The Posh Payoff

Diamonds, private jets, multi-million-dollar mansions, haute couture, luxury vehicles and high-end handbags – customers looking for upscale goods and services could probably find all these items in posh places like Beverly Hills or they could just head to the Web.

The online shopping environment for upscale merchandise has been robust in recent years.

Websites such as NeimanMarcus.com, with annual sales that jumped 30 percent in fiscal 2005, and Diamonds.com, are flourishing.

This climate of vigorous sales is driving merchants, including fashion icons DKNY and Prada, to unveil e-commerce sites in the coming months and incentivizing affiliate sites like American-Luxury.com and Splendora.com to promote high-end merchandise to their niche audiences.

Initially luxury merchants had trepidation about the effect the Internet would have on their brand equity. eMarketer’s senior analyst, Jeff Grau, says, “Because the Internet is often thought of as the place to go for bargains, luxury merchants were concerned that it would cheapen their brand. Luxury brands’ emphasis is on quality and fashion rather than price ” they did not want to be associated with a channel that was for bargain hunters.”

But lucrative benefits have outweighed these concerns – the Internet not only offers a new source of sales and higher profit margins, it is a way for merchants to avoid high overhead costs of paying employees and expensive rents in tony areas. And many luxury merchants that have moved online say they did so to meet increased demand.

LUXE FOR LIFE

That demand is evident in several categories. In 2005, Forrester Research found that jewelry/luxury goods, apparel and health/beauty were making the most inroads into total sales – and the market researcher forecast apparel and home products as the two categories to grow the fastest between 2005 and 2010.

Traditionally the categories that have sold the best online have been computer hardware/software, books, and toys/video games. ComScore Media Metrix found that for the 2005 holiday season, the jewelry and luxury goods and accessories categories showed a 22 percent gain in visitors in December over November.

Apparel: The conventional wisdom about e-commerce was that apparel never would sell well online because people want to try things on before they buy. But more familiarity with a brand’s size and quality expectations as well as easier return policies are causing consumers to buy more apparel online every year, which accounts for a large segment of high-end merchandise.

“People are becoming more and more comfortable buying apparel online. For example, denim is one of our top categories – we keep adding more brands due to the demand of what clients are asking from us,” Carel Hearon, eLuxury.com’s marketing and affiliate manager, says.

Accessories/Handbags: According to comScore Media Metrix, the percentage of Internet visitors to Coach.com increased 117 percent in 2005, and a 2005 Women’s Wear Daily poll found that a large percentage of women (48 percent) buy accessories online. Accessories such as handbags and scarves sell well over the Internet because they are not restricted by size or fit requirements.

“Handbags and accessories are our strongest categories. You don’t have to try on a handbag, so there is a lower return rate,” Hearon says. Others agree.

“We get lots of winning bids for eBay on terms like Balenciaga Le Dix and Chloe Paddington for handbags,” says Michelle Madhok, who runs SheFinds.com, which focuses on shopping and fashion. Madhok notes that such handbags retail in the $1,000 range.

Shoes: Madhok adds, “We sell tons of shoes – especially from Zappos Couture” – with an average price point of $250. She says the reason is, “No matter your size, shoes always fit – that makes them especially attractive for Internet shoppers.”

Trisha Okubo, founder of Omiru.com, a style and fashion affiliate, says, “Our best categories are shoes and other accessories, likely because the fit issue is minimized in these categories. Our experience with high-end shoes is that brand name matters. Bluefly has worked for us because it provides discounts on well-known designer names.”

Lingerie: The 2005 Women’s Wear Daily poll found that women like to purchase intimate apparel online such as lingerie because they enjoy the privacy of shopping from home. Underwear is SheFinds.com’s No. 1 category. SheFinds.com partners with BareNecessities, which offers brands such as La Perla and Cosabella that sell bras that typically cost more than $100.

Jewelry: According to comScore Media Metrix, the increase in the percentage of Internet visitors heading to Diamonds.com was 223 percent, and the increase to Zales.com was 163 percent from November 2004 to November 2005.

Eddie Bakhash, president of AmericanPearl.com, which has been in business since 1997, says it has experienced a steady growth of approximately 20 percent annually for the past five years. The top-selling items are rings, earrings and necklaces, and the average price point for a product is $1,000. Brad Matson, chief marketing officer for Bluefly, says it added jewelry “based on demand,” adding, “It is an important and growing segment for Bluefly.”

Home Decor: Forrester predicts that home products will grow 8 percent between 2005 and 2010. Marilyn Olsen, who runs four sites, including American- Luxury.com and French-Luxury.com, sells a wide range of high-end merchandise including furniture, kitchenware, interior design and gardening essentials and is an affiliate for upscale furniture merchants such as Design Within Reach, Frontgate and Horchow.

