ShareASale: Size Doesn’t Matter

ShareASale.com founder and CEO Brian Littleton runs what is considered to be the fourth largest performance network in the United States. Littleton has earned the respect of the industry and garnered a dedicated following of merchants and affiliates by taking a firm stand on issues. His company is the only network that does not allow downloadable applications of any kind. His personal style and outspoken views on important issues are reflected in this wide-ranging interview.

LP: How does that impact the company?

BL: We want to be very approachable to clients, merchants and affiliates. The feedback has been that everyone wants to be able get a hold of a real person to get their questions and concerns answered. We want to serve everyone and not just those that are making super-affiliate type of revenue. Even if an affiliate is making a few hundred dollars, we want to be able to answer their questions. Now we have beefed up and are able to do that. It is a core thing that is very important to me.

LP: What about the growth of the sales team?

BL: We are working to grow our base of merchants and need sales people to handle that. Right now we are at 2,588 merchants. Getting over the 2,500 mark was a big milestone for us and we are looking to continue that growth. Of those, 2,435 are retail pay-per-sales commission-based merchant programs. We are a retail-focused network, which is very different from the large variety of CPA networks dealing with lead-based offers. We have 244 lead-gen merchants. They are not the core of what we do. We are adding nearly 100 merchants every month – of course, there is always some churn in the math. But unlike the other networks, we are targeting a different type of merchant. They are smaller, non-Fortune 100 companies. We want to help anyone, no matter what size, that wants to take a shot at performance-based marketing. It’s not easy to provide a system that works for everyone – whether it’s a Fortune 500 company or a two-person company.

LP: Are you leveraging technology to help with that scalability issue?

BL: One of our main focuses is technology. It’s a big differentiator for us in the space. We are always coming up with new ways for merchants and affiliates to leverage technology – like our widgets for video. They are unique across the board.

LP: What are some of the goals for SAS in 2009?

BL: We are very focused on networking. We are always trying to find a better way for affiliates and merchants to talk to each other. It’s difficult in the network model. Often, merchants are over-eager. Merchants tend to think their offers are the best. Affiliates are more selective. They don’t want offers all the time. We are looking at better ways to make that happen. We want to let the merchants interact more without so much material that it’s impossible for affiliates to read it all. It’s a big thing for us to get it right.

LP: What are some of your challenges over the next 12 months?

BL: I think the industry will be faced with many more complex compliance issues in 2009. There will be more toolbars in 2009. Merchants are looking at a lot of different types of affiliates – coupon affiliates, PPC affiliates and loyalty affiliates. As a whole, questions will be answered as the individual networks take their own routes. We are working on PPC issues. We introduced a PPC Violation Report which allows merchants to upload a screenshot of those they feel are in violation. We then do more research into the allegation. Because merchants don’t always know if an affiliate is really bidding. We dig deep and decide if there has been a violation. We have a three strikes and you’re out policy. If the affiliate is in violation of a merchant’s PPC policy, then we remove them from the network. We give the affiliate a three month grace period to get in compliance, but if, after that, they have are not in compliance, they are out. The goal is not to cut out those that made an honest mistake but those that are continually abusing the rules and praying on merchants that have difficultly policing that activity. Toolbars and loyalty go together. More and more toolbars are coming out. It’s like everyone is seeing their competitors doing it, so they do. More are popping up. Whatever has been the position of those in the past, adware and toolbars present a unique set of challenges because they all do different things – notifications, pop-ups, etc. We feel that we need to look at each one.

LP: That sounds like a Herculean effort.

BL: There is not an easy way around that, to maintain quality inside a network. You have to make sure a toolbar’s behavior doesn’t violate the rules you have. It’s not something typically that individual merchants can keep up with. Maintaining compliance is on the network side, because we have the data. We allow the merchant to have a say, but the network should be handling those issues. It’s a lot of work, but it’s part of the network role to keep on top of emerging technologies. It happened with PPC and coupons, and happened with toolbars as well. They’ve been around for years. It’s nothing new, but there seems to have been an explosion. I’m basing that on the number we’ve seen lately and the perceived success merchants see with competitors’ toolbars. They see them working for others, so they want them. I think it will be a huge challenge in 2009.

LP: What impact have you seen on the performance marketing space because of the current economic conditions?

BL: I think affiliate marketing will increase in profile because of the depression of the CPM or ad marketing. We won’t know for sure for a while. Some merchants will look to affiliate marketing to fill gaps. That’s traditionally what affiliate marketing has been best at. That’s been a strong point of the affiliate marketing industry since the beginning.

LP: Do you have any specific goals for SAS that you can share?

BL: We don’t have any specific goals as of yet. We set our goals more broadly. It’s a personal style of mine. I prefer to say things like, “we like to get closer to our publisher base, rather than we are going to do X a specific number of times.” The main thing we will be doing is continual work on the technology; it is at the core of what we do. We want to come up with new tools and technology for not only those who have a greater understanding, but for the first-timers who join the network. We want to make it simple for newer merchants and affiliates to understand. It’s a back-to-basics approach. I think that will make us more attractive. On the relationship side, we are looking to get closer to our affiliate base. We are targeting affiliates that we feel historically have been aligned with other networks. We are also letting our existing base of affiliates know that we have even more stuff they might be interested in.

LP: Has style been a big differentiator for the company?

BL: I don’t know. I don’t like to make presumptions. I like to highlight what I think we do the best. Certainly, there are clients on every network that are happy as clams. But we do focus on the results and quality of what a merchant is getting out of their relationship with us. This shows in the adware discussion. We are the only network that doesn’t allow adware. I know it’s a loaded works and there are discrepancies over exactly what adware is. Years have been spent hashing that out in the industry. But for me, it comes down to making sure that the quality of sale is just as important as the volume of sales. Sales tied to adware are not true growth. It’s important to report these activities to the networks and that the networks do something about it. But that’s a choice that’s being made by each network. Not keeping up with compliance is detrimental to the industry as a whole, over the short and long term. That’s our stance.

LP: By not accepting certain types of merchants, ShareASale hasn’t grown to the same size as the some of the other networks.

BL: The size issue has forced us to be good, if not better, with our technology. You can’t be the small size we are and have that number of merchants with bad technology. You need automation. Our datafeeds are automated and registration is automated. You can’t have bad technology. Everything needs to be smooth to support that volume of merchants. We are doing things faster. We are a different type of company. There is a big difference between us, a small company, and a privately-held company.

LP: But you are competing against companies with huge resources. Have things changed for your company since Performics was bought by Google?

BL: Not really. It’s business as usual. I know people there and we have a good relationship with them. Of course, it’s important for any company to know what’s going on with their competitors. People brought up the possibility of conflict, but Google sold off Performics’ search division. The name and backing of Google may help them, but in the end I think it’s a positive for everyone in the industry – especially if the largest brands get interested in joining the performance marketing space.

LP: Would you consider offers to buy SAS?

BL: Our technology is built inside the company. I would rather build in-house. We get more value that way and so far we have built everything we have. There could be minor exceptions – if there is new technology we could get faster through an acquisition – but I like to think that building it in house gives us long-term value. I’m conservative with our assets. We have grown organically and we are profitable. I’m not going to put that at risk for a new technology.

