographic of readers to meet advertiser needs. Advertisers who want a younger audience might spend more online, he says.

Now that Gannett has more demographic information in hand, the company can sell to smaller buyers, according to Maness. Local businesses that can’t afford to advertise on TV or radio can buy ads that will be delivered only to a specific demographic, such as middle-aged married women. Gannett uses cookies to track visits and anonymously collects data about who is reading articles about fashions or appliances, he says, and that data is used to deliver targeted ads.

AGGREGATE AND BE AGGREGATED

In addition to allowing readers to contribute on their websites, publishers should allow content to be shared and manipulated on other sites to expand the audience. Publishers can significantly increase traffic by adding tools to their website so that readers can add links to their articles on ratings sites such as Digg or Reddit.

People who add tags (categories used by specialty search engines) to news articles through social websites are enhancing the content with metadata, according to educator King. Readers who interact with news content in this way are assembling personalized archives that create a community that publishers should encourage. “At the end of the day, Web 2.0 is a platform for communication that allows people to build other things upon it,” says King.

Publishers who join with rather than fight against news aggregation sites such as Yahoo News or Topix.net can also expand their ad inventory. Late in 2006, seven publishers, including the Hearst Corporation and Cox Enterprises, agreed to share content, advertising and technology with Yahoo News, the largest news portal. Yahoo News, in partnership with Reuters, has also embraced citizen journalism by creating the You Witness News website that enables readers to post articles and images.

Topix.net, a news aggregation site that organizes news from around the Web by location or by category, has received funding from three publishers – Gannett, the Tribune Company and McClatchy. Topix.net uses an algorithm that identifies the news stories relevant to a region, according to Chris Toiles, vice president of marketing. The company currently places AdSense ads on most of its local pages, but it can offer national advertisers targeted buys based on geography, he says.

Topix.net blends both regional and statewide stories and combines blogs with news stories, according to Toiles. Readers add 18,000 comments per day to articles and then Topix.net funnels that traffic to news publishers, he notes.

Publishers can also enhance their traffic by displaying competing news sources along with their content. Websites including SFGate enable readers to personalize pages by mixing their content with that of other news sites through a custom RSS reader. Readers can add feeds to customize their news-reading experience by category, according to SFGate’s Negulescu. Readers who visit the newspaper site every day can read news from around the Web on a branded SFGate page, which builds loyalty and keeps them on his site longer, he says.

Publishers are also incorporating content from bloggers from around the Web to increase their traffic and stickiness. WashingtonPost.com and others have incorporated Pluck’s syndicated BlogBurst content. Publishers can choose the BlogBurst blogs from dozens of categories, and the advertising revenue is split between Pluck and the publisher. Bloggers get increased traffic from links, and those that generate the most revenue will receive bonuses, according to Pluck’s Newman.

Newspapers that implement “social Web” technologies can learn more about readers and use that information to provide relevant content and targeted advertising. News, and the advertising system that support it, has been irreversibly opened so that more people can participate, and that is good news for all.

JOHN GARTNER is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift, and is the Editor of Matter-mag.com.

Guiding Lightly: Q & A with Anne Holland

Anne Holland is the president of MarketingSherpa, which aims to help marketers advance by sharing real-world marketing data and hard-won lessons. The Rhode Island-based company publishes a wide range of metrics guides, buyer’s guides and how-to reports, as well as a 500+ case study library. Prior to founding MarketingSherpa in 2000, Holland spent 20 years in publishing. She also served as the head of marketing for Phillips Business Media – a $100 million publishing company where she helped launch one of the world’s first profitable subscription sites in 1995 – and the trade publications Interactive Marketing News in 1994 and min’s New Media in 1995. Started in Holland’s spare bedroom, MarketingSherpa was recently acquired by marketing research firm MEC Labs out of Atlantic Beach, Florida. Revenue Senior Editor Eric Reyes asked Holland about her company’s role in moving marketing forward and what lies ahead for the performance marketing space.

Eric Reyes: What was the genesis of the MarketingSherpa idea? How did you perceive the need?

Anne Holland: Before I led MarketingSherpa I was a marketer myself, so I had a pretty good gut-level understanding of what marketers needed that wasn’t being provided by research firms or publications. However, that doesn’t mean I trusted my gut! Instead I toured the U.S. and U.K. for about six months, asking marketers themselves what information they really needed to do their jobs more easily and/or with better results. The final company – MarketingSherpa – was built directly from those suggestions. Turns out our target audience wanted lots of case studies, benchmark data, creative samples and how-to instruction at a practical yet advanced level. So that’s what we provide. We still tour regularly as well as surveying and talking directly with customers weekly to keep on track.