She explains the success of these categories:

“As people furnish their kitchen, they want to be able to cook and entertain casually in as much style as they do in other parts of the house,” Olsen says. When people visit American-Luxury.com to buy leather armchair barstools that retail at $729 each from Horchow, they can see a Jura Capresso Impressa espresso machine that retails for $2,399 from Sur La Table.

Other Items: The definition of a luxury item is something that adds to pleasure or comfort but is not absolutely necessary – an indulgence. Merchandise in all sorts of categories could match this description – such as spa treatments, luxury travel, upscale baby clothes, gourmet foods and high-end gifts.

For the 2005 holiday season, the leaders in the luxury segment were RedEnvelope with its December traffic (2.4 million visitors) seeing a 62 percent increase over the previous month; and Tiffany & Co., up 47 percent over November with 2 million visitors, according to comScore Media Metrix.

Luxury shoppers, who make up a mere 2 percent of all online buyers, account for nearly 7 percent of online retail sales. According to Forrester, the online shopping revenue reached $170 billion in 2005 – $12 billion (7 percent), was sales luxury sales.

Indeed, some online luxury shoppers are affluent people. In March 2006, Time magazine found that of adult Internet users with household incomes of at least $150,000, 12 percent of respondents said that the Internet was their primary place to shop for apparel and 18 percent said it was their secondary place. And upper-income shoppers have been driving sales for the past two years, noting that luxury goods retailers were the strongest performers during the 2005 holiday season, according to Ernst & Young Consumer Trends Center.

Forrester finds that luxury buyers are comfortable with Internet and Web technologies and have shifted a great part of their spending to the online channel as usability has improved. Luxury buyers, in fact, are 36 percent more likely to be comfortable with online transactions involving their credit cards and are 25 percent more likely to be technology optimists than average online shoppers.

CONVENIENCE IS KEY

And the Internet is an excellent way to reach lucrative clientèle – high earners who work long hours and have little time to shop. American-Luxury’s Olsen attributes part of the growth of her site to this. “I think a lot of it is time constraint,” she says. “The sophisticated customer is increasingly very, very busy and they don’t have time to go to the mall.”

Forrester found that convenience-driven consumers make up approximately 31 percent of all online shoppers and represent nearly 35 percent of all online spending. And many of these convenience shoppers are buying upscale merchandise.

“It turns out it is a convenience thing – most of our customers live in major metropolitan cities – they could have gone to the stores,” says eLuxury’s Hearon. “We thought our top buyers were going to be in places like Des Moines, Iowa, where there were not stores to buy the latest Rock & Republic jeans.”

And for people who live in more rural areas, it is certainly more convenient to shop online than to take long trips to metro areas. eMarketer’s Grau says, “The Internet makes it easier – it brings into reach the items that people in small towns cannot get.”

Jeremy Palmer, QuitYourDayJob.com’s CEO, says he has worked with Zappos.com, and was surprised that there was a market for expensive shoes but reasons that “people in fly-over states like Utah [where he lives] want luxury shoes but are limited in what they can buy – the audience is smaller but there is demand.”

Olsen agrees. “In some areas of the country, it is harder to find upscale merchandise. I think they tend to appreciate Internet shopping more than someone who has access to brick and mortar,” she says.

In addition to convenience, Grau says the growth in luxury online sales is due to the maturation of e-commerce where consumers feel more comfortable buying very expensive things online, so there are more items offered to meet demand.

“Merchants started out with books and CDs and gained confidence to where consumers buy a watch or a ring, whereas a year earlier they never would have. There are three main reasons: trust, education and presentation,” he says.

TRUST BUILDING

The biggest tool for building trust is improved customer service with excellent phone representatives, consistent delivery of quality products and better shipping policies for easier returns.

Madhok says, “Shoe companies are great with free shipping and free returns, so there’s no risk in ordering.”

Hearon adds that, “For apparel, such as denim, people will buy two sizes and keep one and return the other so they can avoid the hassle. We have great shipping policies to do that.”

Grau explains that merchants make it possible to enter into a live chat so there is more hand holding when it comes to buying a high-end product.

“You see on jewelry sites lots of educational information that explain what to look for when buying a diamond ring – how to evaluate quality and what carats mean. They [service representatives] help a customer shop and they gain more trust in the brand that takes the time to educate the customer about how to buy a diamond ring.”

Another important component to luxury shopping online is the presentation of merchandise that websites offer.

Consumers visit websites after they have been in a store since they can often find a great range of color and sizes. Online shopping is not only about pre-shopping, but securing exactly what you want, according to Grau.

Olsen says, “I work like a personal shopper and make it easier for people to find things. I am able to show them all of the options in one place and make their decision making more simple.”

