Music Needs Tuning

The complex space needs some harmony before online marketers start to sing.

Imagine you’re a publisher trying to parlay your expertise and passion for vacuum cleaners into a performance- based business. You are shocked to learn that sellers don’t compete on price, that you aren’t allowed to see what is in the manufacturers’ catalogs and that if you want to sell in volume, there’s only one partner.

Although this scenario seems somewhat over the top, it approximates what publishers looking to participate in the market for digital music downloads and subscription services now face. While online music sales are rapidly rising, the companies with distribution rights will have to revamp the way music is marketed to reach its revenue potential.

The sales of digital tracks rose by more than 150 percent from 2004 to 2005 (to 353 million songs), according to Nielsen SoundScan. That is a growth rate that any industry would be proud to have. Global revenue to the record companies from digital music sales nearly tripled, from $400 million to $1.1 billion in 2005, according to the International Federation of the Phonographic Industry (IFPI).

Great news, right? Almost. From a glass-is-half-empty perspective, however, the total sales of recorded music (both physical and digital) fell by 3 percent last year, or not in the direction that the folks at Sony BMG, EMI or the other major labels want things to go.

Apple at the Core

Most of the growth in music download sales can be attributed to Apple’s iPod player and iTunes store. The two most visited online music sites for the final week of January 2006 according to Nielsen//NetRatings NetView, were Apple’s iTunes store, and AOL Music, which also sells iTunes. Depending on which analyst you ask, Apple’s share of music download sales is between 75 and 90 percent. “If you want to be successful [selling downloads], you have to partner with Apple,” says Tim Bajarin, president of analyst firm Creative Strategies.

iTunes may be delivering sizable revenue for Apple and the major music labels, but publishers aren’t getting much of the action. Apple, which has sold more than 1 billion tracks via iTunes, pays its affiliates a 5 percent commission on the sales of its $0.99 tracks. The company does not have a subscription service.

Bajarin says the status quo is likely to continue in music downloads for the foreseeable future. “I don’t see anyone touching [Apple],” says Bajarin, adding that the company has created a “digital ecosystem to acquire, manage and distribute digital content” to iPods that is without competition.

Apple declined to be interviewed for this article.

AOL Music offers iTunes downloads and a subscription service (AOL Music Now) that is billed separately, according to Erik Flannigan, vice president and general manager of AOL Music, Movies and Television.

The confusing structure has AOL Music (music.aol.com) sending traffic to the iTunes store for download purchases, while AOL Music Now (aol.musicnow.com), which will officially launch this summer, is the home of its $9.95-per-month subscription service. AOL Music Now also sells Windows Media format downloads.

The company hopes to someday have a single service. “We believe in both models, and would love to see them both together,” Flannigan says. He is hopeful that Apple will someday enable subscription service listeners to enjoy music on their iPods.

Affiliates aren’t jumping at the opportunity to earn a nickel per sale for downloads when they are accustomed to earning just as much from mere clicks in other industries. Lisa Riolo, senior vice president of business development at Commission Junction, says few affiliates have contacted the company looking to partner with download sites. “We haven’t heard a lot of demand from affiliates for downloads,” she says.

Subscription services, which can pay between $5 and $15 commissions when a consumer signs up for a trial, can be much more lucrative for publishers, Riolo says. Commission Junction manages the affiliate programs for subscription-based RealNetworks, Yahoo and eMusic, which all offer subscriptions and downloads.

Subscription service revenues may not be growing as fast as music download sites, but the number of consumers paying a few dollars per month to listen to catalogs online almost doubled, from 1.5 million to 2.8 million globally in 2005, according to the IFPI.

Like Apple, RealNetworks sells tracks for $0.99 each, but the company does not offer affiliate incentives on downloads, instead paying commissions for trial subscriptions, according to Rachel Lazar, the director of consumer marketing for RealNetworks.

Focusing on subscriptions provides a better opportunity for publishers to generate revenue than making a few cents per download, Lazar says. RealNetworks recently raised its bounty for trial subscriptions secured by a credit card, from $12 to $15. “It would take a huge volume to make up the money they could do with subscriptions,” she says.

Although she would not disclose how many affiliates RealNetworks has, Lazar says that during a few recent quarters the number of affiliates doubled.

Subscription services have been hampered by a lack of consumer understanding about how they work and the lack of a solution for mobile users. Subscription services allow access to a catalog of music through channels or stations that focus on genres. If consumers want to access music after a subscription is terminated, they must purchase tracks separately.

“There is a lot of education that is yet to be done when it comes to subscription music services,” and publishers could aid in clarifying that, RealNetworks’ Lazar says. Publishers who are involved in marketing other media, such as movies or audio books, are a good match for promoting music, according to Lazar.

Creative Strategies’ Bajarin says consumers aren’t accustomed to paying to listen to music and are more comfortable with owning music. “When you quit [RealNetworks Rhapsody service], your music is gone,” he says.

“The problem with the subscription model is portability,” music industry consultant Barry Sosnick, president of Earful.info, says. Consumers have a “strong desire to have ownership when it comes to music,” so having access to songs end with a subscription is a “critical shortcoming,” he says.

However, music publishers including Napster and AOL Music have addressed this concern with higher fee services that allow consumers to listen on portable devices during the time that they are subscribers.

Publishers also have an opportunity to help distinguish competing music subscription services. While services like Rhapsody, EMusic and Napster all claim to have catalogs of more than 1.5 million tracks, identifying which if any service has a majority of an individual’s favorite artists can be a challenge. For example, Rhapsody has an extensive collection of tracks from Indie singer-songwriter Bob Mould, but no albums from classic rock stalwart Bob Seger.

The subscription services only permit consumers to search their catalogs after they have subscribed, but affiliates are now getting tools to differentiate the subscription services. Services such as RealNetworks and Yahoo Music are now working with affiliates to promote artists as a method of marketing their catalogs.

RealNetworks’ Lazar said the company is now allowing “select publishers” to see the data feed so that they can incorporate track information and album art on their websites. However, Lazar says affiliates cannot publish all of the data online or make it searchable.

Similarly, Yahoo Music recently made its product catalog data feed available to affiliates to “allow affiliates to link directly to individual song pages on our music pages from either a search engine or their website,” according to Eva Hung, who manages Yahoo’s affiliate programs. “We think this will significantly improve conversions …,” she says.

For example, publishers can now create collections, such as the best grunge rock tracks, to showcase the depth of Yahoo’s catalog.

Earful.info’s Sosnick says publishers can aid the purchasing process by acting as a filter, recommending artists and “separating the wheat from the chaff.” He says consumers don’t want to scroll through pages and pages of artists, but prefer to be guided. “If consumers have too many choices, they revolt.”

Subscription services are attempting to increase their reach by encouraging publishers to participate in search marketing. Both Yahoo and RealNetworks support publishers’ acquiring traffic by purchasing artists’ names or genres on search engines.

RealNetworks also encourages publishers to bid on Google for its branded terms such as Rhapsody, according to Lazar. The company works with publishers to build custom landing pages from paid search ads that showcase genres or artists, she says.

One Price Gives Fits to All

Most online music services have followed the lead of Apple (and its CEO Steve Jobs) in offering the majority of music tracks for $0.99 and albums for $9.99. The rigid pricing strategy has frustrated music executives who prefer a tiered structure, and limited the ability of publishers and marketers to differentiate the services.

The “coincidental” pricing across services also has the attention of New York Attorney General Eliot Spitzer and the U.S. Department of Justice, so a change in pricing strategy may occur this year.

The $0.99-per-track standard has also prompted inconsistencies in the value of albums versus individual songs. While some albums with 15 or more tracks are a bargain at $9.99, it is sometimes cheaper to buy tracks individually (as in the case of the six-track album Animals from Pink Floyd) than it is to buy the entire album.

According to the Online Publishers Association, the percentage of music downloaded as individual tracks rose from 15.4 percent in 2004 to 21.6 percent.

While music industry executives would like to raise the ceiling on tracks above $0.99 and lower the prices of other tracks, Earful.info’s Sosnick says consumers would be willing to pay $0.99 for less-in-demand tracks too.

“If a consumer is looking for a niche product, chances are they are willing to pay for it,” Sosnick says. However, variable pricing would enable publishers to promote related songs as less expensive “impulse buys,” according to Sosnick.

Publishers are also generating revenue by creating content related to digital music distribution. AOL Music is videorecording concert performances of artists including the Rolling Stones to generate advertising revenue and traffic. Social networking sites such as MySpace, while not selling music directly, have greatly increased their ad revenue by allowing music enthusiasts to create websites and playlists about their favorite artists.

Yahoo’s Hung says that music is critical to the company’s affiliate program, so the company consolidated all of the programs to simplify cross-promotion with other services including personals and instant messaging. For example, if a publisher is successful in getting a consumer to try the music subscription service, when consumers download the Yahoo Music Engine and also download Yahoo Messenger or the Yahoo Toolbar, publishers can earn additional commissions.

The next musical horizon for publishers is to promote unsigned artists, according to Commission Junction’s Riolo. User-generated videos and commentary are attracting large audiences online, and Riolo says music is a likely progression. She says affiliate programs could generate considerable revenue if they can figure out how to market music from amateurs to a mass audience.

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.

The Dating Game

Making a match can lead to big bucks if you know the rules of affiliate courtship.

Although Blake Killian is a Christian and believes there are benefits to Christian dating, he is forthright that the motivation behind his two websites, ChristianDatesOnline.com and Christian-dating.com, was purely financial.

It was the serendipitous result of some research of online dating keywords he was doing for his day job as an Internet marketer at Voodoo Ventures. Killian noticed that the search volumes for Christian dating keywords were really high but the bids were affordable. So, in March 2005, after committing himself to stop if he was losing money, he put together a website that reviews online dating sites and includes affiliate links on it. Initially he spent 20 to 30 hours per week. Now, a year later, he works on his sites about five to 10 hours a week and the monthly net profit is only $100 short of paying his entire mortgage payment every month.