Merchant Advantage: eBay Partner Network

In mid-March of 2008, eBay announced it would be transitioning away from having its massive affiliate program run by a network and instead they would take it in-house.

eBay began its affiliate program in 2001 and had since grown it to the second largest affiliate program in the world, behind Amazon.com’s Associate Program.

The eBay Partner Network launched on April 1, and the company started to transition its affiliate program away from Commission Junction. eBay also brought Half.com over to the new network.

Speculation that eBay might be thinking of a transition began back in September 2006, when it announced the launch of their own affiliate linking infrastructure called Project Rover. At that time, eBay claimed the new linking structure would provide a variety of improvements, including reduced ad and cookie blocking by using an eBay hosted domain; limited redirects, thus reducing the risk of user drop-off and improving speed and performance; and global infrastructure improvements by enabling eBay and Commission Junction to develop increased global tracking capabilities, allowing for more seamless international affiliate promotions.

That migration, which angered some affiliates who had to swap out links, was the start of eBay’s transition to bring its program in-house.

Senior Manager of the eBay affiliate program, Will Martin-Gill, emphasized the move had nothing to do with a dissatisfaction with CJ or ValueClick.

“CJ was great when the program was with them. They also were really helpful with the transition – from talking us through the public announcement, to helping with the messaging to the affiliates, to transitioning the team. Once they understood where we were going, that gave us the support to get there,” he says.

More Control Over Data

For eBay, according to Martin-Gill, it was simply time to bring the affiliate program in-house the same way eBay brought their search services in-house three years ago.

“When we did that, we were able to do more things than SEM agencies and use our internal conversion data,” Martin-Gill says. “We were able to determine the value of a click and what constitutes a good click. We learned so much from the data. That helps us make more informed decisions and is a tremendous advantage. We wanted to do the same for our affiliate program.”

Martin-Gill also noted that eBay was looking to build more flexibility and innovation into their program, to reach and sustain the more diverse crowd of affiliates and publishers on the Web today, and to have a direct relationship with those affiliates. Thus, it gave the company increased control over data across various marketing channels.

Martin-Will comes at this with some insight given that, prior to leading this effort, he was responsible for leading key advertising and search engine marketing initiatives for eBay. Before that, he was senior manager of corporate strategy, which being responsible for strategy development,mergers and acquisitions and various projects across Marketplaces, PayPal and Skype, including Internet marketing strategy.

eBay’s massive worldwide affiliate base was also a factor in the move. eBay was looking to turn its program into a global platform where publishers and affiliates can sign up to all the various country-specific programs at once, through the same interface.

eBay didn’t completely move away from ValueClick and is using MediaPlex’s tracking solution for the eBay Publisher Network. In addition, Tradera AB, ProStores, Reseller Marketplace, Media Marketplace, eBay Stores and StubHub continue to be on CJ’s platform.

There was a two-month overlap between the two platforms during April and May so that affiliates could make all the necessary changes to their links. eBay also paid an extra 5 percent commission to affiliates that transitioned their links and ID to eBay Partner Network by May 1. The company claims that by the end of May over 90 percent of its active affiliates had followed them to the eBay Partner Network, and eBay’s program also retained 90 percent of its volume.

“This was a big effort. It was an undertaking that required a huge effort that we didn’t take lightly,” Martin-Gill says.

He adds that it took over a year to put together all the technical and organizational elements required to get up and running. It required creating groups and systems to handle customer service, network quality and fraud detection,finance and payment, and account management. Martin-Gill won’t disclose the exact size of the team running the network, but did note that it has tripled since bringing the program in-house. The technology group responsible for the infrastructure and development is a shared group at eBay.

So far the biggest challenge for the network, according to Martin-Gill, was the volume of initial customer service inquires. “People have lots of questions,” he says. “This was a big growing pain for us in the first three to four months to get customer service up to speed. I don’t think we did too badly.”

To get its message out there, eBay launched a blog, relaunched the affiliate discussion boards, had a booth at both the Affiliate Summit and Ad:Tech conferences. The Partner Network also gave a presentation to a large group of eBay sellers recently.

Turning a Corner

Martin-Gill says that it wasn’t until October that the entire EPN team began to feel really comfortable. “We felt like we turned corner,” he says.

Early on in the program’s history there were some affiliates that questioned if tracking discrepancies had occurred in the transition, as some affiliate experienced a drop in commissions. Ironically, tracking was not one of the core infrastructures that changed the move. MediaPlex,which is owned by CJ’s parent company ValueClick, continued to handle all the tracking.

Martin-Gill says that EPN conducted audits both internally and by hiring third party firms, and in same cases issued “make goods” to affiliates.”We take tracking really seriously,” he says. Now he’s confident that after an exhaustive three month study, everything is on track.

The other thing EPN has learned over the last nine months is that a lead is not a lead is not a lead, according to Martin-Gill. “Some leads are more valuable than others,” he says.

Under CJ, eBay was paying $25 to $35 for each new user registration. He claims that there were those affiliates attempting to game the system by getting a customer to sign up and then buy a $2 piece of plastic jewelry – and then collecting a $25 commission.

To curb that behavior EPN created an algorithm that accounts for the lifetime value of a customer and pays the affiliate accordingly. In August, eBay moved to a value-based pricing plan for Active New Registered Users. The move was intended to better reward top affiliates,provide incentives for other affiliates to improve the quality of their traffic, and pay fair compensation for users who have low lifetime value to eBay. Under the new arrangement, they pay affiliates $1 to $50 per new user.

The new pricing structure took effect on August 1 for new affiliates and November 1 for all existing affiliates. At press time, more than one-third of their active affiliates are now earning $28 or more for every new user they drive to eBay, while several hundred affiliates are qualifying for the new $40 and $50 tiers.

Other enhancements since the transition include providing additional data to affiliates including a campaign quality report that shows affiliates which of their tactics and campaigns are driving the most engaged users. There is also a new report showing affiliates which categories of products their users convert, so they can improve targeting.

In addition, eBay has added tools for customer banners, as well as special creatives associated with particular deals and holidays.

“We want to give affiliates more tools and better ways to promote us, such as the customer banner where affiliates can specify pixel length and width. For 2009, EPN is also planning to roll out coupons in the banners. Martin-Gill says that they will build-in unique coupons that are offered to high-frequency users. In addition, EPN is looking to offer affiliates more product feeds.

“We are making a push toward finding highly valuable publishers – we are not just about volume.”

Google Affiliate Network: Big-Time Backing

The performance marketing landscape changed dramatically last year when Performics, the third largest network, was sold along with its parent company DoubleClick to search giant Google. After more than a decade in the online marketing space, Performics became the Google Affiliate Network – gaining all the cachet of an association with Google, along with concerns from the privacy advocates about Google having too much information on advertisers and publishers. Chris Henger, group product manager for Google Affiliate Network, addresses those issues and talks about where GAN is headed.

Lisa Picarille: Let’s talk about the changes that have occurred since Performics was acquired by Google.

Chris Henger: We’ve moved to the Google Chicago office – three blocks from our old office. Speed and being fast is a good thing at Google. Phase One was the integration. That is done. And it was done well.

LP: So now what?