Luxury shoppers do not think of the Internet as limited or the lesser alternative to off-line shopping but as a unique way to shop, according to Bluefly’s Matson.

“At Bluefly, you can see 100 dresses in one color very quickly – you would have to go to 10 stores to see that,” he says. “Bluefly has an engine that lets you look at all of the dresses that are black, size four and between $200 and $400, from more than 365 designers.”

There are some e-tailers that allow customers to enter their physical dimensions and the site will in turn offer up styles that are suited to your figure, Grau says.

Online shopping also serves consumers who want to stay on top of the trends, making it easier to achieve a certain look. Hearon says many of eLuxury’s customers “have high household incomes but some are willing to live in a shoebox to have the latest Louis Vuitton bag and shoes. They are very fashion-conscious and are aware of the trends and want to wear them and will do whatever it takes.”

Celebrity gossip and style watcher websites have brought the demand for “it” labels to cyberspace.

“Now women want the bag they see Jennifer Aniston carrying. Before, to get their hands on the designer item, they’d have to shop in a big city. Now designer labels – even discounted designer labels – can be found on eLuxury, Neiman Marcus, Yoox and Bluefly’s websites,” Madhok says.

Omiru.com’s Okubo says that, “the growing status-consciousness of our culture encourages the gravitation towards luxury brands. What you buy and what you wear is seen as an extension of your personality, really; an extension of you. What does this mean for retailers? People want Prada or Polo, not a private-label brand. Luxury brands have an automatic stamp of approval on them.”

NICHE IS NICE

This phenomenon provides an opportunity for publishers to focus on an area of their expertise, become an evangelist for a brand and reach potential customers – whether it is for premium watches, fine crystal or evening handbags. Moreover, luxury purchasers tend to be passionate and loyal and showy about their brands and this lends itself well to merchants looking for loyalists to endorse their products.

Liane Dietrich, vice president of Merchant Services for LinkShare, attributes the increase in luxury-brand sales online to affiliates.

“There are lots of niche and content sites that are playing the role of ‘recommender’ – they recommend products and merchants to consumers and that is paving the way for luxury brands to take their place.”

Clearly affiliates are attracted to upscale merchandise for the high commissions – many luxury sites do not offer discounts and have limited “sales” or “clearance” sections. Luxury merchants report that paying full price does not deter consumers from buying.

Another reason affiliates promote luxury products is the cache that luxury items offer them.

“I think it’s very important to note that affiliates are attracted to luxury merchants for the perception of high-average- order value and high conversion, as well as the visual value that the luxury connection adds to the affiliate’s site,” Dietrich says.

But affiliates need to be sure they offer the brand that leads a potential customer to their site. Shawn Collins, president of Shawn Collins Consulting, warns, “If unchecked, affiliates will exploit the brand – they will leverage the brand names like Gucci or Dior even if they don’t sell those products. Affiliate managers should kick them out after one or two ‘outs’ if affiliates mess around with the branding. For example, in paid search arbitrage, affiliates can bid on trademarked names such as Dior but these keywords frequently get abused and affiliates drive traffic to their sites when there is no product there.”

SELECTIVE, EXCLUSIVE, DISCRIMINATING

Affiliates should be aware that in exchange for potentially high commissions, the programs are not easy to get into and will require that affiliates not only have a highly trafficked site, but a well-designed site that features other upscale sellers. And they will be closely monitored with their keyword buys and how they present brands on their site.

“Luxury affiliate managers are pretty brand-protective. They are looking for a reduced level of discounting; a clean, visually appealing site; and possibly some other merchants on the site that would help raise the legitimacy of the website,” Grau says.

“Obviously, Rolex doesn’t want to see an advertisement for Rolex watches on a Wal-Mart affiliate site,” Palmer says. “The terms and conditions of luxury programs spell out how they want their brands advertised.”

Hearon says, “We are very selective – we have 300 people apply per week and I let in three. I evaluate the ‘look and feel’ of the site and I have an intern look at every affiliate. I make sure we are not on coupon sites.”

“You have to be cautious with affiliate marketing – if you are selling a fine-quality product, you want it to be showcased in the best possible light,” AmericanPearl.com’s Bakhash says. “Consumers evaluate the company and product based on where it is – which is why we really like Yahoo Shopping and Amazon.com.” AmericanPearl is on dozens of other sites through Yahoo Shopping, and Yahoo Shopping is their best affiliate.

Sak’s Fifth Avenue and Neiman Marcus are private programs and currently Neiman’s must approve all photos used on a site, according to Madhok. “I’m hoping as they begin to trust us, this requirement will go away since it impedes the speed of Internet publishing.”

But not all luxury brands are strict.