ER: Can you outline your inventory of content – how much is available and how has it grown?

AH: There’s a lot! Basically it breaks down into three areas – all of which are created by research and reporting teams in-house here (we don’t accept contributed content).

  • Case studies and how-to articles – based on hour-long interviews with actual marketers. We delve into what worked, what didn’t, what the data was and include creative samples. We’ve got a library of thousands of these, searchable by tactic and by company/brand name. They’re all exclusive.
  • Benchmark guides, buyer’s guides and tactical handbooks – based on research into what’s working for real-life marketers. We survey tens of thousands of marketers every year, and profile hundreds of consultants and vendors. These 200- plus-page reports come in PDF for instant question answering, and we also ship a printed-and-bound copy to every customer for easy reference.
  • Summits – every year we hold three big summits for marketers: in New York, San Francisco, Boston and a fourth city (next year it’s Miami). The topics include email marketing, selling subscriptions to Internet content and B-to-B demand generation. Naturally our summits feature loads of peer-presented case studies and new data.

ER: Now that MarketingSherpa has been acquired, what will change for you and the company?

AH: Pretty much since day one, there have always been a lot of people who wanted to buy us out or invest in us. I held out for seven years because I wanted our growth to be driven by our readers’ needs, not some board of investors. Every six months I take a few days to step back and review the progress and future of the company. When I did that this past June, I realized it had gotten too big for me to handle alone anymore. It’s a common fate for an entrepreneurial- driven company. You grow it as big as you can and then you hit the ceiling of your own desires and abilities. I wasn’t born to administer this fast-growing multi-million-dollar organization. I was born to research, write and keep in touch with the needs of the readership.

So that’s when I started looking for a new corporate parent for Sherpa. The goal was to find someone who would understand and appreciate our readers and our mission, plus appreciate the great team of employees and researchers we’ve built – not just someone who would wave a bunch of cash at me. By finding the right buyer, in effect I was hiring Sherpa’s new boss. Several organizations were in the running – after carefully interviewing several of them, I chose MEC Labs based on fit.

They are a research firm that partners with folks such as The New York Times to conduct experiments on live campaigns to discover what works (and what doesn’t) in marketing. We are a research firm that partners with our 237,000 readers via surveys and studies to discover what works in marketing. Culturally the fit works too. We are all fairly intense, hardworking people who also like the ocean. Their headquarters are on the beach in Florida. Our headquarters are about a block from the beach in Rhode Island.

MarketingSherpa won’t change much – aside from continuing to grow and serve our readership even better. We’ll just have even stronger corporate leadership to allow us to reach bigger goals and do some pretty amazing research projects. On the personal side, I’ll still be here. Only instead of being stuck in meetings with accounting, HR and IT, I’ll get to focus all my time on the things I really love – research, writing and the art of marketing. And, maybe a little more time to walk on the beach.

ER: What are some of the most important goals you have for MarketingSherpa next in the 12 to 15 months?

AH: Keep her on a steady, focused course. It’s easy to get overwhelmed with expansion opportunities, or to let success go to your head so you do crazy things, launch big new ideas that don’t hold to your core business. I’m an idea person, so it’s probably toughest for me. But our big idea is No New Ideas.

Aside from that, you’ll see several launches that have been enormously researched and several years in the making, the biggest of which is our upcoming membership site launch. At the base, it simply means instead of paying $5 to $9 per article every time you want to read something, you can pay one flat annual fee. Convenience is a wonderful thing. There are also some new features – but the dev team will shoot me if I talk too soon. Watch for December-January and you’ll begin to see.

ER: Are there industry segments that MarketingSherpa is not currently focusing on but would love to get into, and why?

AH: We set our course for a very specific marketplace from day one, and it’s a darned big one that will take us many more years to serve completely. Our chosen marketplace is marketing professionals (including advertising, PR and online) in corporate America at the manager to VP level. That’s about 140,000 marketers. We also serve the consultants, agencies and vendors who serve marketers. That’s about 10,000 folks. So it’s a total market of 150,000.

ER: How much effort is dedicated to the affiliate marketing space by MarketingSherpa ? And the performance marketing space? And do you see that changing in the future?