CH: I think Google brings a tremendous amount of vision, infrastructure and philosophy in their approach to market and business problems. We can apply much of Google’s core business to our business. Google is about making it simple, easy and fast and doing no evil. We have been thinking about how we can bring that to our channel. We really want to embrace that. We need to be relevant to create a great experience for our publishers, advertisers and end users – the whole ecosystem.In CPA and affiliate marketing, we are always thinking about how to convert better and what can we do that will make more money for us, advertisers and publishers. In affiliate marketing,we are continuing the integration to leverage Google’s technology infrastructure. It’s in our best interest and that of our customers (advertisers and publishers) to embed our systems into core Google software. We have access to great software. We were told by Google to engineer for the long term and not for the short term. Be smart about why you integrate into the system. Make sure you are enhancing the core platform. For example, we can use the payment and billing system of Google’s on the back end. This can benefit publishers by offering payments with more speed and transparency. We can send one, common check to AdSense and network publishers. It’s also important because we can now pay in 47 different currencies across many countries.Operationally, it’s important to understand the synergies with our publishers and advertiser and AdSense. There is overlap. There’s an opportunity there to make publishers happy. We can also centralize reporting and use Google Analytics. It’s our long-term vision to offer a centralized dashboard to their affiliate data, mobile, etc., in a single dashboard. We are leveraging Google’s focus on technology and innovation.

LP: What else is on your radar long-term?

CH: We want to make the platform easy and fast, integrate with Google and be more open for advertisers and publishers to communicate with each other. Open communication and the concept of transparency only work if the network is fully open and shares publisher information with advertisers. We think there is value from us, but that we shouldn’t stand in the way. Google has Blogger, Gtalk, Google Group, GMail, and many other communication tools.

LP: It’s great to leverage Google, but is there a downside to that?

CH: People are worried about Google having too much information. I understand the potential perception of conflict but we haven’t had any customer feedback along those lines. They don’t see it as a problem. From a long-term perspective, why would Google do things that are not in the best interest of the end user? It’s funny because the U.S. is known as a capitalistic country with an entrepreneurial spirit – the whole rags-to-riches thing – but America also loves to see the Big Guy fall. Some think Google is too powerful. It’s an unrealistic fear that is not in practice.

LP: How much emphasis do you place in compliance, and will Google play a role in that effort?

CH: Compliance is always important and remains very important.I don’t feel a seismic shift. We believe in quality in business. We have invested in technologies and methodologies.It’s a huge differentiator for us and will be more so in the future. We are working closely with Google on this. It has many technologies for malware detection, and if you combine that with our focus on quality, we have strength. We also hand-screen all affiliates and reject 50 percent of the publishers who try to sign with us.

LP: Does GAN have specific goals set for 2009?

CH: There was a lot of marketplace momentum for us that was very strong in 2007 and 2008. We were taking shares from competitors – which can singularly be attributed to affiliate marketing. Google is committed to the affiliate business as important. Over the next year, we want to continue to grow GAN through that same single-focused effort – driving publisher and advertiser growth. We want to grow programs and have already proven that we can do that. When advertisers and publishers are happy we are ultimately all winning.

LP: Do you think growth could be challenging in this economic climate?

CH: Current economic conditions are impacting online advertisers and all advertisers in the ecosystem. But advertisers are not naive. Online marketing is a vehicle that can help them and is accessible to them in tough times. We want to let them lean on us.

LP: Does that mean you are reaching out to a more diverse group of potential advertisers?

CH: A while back, we began a program to focus on small-to-medium-sized advertisers in addition to our big brands and catalogers. Google works with every advertiser on the planet – across all verticals. At the same time, affiliate marketing works for online e-commerce objectives – leads or sales, the big verticals, retail, financial services, travel and technology. We want to work with companies in all of those areas. It’s important to us to be diverse. For example, we know that in these times, in affiliate marketing and offer-driven channels, advertisers retreat on offers because of margin pressures. It could be right for one or two companies. But offers that are properly structured when the customer is price sensitive or ticket-size sensitive and consider the price point that consumers are fearful of, can work – and work well. So let’s put offers out there that are attractive. We should be talking.

LP: Google has a large global presence. Are there more expansion plans for GAN?

CH: GAN is ultimately a global business but right now we are going through a prioritization process to decide about further expansion. We are evaluating that.

LP: Where will GAN be in a year?

CH: We think that over the long-term we can bring about a real, fundamental change in the industry to make it easier and faster to do what is right for advertisers, consumers and publishers. Give us time. Google’s not out to hurt the affiliate marketing industry. Let us operate with these good intentions.We are part of a big company and things could take a little longer. But there is excitement, enthusiasm and support. The right things are in place. My team is 110 percent committed to do the right thing by customers and good things are going to happen.

LinkShare: Leveraging Technology and Global Markets

Nearly a year ago, LinkShare president Steve Denton stepped down. The company named co-presidents. Jonathan Levine and Yasuhisa “Yaz” Iida are both veterans of LinkShare’s parent company Rakuten.

Lisa Picarille: LinkShare is the only major network to have co-presidents. Give me the break down of your duties.

Jonathan Levine: I used to be the chief technology officer at LinkShare. My primary focus is still product and technology development and to work with our chief marketing officer. I make sure we track, report and pay out commission – basically the nuts and bolts of the technology operations.

Yasuhisa Iida: I came from LinkShare’s parent company Rakuten. My role with LinkShare is just five months old, but I have been with Rakuten for 10 and a half years. My role is the business side – mainly client facing. I’m looking at sales and client development.

LP: When there are two people making critical decisions, can’t that be problematic since there is no real “the buck stops here” ruling?

JL: The benefit of having co-presidents is that two brains are better than one. Yaz and I came from Rakuten at different times and my background is products and technology with some business development.

YI: I was heading up the sales organization. I can bring the best practices from our parent company.

JL: Also, I think Yaz and I are in sync on most things. We are pretty careful when decisions overlap that we have time to have discussions and come to consensus. We are co-presidents of a bigger company. The buck stops with our board of directors and the CEO of Rakuten. Were there to be a case that was perceived as passing the buck, there would be no tolerance for that at Rakuten.

LP: What’s changed at LinkShare since you two took over?

JL: I think the world has changed since we have become co-presidents. LinkShare is still a great company, but I think the U.S. economy is really difficult right now. Retail sales are challenging and lead generation is challenging. We are still profitable and a great company, but we are going through the same issues as the retail and financial sectors.

YI: Rakuten is a very successful company that constantly brings best practices. LinkShare is not one company. It is part of a very strong Internet company. That gives LinkShare employees comfort and confidence. And because Rakuten is in other markets outside the U.S., we have a broad international perspective. We are in a good position.

LP: Is performance marketing poised to withstand a recession?

JL: In a world where things are not certain, for advertisers they want to know whether or not their dollars will be effective and they want the lowest risk possible. If you are a direct marketer you can measure on a performance basis. It will minimize the risk. We have started to see among the big advertisers that they are using comparison shopping engines. There is now more power for advertisers. They are pushing comparison shopping engines back to CPA from CPC. That trend is pushing the risk back to the publishers. Advertisers are in the driver’s seat right now. We do see an overall trend away from CPC and CPM to CPA – it mirrors what we are seeing in the economy as a whole. Credit cards are down. Loan and debt counseling are way up. The retail side is trending lower as consumers are seeking deals to save money. Cash back is attractive to consumers this year.

LP: Given those factors, what are LinkShare’s plans for this year?