“Every luxury merchant is going to have a different tack on it. Some luxury merchants are very open to driving revenue that is valuable additional traffic for them – whether it comes from a very high-end affiliate or a small niche affiliate might not be as strong of a concern,” Dietrich says.

Matson says Bluefly has “hundreds of affiliates, which is helping Bluefly to grow. We get 60 [applicants] per week and take 20 or so. We look at quality and fit and examine each affiliate on a case-by-case basis.”

Hearon attributes the success of eLuxury’s affiliate program to “partnering with the right companies and making sure we send out newsletters once a week and communicate as often as possible with our top affiliates [such as] ShopAmex and American Airlines.”

These types of membership and loyalty sites work well for luxury brands by playing up the benefits of being a member in addition to getting the points or rewards. In addition, it plays into the idea of a luxury brand – because of membership, because people are often getting the first crack at a newly released item.

Each of the affiliate networks has a share of luxury merchants. Commission Junction has Bluefly; Performics has RedEnvelope and Frontgate; and LinkShare has eLuxury and Blue Nile. Merchants are looking for networks that are sensitive to where their brands might be, and how their brands are portrayed in any sort of marketing. For this reason, the networks offer a variety of tools that provide merchants with the reassurance that their brand is being marketed correctly.

The days of thinking that companies such as Overstock and eBay, which sell mass-market products like books and iPods, epitomize online shopping are over. The Internet is no longer incompatible with the exclusivity of luxury goods. Retailers of upscale merchandise are and will continue to look to online shopping as an essential sales and marketing channel.

Sex Education

You may or may not approve of what they are marketing, but nearly everyone can learn something from the strategies that the adult industry uses to capture consumers online. The thriving adult industry has a history of pioneering many online marketing techniques and continues to provide useful lessons in how to attract and convert an audience.

From the creation of the affiliate model to monetizing user-generated content, where sex sites go, mainstream marketers often follow. The selling of sex products and content has grown to become a more than $2.5 billion annual business, according to publisher AVN Online, as each year 72 million people visit the more than 4.2 million adult content websites.

Spoil Your Partners

While search marketing and display advertising provides most of the traffic in many industries, affiliates drive most of the visitors to sex sites. Adult affiliates are treated more like partners, and publishers are unafraid to show their gratitude. Keeping affiliates happy is paramount in the hyper-competitive adult world, says Clark Chambers, general manager of adult affiliate network NicheBucks.

Like many consumers, affiliates don’t have much brand loyalty and will work the partners that offer the better returns if they aren’t satisfied. Chambers, who got into the business because a friend needed someone to oversee his exploding affiliate program, rewards his best affiliates with gifts on top of their generous commissions. He has given jewelry, video games and digital music players to his best affiliates, including one teenager in Russia who makes more than $7,000 a month.

Affiliates do the primary search engine marketing and optimization, which reduces the risk for publishers and eliminates competing with them for the same keywords. Chambers makes sure that his affiliates have access to current conversion statistics and a variety of marketing tools, including a steady stream of images through RSS feeds to attract new customers. Adult sites will even host the affiliate websites for free, according to Chambers, who has been managing adult affiliates for eight years.

Adult sites will pay more than the first month’s subscription fees in commissions to keep the traffic coming, according to an adult industry consultant who asked that his name be withheld (he says his family doesn’t know where he works). The payouts are very generous to prompt affiliate webmasters to work harder for the program, and because they can easily find other content sites to promote, the consultant says. Publishers also emphasize the personal touch by being readily available to their affiliates and quickly responding to their phone calls, and by meeting in person at industry events.

Promoting Competitors

The adult industry has not only nearly perfected the art of affiliate relations, but also grows stronger through publishers earning extra revenue by also acting as affiliates themselves. “Co-opetition” is the practice of promoting competitors’ websites when visitors try to exit a website without buying something, according to Jim Lillig, president of marketing consultancy Synergy Intermedia. “It’s a last resort after exhausting all the other ways to monetize” visitors, he says.

While many publishers may not be willing to promote competitors by acting as an affiliate, Lillig says publishers may be able to earn more revenue from those who don’t buy from them than those who do. Lillig, who helped to build Mr. Skin, a subscription website focusing on celebrity nude scenes, into a successful franchise says, “98 percent of customers leave most websites without buying something.” Admitting that you may not have a product that suits every taste is a difficult but significant realization for publishers looking to maximize their revenue.

Ed Kunkel, the chief operating officer of SexSearch.com, agrees that pitching competitors’ products helps to grow sales across the industry. “[Competitors] have the audience you need and vice versa,” Kunkel says. “It’s a huge world you have access to; there is plenty (of demand) for everyone to make enough money. … Since there is no way of completely dominating a market, you might as well share the wealth amongst each other.”