AH: We cover affiliate and performance marketing from the point of view of the merchant or brand-side marketer. That’s who our reader is. Although many affiliates also read us, they aren’t our target audience. So, for example, the affiliate marketing team at eBay reads Sherpa, but most of their affiliates probably don’t ” and that’s fine with us.

Our coverage in the spaces is decided by the input of our readers – they tell us what they want us to focus our research on and that’s where we go. I personally would like to cover affiliate marketing a bit more than we do, but for many of the merchant-side marketers, it’s just not all that critical to their jobs.

Often an e-commerce or lead generation site will have one marketer who is responsible both for affiliate and also managing SEM. That’s crazy – too much work for anyone to do well. But that’s the way it is. We try to educate marketers via our annual Affiliate Marketing Special (now in its fourth year) every January and other studies such as our Ecommerce Benchmark Guide. Many, however, many, especially in consumer software marketing online, are not there heavily yet, if at all.

ER: What are the next two or three things you think will turn Internet marketing on its ear?

AH: Frankly, I don’t see much changing over the long haul with the exception of a lot more mobile activity in the U.S. (at long, long last) and of course video, video, video. I’m sure what we’re going to see next is a lot of “shovelware” video [sticking your TV ad online], badly measured corporate podcasts and way too many text-voting entertainment campaigns.

If mainstream off-line marketers – the giant retail chains and consumer packaged goods firms – could easily measure Internet activity against their off-line sales, then you would see the world change. The biggies still spend single digits online. Bear in mind, all of SEM spending for this year is less than everything spent on promotional products such as embossed pens and T-shirts given out as marcom. We who research Internet quite a bit tend to forget how incredibly small the spend still is compared with other vehicles.

In the meantime, the real focus that every marketer should be spending their time and money on is not what’s new, but rather, how to make the old stuff work better. Our data show that if you just improve the copywriting on your site a tiny bit, your conversions leap up. Copywriting! That’s as old-fashioned a tactic as you can get. True success is about testing the basics.

ER: You do a lot of public speaking gigs and you also conduct many of the interviews for case studies. Is there one facet of your job you prefer, and why?

AH: My job has really evolved as the company has grown over the past seven years. Research is now run by our research director Stefan Tornquist and his team, while editorial is run by editorial director Tad Clarke and his team. We also have teams running summits and memberships. These days I’m doing less research and writing myself and far more leadership. So I get to attend departmental meetings and guide the company as a whole. I miss the old days when I was chief cook and bottle washer ” but now we have so much more capacity to serve our customers’ needs. So that’s a delightful thing.

Now my favorite things are speaking about new research studies (it’s so fun to say, “Hey, here’s info marketers are yearning to know – let’s go get it!”); speaking at shows, especially when I get to meet readers who have ideas about research studies or stories we should cover (many of our best case studies come from me meeting folks on the road); and once a week personally conducting a marketer-side interview for a story I or one of our reporting staff might write.

ER: During many of your talks you give real-life Internet shopping examples of good and bad things that you’ve encountered. How many of those incidents spark research on that topic?

AH: Actually events often spark our research because attendees will ask great questions… . Those questions drive the research. I’m way, way, way too close to the research we’ve done and the marketing world to know what marketers really want to know.

When you’ve studied something intensively for years, you’re the wrong person to come up with new ideas for studies. You’ll end up in esoteric or newfangled places that your audience couldn’t care less about. One of our biggest stories – in terms of readership and reader feedback – last year was research we’d done in partnership with CNET’s B-to-B Network on what white paper titles got downloaded the most. I thought it would be [just] an OK article, but my God, it hit a huge nerve: floods of thank-you email letters from our readers in the B-to-B space.

So, you have to let your readers tell you what’s hot and what’s not. Don’t ask your editor or newsletter writer. I’m shocked that so few email newsletters do reader surveys asking about content. They all need to.

ER: What are some of the benchmarks for maintaining the quality of MarketingSherpa research and other content?

AH: We never publish data that doesn’t have enough evidence behind it to be statistically reliable. That drives me nuts about other studies (including the DMAs). They’ll survey 10 people and then call it a “study” and make a big stink about findings. We don’t publish charts if the data has to be sliced “too thin” to get a number.

We know that many readers are using us for their budgeting, forecasting and to sell their marketing plan to their CEO. We don’t want to feed them misinformation or slanted data and mess that up.

Unlike most of our competitors, we do not publish third-party content. We don’t solicit editorial from vendors or consultants or anyone else. Our editorial is researched and created in-house. That’s a lot more expensive, but it’s worth it.