JL: We will continue to do in 2009 what we did in 2008. We are continuing to lay the foundation for a broader variety of distribution tools to make performance marketing practical for a wider array of publishers – like those in social media. We are also working with outside companies as vendors to build WordPress plug-ins. We are enhancing our Web Services that syndicate out to ToldYa and Yahoo. Also, using an API to pull URLs for CPA distribution. There will be more interactive links. We will keep enhancing our Flex Links. It’s not just for video and can be used for other things. My roots are in writing code, so we want to develop an ecosystem around a critical mass of products for other developers as well. To be fair to the other networks, Google is also very technology focused as well. They have an army of people writing widgets and they are opening up APIs to the network. Time and again we see that folks who build a platform and open it up to others create a robust, survivable ecosystem for everyone.

LP: Since you brought up Google…

YI: We feel like we have superior service over all of our competitors. We are focused on what we do best, what we can do for clients and what makes us different. Our differentiator is superior service.

LP: What are some of the biggest challenges for LinkShare and the industry at large?

JL: For us, I think as a smaller company, there is always more stuff you want to do. Your reach often exceeds our grasp. That’s nice and natural. You always want that desire to do more. It’s nice to have a parent company like Rakuten. They are the largest e-commerce company in Japan and extremely profitable. They are making investments in areas where we need to be. That helps since it’s going to be a big storm in retail and financial services this year.

LP: LinkShare has gone from a privately-owned family company started by Steve and Heidi Messer to be part of huge Japanese company. How has that impacted business and the LinkShare corporate culture?

JL: One of Rakuten’s biggest distinguishing factors is that everything is fact-based and transparent. If something is good, they say so. If it’s bad, they say so. Rakuten’s founder, Hiroshi Mikitani, has founded the company on five corporate principles that guide the culture of Rakuten and LinkShare including; be professional at all times; it’s not about personal opinions; what matters is the data. That makes for an egalitarian culture. It’s the kind of place I like to work.

YI: We are good at building a strategy. It’s fact based. We have good management and skills and can execute. It’s not all talk and no action. We think, and then we act. We think, act and then make everything into a system. That makes us stronger.

LP: How will you apply those principles this year?

JL: Products and markets continue to diversify outside the U.S. We have a growing U.K. network and there are other markets to get into. We will continue to work on distribution tools and realizing the power of APIs. We feel that we will make the network more useful for a wider range of publishers.

YI: The U.S. economy is tough. We will continue to help clients grow on the retail side – online and offline. We will stay closely working with existing customers and gain new customers by expanding our global footprint outside the U.S.

LP: Any plans to leverage different technologies to facilitate better communications between advertisers and publishers?

JL: It’s all about relationship building. We have our LinkShare Symposiums – East and West. Like the other networks, we use events to effectively put advertisers and publishers together and let them do deals. We are trying to expand the deal-making parts over time to help drive revenue for all parties. The traditional method of a network development sales organization is reliable for relationships. We believe in that and want to expand it. We have a lot of data that we can mine and make those network development people more successful at getting good publishers. Technology can help us with the matchmaking side of things. There are social media tools. We have a joint venture with LinkShare Japan that has been successful in using social networking to connect publishers and advertisers. We like the idea that we are already seeing Facebook and LinkedIn data in the network.

LP: So what does 2009 hold for LinkShare?

JL: I’m excited about 2009. I think it’ll be a challenge. I think we can build a number of new, compelling products and services. Some that are completely new and then also build on existing technology – like out Easy Links and Merchandiser APIs. I’m also excited about bringing on some smaller advertisers. Historically we have done a good job of serving big advertisers and publishers. But some of our new processes will help us handle everyone from Best Buy to small companies like Peet’s Coffee & Tea. 2009 is going to be a good year.

Owning Up

Social media technologies can be a powerful tool, but it’s important to know who within your organization should be taking the lead for your social media marketing strategy, which includes responsibility for everything from budgeting to staffing.

It’s commonplace for executives and managers to ask about social media leadership and inquiries stem from the growing desire to get involved with communities of customers, partners, and employees.

However, this question of who within an organization “owns” a specific community isn’t easily answered because it’s really three complex questions that need to be answered first: who interacts with the community; who pays for it; and who champions it?

Who Interacts with the Community?

Organizations have many questions when they get started with social media. They want to know who will write the blog, who will run the forum, who will manage the Wiki. These are all good questions about who you entrust with the responsibility of being your spokesperson to a specific community.

Some companies, such as General Motors, have high visibility bloggers (like GM’s Vice Chairman Bob Lutz). Other companies have a general manager overseeing its community efforts (like Intuit’s Scott Wilder). And other businesses field an team (like Southwest Airline’s Nuts About Southwest blog, which includes contributions from a diverse group of employees including Gordon Guillory, a Structures Mechanic in the Heavy Maintenance Department).

These different approaches show that any employee can interact with communities that they never deal with face-to-face with in their regular work. Community contacts shouldn’t be determined by title or department, but rather, by the mindset and judgment of the person in the job. It must be someone deeply passionate about developing that specific relationship – even if it means challenging long-held corporate culture and standards.

Natural places to look for these individuals are in marketing, public relations, and corporate communications. But don’t overlook customer support, market research, and product management as well.

Who Pays for Community?

The easy answer is that it depends on the goal of the community and who benefits most from the community. For example, a company may form a community for the express purpose of gathering insights into its customers. In this case, market research could work with vendors (such as Networked Insights, Passenger, or Communispace) to create a private community that can be polled and asked questions. These interactions can be used to supplement other sources like surveys and focus groups. In this example, it’s clear that market research should fund the community. However, companies can also allocate back the expense to other departments that also tap into that community for insights.

Communities can also be formed to provide better support. For example, through the use of discussion boards where customers, as well as company representatives, can answer support questions, the customer service department can eventually see decreased costs. In that case, customer service should pay for the community, as well as provide focus and direction.

One circumstance demands additional detail — when the IT organization should pay for (and control) community. IT usually gets involved when there’s a need to have a company-wide adoption of social and collaboration technologies. Historically, this has meant enterprise deployment of collaboration platforms like Sharepoint. In contrast, most social technologies are point solutions, designed for easy adoption by business users and requiring minimal IT involvement. IT typically becomes involved in social technologies when integration is needed into existing corporate systems and databases, where the role IT plays is one of ensuring security and systems maintenance. At some point, there will be enough point solutions where IT may also need to get involved to ensure corporate consistency in identity, data structures, and security, as well as in vendor and platform selection.

In the end, who pays for and thus controls the community should be fairly easy to determine because the formation of the community should be based on concrete goals that benefit the organization. If the goals are unclear, then the question of who pays for the community is the least of your worries.

Who Champions Community?

Deploying social media and creating communities is hard work that often challenges long-held company beliefs and cultures. But social media and community managers typically are younger, and earlier in their career, and thus they don’t always have the skills or the clout to be a change agent within an organization.

What’s needed is the third area of community ownership – executive sponsorship. Take for example Ben and Jerry’s. CEO Walt Freese is deeply involved in social media at the ice cream maker and not because he thinks it’s cool, but rather because he believes social technologies are crucial to deepening relationships with core customers – the lynchpin to increasing customer lifetime value.