Analyst Greg Sterling of Sterling Market Intelligence says that publishers who link to their competitor’s sites can benefit. “Intercepting a person before they leave a site in an unobtrusive way would be successful in capturing some number of sales,” according to Sterling. He says applications developers such as customer relations management software company LivePerson are experimenting with displaying competing products as a last resort.

By acting as an affiliate for niche adult publishers (such as sites focusing on older women or those of a specific ethnicity), publishers can also track the conversion rates of different types of content and then develop their own competing sites, according to Lillig. He recommends creating multiple niche sites to highlight areas of content as well as to learn more about consumer habits. Also, publishers who present information about competing products gain credibility with their audience, he says.

Analyst Sterling says companies can increase their reach by parsing their content and creating niche websites, such as search technology vendor Marchex’s development of local search sites from a single database. “The creation of niche sites is a good idea if it can be done skillfully and it’s not just spam,” Sterling says.

The adult industry is a tight-knit group who know each another and “form a big circle,” referring traffic to each other in the belief that it’s better if consumers buy from a competitor than if they don’t buy at all. Adult publishers who trade links with competitors can increase their traffic without having to purchase advertising, Lillig says.

However, that circle often traps customers by generating pop-up windows when customers try to exit, an annoying practice that continues to get some adult publishers in legal trouble. Lillig says that while the pop-ups may be frustrating, adult sites studied the practice and identified the exact number of pop-up windows to maximize revenue. Though pop-ups are still in use, many adult companies now ban affiliates who create pop-ups that trap users with unending windows.

Leading the Technical Charge

Lillig says Mr. Skin was one of the first companies to watermark an image and allow it to be spread around the Internet as viral marketing to enhance branding. Mr. Skin reached millions of potential customers by putting its logo on images and by embedding pre-roll ads into celebrity videos that were circulated via email and through peer-to-peer networks. “They became moving ads,” he says.

The adult industry also popularized giving free sample content in exchange for customers providing valid email addresses and co-registration, which gives customers the option of simultaneously signing up for newsletters from competing adult sites, according to Lillig. He says adult marketers took an early lead in tracking email performance, including who opened emails and where they clicked.

Adult sites have also been adept at identifying seemingly unrelated trends in entertainment and integrating them into their product. For example, one of the fastest-growing segments is “reality porn,” an imitation of reality TV programs that has prompted adult publishers to launch dozens of niche sites.

Another cultural phenomenon being integrated into adult sites is gambling (see article on page 66). Playboy.com will open its first Internet casino by the end of 2006, and 121 Gaming Inc. this summer launched GrandNevada.com, which features naked card dealers.

Publishers need to study the latest trends and find complementary ways to expand their reach, says 121Gaming president and CEO Howard Mann. “We saw an opportunity to go in a different direction with something that added entertainment value,” says Mann, of his combining gaming with nudity.

Adult content publishers are frequently the earliest adopters of technologies such as streaming video and webcams that later are adopted by other industries. “The VCR became popular because people wanted porn, and VHS won out because that was the format that porn adopted,” Mann says. Media companies who are currently evaluating which of the new high-capacity DVD formats (Blu-ray or HD-DVD) to sell should watch to see which technology the porn industry favors.

In addition to technology and cultural trends, adult marketers are also quick to turn the latest publishing trends into tools for deriving additional income. Affiliates are authoring blogs about the adult industry to increase their natural search result rankings, and publishers are creating MySpace profiles for their rising acting stars to differentiate their brands, according to NicheBucks’ Chambers.

The Upper Hand

Of course adult sites have a distinct advantage over their general audience counterparts – sex sells, and the demand for content is almost limitless. “If there is one thing that is universal, it’s that men love to look at naked women,” says 121Gaming’s Mann. Even without any marketing, millions of people will search for adult content. “I know adult networks that get similar traffic to Yahoo,” he says.

Conversion raters are higher on adult versus PG personals searches, according to Mark Brooks, the editor of Online Personals Watch. The “conversions are best when people are looking for sexual connections,” he says. Brooks, who previously worked for AdultFriendFinder, says adult publishers can make back the commissions paid to affiliates to acquire a customer within one month, while it may take three months or more for mainstream personals.

However, because of the generous payouts on adult personals sites, publishers have to spend additional time managing their affiliate relationships. “You have to look after [the affiliates], allow them to call you on the phone and take their requests seriously,” Brooks says. Publishers also have to be steadfast in making sure their affiliates do not damage their brand by being overly aggressive. While he was at the company, AdultFriendFinder stopped allowing affiliates to do email marketing because there was too much abuse.