“I knew there was money to be made. It has taken a lot of hard work since March but now the site is rolling. I love my job,” the 24-year-old New Orleans resident says. Is he experiencing beginner’s luck or is there still money to be made in online dating?

Super-affiliate-turned-author Rosalind Gardner, who famously made $436,797 in one year as an affiliate for online dating services (Sage-Hearts.com), started back in 1999 and continues to do extremely well. She says that although the current environment for starting an online dating site is “pretty complex,” nearly anyone can be making money today if you’re using Google AdWords. “There are still keywords and keyword phrases out there that people haven’t picked up on yet,” she says.

Even though online dating is vast – according to Publishers Association/comScore Networks, it represents the second- largest category of paid content online after music and video downloads – the boom years appear to be over.

In a JupiterResearch 2006 survey of 2,000 consumers online, the percentage of online users who visited dating sites in the last 12 months grew slightly from 2005 to 2006, while the percentage that posted online personal ads and subscribed to dating sites fell marginally during the same period.

A 2005 JupiterResearch report predicted that the industry would grow 9 percent to $516 million in 2005, down from 19 percent growth in 2004 and 77 percent in 2003. According to eMarketer, the overall market is often pegged at over $1 billion if ad revenue for the free portion of online dating sites is included.

Most experts agree that this decrease is just the beginning of a cooling of the market as opposed to precipitating a larger drop. Nate Elliott, an analyst for JupiterResearch, says, “We see continued growth for the next five years but it is plateauing – the rate at which consumers are subscribing to dating services online is flat. As a result the revenue growth is not going to be as high as it was.” James Belcher, an analyst for eMarketer, says, “I don’t see things shrinking in aggregate.”

Most experts agree the market is mature and headed for consolidation.

“I think there will be fewer sites. There will be some consolidation – you won’t have 15 versions of JDate.com. I think some of them will merge or fade away,” Belcher says.

“The market is saturated; you have all of the online dating sites you’re ever going to need,” notes Elliott.

One area that is thriving is “adult” dating sites – such as AdultFriendFinder, IWantU.com and SexSearch.com. According to Nielsen//NetRatings, traffic to AdultFriendFinder, the most visited adult dating site, rose 67 percent in January from a year earlier. Prices for these sites are comparable to traditional dating sites – most are in the $20 to $30 range.

Options for Increasing Revenue

For years, online dating sites relied upon significant growth in unique visitors to drive revenue. Nowadays, JupiterResearch’s Elliott believes that revenue growth is being driven by higher monthly rates rather than increased membership. Due to the slowdown in unique visitors, dating sites are faced with either improving their conversion rates or increasing the value of each customer.

Sites need to convert more visitors to paid subscribers to keep revenue growing. A 2006 JupiterResearch report found that only one-third of those who go to dating sites sign up for membership. This is the first time JupiterResearch has seen a drop in conversion rates since it began tracking the space in 2003.

Another way for sites to develop revenue is to increase the value of each member – sites are charging higher monthly subscription costs and are encouraging subscribers to maintain their memberships for long periods of time. Yahoo! Personals recently raised its one-month subscription price by 25 percent, and its six-month subscription price by 50 percent. Many of the more expensive sites justify their price by offering advanced services such as privacy enhancements, personality tests and security checks.

Increased prices, however, even those for premium features, seem to be backfiring. “Rising prices have kept a large number of users from converting to paid subscribers ” 37 percent of visitors who don’t convert say dating sites cost too much, making it their leading complaint,” explains the 2006 JupiterResearch report.

Another challenge the online industry is facing is a high level of dissatisfaction among users. Thirty-five percent of online daters were somewhat dissatisfied or very dissatisfied with the sites and only 29 percent were somewhat satisfied or very satisfied, according to a 2005 JupiterResearch report.

A 2005 Keynote Customer Experience benchmarking study found that the most common frustration reported by customers stemmed from a lack of trust or comfort in other members. Sixty-one percent of customers are concerned that other members are misrepresenting themselves and as many as one in three express a lack of trust in other members.

Looking for Love

According to the U.S. Census Bureau, there are 33 million U.S. adult singles that are online and open to pursuing a relationship. Dave Evans, who blogs about the online dating industry at Online Dating Insider, says he believes the number is close to two in five online singles who have tried online dating.

Not everyone is so bullish.

“Everyone who has wanted to do online dating has tried it,” eMarketer’s Belcher says.

However, JupiterResearch reports that only 5 percent of consumers online currently pay for an online dating service – down from 6 percent in 2004.

More than 34 million people visited the top five online dating sites in December 2005 alone. Evans claims the 80/20 rule applies. “The top five sites get 80 percent of the traffic. The remaining 20 percent is split up among the thousands of dating sites out there,” he says.

A January 2006 study by comScore MediaMetrix found the top five online dating sites were: Yahoo! Personals, Match.com sites (including Chemistry), Spark Networks (which owns AmericanSingles, JDate, ChristianMingle, etc.), True and Mate1. Other leading sites that consistently land in the top 10 include eHarmony and FriendFinder (if you include AdultFriendFinder).

“The top rankings seem to be fairly consistent but the numbers for unique visitors vary hugely between comScore and Nielsen,” Mark Brooks, editor of Online Personals Watch, says. “Hitwise uses partnerships with ISPs, Nielsen has a panel and data feedback from a toolbar download and Alexa uses data from its downloadable toolbar.”

Online Dating Insider’s Evans claims some new measurement is needed. “There needs to be a new metric which is a blend of visitors, members and features. Traffic rank certainly reveals popularity but that popularity can be bought and sold via toolbars, spyware, etc.,” he says.

The remaining 20 percent of online daters go to the thousands of smaller online dating sites – many of them niche sites. Niche sites aggregate users with similar interests into a more concise space; which purportedly promotes better, more relative connections. Many believe that niche sites raise the chances of finding more compatible partners rather than going to huge data warehouses like Yahoo! Personals and Match. There are dating sites that cater to Filipinos, Muslim singles, gays and lesbians, farmers, etc.

If a 50-something, female Asian lawyer in Boston wants to try online dating, should she go to a niche site? It depends on how closely she is aligned with the niche. She could go to a site that serves Asians or seniors or to a regionally focused site for the greater Boston area. If she wants to marry another lawyer, LaywersInLove.com would be a good avenue to explore.

“It’s the spear versus the shotgun approach. The shotgun approach throws money, time and energy without much regard for results. The spear approach is targeted, contextual, focused,” Evans says.

James Green, marketing manager for MingleMatch, a Spark Networks property, explains the opportunity of niche sites such as ChristianMingle by saying: “The volume is low but the conversion is high.”

Some niche sites do extremely well. Online Personals Watch’s Brooks says that, JDate, for Jewish singles, has “a lot of word of mouth and brand inertia. Most of their users come from type-ins and the extreme focus of their site.”

Financially, JDate, which charges $34.95 per month, generates average monthly revenue of $29.42 per subscriber and spends an average of just $8.09 to acquire a subscriber.

“It’s a golden site. They own the Jewish segment – no one comes close,” Brooks says. Compare that to a non-niche site like AmericanSingles, which generates an average monthly revenue of $22.16 per subscriber with an average acquisition cost of $43.29.

The range in monthly subscription fees varies widely. Yahoo! Personals and Match.com charge $19.95, American Singles and Date.com charge $24.95, while True.com charges $49.99 and PerfectMatch.com charges $59.95.

In general, serious daters are considered to be lucrative – they are more likely to be new to online dating and these unique users provide incremental revenue to sites. They are also considered to be willing to pay higher subscriber costs for advanced features and be longer-term members.

“People think that on serious sites, you’re going to meet people who are more motivated and committed. Because of that, eHarmony attracts people who are serious about finding the right relationship and they can charge $50 per month and require a two-hour profile questionnaire,” Brooks says.

Some sites, such as LavaLife.com, have a reputation for catering to casual daters, many of whom are younger. Because of the churn rate among the more casual sites, Yahoo! Personals and Match.com have each launched premium services, Yahoo! Personals Premium and Chemistry, respectively, to try to capture some of eHarmony’s market share.

Getting Social

Over the last several months, social networking sites such as Facebook, MySpace.com and Hi5.com have gained momentum. Some industry watchers perceive the social networks as a threat to dating sites – mainly because social networking sites are free and fueled by viral marketing.

“MySpace has been so successful because they empower the connectors – the connectors are the people that talk. MySpace hit people at their point of passion; they successfully appealed to the music lovers,” Online Personals Watch’s Brooks says.

Online Dating Insider’s Evans says social networks are hazardous to online dating sites because, “It would be very easy for social networks to add a dating component – all these sites need to do is add check box.”

Others disagree, claiming that dating sites and social networks cater to different customers. A 2006 JupiterResearch report found that the social networking sites pose little threat to the online dating industry.

“Just 14 percent of dating site visitors who don’t pay for subscriptions say they use free sites, like social networks, for online dating instead,” the report states.

Brooks agrees, “Social networking sites attract ‘freebie hunters.’ Serious daters come to online dating.”

While there is some disagreement as to how this will all shake out, nearly everyone concurs that 2006 will be a critical and decisive year in the results. Most agree that there is still opportunity if sites can determine how to capitalize on it.

According to Evans there is certainly potential for growth. “Remember that a significant amount of online users have not tried online dating. The services have to get better to lure them online and into the fold,” he says.

To attract price-sensitive users and to convert registered users who have not subscribed, smaller sites should adopt below-market subscriptions. Discounting and short-term subscriptions “offer the best way for dating sites to grow paid subscriptions and market share,” JupiterResearch’s Elliott says.

The Rules of Attraction

Another way to attract more people is to reach out to a larger universe of users, such as eHarmony’s campaign to target “marrieds” for counseling, or by continuing to spend heavily for online and offline advertising.

It appears that big spending on online and offline advertising will not diminish in 2006. Mike Jones, CEO of Userplane, says, “Everyone is upping each other on marketing dollars, so winning at online dating just becomes another spending war.”

eHarmony, which claims that more than three-quarters of its users come from television advertising and word of mouth, raised $100 million a few years ago and has spent tens of millions of dollars, and possibly more than a hundred million, on advertising in the last few years, according to Elliott.

“You have so many options; that is one of the reasons why eHarmony has put out so many ads – it cuts through the clutter,” says eMarketer’s Belcher. “Branding will be more and more important in the sector because people are familiar with the concept but not the individualized powerhouse of dating sites.”

To help distinguish a dating site from others, branding must be in line with the company’s goals. For example, True has spent a ton of money on advertising, especially with suggestive ads that may raise its profile, but may not attract paying subscribers like serious daters.

“I think we will see more and more high-profile psychologists and relationship advisors such as Dr. Phil getting behind Match.com; sites want some very specific personalities that people can attach themselves to,” Userplane’s Jones says.

Another feature to become more prevalent is personality testing. “I think personality profiling is the future. I think that people will pay for it – I see them charging $100 a month. The technology is just going to get better 10 years out. I don’t think we are there yet.” Tickle and Chemistry offer a variety of tests, as does True, which offers a sexual compatibility test,” Brooks says.

Jones agrees. “A lot of companies are embracing personality profiling systems to facilitate meeting people better.” He thinks we will see more testing on sites – “it will become a necessary component” – but does not foresee sites requiring tests in order to use the service, like eHarmony does.

Differentiators

Security checking is also a big issue for 2006. Illinois State Representative John Bradley proposed a bill that would require any online dating service with members in Illinois to disclose on its website whether it has conducted background checks on members. Not everyone would consider this to be a good thing.

Joe Tracy, the publisher of Online Dating Magazine, estimated that 30 percent of daters using online services are married; a number he believes has steadily risen. Because of this, there are married or recently divorced people who don’t want to disclose that information. “You have a portion of online daters that do not want background checks,” he says. Like personality testing, background checks could be a feature that sites offer but not necessarily require.

Another way that sites are looking to differentiate themselves is by offering the latest technological marvel. “Nowadays, most sites offer or soon will offer live communication tools, especially ones that are audio- and video-enabled,” says Userplane’s Jones. For example, in February, Vivox introduced Tempo, which allows users to connect using a variety of communication tools – voice, video and IM – across various platforms such as the Web, interactive voice response telecom, Internet protocol and mobile phones.

But these bells and whistles “will not be a differentiator for very long because they are easily imitated,” eMarketer’s Belcher says. What matters more in the long run is, “do you have enough potential people on the site that are close by and would be of your same interest group,” he says. “That’s far better than the kind of avatar that you can choose from for your IM on the dating site,” he explains.

Courting Affiliates

For affiliates, the objective is to go after sites that convert. Conventional wisdom would recommend that affiliates focus on the big online dating players – the logic being that the more people who are in the network, the higher the chance of conversions. Also, according to Online Personals Watch’s Brooks, “The top sites have brand equity, which means that they convert better.”

But bigger isn’t always better. Some affiliates have had better luck with smaller sites. Killian of ChristianDatesOnline.com says the niche sites, which have fewer members than the big players, have served him the best – mostly because people who come to his site are “prequalified” – they are looking for Christians who date.

“I do the best on ChristianMingle – I have unbelievable conversion rates, like 70 percent,” he says. “I have not made one dime on Match.com.”

Super-affiliate Rosalind Gardner says, “Many folks are disenchanted with the really large sites that try to be everything to everybody. I actually do better with the smaller niche sites that appeal to specific demographics; for example, interracial or seniors dating.”

According to Brooks it’s a combination of factors.

“The best affiliates do the following: They have unique content where they drive traffic; they have some content that is really geared for getting natural search traffic; and they have PPC [pay per click] on it; or they do a combination of all three,” he says.

An online dating affiliate needs to provide compelling content that is timely and informative to please the visitors of the site and to boost natural ranking. Search engines such as Google are getting more selective and smarter about how it ranks content.

Gardner says the traffic boost from a blog can be huge and that it makes a big difference when running a content site. “I would do everything just like I did when I started but the only difference today is that I would expand my content base faster by adding a blog.”

Many online affiliates have been successful with reviews about each dating site. Some of the successful dating affiliates offer these types of service, including ALoveLinksPlus.com, OnlineDatingMagazine.com and eDateReview.com.

Because daters want to meet people in their area, another successful affiliate approach is to offer a site that has a regional focus, such as Seattle Singles. Michael Brucker, WebEx affiliate manager and former affiliate manager for Yahoo, says that for the affiliate site SinglesOnTheGo.com, “the owners spend a lot of time listing all of the singles events in each city; events such as bowling night, library night and Toastmasters.”

The relationship between affiliate and affiliate manager is paramount; for example, MingleMatch’s Green and Killian communicate almost daily. “I can instant message James a couple of times a day and he will get right back to me. That is not something that is going to happen with Commission Junction,” Killian says.

Stephanie Lewis, affiliate manager for Date.com, says Date.com offers both an internal program and one through Commission Junction. She says the big networks are attractive for new affiliates because they offer the promise of easy reporting and help getting started.

Money Matters

“Some seasoned affiliates are compensated better, they have more flexibility and they don’t have to pay a percentage to CJ. If we paid X amount to CJ, we could give that bonus to the affiliate. Or we could offer a co-branded partnership that we could not do within CJ,” Lewis says.

Payment structures vary widely. The compensations listed on the affiliate splash page are the public (or street) offers. Better affiliates get better rates, based on their value to the affiliate program and the specific requests from affiliates. Payments can be extended 30 percent (and higher) to better- quality affiliates.

Some affiliate programs pay on the first month and subsequent months – which makes a huge difference on what affiliates earn. Many top affiliates negotiate a revenue share based on the subscription and an ongoing percentage for every month the affiliate’s customers remain subscribed.

Gardner says, “I try only to do business with those merchants who offer a fair rev share. Fifteen percent on a digital service simply doesn’t cut it, especially not when I pay to advertise my affiliate sites. 50/50 recurring is my idea of a fair deal on online dating services,” she says. “While I do promote a few big merchants that don’t pay a fair commission rate, I use their names to get people looking around the site, and then direct them to more fair-minded merchants.”

Despite recent buzz that online dating has peaked, there is plenty of evidence that the dating market is just leveling off from its skyrocketing growth and that the segment is still a viable road for affiliates to travel. With the enormous range of sites out there that cater to every religion, race and hobby under the sun, there is sure to be a plethora of keywords and daters for affiliates to target.

Given the surge in traffic and subscribers to the adult dating sites, affiliates who are comfortable dabbling in those racier areas will be able to yield returns for years to come.

ALEXANDRA WHARTON is an editor at Montgomery Research Inc., Revenue’s parent company. During her four years at MRI, she’s edited publications about CRM, supply chain, human performance and healthcare technology. Previously she worked at Internet consulting firm marchFIRST (formerly USWeb/CKS).

Entrepreneur Sees the Light

While reviewing newbie sites, my heart sinks as I see the world’s zillionth “How to Start a Successful Online Business” site. The aspiring netpreneur, whom I’ll call Bob, has obviously sweat great drops of blood to build his first site, yet he hasn’t seen a dime of revenue.

If only I could talk to him…

“So, what made you choose Internet and affiliate marketing as the topic for your first site, Bob?”

“Well, there are piles of money to be made promoting Internet business info products and software because everyone wants to start an online business and make money on the Internet,” he explains.

I agree that it certainly seems that way, then give him some hard data. Overture’s Keyword Selector Tool shows that “Internet marketing” was queried approximately 250,000 times last month. “Make money online” had just over 67,000 searches. In demand terms, that’s a workable market. To see if it can work for Bob, I ask him some questions about his site. “I see you’re promoting XSitePro and Article Announcer. What do you think of them?”

Bob replies, “Oh, I haven’t bought either. I used a free HTML editor and I use other people’s articles on my site.”

Although I know he doesn’t use an autoresponder service either, because there’s no subscriber signup form on his site, I ask how he likes ABC’s autoresponder service.

Bob tells me that he doesn’t plan to build a list because he’s not into the hassle of putting together an e-course or writing a regular newsletter. His no-knowledge, no-experience responses are consistent until I ask for his thoughts about the Internet/affiliate marketing courses prominently advertised on his home page.

He says they’re great and rattles off the list of Internet and affiliate marketing tutorials and software products he’s bought over the last few months. “Insider’s Secrets was the very first product I bought online, then John Reese’s, Corey Rudl’s, Jim Edwards’, yours and-and-and… .”

I do some quick math and estimate he’s already invested a couple thousand dollars in tutorials and software. I tell Bob that those are excellent resources to be able to refer to in his Internet business library.

“Can you tell me what persuaded you to invest in John’s course?” I ask Bob. “Was it his sales copy, or did you get a recommendation from someone who bought it?”

“I’m not really sure where I learned about it first,” Bob says. He thinks he may have seen an ad for it on Google, but he’s on a lot of different lists, including some of John’s affiliates’ lists, so he may have gotten an email from a couple of them. Bob says he read about the course on John’s site, then posted questions in some of the affiliate marketing forums to find out if anyone really bought the course and whether it worked for them. Bob was convinced to buy John’s course based on the testimonials on the site. He appreciated seeing proof of how well John’s techniques work by showing screenshots of the results some people had after using his system. “There were even links to those sites,” Bob explains.

“Well done,” I say. Like most Internet shoppers, Bob did his due diligence and ended up buying a good product.

“You’ve probably noticed that John Reese’s affiliates continue to recommend Traffic Secrets to their newsletter subscribers,” I explain. The most successful affiliates keep testing John’s techniques and tracking traffic. They broadcast good results to their list and mention that they learned those techniques from the Traffic Secrets course, which they then link to in their message. That’s a stellar example of how the top affiliate marketers work. They find a product they can stand behind and then recommend it to their subscribers, who are interested in products of that type.