On the research benchmark side, we do create partnered studies with some folks where we survey the marketplace or examine results stats we could not do alone. We also gather best-of research from some third-party sources to fill in holes and provide perspective. But we’re not like eMarketer where 100 percent of the data is compiled from other people (they do zero primary research). With us, it’s about 20 percent.

That combination of our data plus partnered studies plus best-of-third-party data is a killer combo. You get everything in one place. It’s all about convenience.

Sometimes people question our data – for example, recently several SEO experts questioned whether our data on the industry slowdown was based in reality because, from their personal perspective, business was booming. Thing is, we had data out the wazoo – data from more than 3,000 client-side marketers, from 104 top SEO firms and from third-party studies. We had more data than anyone on the planet on search marketing. From our perspective, the industry was slowing like crazy and I was able to defend that very easily.

ER: MarketingSherpa covers so many areas of online marketing. Do you consider yourself an expert in any one area of marketing?

AH: I suppose my main personal areas of expertise would be e-commerce, lead generation landing pages and email marketing. I’ve personally been involved with research we’ve conducted in all three and met many, many of the marketers themselves in these fields. I’ve also been heavily involved in our SEM research and coverage over the years, but I think SEM is something that you really cannot be expert in unless you’ve rolled up your sleeves and you do it every day yourself. I don’t. Few of the press covering SEM have.

ER: What is the next logical evolution beyond paid online content?

AH: I am so psyched about buying TV episodes online! In a past job, I was the marketer for a paid subscription [print] newsletter called Interactive Video News. Back then in the early ’90s we were all talking about 500 channels and pay-per-view cable where you’d be able to view anything on demand. Well I have on demand at home on my cable now, but it’s a very clunky interface. However, our research director Stefan Tornquist brags he doesn’t own a TV at all ” he just buys and downloads anything he wants to watch from the Internet.

Mainstream TV networks are now cross-promoting new shows by running them on cable for a few episodes to get the word out. Broadcast TV is, in effect, now just a marketing vehicle for content that’s paid for with some ads. I buy the TV episodes directly by episode online now. Love it to death. That plus buying music song by song for iPods, and the huge long tail of that, is very exciting. Media consumption is changing hugely in the way purchasing changed in the past five years due to search engines for research and ecommerce.

Gambling Stakes Rise

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

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

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

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

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

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

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

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

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

Sports Booked

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

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

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

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

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

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

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

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

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

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

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

Hedging Bets

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

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

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

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

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

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

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

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

Crapshoot

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

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

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

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

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

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

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

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

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

Wagering On Mobile

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

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

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

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

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

Get a Second Life

Living in a virtual world may lead to innovation in the physical world.

Innovation is the lifeblood of business. Failure to innovate is a common problem among businesses and even more common among big corporations where it is hard to turn on a dime and internal politics tends to slow down rapid thinking and change. This means that smaller marketers, boutiques and niche marketers have an advantage – a market opportunity. One of the later and perhaps the most innovative of Internet transformations is the rise of a parallel, post-human experience via digital worlds. This can be experienced in all its beauty in Second Life, a partly user-created and partly subscription- based 3-D virtual world. Linden Lab, created by Philip Rosedale flung, the doors of Second Life open to the public in 2003. Linden Lab has Amazon.com’s founder and CEO, Jeff Bezos, as a second-round investor.

The Second Life “world” is not a real one. It resides, like most virtual worlds, on a series of servers commonly called “The Grid.” The Second Life client program provides its users (called residents) technological tools to view and modify the Second Life world and participate in its growing economy. The built-in object editor allows residents to create complex objects like wigs, skins and even giant buildings out of a set of basic building blocks known as “prims,” shorthand for primitives.

The economy is perhaps the most notable feature of Second Life. Unlike most other digital worlds, Second Life boasts its own economy based on the Linden currency, which exchanges with U.S. dollars. According to its website, the Linden-based economy is circulating several millions of dollars’ worth of U.S. currency each month. This is not a trivial amount, and startling, considering, for now, Second Life residents are a somewhat limited group. At press time Linden Lab reports almost 370,000 members and growing.

This virtual economy has created a warm petri dish for innovation where residents own their own businesses and more importantly, they own the digital content they create. Since the residents own the intellectual property rights to their content, it has created a wildly different atmosphere, not unlike the dotcom boom in terms of raw creativity and innovation. Residents are creating clothing and skin shops for avatars, building construction, creating games and experiences, and due to the interactive nature of the world, they can even construct their own systems.