Freese’s office title is Chief Euphoria Officer and he is the bearer of the social media torch inside the company, encouraging the integration of social media into all aspects of customer relationships, from marketing to customer service.

And at H&R Block, Paula Drumm, vice president of Interactive Media, has been the executive champion. She’s been educating executives while steering her team to engage with customers in multiple social media channels. Like many companies, H&R Block executives are conservative and come from a generation that’s generally skeptical about social technologies. Drumm’s change management skills have helped the company become a model of how to develop customer relationships with social media.

A key skill of this champion is the ability to understand far and how fast to push. In Naked Conversations by Robert Scoble and Shel Israel, the authors write about the importance of understanding the “corporate membrane” – how to stretch it to accommodate social media but not to the point of breaking.

The hard part of about this particular question is that it’s hard to appoint someone into position — usually, this person volunteers because they see the need and have the passion and energy to lead change within the organization.

Everyone owns Community

It’s a mistake to treat community as a separate, distinct asset because you’re talking about relationships that are core to the form and function of a business. In the end, everything that a company does flows through some sort of process that touches a relationship be it with a customer, partner, or employee. Thus, there’s opportunity for everyone in the company to own a piece of community, if only they are given the chance to do so.

I believe that a company that can spread the wealth of community involvement and ownership widely throughout a company will always be better positioned to win than one that doesn’t. After all, all companies want to be closer to their customers.

So, think hard not only about who will own community today in your organization, but also who is best positioned to open and share that ownership throughout the entire organization. The future health of your company may well depend on it.

Growing in an Unhealthy Climate

Economists, politicians and media types are no longer arguing whether or not the economy is in a recession. Instead most are debating how long it will last.

If recent trends continue, the prognosis is relatively dismal for real estate values, gas prices and the unemployment rate. And as corporations and consumers grow frugal, cutbacks in advertising threaten the vitality of everything from cable operators to newspapers. Internet analysts, wondering about the ripple effect on the industry, offer a variety of opinions. While some think a recession would not have any affect on online advertising and marketing, others feel that it could have a significant impact – negative or positive – on the sector.

Slashed traditional advertising budgets are already apparent. TNS Media Intelligence found that ad spending in the fourth quarter of 2007 declined .1 percent from the fourth quarter of 2006.

But a Direct Marketing Association’s Quarterly Business Review survey in the fourth quarter of 2007 uncovered good news for online marketers: 50 percent said they would increase email marketing, 44 percent would increase database segmentation and 35 percent would increase spending on search engine optimization in 2008. And PQ Media found that spending on alternative media such as social networks, lead generation advertising and consumer-generated media is expected to grow by 20.2 percent in 2008 to $88.24 billion.

These findings reflect a long held belief that there will be a shift of marketing dollars from traditional media to the Web. Some believe this move would protect online companies from feeling the effects of a recession. Standard & Poor’s Internet analyst Andy Liu noted at the company’s 2008 Media Summit that he expects online ad revenues to grow by 20 percent this year – recession or not.

However, not all indicators (or analysts) are so bullish. In March, market researcher eMarketer lowered its estimates for U.S. online advertising market by nearly $2 billion, predicting that it will grow $25.8 billion, as opposed to $27.5 billion, in 2008.

Ability to Measure

Advertisers are shifting online to not only reach their audience, but because Internet advertising costs less and is trackable. Founder of Seer Interactive, Wil Reynolds, predicts a trend where any medium that offers less tracking will lose dollars to areas that offer more accountable results. Effectiveness can be measured by clicks, impressions, registrations and purchases, which are very attractive to bean-counting advertisers.

Brad Waller, vice president of business and affiliate development for AdJungle.com, points out that General Motors, the country’s third largest advertiser, announced it is shifting half of its $3 billion budget into digital and one-to-one marketing within the next three years. He claims this is the beginning of things to come, noting that the market online is growing faster than any other spend.

Founder of FatWallet.com, Tim Storm, says online advertising can be measured but offline initiatives, like direct mail, can’t be tracked. Online campaigns offer ROI down to the penny – so advertisers don’t wonder where their budgets were spent.

Paying for Performance

Even more appealing during belt-tightening days is performance marketing, where advertisers only have to pay when there is an action that is commissionable or measurable. Storm says he thinks there will be a shift of spending toward performance marketing, as opposed to advertising on a CPM basis. He doesn’t think Internet advertising will be affected by the recession as long as advertisers don’t look at the spending as a budgeted line item – which tips the scales in favor of performance marketing.

Online marketing consultant Sam Harrelson agrees that CPM big budget ad buys will suffer in 2008 and performance marketing will continue to increase its reach, effectiveness and popularity.

In fact, the Interactive Advertising Bureau statistics for the first half of 2007 indicate that "CPM deals" were replaced by "performance deals" as the leading pricing model for Internet advertising. In 2006, CPM deals comprised 48 percent of the overall total while performance deals (such as CPA) were at 46 percent. However, in 2007, performance deals made up 50 percent of deals while CPM fell to 45 percent.

There is evidence that performance marketing initiatives such as paid search are becoming more popular. OneUpWeb.com found that 48 percent of all U.S. online advertising spending in 2007 went toward paid search, and predictions are even higher for 2008.

Paid Search

Although paid search is considered more resistant to cuts than other advertising because it’s performance based, some think it is not immune to decreased spending. Advertisers could reason that people are less likely to surf the Internet for potential purchases during an economic downturn.

In March, comScore, the Internet ratings firm, reported that Google’s paid clicks fell .3 percent between January 2007 and January 2008, even as the number of searches rose 40 percent in the same period. As recently as April, Google’s ad clicks were rising at a 60 percent clip.

The industry panicked that Google, considered a bellwether for the overall sector, was being affected by the cyclical economic forces of the overall market.

It’s possible that Google is tightening the reins on clicks to combat click fraud and generate better clicks in general. And Hitwise found that the percentage of traffic going from Google to retail shopping sites is actually increasing. Since the bulk of paid search advertising is shopping related, the Hitwise data draws a different conclusion than the comScore data.

But cost per click has its challenges – there continues to be big inflation numbers. As more folks jump in, the costs get higher.

It’s possible that there won’t be less activity in paid search but there might be less money spent on bids. Seer Interactive’s Reynolds offers an example: the same number of marketers could bid on a term like "mortgage" but spend less money doing it. So if in the past a marketer paid $1,000 for 10 leads that convert, today that $1,000 dollars would only buy five leads.

Reynolds doesn’t believe this will cause marketers to abandon paid search, but thinks it could cause them to lower their bid to spend $750 for those five bids – reasoning that "smart marketers always will spend up until they max out their ROI." Interestingly enough, Reynolds says the saved $250 isn’t likely to go to buy radio or display ads. From what he has seen, people looking to rein in their paid search move into SEO as their next step.

Reynolds has seen shopping and e-commerce people moving from paid to SEO – and believes the affiliate space might have a good fallout as well because the closer a marketing channel is tied to results, the easier it will be for managers to get funding for it.

Survival of the Fittest

Google has boomed over the past few years because of search engine marketing – so it is possible that search engines will fare well during an economic downturn if paid search continues to be popular. Yahoo, Google, MSN and AOL have worked to become one-stop shops for advertisers by building up ad networks with targeting and tracking capabilities. David Hallerman, eMarketer senior analyst, notes that when "the portal is both destination and network, perhaps advertisers can get all they need without straying – at least that’s what the Big Four hope for."

Many niche sites have flourished while they get better at improving targeting to meet the needs of their clients. Reynolds says that vertical sites, if they can show ROI for marketers (even with less traffic) will start to get dollars if markets like Google become to expensive to play in.

Specific verticals that offer people a way out of a bad situation such as employment sites, job training sites, and mortgage refinance loans and debt consolidation sites like LowerMyBills, could become more in demand. Also well positioned are sites that offer people efficiencies in a weak economy such as comparison shopping engines and coupon sites.

FatWallet’s Storm believes that coupon sites could fare well this year – he points out that some of FatWallet’s best years were during the last downturn of 2001 and 2002. When the economy is in a slump, people gravitate towards being more cost conscious. For example, Storm has read reports that the craft industry does well because people make their own quilts – it is both entertainment and fulfills a need.

So far this year, Storm has not noticed any spending shifts – booms or drop offs – for FatWallet. Electronics and technology continue to be FatWallet’s strong categories as do other categories like Health & Beauty and eBay.

Insurance is another sector well positioned to weather an economic storm. Jon Kelly, president of SureHits, an ad network for insurance and loans, thinks it could increase because consumers are adopting the Internet as a primary means of buying insurance. Even technology laggards, who in the past surfed the Internet to find the best quote but picked up the phone to complete the transaction, are purchasing through e-commerce.

Another reason for Kelly’s bullish prognosis: "When the economy turns rough, people start looking for the best deals on insurance and they turn to the Web to do it." Kelly explains that auto and home insurance look particularly strong over the next few years because consumer demand for them does not drop in a recession – car insurance is mandated by law and home insurance is mandated by mortgage companies.

Kelly predicts that there will be increased Internet spending by insurance companies as the battleground for customers moves online. He thinks the areas where they will increase spending are paid search and affiliate and ad networks with a strong vertical focus like IndustryBrains, Quigo and SureHits Ad Network.

AdJungle’s Waller has seen record growth on its classifieds site, EPage – with 30 percent growth in revenue with January 2008 over January 2007 and an increase in the average revenue per user. He has seen growth in areas that want to get rid of excess inventory and says that in a tight market, people buy more items used than new. Listings for home-based businesses that offer ways to earn extra income are popular – like "how to make money from your laptop."

EPage makes money from advertisers paying for more exposure, as opposed to getting a cut of the purchase price. Advertisers pay to have their ad ranked higher on the page – when advertisers have success; they are willing to pay more.

Conventional wisdom would suggest that real estate would be hard hit in a recession. But Michael Stark, the founder and president of PostYourProperty.com, says that just because the housing market is tanking doesn’t mean there will be a negative effect on the online real estate vertical.

His real estate sites focus on the for-sale-by-owner (FSBO) market, which accounts for approximately 15 percent of U.S. real estate and says that traffic to his sites continues to grow despite the recession because of the focus on enabling the "do it yourself " FSBO movement. In fact, the crumbling prices, slow sales and a credit crunch in 2008 will make the FSBO option attractive to an increasing number of buyers and sellers.

Foreclosures are good for Stark’s sites because more postings mean more inventory, which means more advertising for his sites. Advertisers on Stark’s sites include people trying to sell their house, brokers, agents and lenders looking for new business.

Waller says that lead generation companies like Epic Advertising (formerly Azoogle), XY7, CPA Empire and Leadpiles could do well because people are buying and selling leads for real estate.

Performance marketers should feel confident that their industry is well positioned to weather a recession although things could get a bit tougher. Affiliates might get scrutinized more heavily – marketers don’t want to pay affiliate commissions if they find evidence that a paid search campaign created the sale. "Many marketers are estimating the ‘influence’ of their affiliates and zeroing out commission when other marketing campaigns are involved," Lee Gientke writes on ReveNews.com.

Some industry watchers say that marketing will move more in-house as knowledge of how to do search or affiliate marketing continues to spread out into wider communities instead of just specialized networks or agencies.

AOL’s Advertising Aspirations

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

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

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

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

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

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

Acquisition Spree

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

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

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

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

The Platform Play

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Big Plan

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

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

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

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

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

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

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

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

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

The Transformation

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

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

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

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

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

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

The Changing Digital Landscape

2008 has shaped up to be a crazy year for online advertising – the writers’ strike drove people online and the presidential election and the Olympics are causing advertisers to boost spending in a down market. The timing of these factors has altered media behavior – making the business of online media anything but typical for the year.

How the advertising dollars that moved online in 2008 will be spent is a matter of much debate. Reports indicate that because the digital landscape is changing, advertisers are finding that the tried and true initiatives that performed well a few years ago are now considered passe.

As more and more individuals become their own tastemakers, advertisers need to take into account how users consume information. The days of pushing content have given way to users pulling the content that they want – making it tricky for companies to get a hold of their potential consumers.

At the end of 2007, AdTech and MarketingSherpa surveyed 421 Internet marketers about the tactics they would try out this year and where they plan to spend their budget in 2008.

In terms of the initiatives that marketers plan to increase more than 5 percent of the budget on in 2008, 32 percent of marketers cited PPC, 27 percent of marketers said they’ll increase their spend on behavioral targeting and 26 percent will spend it on rich media.

The survey found that viral marketing and advertising on online video sites, mobile phones and virtual worlds are among the emerging trends that marketers plan to check out this year. Marketers say they are encouraged to try out those tactics for the first time by their agencies.

Ninety-three percent say agencies suggested an increase in spending or begin spending on viral video; 87 percent were urged to spend on viral marketing using networking sites; 60 percent were asked to try wireless ads on mobile networks; and 62 percent said agencies advised advertising in games and virtual worlds.

In March, PQ Media reported that total spending on alternative media – including expenditures on online/mobile, lead generation advertising and consumer-generated media – is predicted to grow 20.2 percent to $88.24 billion in 2008.

Clearly, how companies approach their ad budgeting is going through a major metamorphosis. Of course, online marketing plans and their budgets depend on several factors – including the type of company, product, audience and goals.

The Big Trends

In terms of how advertisers budget their marketing plans, three trends have been shaking up the status quo in 2008 – paid search, social media and ad networks.

The biggest change in the last couple of years is that search ad spending continues to increase – it is expected to rise 32 percent this year to $15.5 billion in the U.S, according to J.P. Morgan Chase.

Some industry watchers call search the greatest advertising medium of all time and many marketers agree. However, Jake Fields, president and creative director of Treeline Interactive, warns that marketers need to be careful because it is easy to waste budgets buying keywords. Fields recommends Spyfu.com, a tool for finding competitors’ keywords.

The rise of social media is one of the dramatic differences between 2007 and 2008. Although a recent Forrester Research report indicates that spending is still relatively small, companies are benefiting from what it offers: consumers contribute brand messaging as opposed to only passively receiving communication from marketers.

There are many ways for new publishers as well as established brands to leverage social media. They could create buzz on a social network before the site launches or do some ad buys on social networks sites, which are cheaper than buys on traditional content like CNN because traditional advertisers are weary of social networks.