Lessons Not Learned

The adult industry has mastered how to tempt consumers with just enough content to prompt them to purchase without compromising sales, something that most retail sites have been reticent to experiment with thus far. Adult publishers successfully convert traffic by providing affiliates with free samples of their content, a strategy that publishers should adopt, says Shawn Collins, co-founder of the Affiliate Summit conference.

In the adult world, the profits are in the video content, and affiliates lure and hook customers by showing image galleries (often thumbnails) of naked people, and then directing them to the publishers who sell unlimited access accounts. Collins says video, audio or print media companies could greatly expand their conversions by using affiliates to distribute free samples of their content.

For example, the television networks or movie sellers could distribute clips from their sitcoms or films to affiliates to pique consumer interest, which enables customers to realize the value of the content, according to Collins. Media companies have yet to exploit the power of distributing content through affiliates, Collins says, and were slow to team up with video search engines such as YouTube.com to increase their exposure.

This strategy of partnering with large search engines and requiring users to register is the opposite of the niche marketing that has been critical to the adult industry’s success. Video search engine sites have too much content to successfully promote niches (such as British comedy or period-piece dramas) that would convert well as independent affiliate sites.

“Showing teaser videos and allowing them to be distributed virally” could boost the sales of online video, Collins says. Online music stores should allow affiliates to host and play select songs for free, and Amazon should share its technology for previewing a few pages of a book with affiliates. Reuter’s news is one of the video services that allow affiliates to display its content, but the company keeps all of the revenue from its pre-roll ads, which takes away the incentive from affiliates.

As the adult industry has shown, whetting consumers’ appetites by letting them peek at the goods goes a long way in prompting conversions. Adult publishers prove that by working closely with affiliates, innovating by embracing technology and treating competitors as assets, publishers can create new products and increase their revenue.


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

Performance Marketing Prognostication

It’s that time of year again when we ask industry movers and shakers to look back at the past 12 months and forward to the next year in performance marketing. Here’s what those in the know have to say.

Looking back, what do you think were among the most significant themes to emerge in 2006 in the performance marketing space?

“There has been a huge shift in traffic sources – with two main groups – the first being PPC, which has been a major source of affiliate traffic in 2006 and has brought with it significant issues such as “Brand Bidding.” The second being blogs, which I believe will be a major driving force in the coming years.”
– Brian Littleton, founder and CEO, ShareASale

“When the situation calls for it, affiliates and affiliate managers can band together and stand their ground on an issue.”
– Scott Hazard, president, Brightside Media

“No truly new themes emerged. We saw click fraud penetrate the consciousness of the mainstream media at the same time there is a growing sense of animosity (possibly jealousy?) towards Google inside and outside our industry. Some merchants are reviewing their trademark bidding terms and looking to accommodate affiliates. Finally, you did see a lot of affiliates publicly say they were moving away from black hat and toward white hat activities.”
– Brook Schaaf, principal, Schaaf Consulting

“The desire to achieve better scale (less overhead, more revenue) drove every major corporate merger as well as CJ’s failed LMI project. It’s what makes Adwords attractive and successful.”
– Jeff Molander, CEO, Molander & Associates

“Just how vibrant and powerful the performance marketing community is. This can be seen in the response to LMI, the upward trend in budgets for performance marketing by advertisers and the growth in publications, events and forums serving the community.”
– John Grosshandler, event director, eComXpo

“The re-emergence of brand as an important part of the marketing equation after years of focus on ROI and search.”
– John Battelle, founder and chairman, Federated Media Publishing

“Google actively trying to squash private-label PPC arbitrage affiliates in the name of ‘better user search experience.'”
– Tim Ash, president, SiteTuners.com

“Cooperation. 2006 displayed greater willingness by merchants, publishers and networks alike to adopt ‘cooperative selling’ strategies.”
– Kurt Lohse, founder and CEO, KeyCode.com

“New trends such as the use of video and advertainment continued to grow in 2006 but pose challenges for strict ROI/CPA advertisers.”
– Joshua Sloan, director of online marketing, 1and1.com

“Search is a bigger part of affiliate marketing than many people thought.”
– David Lewis, president, 77 Blue

“Clearly 2006 will be marked by what some are calling ‘The Affiliate Massacre of 2006’ where Google updated their quality score rankings in Adwords and started placing penalties on affiliate landing pages. In many cases this caused minimum cost-per-click fees to go from 10 cents to $5 or $10 on many keywords. This effectively shut down PPC advertising for many affiliate landing pages. This change is causing many merchant advertisers to rethink their policies for PPC marketing since publishers who were running large-scale campaigns and linking directly to the merchant’s site using the merchant display URL and an affiliate link were largely unaffected by the recent change.”
– Adam Viener, president, imwave.com

“A few years ago, you could quickly tell whether or not an online marketer ‘got’ affiliate marketing by discussing affiliates. Those that ‘got it’ conveyed respect for the affiliates. Those that didn’t, well, they tended to use adjectives like ‘little’ or ‘questionable’ when describing their role in the model. In 2006 the performance marketing community witnessed affiliates asserting their right to be treated respectfully. It is no longer acceptable to be a participant in this space and not get it.”
– Lisa Riolo, online marketing professional

“Affiliates/publishers are in the driver’s seat now, not merchants/advertisers. Affiliates have money, power and traffic and their requirements; business practices and needs dominate the relationship. Merchants need them more than they need merchants who are unable to comply or cooperate with terms. They can deliver the goods; can merchants respond adequately to their demands? If not, NEXT!”
– Linda Woods, president, PartnerCentric

“Behavior targeting seemed to be a popular buzzword but I never heard too many real success stories. Online marketers are actually getting comfortable with the basics and are now casting an eye toward testing and optimization to squeeze out better results.”
– Greg Schraff, director of strategy and business development, Brooks Bell Interactive

What will be the ‘big thing’ that we can expect to happen in 2007 in online marketing?

“A return to the importance of new-traffic- generating affiliate marketers.”
– Brian Littleton, founder and CEO, ShareASale

“Yahoo and Microsoft will debut new products to compete with Google.”
– John Battelle, founder and chairman, Federated Media Publishing

“I expect to see many more super-affiliates stepping up to the plate and saying, look, we need to take responsibility for engaging in upright business practices. You’ll see them become open to educating newcomers in the industry. It won’t be about cutting out your competition, but developing a bigger and more powerful affiliate workforce. And I expect to see managers becoming excited about the possibilities of capturing the loyalty of those affiliates by becoming truly affiliate-friendly.”
– Anik Singal, CEO, Affiliate Classroom

“Performance models such as CPO and CPA are the main driver. Advertisers as well as networks/providers realize that success-based commission models are king and key for success. Globalization is the most important issue. Globalize or die.”
– Holger Kamin, executive account director, Zanox

“There is no doubt in my mind that user-generated content will really start to take fire – especially around video. Still, merchants will have to be innovative to get beyond the sheer volume of media – music, podcasts, pictures and now video in circulation.”
– Wayne Porter, senior director special research, Facetime Security Labs

“User-generated content such as short online videos will proliferate at an even larger scale and pace and show that it can convert as advertisements.”
– Jim Kukral, publisher, ReveNews

“Video ads will continue to grow in popularity as traditional marketing agencies attempt to maintain their grip on ‘their’ industry as they gripe all the way to Congress.”
– Todd Taylor, manager business development, TaxBrain.com

“2007 will bring far more practical offline marketing applications online. It will also signify the beginning of the ‘big shift’ to correct the disproportional ad spend on the traditional mediums.”
– Kurt Lohse, founder and CEO, KeyCode.com

“Social e-commerce will emerge with innovations focusing on peer group favorites and recommendations. The ‘wisdom of crowds’ will begin to drive serious transaction volume in niche markets.”
– Jeff Molander, CEO, Molander & Associates

“Social media marketing strategies that spawn, leverage and influence consumer- generated media are the hot thing at the moment. Companies and affiliates that create environments where their target audiences can gather, share useful information – and don’t overtly interfere with the experience – are those that will be the most successful.”
– Rob Key, founder and CEO, Converseon

“More off-line ad channels (print/radio/ TV) will wake up to the growing importance and measurability of online advertising while more online advertisers will wake up to the branding potential of online marketing despite confusion and difficulties with performance tracking.”
– Joshua Sloan, director of online marketing, 1and1.com

“I think the launch of Microsoft Vista may change the landscape of search marketing and make Microsoft AdCenter more important than it is today. I also think that Yahoo’s Panama project will be a big shift for search marketers. There will be a lot of adjustments as platforms change and traffic starts flowing more towards Microsoft.”
– Adam Viener, president, imwave.com

“The emergence of mobile phone marketing in the U.S. It’s just a matter of time before affiliates worldwide are able to promote affiliate links via digital and print signage. Consumers will then utilize their video-capable mobile phones to transact with merchants.”
– Shawn Collins, president, Shawn Collins Consulting

“I expect Google will continue to morph into other non-search areas. Under this scenario, Google will begin to offer tools that very much resemble an affiliate marketing or CPA network. This will put many traditional affiliate marketers directly in competition with Google for customers. Those non-branded entities relying solely on search will be hurt the most. Such a move is likely to trigger a rash of online mergers and acquisitions as big names and even traditional brands circumvent the search engines and buy their way into bigger pieces of the pie.”
– Mike Allen, president and chief executive shopper, Shopping-Bargains.com

“Technological innovation will become even more important in 2007. Between the growth in online video, broadband adoption and new tools for contextual advertising, behavioral marketing and detecting fraud, the gulf between those who leverage the newest trends and tools and those who rely on yesterday’s approaches will widen.”
– John Grosshandler, event director, eComXpo

“Video, video and more video.”
– Matt Ranta, affiliate manager, Vanns.com

“Continued decline in the effectiveness of current search engine optimization methods. Traffic building through social networking media will continue in effectiveness and popularity throughout 2007.”
– Rosalind Gardner, super-affiliate and author

What are the major challenges in the performance marketing space moving forward?