Examples of digital businesses include a bustling “hair shop” where residents can buy wigs for their avatar, stock exchanges, groups that will erect buildings for residents and the creation of interactive games. One of these creations is now in a game for Nintendo’s Game Boy Advance system and soon to be released on cell phones. I do not think it’s far off before we will see alternate Second Life currencies emerging in this purely virtual environment.

Big business is starting to take note of this phenomenon too. Intel, Wal-Mart and American Express are among many powerhouse companies starting to experiment in Second Life. Not to mention a wide array of universities and learning institutions are setting up shop in the digital landscape to explore digital construction and instruction.

Some companies are straddling offers across the dirt world and the digital. For example, when you make a purchase in the in-world American Apparel store, you will get a note card in your inventory with a promotional code offering a real-life discount at their online store. Web-enabled sale boxes also allow Second Life users to purchase a virtual item to wear on their Second Life avatars. There’s, an option to go directly to the American Apparel website where they can purchase the item in real life.

I was searching for a metaphor on how best to describe the application of the Second Life experience for performance marketers. Stephanie Agresta, vice president of Affiliate Marketing at Commerce360, put it this way in a recent blog entry:

“For example, I participated in one-off discussions about meme engineering, virtual world creation, emerging digital economies and goods, instant messaging service bots and the imminent post-human experience. I would call that innovation – I would call that very forward thinking. The best-of-breed affiliates move like digital cheetahs hunting on the vast plains of cyberspace. As an agency, we have to keep the same pace. Affiliate marketing is much like a safari – you see some incredible diversity and creative adaptation – but to make it work you cannot view it from the safety of a jeep – you have to be able to navigate the complex jungle and avoid the potential pitfalls.”

Calling best-of-breed affiliates digital cheetahs is an adept metaphor. In performance marketing, one often sees wild and creative uses of technology to drive ecommerce. Some of these uses are questionable and some uses and adaptations are actually quite novel. The trick is finding the novel, and restricting or staying away from the negative aspects. It is important for marketers not become so wrapped up in daily execution that they become myopic. To ward off myopia it is essential to build in time for research and development, exploration and purely imaginative research. This exploration should be the catalyst for innovation and in a world that changes so rapidly, ideas are the loftiest of currency.

What is going on in the purely digital world is intriguing. Business owners can learn more about the importance of digital worlds by reading, exploration and most importantly, participation. There are many books useful for learning how to navigate that virtual landscape. I have found three entertaining reads that highlight the experience and have sage business gems buried inside:

Ender’s Game by Orson Scott Card (Tor Books): Ender Wiggin battles it out with the Formics in this Hugo-Award-winning novel that is perhaps the quintessential guide for the new blogging metaphor. Pay special attention to Peter and Valentine as they control the nets through alternate personas. Make special note of the protagonist’s psychological development and monitoring by the “Mind Fantasy Game.”

Snow Crash by Neal Stephenson (Bantam Spectra Book): Snow Crash is a fast-paced romp through cyberspace laced with satire and dark humor. The novel weaves everything from Sumerian mythos to visions of a postmodern civilization ready to fall. Readers should pay close attention to the Sumerian elements and how the culture of Sumer used a primordial language for control. In addition, the novel explores themes of reality, imagination and thought, all in the context of a virtual world experiencing a state of rapid decay. This has useful applications when studying the groups and behavior of citizens in a purely digital world like Second Life.

Pattern Recognition by William Gibson (Putnam Adult): The science of pattern recognition aims to classify data based on previous experience and through statistical mining of patterns. In this contemporary novel, the readers explore the concept of “cool spotting,” which has been in use in marketing for many years, through the eyes of Cayce Pollard. Pollard is an incredibly intuitive market-research consultant. Marketers should get an idea for new metrics and perhaps new ways to measure the efficacy of campaigns as well as the importance of looking ahead for future trends.

Naturally, reading will not take the place of participating. Active participation in the experience and communication with digital life residents is the best way to get up to speed and to see what imaginative worlds like Second Life offer. This is merely the beginning of a shift as the Internet continues to make life, business and our world more complex and completely different.

Those who innovate will reap the rewards. Don’t sit on the sidelines – grab a Second Life and explore. The good news is that you can have several.

WAYNE PORTER is the co-founder of Revenews. com, a Microsoft Security MVP, and served as the CEO and founder of XBlock Systems, a specialized greynets and malware research firm . He is now the Sr. Director of Greynet Research at Facetime Security Labs, which acquired XBlock Systems in 2005.