The Northern California ski resort, Northstar at Tahoe, has a campaign that encourages customers and staff to post videos and photos with the tags “Northstar, Tahoe” on social media sites such as YouTube and Flickr – with the prospect of being featured on the Northstar site or even the possibility of winning complimentary services. Fields explains that this initiative enabled Northstar at Tahoe to quickly expand its presence within these social media sites from a couple hundred entries to thousands of social media posts that positively represent their brand.

Also gaining traction in 2008 are advertising exchanges, which allow advertisers to bid for impressions on a CPM basis. Cam Balzer, vice president of emerging media at DoubleClick Performics, explains that ad exchanges bring the benefits of search marketing to display advertising – namely, the ability to test a large number of placements (an ad of a particular size on a particular site or even site section) dynamically (no minimum or locked-in budget), to bid more for placements that are driving strong ROI and less for placements that aren’t working.

More and more display inventory of an increasingly high quality is becoming available via advertising exchanges, and this trend should continue as publishers get comfortable with selling inventory in this way.

Balzer says that for a minimal investment, companies can test various approaches to building awareness of their brand. They can secure a large number of impressions at a low CPM to increase reach. If they are also selling advertising on their site, they could sell ad inventory via an exchange to improve the CPM yield of their site.

Regardless of whether companies attempt to leverage one or all of the big online marketing trends for 2008, the ever-evolving interactive space is moving away from cookie cutter campaigns that seem too inflexible to yield results.

To rise above the clutter, companies need to aggressively try the latest tactics like product placement in games and paid ads on networking sites. Mixed approaches are required – recent research finds that when search and display advertising are combined, clicks increase after people see the display ads.

Because there is no silver bullet, marketers need to constantly analyze and optimize their mix. Fields says that campaigns are all a matter of trial and error – it is important to try, pull back, measure, analyze, and then try again.

Affiliates are Bullish

With the U.S. dollar sinking to new lows, oil and gold attaining new heights, and both food and gasoline prices rising quickly: corporate CEO’s, the media and government officials finally acknowledged what millions have seen coming for years – the U.S. economy is in BIG trouble – and the future looks bleak.

As expected, those hit hardest by the current downturn are working people. During uncertain financial times, people without jobs don’t spend money, while those who do have jobs tend to cut back on discretionary spending and postpone larger purchases, which doesn’t sound like a happy prospect for those of us who want to sell to them.

However, there are many ways for affiliates to survive and even thrive during a recession and diversification is typically the first key to continued prosperity. Fortunately for most affiliate marketers, making the leap from promoting luxury items to recession-proof products that consumers use regardless of their economic status or level of income is fairly simple. We can add new products to our current mix or start pumping out content on a new domain, join some affiliate programs, ramp up the marketing and be in a new business in relatively short order.

So, if your commissions from the sale of cars, diamonds and fur coats have been falling off of late, here area number of recession-proof product and service suggestions for your consideration.

Job Search: Although the employment market is perpetual, during a tough economy, mergers, acquisitions and layoffs all inevitably lead to more job seekers. Point your visitors to career websites such as Monster.com where they’ll find millions of job postings along with general career advice and help to prepare for interviews. Monster.com pays a buck for each new resume posted and 50 cents for each new My Monster account created.

Resume Preparation Services: As many of your job-seeking visitors will find it difficult to get an interview because they don’t have experience or their resume is out-of-date, you should also tell them how they will benefit by using a service to beef up their resume. Some services, such as Employment911.com, have market-specific offerings such as military transition resumes, a niche which CEO Frederic Thom reports was marked by a sudden increase in February. Employment911.com pays commissions of 12.5 percent to 25 percent and their resume writing package prices top out at $357.90 for executive level positions. ResumeEdge.com, which pays 12 percent and powers the resume writing services of The Wall Street Journal, Yahoo, HotJobs, and The U.S. Air Force is another option to consider.

Education: After all the stops have been pulled out and the job search still fails to pan out, many people choose to stay in school or return to school to beef up their education and subsequent chances for finding a job. Companies with affiliate programs in the education field include those that help with college and university placements as well as scholarship search, which provides direct assistance to students with college education funding. Online training to improve basic computer skills or those which are geared toward technical certifications like Microsoft, Oracle, Cisco and Novell as is offered through TechnieCert.com (ShareASale) are becoming increasingly popular. You might also consider promoting language-learning programs such as Rosetta Stone (available through CJ) for those of your visitors who decide to flee the country in search of brighter economic prospects.

Business Opportunities: While there is never any shortage of those seeking business opportunities, an increasing unemployment rate makes this market even more potentially lucrative, especially for those who have had business success and can teach others how business is done. In addition to selling instructional information products in the form of ebooks, podcasts, webinars and conferences to new entrepreneurs; affiliates can make bank promoting productivity and marketing tools as well as office supplies. Almost every business needs business cards and PsPrint, a CJ merchant that pays 15 percent commissions, has a staggering 3-month EPC of $521.15. When individuals eventually decide to form their own business and incorporate, you can promote American Incorporators $299.00 incorporation packages for a tidy 34 percent commission.

Tax Preparation and Filing Services:Economic slowdown or not, the tax man cometh every year and helping your visitors find additional spending money through deductions can be very lucrative. With more than 138 million taxpayers filing taxes online in 2007, industry experts expect 2008 to be the most popular year for filing federal income tax online – until the 2009 tax season. Several IRS authorized merchants can be found at Commission Junction, including TurboTax, H&R Block and Tax Brain, the latter of which pays a 30 percent commission on all their products, including a premium tax preparation service which costs $69.95.

Health Care: Workers that have just lost their employer-sponsored health plans will need to buy health insurance while they have no preexisting conditions and are still eligible. When you partner with eHealthInsurance.com, which has relationships established with over 160 health insurance carriers, you’ll earn $40.00 for each health insurance application submitted for an individual or family. Assurant Health pays up to $78.00 per lead and both Commission Junction merchants have 120-day cookies.

Budgeting and Debt Reduction:Helping folks reduce or consolidate their debt load and save money is always appreciated and the subject matter is relevant to almost any niche in which you are currently working. Partner with merchants that offer secured credit cards, debt consolidation services and help with foreclosures; and consider converting your weekly newsletter to a daily “Money-Saving Tips” or “Coupons and Deals” broadcast to gain additional traffic and branding for your site.

Entertainment and Vices: While the wise eliminate frivolous expenses during tough times, those less disciplined tend to seek more escape from reality through various forms of entertainment. So, if you were ever inclined to go the porn route, now might be the time. If that holds no appeal for you, try adding sports, concert, and theater tickets to your mix. TicketsNow.com (CJ) pays 7 percent commissions on gross transactions that are typically in the $450.00 range.

While the suggested items above don’t represent an exhaustive list of recession-proof products and services, it should get you thinking about options that will at least keep your affiliate business profitable during the recession. So, ignore the purveyors of doom and gloom. There are always ways to thrive during the hard times, if you are perceptive and swift. Choose to see opportunity and profit where others see only potential for loss and failure and use the recession as a compelling reason to diversify and grow your affiliate business.

Taxing Issues

“I love NY” may be the famous motto of the Big Apple, but as of late, it’s not the mantra of any New York-based affiliates.

That’s because in April New York Governor David Paterson (D-NY) signed into law the state’s 2008 – 2009 fiscal year budget that included a provision – initiated last fall by former NY governor Eliot Spitzer – requiring out-of-state Internet retailers to collect sales tax on deliveries made into New York, based solely on a link to a marketer’s website.Called the New York Internet Sales Tax, the law went into effect on June 1, 2008 and is expected to raise $50 million in revenue each year for the state of New York.