“Still getting online marketers beyond just keeping their heads above water, for example, just running the actual marketing< campaigns so that they have the bandwidth to concentrate on performance factors and tactics they can employ to improve performance.”
– Greg Schraff, director of strategy and business development,
Brooks Bell Interactive

“Volume. How to sift through the masses to identify the diamonds in the rough, whether they are advertisers, affiliates or partners. Emails and newsletters no longer get through, and when they do, are seldom read.”
– John Grosshandler, event director, eComXpo

“Effectively and ethically integrating the use of video ads into affiliate marketing.”
– Matt Ranta, affiliate manager, Vanns.com

“Keeping up with the speed of innovation on the Internet!”
– Linda Woods, president, PartnerCentric

“Globalization and multichannel approach to reach each and every possible market on this globe.”
– Holger Kamin, executive account director, Zanox

“It boils down to an emphasis on quality and restraint and the need to mature beyond the ‘growth at all costs’ mentality as well as adjusting merchants’ expectations and teaching them to think long term so that system pollution doesn’t kill the environment in which we all do commerce, operate and converse.”
– Wayne Porter, senior director special research, Facetime Security Labs

“Consolidation and intense competition due to a changing marketplace where search engines no longer do only search. With shareholder pressures on the ‘big 3’ engines to continually grow revenues at nontraditional paces, there will be new efforts to go after non-search money wherever it can be found.”
– Mike Allen, president and chief executive shopper, Shopping-Bargains.com

“The need for improved accountability. It’s all well and good for affiliates to have considerable discretion to find novel and creative ways to promote merchants’ offers. Indeed, that independence is the essence of affiliate marketing. But how can a merchant make sure its offer is presented appropriately, ethically, lawfully and in a way that offers fair value to the merchant as well as to users? At present many affiliates keep their methods secret, and affiliate networks don’t do as much as they could to tell merchants what their affiliates are doing. Increased transparency would improve affiliate accountability, helping merchants feel confident that affiliates’ behavior is appropriate and lawful.”
– Ben Edelman, anti-spyware consultant

“The affiliate industry can no longer rely on arbitraged search traffic. It’s a diminishing resource. Instead, it’s absolutely incumbent upon smart affiliates to morph rapidly into the new frontier of online marketing – word of mouth, viral, social media, blogging and other consumer-generated approaches that companies are only now beginning to grapple with. There are myriad opportunities for those that embrace the Web 2.0 world.”
– Rob Key, founder and CEO, Converseon

“Self-regulation is key in 2007. It’s not in our best interest to have the federal government legislate issues for us. Instead, we must band together and squash the bad actors.”
– Shawn Collins, president, Shawn Collins Consulting

“I see all the Web 2.0 trends making a huge impact on not just performance marketing, but all online marketing.”
– Anik Singal, CEO, Affiliate Classroom

“The two sides – affiliates and merchants – have different goals. It is a constant challenge for both parties to try to find a common goal which isn’t always as simple as just “sell more stuff.”
– Brian Littleton, founder and CEO, ShareASale

“Keeping links from being whacked by ad blockers and trying to set our sites apart from those in the space which
give the space a bad name.”
– Scott Hazard, president, Brightside Media

“The biggest challenge moving forward is Sarbanes Oxley and the network aggregators. There has to be absolute tracking integrity within all the affiliate networks – or the model will ultimately become extinct and be replaced with direct (and auditable) relationships.”
– Mary Beth Padian, senior director, Upromise

“Brands will attempt ‘ubiquitous messaging’ regardless of whether the focus is to increase awareness or generate sales. I think a big part of this stems from the promise of behavioral targeting. Look at the popularity of MyYahoo or Netvibes – and how, with respect to content, the users’ ability to bring preferred publishers’ material to them changes their online navigation. Users can browse in the comfort of their own home page. What does this mean for advertisers? I think you’ll see increased effort by the advertisers to create a presence within user-generated content. Subtle or otherwise, ethical or not, the marketers will not settle for a possible ad to appear over on the right margin in the Google AdSense block. No, they’ll be pushing for coverage in blog posts or a logo in a video.”
– