A Nose For Data

As a canny entrepreneur, you’ll want to monitor all aspects of your business. On the Internet, that comes down to tracking data, all kinds of it.

Remember, an affiliate is really an Internet marketer and successful marketers of all persuasions love data. Marketers burn to know who their customers are, where they heard about the company, what makes them come back, what makes them buy. One of the key differences between Internet marketing and the bricks-and-mortar kind is the amount of actionable data the Net can provide.

Keeping track of all that information can seem overwhelming. When she launched bargain shopping site DealHunting.com in 2000, Maggie Boone spent 16 hours a day trying to keep up with stores, products and coupons Ð for a grand total of $2,000 a month. “It’s really hard and very time-consuming,” Boone said. “If anyone thinks it’s easy, well, it’s the opposite.” That careful tracking paid off. Three years later, although she still puts in the hours, Boone has four full-time employees and an income that lets the family live comfortably without her having to work outside the home. She has enough profits salted away that her husband can retire whenever he wants to.

Get ready to become a data hound. If you want to be as successful as Maggie Boone, you’ll need to keep track of four different areas: sales; merchants and their offerings; traffic to, from and within your site; and your advertising and marketing.

How deeply you have to get into tracking data depends on what kind of site you have and how many programs you run. To offer one example, Rotten Tomatoes is a site for film buffs, packed with movie reviews, news and gossip. Visitors can buy DVDs, posters and games. Because the site is so targeted, Rotten Tomatoes works directly with just a handful of merchants. “A lot of these groups have their own ways of tracking,” Rotten Tomatoes CEO Patrick Lee said. “We can either log in to see them, or they send us reports.” Lee trusts the reports, although he might check how many clicks the site is sending over to a merchant, to make sure the numbers make sense.

Compare that simple approach with CouponMountain, a site that strives to help people “live a little above their means” by getting discounts on all sorts of stuff. Founded in 2001 as an after-work hobby by Talmadge O’Neill and Harry Tsao, it now draws 1 million unique visitors every month and reports that it sends more than $100 million in sales each year to approximately 500 merchant partners. CouponMountain, which now has a staff of 11, employs a mix of third-party services and homegrown software applications to keep close track of merchants, referrals, coupon expirations and advertising. The company has one person dedicated to checking merchant reports each day, using AffTrack, an Internet-based service that aggregates reports from networks and individual merchants.

The bottom line

Sales are, of course, top-of-mind for affiliates, because they’re the main influence on the bottom line. Each merchant program may have a different basis for commissions: One might pay for clicks through to its site, another for site registration, and another for sales of products.

Affiliate networks and individual merchants offer other Web-based reports where their partners can check sales and revenue. Reports may be real-time or updated daily or weekly. While many affiliates like to check their reports once a day, most wait at least a month or two to drop under-performing programs. Tracking of sales and commissions happens automatically and reliably, according to Chris Henger, vice president of sales and marketing for affiliate marketing company Performics, because each affiliate’s traffic comes to the merchant via a unique link. “Affiliates don’t have to monitor whether tracking is working,” Henger said. “[There are typically more issues] around, ‘What sales volume am I getting from this merchant, and how do I improve that?'”

Successful affiliates focus not on gross revenues, but on earnings-per-click, or EPC. (See the sidebar “ABCs of EPCs.”) “The most important metric you can get from any network or software is the EPC,” said Shawn Collins, director of affiliate marketing for resource site ClubMom. For example, someone might send a thousand clicks to a bookseller and only 120 clicks to a clothing store, each of which pay the same commission. If you looked only at the commission, you might assume the two programs were equally lucrative. You’d be wrong.

“They don’t pay attention to the fact that it took a lot less traffic to make that same amount of money from one of the merchants,” Collins said. “They don’t take the time to crunch the numbers to see what they actually earn. They’re just stupefied by the [gross] numbers.”

Tracking EPC can help you put your efforts into programs that return the most profit for the least amount of effort. Some network reporting tools and third-party software can automatically calculate and compare EPCs from a variety of programs. Some can also let affiliates create custom reports that compare merchants and programs in different ways so they can identify trends or compare conversion ratios. DealHunting and ClubMom use tracking and analysis tools from AffTrack. There are a lot of reporting options that people don’t take advantage of, according to Collins. Those who don’t, he said, “don’t see the real story.”

Merchant-dizing

When it comes to keeping an eye on all the different merchants, offers and promotions, top-producing affiliates can expect personal service from affiliate managers with the networks and merchants. For a smaller fry, it’s more self-serve. Boone said most of her time is spent on this aspect of her business. “We get a lot of our sales info from the customer channel,” she said. “A handful of merchants keeps us really informed; the rest we deal with as a customer to know what’s going on. We subscribe to the email newsletters that go to their customers, and we literally get hundreds of emails a day from different merchants with sales and bargains.”

Boone turned to a programmer friend to create a database of stores that automatically tracks coupon codes and deletes them as they expire. She can query the database to find out, for example, which stores don’t have any current offers. CouponMountain also built its own tool to track coupon expirations. And it has a content team that spends its days checking to make sure that offers are still good.

Aside from keeping an eye on expiring offers, affiliates have no control over their visitors’ experiences when they arrive on merchant sites. The more you make clear your role as a referrer, the less likely your visitors will blame you if things go wrong with a merchant. Working with trusted partners can ease your mind. Networks protect you by vetting merchants, and they’ll pull the plug on deadbeats. When dealing with established retailers, you can rely on their reputations to some extent. That doesn’t mean you shouldn’t explore less established brands. “There are always different new companies,” said Collins of ClubMom. “I’ll go to different message boards and ask around, ask who’s considered to be the most trustworthy vendor of a product.” Collins warned that you should take such advice with some caution, however. “There’s always a risk that a competitor might try to send you to a bad company. People are helpful and friendly, but they have their competitive interests.”

Still, it’s wise not to take remove yourself too far from consumer-merchant relations. Daniel Washburn, director of merchant development at CouponMountain, says consumer feedback is an important part of his business. “I’m in contact with merchants on a daily basis,” Washburn said. “But in an online business, customers aren’t walking in your front door. So having some sort of communication with them is very important in building a successful site.”

Every time a visitor requests a coupon from CouponMountain, a popup box asks, “Did this coupon work?” There are many places on the site that request feedback, and the company gets as many as 50 customer emails a day. These are not just complaints but also requests for particular coupons or items. But don’t ask for feedback unless you’re willing to respond within two days, the industry standard for good customer service. Wait any longer, and your customers will get impatient and either contact you again with more irritation or go elsewhere to find out what they want.

Positive attributes

Tracking offers and merchants is just the beginning. You can go deeper. Consumers on the Internet are often searching for product information to help them make choices. You need to understand why they make the choices they do on your site, so that you can encourage them to make choices that lead to sales. At the same time, as in the real world, not all shopping choices are based on objective considerations. Merchandising and presentation play a big part in decisions. Therefore, you should carefully track what Lisa Riolo, vice president of client development for affiliate network Commission Junction, calls “attributes.”

Offer attributes may be actual features of the product. To use credit card offers as an example, the product attributes include the introductory APR and annual fee. If you ran a financial information site, analyzing the attributes of your best-performing credit card offers might show you that your audience preferred cards with no annual fee, Riolo said.

How products are described and displayed are also attributes. A retailer might offer several different photos of the same product, in different sizes, with and without backgrounds, from different angles. If you keep track of which photos or descriptions you use, you can understand what works best with your unique site.

Traffic jamming

Another element to come to grips with is internal traffic: how do visitors move through your site? Large corporate Web publishers use complex applications to track visitors’ movements. Many affiliate networks let you put extra information into your links so that you can see which pages do the best job of getting visitors to click. This information lets you move ads and links to the pages visitors like and delete pages of no interest.

Tracking the comings and goings of Web visitors is as important as monitoring revenue. After all, it’s the traffic that makes you money. Check your ads, including banners, link exchanges and paid search results, to see what it is that drew people to your site.

Playing the search keyword game is an art and science unto itself, and many affiliates devote the majority of their time to scrutinizing and massaging their word lists. Search engines Google and Overture have tools that let advertisers observe how their paid search advertising performs. Some networks have management tools that let you incorporate paid search advertisements into your analysis of your overall activity within the network. Some site-building or management applications will let you compare results across search engines and networks.

When you’re ready to become more sophisticated, look for software tools that let you map everything we’ve discussed. “You may want to track all the events that led up to a sale, not just what ads got the most response,” said Commission Junction’s Riolo. Look at where the visitor landed on the merchant’s site, where and when people converted from shoppers to customers. Compare that to which product image you used, the product description and any keywords you bought to advertise on search engines and the text of your ad. “The combination of all this drives the consumer,” Riolo said.

This may sound like a lot of work, but it is worth your time. By tracking all these nitty-gritty details, you’ll get the big picture. Like a well-trained hunting dog, you’ll be able to anticipate the movements of your customers and sniff out the most profitable deals before they get away. n

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

Cyber Creeps

When thousands of consumers got emails asking them to help electronics retailer Best Buy combat Internet fraud, they were eager to help. But those who clicked on the link and entered credit card and Social Security numbers learned the ugly truth too late: They’d been had.

The link took them to a “spoof” page that looked just like Best Buy’s home page but was actually operated by thieves. “The trust we worked so long to achieve was threatened by this rip-off,” said Dawn Bryant, a spokeswoman for Best Buy. “This is some- thing a business should never have to contend with.”

Neither should consumers. But the reality is that identity theft, predatory advertising, spamming, spying and other sleazy practices have left Internet shoppers understandably wary of buying goods on line. The number of complaints of Internet fraud nearly tripled last year to more than 48,200, according to data from the Internet Fraud Complaint Center operated by the FBI and the National White Collar Crime Center. The Federal Trade Commission says the Internet is now the focus of almost one-in-five of the complaints it receives.

“If these kinds of practices continue, it will run the whole thing out of business,” said Ray Everett-Church of the Coalition Against Unsolicited Commercial Email (CAUCE), an activist and lobbying organization.

Honest affiliate marketers face a double threat. Not only do they have to overcome consumer skepticism, but they have to compete with unethical rivals. Several industry organizations have teamed up with consumer groups and government agencies to educate affiliates and corporate program managers about ways to build consumer trust while combating ethically bankrupt practices.

All the ugly horses

One notorious practice involves Trojan horse software that bundles one or more secret programs along with an application that an Internet user desired.

“A surfer might go to a site and download something that looks interesting or might be fun,” said Jim Sterne, the author of five books about online marketing, including World Wide Web Marketing. “Unbeknownst to them, the download includes a piece of spyware, parasiteware, or thiefware as it is sometimes called.”

In its most benign form, a program might serve ads in a window within the application interface. For example, Cydoor is an ad-serving application that rotates ads in a window on the user interface of applications such as file-sharing software from Kazaa and Grokster.

“No one really likes ads, myself included,” said Robert Regular, Cydoor’s vice president of sales and marketing. “But we are just an ad delivery mechanism showing ads only when you’re in the application, to make money to pay the developers who wrote the software.” He said that Cydoor does not gather any personal information on its uses.

Advertising-supported software gets on shakier ground when it includes technology to track people’s movements on the Web. People who provide this software say this tracking technology improves their ability to show more relevant marketing messages. The problem is, most consumers wouldn’t know they’re being watched.

“The user agreement might have a buried reference, or there might be a box to click to accept the other software, only it doesn’t fully explain what is being accepted,” said Jason Catlett of Junkbusters, a privacy advocacy group. Catlett said this is “another example of junk consent creeping into the fine print of transactions. Even if it’s buried somewhere in the legalese, ethical marketers should not give customers stuff from others that [the consumers] don’t expect.”

What really infuriates affiliate marketers are hidden programs that pop up advertisements for competitors while someone is shopping on the affiliate’s site. Sterne said Gator, a marketing company that offers a free electronic wallet for consumers, “waits quietly until the surfer goes to a merchant site that sells a product that is competitive to one of Gator’s clients. Gator then pops up their client’s ad.”

Conceivably, shoppers might benefit from a better deal, but it is a bit like waving an ad for Fords in front of someone test-driving a Chevrolet. Affiliates call this predatory advertising because they feel their commission has been stolen after they converted the shopper into a buyer.

Sterne noted that many people intentionally download Gator, but said “the sticky part is when Gator comes included in something and the surfer is unaware they agreed to install it.”

Gator executives declined to be interviewed. A company representative referred questions to a FAQ on the company’s Web site, where the home page clearly states that users must agree to see ads in return for the free software.

Can the spam

Unsolicited commercial email now accounts for more than half of all messages, but nobody seems to want it. That leads to a curious question: Why would anyone want to send out emails that nobody wants to read? The answer may stem from the type of commission offered to affiliates by merchants selling those products.

“If a program rewards the affiliate for clickthroughs and not sales, it’s more apt to be abused,” Everett-Church said. “If all [the affiliate has] to do is get the person to go to a site, you are more apt to spam.” On the other hand, he said, programs that pay only for leads that result in sales don’t experience the same kind of abuse, because affiliates must add value in the form of information before users will click on their links.

Everett-Church recommends that affiliate programs that pay commissions based on clickthroughs institute checks and balances to make sure users aren’t gaming the system. “If you’re rewarding people for volume but there aren’t controls in place, you’re unwittingly encouraging abuse,” he said.

The worst spammers buy CDs containing millions of email addresses, then use software to automatically spew out millions and millions of ads touting prescription drugs, low-cost mortgages or what-have-you. But the problem doesn’t end there. If you send your email newsletter to someone who didn’t specifically ask for it, you could be in trouble.

“Spamming is against the law in most states,” said Marc Rotenberg, president of the Electronic Privacy Information Center in Washington, D.C. “Most affiliate agreements have clear usage guidelines on how you can advertise them. If you’re caught spamming, you could be fired as an affiliate for the merchant on whose behalf you spammed.”

The fallout can radiate beyond your network and get you into hot water with your Internet service provider, said Brian Huseman, a staff attorney for the Federal Trade Commission. “Your ISP may shut you down, and then you can’t send any email at all,” Huseman said. Worse, you could be placed on a blacklist so that even if your ISP reinstated you, your emails would be bounced by many other ISPs.

“An affiliate marketer who intends to be around for any length of time can’t use these kinds of marketing approaches,” said David Nielsen, founder and principal of consumer information resource FightIdentityTheft.com. “Overall, they’re a threat to the legitimacy of the industry.”

Got ethics?

It’s not the technology that’s to blame, industry experts say. It’s the unethical or uneducated businesses that abuse that technology. Unfortunately, it can be hard to know where to draw the line.

“What makes the difference between ethical and unethical is, the person has to know what is happening. You have to be straight with your customers as to why you collect information [like email addresses] and what you use it for,” said Rotenberg from the Electronic Privacy Information Center.

Smart affiliates use their tech tools wisely. For example, there’s a very simple guideline for email marketing. “If the person has asked for an e-mail, it’s okay, but otherwise, don’t send it,” said Steven Salter, director of operations and administration for BBBOnLine, the Internet arm of the Better Business Bureau in the United States.

Huseman agreed e-mail ads are fine on an “opt-in” basis where the user makes a choice to receive messages. That can happen when a consumer makes a purchase or registers on a Web site. Typically, a box will be provided with the prompt, “Click here to receive messages about promotions from this merchant.” The very best approach is double-verification, when users who sign up for promotions get a second email that confirms their interest.

BBBOnLine and other groups are anxious to help rebuild consumer trust. “The whole BBBOnLine program was created as a way to give online businesses a way to show they can be trusted,” said Salter. BBBOnLine.com has a reliability seal for Internet businesses. To qualify, affiliates must join the BBB chapter where their company is headquartered and agree to participate in the BBB’s advertising self-regulation program.

You can also bolster consumer confidence by designing a professional-looking site. “If your site doesn’t pass the visual inspection, users will think it’s not very credible,” said B. J. Fogg of Stanford’s Persuasive Technology Lab, author of a study on Web credibility conducted in partnership with Consumer WebWatch. According to Fogg’s research, design was the top factor consumers used when deciding how trustworthy a Web site appeared to be.

To differentiate yourself from spoofers, it’s a good idea to let consumers know who you are. Be clear in your advertising and on your Web site that you’re an affiliate of the merchants you mention, not the merchant itself. To maximize credibility, it’s a good idea to provide actual contact information, not just a “contact us” form, on your site, according to Leslie Marable, research project manager for Consumer WebWatch.

It’s not enough to have your heart in the right place. Ethical affiliates must constantly monitor their own activities to make sure they stay firmly on the side of the good guys.

And if the affiliate marketing industry doesn’t cleanup its own act, others will likely step in to do the job.

Abused consumers are taking up arms against unethical merchants and affiliate marketers, encouraging state and national legislators to consider tough laws to prevent spam and to punish scamsters. The question for affiliates and program managers is whether to work with them or against them.

JANIS MARA covered interactive advertising and marketing as a senior writer for Adweek. Her articles have appeared extensively in a variety of print publications.

No Free Lunch For Merchants

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

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

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

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

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

Micro Management

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

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

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

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

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

Hidden Costs

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

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

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

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

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

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

The Creative Touch

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

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

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

Crying Game

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

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

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

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

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