The new regulation is causing consternation among the community of online marketers and affiliates. Because the tax laws are complicated and it’s still unclear about the full implications of the New York State Internet Sales tax, many skittish merchants are opting to drop all their New York-based affiliates in an effort to avoid any hassles and taxes. Most U.S. states already require online retailers to collect sales tax if they have a physical presence in the state that the customer is from – it is called nexus. Therefore, if an online retailer has a physical store in New York, or even an office or warehouse, they must collect sales tax from a customer in New York.

However, this new law is broadening the scope of that to say that a business having any affiliate presence in the state of New York is akin to having “an agent or a representative,”thus establishing a physical presence or nexus in New York, which requires taxation.

Merchant Confusion

Prior to the law going into effect, Amazon immediately filed a lawsuit against the State of New York. The online retailer claims the new rules violate the equal protection clause of the constitution because it specifically targets Amazon. “It was carefully crafted to increase state tax revenues by forcing Amazon to collect sales and use taxes,” the complaint says, noting that “state officials have described the statute as the ‘Amazon Tax.'”

Other merchants simply deactivated their affiliates based in New York – many without notice or explanation. Melanie Seery, a New York affiliate, was so outraged by being dropped by merchants that in June she started a blog called NYAffiliateVoice.com to speak out about the taxation issue and its implications for affiliates.

Overstock, which has a large affiliate program that brings in over $100 million annually, was among the first wave of high-profile merchants to unceremoniously drop its NY-based affiliates.

“We had to drop the affiliates because of the risk of not collecting the affiliate tax and then someday having New York win,” Patrick Byrne, CEO, Overstock.com, says. “We would get dinged for that. So we had to drop the affiliates immediately.”

However, Overstock did a quick turnaround and less than a month after deactivating affiliates; they followed Amazon’s lead by filing a suit against New York State.

According Byrne, the Supreme Court has previously ruled – as it related to catalog retailers – that the burden of collecting taxes cannot be put on the out-of-state retailer. “Therefore, I think New York’s law is directly unconstitutional,” Byrne says. “We’re not suing the state for any money. We’re suing to enjoin them from ever acting upon this law, and we’re trying to get the Court to throw out the law.”

He says that decision to seek an injunction is the right, long-term thing to do and that Overstock is putting hundreds of thousands of dollars into this lawsuit. Byrne has suggested that affiliates write a letter to their state legislators claiming that such grassroots campaigns can really make a difference.

Affiliates Take a Stand

That’s what the large community of vocal affiliates on ABestWeb.com is aiming for. Many affiliates at ABW are getting together in New York to examine the issue. At the meeting, to be held on July 28 (after press time), they will discuss the tax issue and talk about obtaining legal services to help better understand the issue and the potential recourses for affiliates. Several ABW affiliates are also participating in a special panel session at the Affiliate Summit East in Boston in mid-August to discuss the issue.

And it’s not just affiliates in New York that are watching this closely. Both affiliates and merchants are concerned that large states seeking to generate additional revenue by collecting similar taxes may follow if New York is successful.

“We just think it’s a bad idea for New York. Additionally, other jurisdictions are going to watch us fight this in New York. Based on how it plays out in the Courts there, they’ll then decide whether or not to go ahead with it as well,” Byrne says.

Affiliate Scott Jangro, CEO of MechMedia, based in Massachusetts, recently gave $250 to a group of New York affiliates to help cover the costs of meeting and legal services.

“I’m not from NY, but these guys are taking it on the chin for the rest of us,” Jangro wrote on his blog. “There’s a lot of money in this industry and I hope that many of us will consider helping out.” You can donate at NYAffiliateVoice.com.

Currently, two Technical Service Bulletins (TSB) related to the law have been released. The latest was issued on the June 30, 2008. The TSB, titled” Additional Information on How Sellers May Rebut the New Presumption Applicable to the Definition of Sales Tax Vendor as Described in TSB-M 08(3)S,” imposes additional requirements that a remote seller must satisfy to rebut the presumption of “vendor” status.

It is no longer sufficient for merchants and networks simply changes the terminology of their contracts with affiliates to include explicate language barring them from activities other than direct linking to websites, according to the Direct Marketing Association’s (DMA) Tax Counsel George Isaacson.

The new TSB says that “each resident representative must submit to the seller, on an annual basis, a signed certification stating that the resident has not engaged in any prohibited solicitation activities in New York State, as described above, at any time during the previous year.”

These activities are listed in the TSB as “distributing flyers, coupons,newsletters, and other printed materials or electronic equivalents; verbal solicitation (e.g., in-personal referrals); initiating telephone calls and sending emails.”

The prior TSB noted that direct marketers could defeat the presumption of nexus if that marketer is not engaged in other solicitation activity on behalf of a company beyond a Web link. “A pure vanilla affiliate marketing arrangement” with only a referral link will be sufficient to defeat the presumption of nexus. Many suggested that networks and vendors simply changed their terms and conditions to reflect this.

Observers say that PPC marketing will not give rise to the presumption of nexus because it is a set fee based on the number of clicks, therefore, falling under the heading of advertising, which is not subject to taxation. Lead generation activities appear to be closer to the definition of advertising under the new law and would not be subject to nexus.

The Networks

Thus far, the networks have mostly been mum – issuing only basic information about the law and instead advising their merchants to seek legal counsel to sort things out. LinkShare held a conference call in conjunction with the DMA to have the DMA’s legal team interpret the regulations. Commission Junction issued a notice to its affiliates, “We are actively monitoring the law and will use reasonable efforts to protect ourselves and our publishers as we deem appropriate. The application of the law is dependent on particular business and factual circumstances, and Commission Junction is not in a position to provide legal and tax advice regarding this law. However, we encourage you to perform the appropriate due diligence as it relates to your business.”

However, ShareASale President and CEO Brian Littleton wrote a little more in depth in his blog, “our first response to this will be to provide this report which will allow merchants to know where they stand regarding the law. Our plan at this time is to treat any case where a merchant wishes to terminate NY affiliates with great care and caution. If a merchant requests to do this, there is little we can do to stop them – but ShareASale will be performing the task so that merchants aren’t accessing information which traditionally is considered private within the network.”

Littleton went on to say, “There is a chance that this plan will not work. My hope is that we can warn merchants that terminating NY is a bad plan – and one that needs rethinking. If our plan doesn’t work – and we end up needing to provide more information to merchants, we may end up having to do so. I say this as a heads up to affiliates because while we don’t like to give out info, we also don’t want to put merchants in a place that makes it difficult to adhere to the laws of their state or others.

We can’t offer legal advice to merchants and/or affiliates regarding these laws. But I can offer my extreme dissatisfaction with the State of NY for their short term thinking and complete disregard for their citizens. I am personally confident that this will all be reversed and I am hopeful that for those affiliates in NY – it comes sooner rather than later.”

Meanwhile, it’s a game of wait-and-see for affiliates and merchants as the legal wheels slowly turn. Many observers say it will be a while before we find out if this law is declared unconstitutional or is upheld and other states begin adopting similar regulations as a means of generating state revenue.