Bob remains quiet, so I continue. “The process works exceptionally well when your subscribers know that you aren’t the merchant, but rather an unbiased reviewer who gives them the straight goods.” When you consistently make excellent product recommendations, I tell Bob, both your credibility and income will skyrocket. Unfortunately, a balanced review is pretty hard to write when you haven’t tested a product, and building credibility within a niche is virtually impossible if you aren’t building a list.

I am met with complete silence from my new friend Bob.

I ask, “Did you know that each of the Internet marketing experts you mentioned started online in markets that had nothing to do with Internet marketing products?” John Reese became an eBay expert, Corey Rudl sold car decals, Jim Edwards was into real estate and the single crowd is still my primary market. All of us learned how to market online in businesses related to one of our passionate interests or hobbies.

“When you’re really keen on a topic, it’s easy and fun to share what you know with a group of like-minded individuals – your subscribers,” I tell Bob. “They listen to you, come to like you and then they’ll buy from you. Better yet, passion for your topic will keep you going on those days when you feel like you’re drowning in a sea of cut-and-paste affiliate links or promotional emails from your merchants.”

I ask Bob what he’s passionate about and discover that he lives and breathes martial arts. With Overture’s Keyword Suggestion Tool open, I am able to quickly tell him that there were 241,000 searches for “martial arts” last month. That’s almost the same number as for “Internet marketing,” and we haven’t even begun to look at the permutations. There are martial arts product suppliers with affiliate programs, some with commissions as high as 30 percent. To make the site lucrative, however, Bob will have to build a subscriber list.

“Do you think you could write a regular newsletter about martial arts?” I query.

“For sure,” Bob replies.

“Perfect. And you can keep using your current domain, BlackBeltBobs.com.”

“Awesome!”

“It must be destiny, Bob,” I say. “The only suggestion I’ll make is that you may want to reconsider your royal blue, olive and burgundy color scheme. Check out ColorSchemer.com for some good combinations.”

“Hey, thanks for the great tip, Ros.”

“My pleasure, Bob.”

ROSALIND GARDNER is the author of the best-selling guide to affiliate marketing, The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People’s Stuff Online. It is available on Amazon and www.SuperAffiliateHandbook.com.

Kimathi Marangu: The Team Player

It’s not easy to combine all those passions but Marangu has managed to strike a good balance.

Marangu is the co-founder of Mall Networks, an affiliate that builds shopping portals tailor-made for affinity organizations such as school districts, charities, sports teams and consumer associations.

The company, which was formed in 2005, already has a handful of private-label online malls. One of the most recent ones includes a fundraising mall to support Epilepsy research at epilepsy.com (http://shop.epilepsy.com). But Mall Networks isn’t just about dealing with nonprofit organizations; it provides professional services as an affiliate to for-profit business including NASCAR and The Los Angeles Dodgers. For NASCAR, MallNetworks.com built the NASCAR Racepoints’ Online Mall (http://emall.racepoints.nascar.com).

“A lot of our clients are strong brands with large customer bases. The bread and butter of our business is going to come from partners like NASCAR or MLB – including the Dodgers. Loyalty is important and enhances those kinds of efforts.”

Maybe that’s why Marangu, always the team player, notes that his two favorite sports or teams are NASCAR and the LA Dodgers.

Marangu helped start Mall Networks in mid-2005 several months after being introduced by a mutual friend to David Andre, the company’s president and CEO. Andre, a performance marketing veteran, was formerly the founding chief technology officer of Upromise, one of the largest consumer loyalty programs. Prior to developing and implementing the business model for Upromise Online Shopping, he was vice president of engineering at Lycos and Direct Hit (acquired by Ask Jeeves).

The two bonded over a shared love of performance marketing, online shopping malls and the ability to provide services to organizations that didn’t have the resources.

“Working in the performance marketing arena is something that I’m very comfortable with. I like working on projects that deliver measurable results.”

At the time, Marangu was running his own consulting business, called Seaspray, so he had the freedom to go out and start something new when the opportunity arose. Andre’s idea for Mall Networks was already in advanced discussion regarding funding by the time Marangu joined the company.

Once on board, part of the challenge for Marangu was getting buy in from merchants. “It was a little chicken and egg problem. Affiliates don’t get approved by merchants without a website to point people to. Yet it was impossible to put up an online mall with merchants. It was an infinite loop we had to break through.”

But Marangu’s past experience and relationships he had previously established in the performance marketing and affiliate marketing space paid off. He was able to get a core group of merchants to sign on, which then led to other merchants coming on board. The company also works with the big affiliate network players including LinkShare, Performics and Commission Junction.

As of early February, Mall Networks had grown to eight employees. Marangu lives just a few miles from his Burlingame, Calif. office. But he is the sole Mall Networks’ worker in the office suite. Still, he shows up every day dressed in business attire ready to tackle his workload. He could work from home, but likes the idea of going into an office.

When he isn’t traveling to the company’s Lexington, Mass. headquarters or other locales for business, he’s up by 7 a.m. and off to the office to “track down an East Coast client.” He keeps in constant communication with his team using Skype and email. He also travels to the East Coast at least once a month. Marangu thinks that being so far apart “is a crucial reason to show up physically every month” in the main office.

Fundamentals

Marangu started off his professional career with a Stanford M.B.A. in hand as an investment banker at Morgan Stanley and J.P. Morgan in New York and Australia.

“I’d taken entrepreneurship in business school. I was very interested in being an entrepreneur. I thought that investment banking provided a solid basis of understanding how businesses and business models are developed. It was great for a broad range of understanding the fundamentals.”

Back in 1998, Marangu attended a reunion of business school alumni (he is the current president of the Stanford Business School Alumni Association) in Palo Alto, Calif. At that event he had an opportunity to catch up with a lot of his classmates who had joined or started Internet companies. “That time was ripe to join a venture. Many people I knew had taken the plunge,” Marangu says.

Not long after that gathering he relocated from New York City to the San Francisco Bay Area and joined ShoppingList.com as Director of Business Development. ShoppingList.com is an online resource that allows shoppers to research local specials and sale items at stores close to home. Just by typing in their ZIP code, shoppers can search by product category, store or brand name. The venture is now part of ShopLocal, which is the result of a partnership by newspaper giants The Tribune Co., Knight-Ridder and Gannett Inc.

Marangu then moved on to be the General Manager of SchoolPop.com, a school fundraising company that connects schools and merchants together in a loyalty program. He was brought into the company by a former colleague who ran SchoolPop’s business development and merchant relationships for the online mall.

Not unlike many online ventures of that era, the website and the business were well under way; but Marangu says, the “revenue model needed a closer look.”

What he found was some good news and some bad news.

“On the good side, there was a strong metric among the consumers, high conversion rates and high order rates,” Marangu says. “The bad news was that SchoolPop was not getting full credit with the merchants for delivering the shoppers. We were getting paid a basic affiliate rate and in 2001 that was, relatively speaking, a pittance. The online marketing money was still going to the big portal deals. Affiliates were the last at the table to get budget allocated to them. The commission rates were quite low and not very substantial.”

Still, during his tenure, Marangu developed and deployed SchoolPop’s business model, which delivered over $250 million in trackable multichannel sales to merchants, and as a result raised millions to support public and private schools in every U.S. state.

After three years, in 2003, Marangu left SchoolPop.com to form his own consulting business with clients including Apple Computer’s online store, where he ran the affiliate program and helped grow it to become one of the largest in the industry. He also designed, negotiated and implemented search and comparison shopping partnerships with Google, Yahoo Shopping, BizRate/Shopzilla, Overture, Shopping.com and PriceGrabber.

Outside Interests

But before going out on his own, Marangu took a much-deserved vacation to Africa. Although he was born in the Midwest, he had attended high school in Kenya, before returning to the United States to go to college at Vassar in Poughkeepsie, New York. His parents still live in Kenya and although he hasn’t been back there since he took his family for that trip in 2003, it’s one of his favorite places in the world.

Years before that trip back, he had deferred his admission to business school to spend a year serving a special assistant to renowned paleoanthropologist and environmentalist Dr. Richard Leakey at the Kenya Wildlife Service, who, at the time, was leading the war on poaching.

For Marangu, who is a wildlife conservationist, it was “a once in a lifetime experience” to work with a figure often described as one of the most controversial, influential and inspirational figures in African politics and world conservation.

Marangu’s job with Leakey came at a crucial time as the conservationist successfully campaigned for a worldwide ban on trading ivory. This huge achievement was symbolized memorably when Kenya’s President Moi set a mountain of ivory tusks on fire.

“I got the opportunity to work on a number of projects that were constructive in nature [such as] being able to prepare proposals and budgets for World Bank projects,” Marangu says. “We were able to help fund water, school and nursing facilities for communities near the national parks.”

He was also involved in negotiating lease agreements for lodges in Kenya’s national park, which were paying outdated rates, which were not in line with the hefty prices they were charging Western tourists. “They were not paying for the benefits they were getting for security and other services.”

He was also responsible for changing antiquated ticket pricing for the national park.

“If you compare how much one would spend to go to the zoo and what was being charged for two whole days inside a wildlife national reserve in Kenya, it was a pittance by comparison,” says Marangu, who notes that under his plan the entrance fee for locals was not raised. ‘I wanted to encourage the local population to enjoy the reserve.” Aside from the lure of working with Dr. Leakey, there were many things that attracted Marangu to that position.

“I had been away from Kenya for several years and I really want to try and contribute to the well being of the country and help the environment and saving wildlife,” he says.

However, these days his interaction with wildlife is limited to weekend trips to the San Francisco zoo with his wife and three children (aged 5 and under), where they are members. While he prefers to see animals in their natural habitat, Marangu enjoys spending the time with his family.

Marangu says, the lessons he learned early on working in Kenya and in his previous jobs are all very applicable to affiliate marketing. “The most important things are integrity, responsibility, transparency and accountability.”

An Unbridled Love of Shopping: Q & A with Michelle Madhok

Michelle Madhok has a lot of experience mixing content and commerce online. She has worked at CBS Broadcasting as a director of entertainment marketing for the new media group and was group director of editorial products for AOL. Madhok understands the power of promotion when it comes to the world of online shopping. Her latest venture, SheFinds.com, offers information to busy women who don’t have time to read five-pound fashion magazines to keep on top of the latest styles. The site, which is packed with information about the must-haves in beauty and fashion, features a daily blog and an online forum that underscores her mission and motto: “We shop the Web so you don’t have to.” With 16,000 subscribers and approximately 300,000 unique visitors per month, SheFinds.com blends Madhok’s ideas about melding editorial and e-commerce.

Madhok recently talked with Revenue writer Alexandra Wharton about the value that affiliates offer merchants for building their brands. She also expounded on her thought that sites, such as SheFinds.com, should be treated as any other form of media. Madhok claims that because affiliates can help retailers reach new customers and niche markets, they should not be limited to commission-only compensation. For Madhok it’s all part of the importance of value-add partnerships and relationships in the world of online merchandising.

The newly married Madhok talked with Wharton, also a recent bride, about her fall wedding, which she pulled together through websites – many of them affiliate sites. This inspired Madhok to purchase the URL for WiredBride.com, her latest idea to create an online shopping guide for brides.

Alexandra Wharton: What was the inspiration for SheFinds.com?

Michelle Madhok: When I was at AOL, I became the beauty director and we started a column called Ms. M. It promoted beauty products every month. It did really well. We started offering swag – we would put up some kind of cosmetic and it would sell out. One time we had to contact a factory to get more of a certain color we had promoted. It really showed me that content and commerce was going to work.

So I’ve been very interested in mixing content and commerce for a long time. I’d been pitching it at AOL over and over but I couldn’t really get any traction with the bureaucracy and its changing management. So I went home and started this business and we’ve been doing very well. It has been almost 18 months now and we have 16,000 subscribers today. It’s all been word of mouth. Every Tuesday we send a “style mail,” and every Thursday we send a “sale mail.” The thing about these subscribers is that they are highly qualified. At AOL I learned that you can have a ton of impressions and it does nothing for you. It’s more important to have really quality people, even if it’s a smaller audience, because they buy.

We launched SheFindsMom.com five months ago, because we were getting a lot of interest about kids’ clothes and maternity stuff. So we decided to separate that off. I very much believe in psychographics, not demographics. For example, you and I are both brides, and we’re interested in the same thing that a 24-year old bride is – you know, we both need to know about cake toppers or whatever.

AW: What is your biggest category?

MM: Our biggest category seller, which kind of surprised me, has been underwear. We are working very closely with Bare Necessities. We figured out how to do a “Zagat” guide to underwear. We email people about their favorite underwear. And, believe it or not, people are passionate about bras and underwear and shape-wear. So we sold a ton of underwear. Dan Sackrowitz of Bare Necessities and I did a presentation at the LinkShare Symposium. Bare Necessities has made more than $2.50 per name from the SheFinds.com subscriber list.

AW: Can you comment on the benefits of value-add partnerships for merchandising?

MM: We frequently feature eLuxury.com as a place to buy luxury goods. We’ve moved $20,000 worth of merchandise for them this year, and remember, this is on a list that just reached 15,000 subscribers. I also know that there have been thousands of dollars in non-commissionable sales because we’ve exceeded the return days. We sell big-ticket items for them – $1,000 Louis Vuitton bags. I think it’s very valuable that they are reaching our highly qualified audience. We are providing brand awareness for them, and I think that they are beginning to understand that and support us with ad buys.

AW: Do you spend most of your time working on affiliate relationships with merchants?

MM: The affiliate thing is a little bit of a conundrum for me because I feel like sometimes affiliates/retailers – they don’t distinguish between different affiliate sites and they [merchants] treat us as the sweat-shop workers of the Internet. I feel with some sites – they [merchants] only want to do things on commission and I don’t think that’s right. I feel like you’re paying to have placement in magazines, you’re paying to have placement in newspapers, you’re paying to have placement on television, why should you disregard the branding opportunity I bring you?

I’ve been saying my new thing is I don’t work on a purely commission basis. In editorial I do that. But if you want ad placement, or some special email, we work on a combination. Basically, if you do affiliate links with me, I’ll take 20 percent off my rate card. But you are still going to pay a placement fee. Because I believe that I am building your brand. We did this thing with SmartBargains.com – we did a combination. They did really well. And a lot of people told me they had never heard of Smart Bargains before. I’m building awareness, and who knows how much of a value that person is in a life span? I think that we should be treated the same as other media. On the other hand, coupon sites can live off of 5 percent commission or whatever people want to pay.

I don’t like that we get lumped into the same area because I’m trying to create a quality product and get you the best users that you want and create your brand image. If you’re going to throw yourself up on a coupon platform, yes, they’re going to make more because they play dirty. They spam the search engines, they post codes that are out of date, and they don’t keep things up. Yes, they make a lot more money than I do, so I can’t compete with it. I really feel like that’s a problem that affiliate marketing is having right now.

AW: Do you work with a network?

MM: I work with Commission Junction and LinkShare. I work with pretty much all of them.

AW: And do the networks help you to attract new merchants?

MM: Well, LinkShare has gotten to be much more helpful. I’m doing a bunch of holiday – it’s Q4 – and so they just brought me some advertisers. I think this is kind of a new hybrid of part placement fee, part brand image, and it works for everybody. They brought me Godiva and Apple. I didn’t come from a sales background so I need to figure out how to get on the brand advertiser radar.

In the magazine industry it’s clear that if I scratch your back, you’ll scratch mine. They don’t talk about it, but you will see that all the beauty products that are pitched are also advertised in the magazine. We definitely have editorial integrity; we definitely don’t pick anything that we don’t think is good. But we also think that if all things are equal, we want to go with the company that’s supporting us. Almost every company now has an affiliate relationship. For instance, we are working with Bare Necessities – they were one of our first big supporters. So if we are going to write something about underwear, then we usually use them, and also they usually can get discounts for our readers. For our 2006 underwear guide, I asked our readers, “What is your favorite underwear?” I had someone write me back and say, “Mine is Hanky Panky; can you get us one of those Bare Necessities deals?” So you see that we have built up some brand equity for them by working together.

AW: Does anyone ever ask, ‘What happened to the separation between church and state?’ Do people understand that this is an affiliate relationship?

MM: I don’t publicize it in the newsletter. But I could write bad editorial with no affiliate links and then I think people will leave you anyway. I mean look at the growth of magazines like Lucky and Shop Etc. Even the Bliss catalog has become hugely successful. You have to provide a good product no matter what. So if you become a complete shill, then I think people will turn away from you.

AW: You say on your website: “I don’t push anything that I myself wouldn’t wear.”

MM: Right. Also the playing field has become equal. Everybody’s an affiliate. At this point, it’s not like I have to pick from a small amount [of websites]. Pretty much anything I write about is [from] an affiliate site.

AW: Interesting.

MM: The shoes that we pick quite often are from Zappos.com. They have an enormous inventory, and they have free shipping and free returns. So that to me is a client bonus.

AW: So you planned your whole wedding through the Internet and a lot through affiliate sites?

MM: The No. 1 affiliate site I used was eBay. Now I think eBay is a great place to get things. I got my shape-wear through eBay, because it was sold out on my lingerie sites, BareNecessities.com and FigLeaves.com. I got my veil off of eBay. But some of the stuff was not necessarily through affiliate sites, although I did definitely peruse them and would suggest others. For instance, StyleBug.com and EdressMe .com are carrying simple wedding dresses, which is a genius thing because the wedding dress industry is a complete racket. I was invited to sample sales so I ended up buying four dresses. I sold two on the site PreOwnedWeddingDress.com.

For instance, I get hit up by jewelry designers all of the time. I ended up having one of them (www.jeannenicole.com) make custom necklaces for my bridesmaids. Another one I was looking at was on a site called Trunkt.com; they are actually an affiliate site. And I found a site through them called Indigo Handloom.com, which has these beautiful shawls. So I ended up getting the shawls for the bridesmaids and for myself. And they’re woven with this silk called mugo, which is from India, and it’s supposed to be good luck. An affiliate site for groomsmen’s ties is Fozieri.com. I shopped for cupcakes online and used Evite for the pre-wedding parties.

AW: Did you order your wedding invitations online?

MM: My parents did it, but I’m familiar with how they did it. I did order some things from ChelseaPaper.com. I ordered thank-you cards from them.

AW: Did you buy your bridesmaids’ dresses online?

MM: Everyone picked their own strapless black dress. I sent suggestions as links from BlueFly.com and Nordstrom.com.

AW: How about the location for the wedding?

MM: Well, I definitely used the Internet to search. I was looking for some type of outdoor space, like a hotel. TheKnot.com has lots of reviews. And Craigslist.com was indispensable for the wedding. I found the reverend on Craigslist. I found my wedding coordinator on Craigslist and my video guy on Craigslist. It was nice to not have to troll stores looking for things. And I wanted to have gold shoes, and I was able to set up with eBay so they would email me every time gold shoes were listed.

AW: That’s a good idea.

MM: I found my seamstress through a site called ManhattanUsersGuide.com. I found on Craigslist my makeup guy as well. As for the rings, I didn’t buy them, so I didn’t buy those online, although I did search for styles online. I left it up to [my husband]. There’s a diamond guy in the diamond district here [in New York], so that’s where everyone buys.

AW: Will your website, WiredBride.com, be an affiliate site?

MM: I don’t like the term affiliate site ” that implies we are only out to push the retailer’s promotions. We build sites to help women shop, and brides have a lot of very confusing shopping to do. We will use affiliate links where applicable.

ALEXANDRA WHARTON is an editor at Montgomery Research, Inc., Revenue’s parent company. During her four years at MRI, she has edited publications about CRM, supply chain, human performance and healthcare technology. Previously she worked at Internet consulting firm marchFIRST (formerly USWeb/CKS).

Going Global

Affiliate Networks are striving to extend their reach by entering foreign markets, but local challenges threaten their chances of international stardom.

If the affiliate model is effective for selling necklaces in Nantucket, shouldn’t it also work to move wurst in Wittenberg and mobiles in Manchester?

U.S.-based affiliate networks are hopeful that taking their business models to all four corners of the globe will translate into the same kind of success that they have enjoyed in North America. The networks see nations that have lagged behind the U.S. in embracing e-commerce as fertile ground for sowing the seed of performance marketing.

Commission Junction set down roots in the U.K. and Germany, while LinkShare put out its shingle in Japan. Both companies, as well as their European counterparts, have designs on extending their global footprint sooner rather than later. Commission Junction, LinkShare and Performics are the leading U.S. affiliate networks.

Going Gangbusters Globally

"My prediction for 2005 is that this will be the year that affiliate marketing truly goes global," says Heidi Messer, president and COO of LinkShare. Messer says the company "will be aggressive in expanding into Europe" and is interested in participating in the burgeoning economies of China, Korea and Australia.

LinkShare began its global odyssey three years ago, according to Messer, when it partnered with Mitsui & Company, a leading Japanese retailer. LinkShare provided the marketing platform while Mitsui contributed the business relationships and knowledge of the local requirements. "Going it alone wasn’t a possibility," says Messer, because each country has its own buying pattern, laws and culture.

Messer says LinkShare is evaluating opening networks in European countries on an individual basis. "We are very methodical and will not enter markets where we are not 100 percent committed," she says.

The increasing willingness of Europeans to purchase goods and services online makes the region a likely destination for American marketers, according to Hellen Omwando, an analyst with Forrester Research’s consumer markets group. Omwando says that within the first year of going online, 16 percent of Europeans now buy items such as travel and clothing, whereas in years past only 2 percent would have purchased commodity items such as CDs or books online in the first 12 months.

Omwando says that affiliates’ potential audience is also growing – 55 percent of Europeans online now participate in ecommerce. "It’s all good news from a consumer perspective," she says.

The United Kingdom and Germany are driving most of the growth in Europe and account for two-thirds of all e-commerce, according to Omwando. Not surprisingly, Commission Junction launched its first two European affiliate initiatives in those two countries.

"We are up to our eyeballs in international expansion," says Elizabeth Cholawsky, vice president of marketing and product development at Commission Junction. She adds that the company will next launch in France in mid-2005, and that Spain and Italy are also priorities for expansion.

By entering new markets, the company would be able to better serve its advertisers through an international network of websites, says Cholawsky. In addition to Europe, Commission Junction has launched eBay in India and Australia, and has China on its radar.

The most difficult aspect of Commission Junction’s European launch was not technological or cultural, but bureaucratic, according to Cholawsky. She says that because European tax officials are not well-versed in the intricacies of e-commerce, the company hired auditing firm PricewaterhouseCoopers to work with government representatives in the U.K. and Germany. The European Union’s adoption (with the exception of the U.K. and Switzerland) of the euro has simplified currency exchange.

The company hired a design firm from Germany and a language translation firm from Washington, D.C., to create a website acceptable to local affiliates, according to Cholawsky. She says launching in the U.K. first simplified establishing a presence in Germany. "Europe has more things in common than different," she says. "Culturally it’s similar all around."

European expansion has contributed to Commission Junction’s rapid growth. The company’s revenue jumped from $24 million in 2003 to an estimated $54 million in 2004, says Cholawsky.

Affiliate network Performics is unlikely to join the European fray this year, according to Chris Henger, senior vice president. He says Performics is focusing on integrating its resources with new parent company DoubleClick. "In the longer term you could see us moving in that direction, but it’s not an immediate strategy," Henger says. 

Navigating the Potholes

Ashley Friedlein, CEO of London-based E-Consultancy.com, says that incumbent local companies have the upper hand over Americans in attracting retailers. "European merchants want to deal with companies who understand their markets," he says.

Citizens of each country have their own preferred methods of purchase, revenue model, topselling products and legal requirements, according to Friedlein. Europeans are much more likely to purchase products through their mobile phones, and the laws for online data protection and privacy protections vary from country to country, he says.

European e-commerce trends run about six to 10 months behind the U.S., Friedlein says. And European affiliates continue to use the pay-per-click revenue model that Americans have largely moved beyond, according to Friedlein. Search engine marketing in Europe requires local expertise, especially for American companies used to operating in a Googlecentric universe.

Europeans have their own searchengine marketing techniques, and affiliates and merchants are working out how to cooperate with search partners, according to Friedlein. He says that affiliates and retailers have been in a bidding war over getting priority for brand names in search engine rankings. "It’s a bone of contention," he says.

One similarity with American affiliate marketing is that merchants depend on a few affiliates for most of their revenues. "I reckon that 90 percent of sales come from 10 percent of affiliates," Friedlein says.

Affiliate marketing’s rapid growth in Europe has made it difficult for retailers to find in-house expertise to manage their programs, according to Friedlein. Many large retailers do not have a dedicated affiliate manager, so the responsibility is either part of the marketer’s job, or it’s outsourced.

European sales generated through affiliates during 2004 are estimated at $1.1 billion, a 100 percent increase over the previous year, Friedlein says, and he expects similar growth this year. Friedlein says 3.5 percent of all e-commerce sales in Europe are generated by affiliates.

Forrester’s Omwando warns that while affiliate marketing in Europe is in a comparatively early stage of development, Americans looking to land on the Continent in 2005 may have a hard time forging relationships. Europe already has three significant networks in place: Zanox in Germany; TradeDoubler, which has operations in 16 nations; and Commission Junction, which began its U.K. operation in 2001.

She says retailers unfamiliar with affiliate marketing are unlikely to partner with a foreign entity. "Marketing at the end of the day is very localized, and anyone participating has to understand the nuances and cultural sensitivities," Omwando says.

For example, to work with German companies, networks must first establish relationships with the local trade associations, Omwando says.

"I really don’t see what the opportunity is for American companies," she says. To have any chance at attracting European retailers, American companies must bring with them an impressive roster of international advertisers, according to Omwando.

Inevitable Intersection

The American networks’ grab for affiliates abroad will put them in direct competition with European companies that also have designs on expanding into Asia, and perhaps even in the U.S.

TradeDoubler poses a formidable challenge to foreign competitors. The company has been in operation since 1999 and has a presence in 16 European countries.

It is assessing possible expansion into Asia, and clients have frequently asked TradeDoubler to consider opening an office in the U.S., according to Will Cooper, chief marketing officer.

"Having a pan-European footprint has given us access to the world’s largest advertisers," says Cooper, who counts Dell, Apple, Sony and Reebok among his clients. TradeDoubler’s network includes more than 800 advertisers and 450,000 publishers across Europe.

Cooper says the challenge of starting networks in several European countries should not be underestimated. Each country has a unique cultural and business climate that requires networks to retool their business model, he says. "Every market is so incredibly different in terms of things such as broadband penetration, size of market and payment models," Cooper says.

While Spain and the U.K. are both large markets with populations of more than 40 million, their e-commerce demographics are quite different, according to Cooper. The U.K. has the most mature e-commerce marketplace, and the costper- action revenue model works well. But Spain has very different characteristics. "The culture is not to buy online. People prefer being able to touch the products," Cooper says, and cost-per-click is the preferred commission structure.

Heavier reliance on mobile phones provides another opportunity for networks looking to move into Europe. TradeDoubler developed a program for Swedish mobile phone users who are more comfortable with brick-and-mortar purchases. Customers can download coupons that contain an identification number for the referring affiliate to their mobile phones, which they take to the checkout counter where scanners read the coupons.

Another example of a TradeDoubler affiliate program designed for a specific country is its British lottery program. After registering online, Britains text message their Lotto picks, which takes advantage of the U.K.’s interest in mobile phone e-commerce.

Zanox, an affiliate network based in Germany that spans 22 European countries, launched the ring-tone download service Jamster in the U.S. and Australia. "You cannot compare Europe and the States," says Holger Kamin, Zanox’s executive account director.

Kamin says his company has an advantage over American networks because it has already established relationships with major retailers in Europe and provides many affiliate services, including consulting, email permission marketing programs and a transaction platform.

The cultural differences between countries that share a common language can be difficult for non-Europeans to understand. "You can’t think that because they speak the same language in Austria, Switzerland and Germany that the culture is the same," Kamin says.

To succeed in the long term, affiliate networks must have international reach, according to Kamin. "This business is global," he says. Kamin predicts that the market will consolidate to five top-tier international affiliate networks that will compete with smaller regional players.

 Northern Exposure

American affiliate networks are not alone in their hemisphere in seeking a share of the international marketing dollars. Canadian affiliates are enjoying success selling products such as prescription medicine, adult content and sports books in the United States.

Nicky Senyard, CEO of Montreal-based network ShareResults.com, says merchants in her country are significantly behind their southern neighbors in understanding affiliate marketing. "Online merchants don’t know what they are or how they are to be used," Senyard says. Many Canadian affiliates are currently selling American products, but her company and others are educating Canadians on the possibilities of selling their goods in the U.S.

Just as Commission Junction and others are now operating networks in Canada, she expects that Canadian networks will increasingly do business in the U.S. "[Opportunity] flows in both directions," Senyard says.

American networks that wait until 2006 to launch European initiatives may find the window of opportunity closed. Local companies who become established with retailers now will have a definite advantage, according to Gary Stein, a senior analyst with Jupiter Research. "The advantage is to the incumbent," Stein says. U.S.-based advertisers who are expanding their European online marketing programs have to weigh the factors of familiarity with American networks versus local expertise, according to Stein. "There are arguments on both sides of the equation."

 

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, AlertNet.org and in MIT’s TechnologyReview.com.

Three Great Search Engine Marketing Myths

As search engine marketing has become ubiquitous and, in most marketers’ minds, synonymous with generating profits from their Web sites, lore has sprung up around the process. Those who have an axe to grind or a product to sell mainly propagate these myths.

When the success or failure of your Web site can be determined by a creature as capricious as the Google spider, then it’s not surprising that rumors and misinformation abound. Let’s try to dispel some of the myths that have been repeated so often that they’ve become accepted as truths.

Myth 1 Anyone can build a Web site and use search engine marketing to make it profitable.

This one is a holdover from the early days of pay-per-click (PPC), when all anyone needed to do was buy thousands of clicks for a penny, sign up for an Amazon affiliate program and watch the checks roll in. I personally spoke with several advertisers when I was at Overture (back when it was GoTo) who made big bucks just buying clicks and sending the traffic to their favorite affiliate program.

Nowadays, with most of the competitive keywords on the Internet costing a dollar or more, you need a strong marketing plan, a well-designed Web site and a good business model to generate a living. Yes, you can put up a site, sign up for a few affiliate programs and display a few banners, but don’t expect to quit your day job. To make it work, you need to know what you are doing. In order to generate significant traffic to your site, you need to have a decent enough profit margin in your product so that you can afford to spend money marketing it.

Whether you are an affiliate or a retailer, the product or service you are selling needs to generate at least $20 per sale for you to even think about doing PPC – unless you already have a guaranteed stream of traffic to your Web site, a very large marketing budget and you are building a business model around volume rather than individual sales. Remember this when thinking about which affiliate programs to join, because there are very few products that can be sold successfully and sustainably on the Web without traffic from search engines.

Unless you know Web design and site optimization very well, you are going to end up having to troll for traffic by buying clicks. In order to do that, you need to have enough leverage in your profit margin to be able to build your sales, and you need a product and Web site that are attractive enough to generate repeat customers and continue to lower your cost per acquisition.

I’m not trying to paint a bleak picture; I know many smaller advertisers who have quit their day jobs and built a business using PPC advertising alone. They just made sure their profit margin was strong enough to allow them to do it, and they didn’t buy into the new get-rich-quick schemes.

Myth 2 You’ll never be the victim of click fraud.

While the search engines take this stuff very seriously (at least Overture and Google do), they are at the mercy of bots and hackers constantly assailing their systems for their own nefarious gains. By now, most people out there realize that they have to have a virus program installed on their computer or they are bound to get burned by a vicious attack. The same thing is true of your Web site. If you are a PPC advertiser, eventually you are going to get hit with fraudulent clicks, especially if you are in any of the competitive channels.

Overture and Google catch the majority of them, but your campaign is still going to get hit by at least 5 to 10 percent of clicks that are not real. This number is not now, nor has it ever been, 50 percent, by the way. That’s another myth that’s being touted around the Web right now that simply isn’t true. I personally know at least 100 advertisers, both large and small, who are getting at least 5 percent conversion rates from their PPC campaigns, and that just wouldn’t be possible with 50-percent click fraud rates.

This is your campaign and your livelihood. Do yourself a favor: Before you spend a whole bunch of money on PPC advertising, set up tracking URLs. Take advantage of conversion tracking from Overture and Google, and buy yourself a good click-tracking solution.

Some good, inexpensive ones include WhosClickingWho.com, Click Auditor from KeywordMax.com and ClickTracks. com. Not only will these programs inform you about the nefarious clicks, but they will also tell you about the real ones so you can determine how much you should actually be paying for clicks.

With your click information in hand, you can go to the search engines and question any clicks that you know are bogus. The search engine companies will research this, and if they find the clicks questionable you will get a refund. Partnering with the search engines in this way is the best way to safeguard your business, and no one benefits when click fraud is allowed to continue.

Another way to guard against click fraud is to be very careful when selecting smaller search engines to work with. Many of them simply don’t have the resources to invest in the technology needed to safeguard their advertisers from fraudulent clicks.

Myth 3 Once you build your Web site and start getting traffic, you are done.

Search engine marketing is one of the most iterative marketing processes ever developed. One of the hardest things about marketing on the Web is that you’re never done. The search engines are constantly changing their processes, and you should constantly test landing pages and creative on your search engine marketing campaigns. New affiliate programs are constantly arriving on the scene, and everyone is in search of the next big thing.

You don’t need to follow what’s in fashion to be successful. You just need to make sure you stay up to date on issues and take full advantage of all the latest marketing channels that become available.

That means trying local and international traffic and seeing how it converts, adding things like contextual advertising to your site to try to monetize every square inch of the page and continuing to learn how you can provide a better product or service for your customers.

One of the great things about the Internet is that it truly does create an even playing field for all. Search engine marketing makes it easy for a small marketer to compete with a Fortune 500 company.

You can sell your product internationally or locally, work at home in your pajamas and generate a good living. All you have to do is play it smart, market to a niche and watch your profit margin like a hawk!

MARY O’BRIEN is a partner at Traffic-Mentor.net. She has worked in Internet marketing for five years and was formerly senior director of sales at Overture.com.

Planning Future Growth

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Four Ways to Make More Money

Have you ever wondered why big Web sites like AOL, Yahoo and MSN don’t run many cost-per-action (CPA) deals in their ad spaces?

It’s simple: They don’t have to. They make much more money selling ads based on impressions rather than the number of customers or leads generated. Who wouldn’t prefer to get paid for just showing the ad instead of having to rely on it really performing?

If a large property can’t sell all its ad space, even at discounted remnant ad rates, it might throw in a CPA deal here and there, but that’s a rare exception.

On the other hand, the most common way to compensate an affiliate is through a CPA deal. A merchant who runs an affiliate program can pretty much choose its own acquisition cost because it only pays for results. It’s rare that an advertiser’s affiliate program has the highest acquisition cost of all its channels. Instead, affiliate programs are seen as a way of acquiring customers at the lowest possible cost. And there’s nothing wrong with that.

But the same company might be willing to spend two to three times the fixed CPA acquisition cost to acquire the same customer from CPM-based (cost per thousand viewers) ads on large Internet properties. Why? Because low-cost affiliate programs offset the costs of higher CPM campaigns and offline channels. Together, they result in an acceptable overall acquisition cost.

I’m not saying that you should start hiring sales reps and putting together a media kit for your sites. But you might be very well served by looking at additional revenue streams such as CPM and CPC income, or something called coregistrations.

Here are four potential additional revenue streams for your site.

Use An Ad Network

It makes all the sense in the world for a smaller site to outsource ad sales. There are a lot of advertising networks out there that will sell your ad space for you for a cut. If they have good advertisers, your smaller site may become part of large ad buy by a well-known brand.

Of course, there are some downsides. You might have to give up as much as 50 percent of the ad revenue. And it can take forever to get paid, because you get paid after the ad network gets paid. But, all in all, joining an ad network might be very worthwhile if you can get accepted.

How do you qualify for that? Well, requirements vary. It helps if you can show you have relevant traffic, focused content, high traffic and a professional look and feel.

Pay-Per-Click Search

Another way to generate income is to get accepted in a content network for contextual advertising. You drop a piece of code onto your pages, and the advertising network will serve to your site text-based ads that are relevant to your content. Take a look at pay-per-click engines such as Google, Overture, Kanoodle and FindWhat.

You will then tap into a pool of advertisers who might not even have a standard affiliate program, but who are willing to pay a premium to get the clicks your pages have to offer.

Most pay-per-click networks only display the top three to four bids on a specific keyword on syndicated sites like yours. This ensures that you always get the highest earnings per click that the search engines have to offer for a specific keyword.

Even after you split the revenue, it can turn out to be a very good deal.

Also, the classified ad format that pay-per-click engines uses tends to work very well. Why? Users like them. They have blue links. And blue hyperlinks are the only ad formats that have consistently worked since the early days of the Web.

Sometimes you might make more from the revenue from the contextual text links than the main offer you’re promoting on the page. You need to test and watch your numbers carefully though.

Build A Quality Email List

If you only make money by driving traffic to advertisers who pay you on performance, then why not get some repeat revenue from them?

Build an email address list to make repeat offers. Good email is not dead. If you have a visitor to one of your sites, you should provide them with enough value so they give you their email address to stay in touch. Make sure your visitors opt in, so that you’re not contributing to the notorious spam problem.

Think about what would appeal enough to your visitors to make them want to hear from you again. Is it content on a particular topic? A special report featuring a buyer’s guide of the top 10 gadgets in your particular space? Special offers or coupons from your advertisers? Getting names and addresses for snail mail is even better.

Add Quality Coregistrations

What are coregistrations? Basically it means that you’re adding a number of checkboxes to your email form so that partners or advertisers can feature their offers. You get paid for every name your form generates for your advertisers.

There has been quite a bit of trading and selling of names with coregistrations that has diluted the quality of coregistration data and has sometimes given coregistrations a bad reputation. But the basic concept works as long as you don’t abuse it with 15 or 20 prechecked boxes on your form like many sweepstakes sites did in the past.

The best route to go is probably outsourcing. A number of companies let you add coregistrations to your registration path that completely blend into your own design.

That means your visitors will both sign up for your list and be added to a number of other lists through a third-party-hosted registration script. You’re basically outsourcing the whole management of coregistrations on your site to a company that will get advertisers and manage the data for you.

Bottom Line

You deserve to get paid as much as possible, don’t you? Try adding these other revenue streams in addition to the standard CPA ad. You might be pleasantly surprised by the results.

OLA EDVARDSSON has extensive experience as an affiliate. He is also CEO of the Internet marketing agency Performancy Inc.

Coupon Hoopla

You’ve been there. You’re at the grocery store to buy one single item. You have your groceries on the counter, your cash in your hand. But the person in front of you has a never-ending stash of coupons. The cashier enters in code after code. You start looking for an open clerk, cursing the customer ahead of you.

Well, coupons aren’t nearly as annoying online. Frugal shoppers can save money in the privacy of their own homes, redeeming as many coupons as their hearts desire. And it doesn’t slow other shoppers down one bit. Everyone wins. Especially people like Mike Allen.

Allen not only has an eye for a bargain, he loves to offer good deals to others. “I saw that coupon codes sure could save you a lot of money,” says Allen, who speaks in a slow, soft Southern accent. “But they sure are hard to find.” That’s why he decided five years ago to devote an entire Web site to online coupons. Shopping-Bargains.com features 500-plus merchants.

Coupon sites say their revenue varies widely month to month, but some gross more than $10,000 a month and the ones contacted by Revenue say they’re expecting a whopper of a holiday season. EdealsEtc says months in the fourth quarter sometimes result in six-figure revenue.

“Q4 is always good for us,” agrees Joel Comm, who runs DealOfDay.com. “But 2004 is gonna be the best year for coupons so far.”

The uncertain economic outlook combined with a long-running trend toward value shopping has created vast opportunities for affiliates to promote sales by providing coupons to people who just can’t live without them. In 2002, according to Forrester Research, consumers downloaded 242 million grocery coupons, coupons they print out and take to brick-and-mortar stores. That’s almost one coupon per American, and that’s just for groceries.

A raft of online coupon sites exist. Large sites like CoolSavings and CouponCart.com let you print coupons to redeem in offline stores. Others like FatWallet, UPromise, Spree.com, eBates and KeyCode offer cash-back incentives or rewards to shoppers. If a merchant gives an affiliate, say, a 5 percent commission, the affiliates might pass on 2 percent of that to their customers.

But even the sites that offer savings on online purchases range from small niche hobby sites to larger companies like CouponMountain, which employs eight people in Los Angeles, has 750 merchant partners and does a lot of marketing. And with about two-thirds of the US households now online, there’s still plenty of room for affiliates who can build a site that rises above the crowd.

Adam Schwartz and Craig Nelson were eating sushi in San Francisco and saw an ad on the window that read: “See our coupon on the Internet!” They thought online coupons were a great idea and started CouponSurfer in September 1998.

Brad Wilson started DealsDuJour.com with his brother Campbell in 2001. The 20-something brothers bought things, mostly electronic gadgets, online and when they scouted a good deal, they told their family and friends about it. Their hobby started as a pastime, soon blossomed into an email newsletter and then later became a business.

How many sites are devoted to online coupons? A lot. DealzConnection tries to list destinations for online bargain hunters. It lists 42 with forums, 41 that have price comparisons and 232 other bargain sites, plus 104 dead sites (not all coupon sites survive).

Site Design

As in many other areas of affiliate marketing, design is critical. Having a home page that is fresh every day is a great start. The best coupon sites list the deals in a variety of ways so that consumers can easily find what they want.

Many have current deals ranked and listed by popularity. New coupons occupy their own space; expiring coupons are placed somewhere else, so users can find deals before they’re no longer valid.

Many sites let you search alphabetically by merchant to find the store you prefer. And most have a category breakdown, so you can scan that to find a coupon for a gift for your Aunt Hilda’s birthday, whether you are looking to get her a karaoke system or a trip out of town.

Affiliates need to think more about aesthetics and the user experience. “Sites aren’t making it appealing and clean and idiot-proof,” says Wilson. “I sit my mom down. She is absolutely useless online. I see if she can make it through the user interface and if she can navigate, then we go with it.”

“A simple interface that has agreeable color schemes is important,” agrees Travis Bowman, president of EDealsEtc.com. “You also need to optimize for speed and test for speed and multi-browser compatibility. A good logo is also critical.”

But design and navigation aren’t the only considerations. Deals are ever-changing, and keeping up in the coupon biz definitely isn’t for the faint of heart.

Update Your Deals

“You cannot neglect it for one minute. You have to be on top of it,” warns New Yorker Abe Rapaport of JumpOnDeals .com “There are merchants whose coupons are expiring. Others are putting new deals out there. Customers contact us with their concerns. We have to keep up with all of them.”

Keeping up and using legitimate coupons is a full-time job. There’s nothing more frustrating to consumers than taking the time to pursue an offer that already expired. Burn your customers, and you’ll burn yourself.

“You need to link deals into a searchable database,” offers DealOfDay’s Comm.

Shopping-Bargains.com’s Allen and his wife revamped their site and hired ColdFusion programmers to help make the static site dynamic with a database that automatically schedules coupons to expire. Since they relaunched in January, keeping the site updated has been “dramatically easier,” says Allen.

“Users expect accurate and current deals,” says Allen. “They want a comprehensive listing. It’s very hard work to keep merchants happy and users happy.”

But once you have a site that is designed well and is updated regularly, you’re ready to tell people about it.

Marketing Moxie

Sites that focus on online deals must do a lot to separate themselves from the pack. Wilson says his goal is to give consumers the better things in life at a better price. The company’s motto: “Shop smart, live rich.” Wilson says it still takes a lot of work to get attention.

“Paid search can work but you really need the right metrics,” says Wilson. “Search engine optimization is incredibly competitive but it’s always worth the effort.”

Many of the affiliates contacted by Revenue simply love search engine optimization. Tagging pages properly isn’t easy, and getting someone with expertise to help can be expensive. Bidding keywords and buying PPC advertising – Google has a 5 cent cost-per-click minimum; Overture has a 10 cent minimum – are also tested tactics. But they aren’t for everyone.

“Keyword placement is too expensive for this niche,” argues Comm. Instead, he’s syndicating content. That way, his site gets double the exposure, and search engines are twice as likely to pick up his pages.

A few sites like PhatDeal.com and eDealsEtc.com say they are even considering buying offline advertising -newspaper ads, billboards or radio time in their local markets to attract traffic, a tactic described in Issue 3 of Revenue (Beyond Search Engines).

The smart coupon sites also let you sign up for an opt-in newsletter that gives shoppers links to popular deals, turning first-time visitors into repeat buyers. And many use “Tell a Friend,” which lets users click on a link and do the viral marketing for them.

“The best is when an affiliate manager recommends us to other merchants,” says Bowman. “Word of mouth works for consumers as well as retailers.”

A few sites have added email notification systems that help convert browsers into customers. Bedford, Mass.-based CouponSurfer.com has set up a “Coupon Butler” service that informs users when a particular product they are interested in is available at a discount. Such newsletters and notices help.

But the best means of attaining visibility? Word of mouth. “The goal is for people to have an easy experience, become repeat visitors, sign up for emails and tell their friends and family about us,” says Wilson. “One of these visitors is worth five of the other kind.”

Everyone loves loyal customers. That’s why many sites encourage visitors to click a link to bookmark their sites as a favorite, sign up for an opt-in newsletter and tell a friend.

DealsDuJour.com recently received the Titanium award at the LinkShare awards ceremony, which Wilson says has helped it to garner a lot of positive attention. Mentions in the press don’t hurt either. Dan Baxter founded DealCatcher.com, which gets 3 million page views per month and promotes more than 500 merchants. He says appearances in the The Wall Street Journal, PCWorld and USA Today have been boons to his business.

But even if you get the best media attention and the greatest industry awards, you are still going to have to work hard. Your challenge is to get people interested and coming back. Content is important, too.

“You have to save your members either time or money or both time and money,” says CouponSurfer’s Schwartz. “You have to offer them value.”

Thinking about your audience is the key to success in the discount game. Luckily, online retailers are always trying to invent and offer new promotions. DealsDuJour.com’s Wilson has witnessed an increase in merchants in 2004 getting their holiday marketing plans in place earlier this year.

Work With Merchants

“I’ve been impressed. Merchants were already concerned in July about Q4,” says Wilson. “The usual suspects think ahead. Overstock.com and those guys are really focused on affiliate channels.” Then again, Overstock.com has 10 people focused on affiliates (see story page 40). But other merchants would be wise to think about offering discounts and disseminating deals.

“Merchants mistakenly think people will buy no matter what,” says Rapaport. “But if you aren’t offering deals, your competitor is. So you really need to offer coupons to people.” Rapaport suggests giving visitors a variety of coupons from which to choose – whether it’s a dollar amount off, a percentage off or free shipping. “Test and see which codes do better,” he says.

So what sorts of deals perform the best for merchants? Rapaport thinks free shipping offers are better than no special offer at all, and JupiterMedia’s Patty Evans hails them as a great deal to offer, especially this time of year.

“Free shipping is the master plan. It is consumers’ top concern; they react to it better than other discounts, even if they aren’t saving as much as they could with different offer,” says Evans. “It’s tangible and definitely priority around the holidays.”

Work Around The Clock

“It’s a juggling act,” says Joel Comm of DealOfDay.com. “It’s nearly impossible to keep up with all the offers. There are so many merchants and there’s so much competition.”

Maintaining a coupon site is so much work that Mike Allen realized last year he needed to make a choice between his job as a marketer and his job as a governmental training specialist at Mississippi State University. So he quit his university job and devoted himself full time to being an affiliate this year. Because he has four kids at home, he had to rent office space. “It’s too noisy at home,” he laughs.

And the business has ups and downs. Online savings affiliate sites see their business fluctuate with retail cycles. It’s not predictable income, and you have to be prepared to work when the shopping fevers strike.

“This is the hardest easy money you’ll ever make,” says Allen. “It’s only easy because you aren’t sweating.”

Keep in mind if you want to dance in the discount disco, you better be ready to work your tail off. There’s no break in this business. Says Rapaport: “We will be here on Christmas and the day after doing the after-holiday sales.”

DIANE ANDERSON is managing editor of Revenue.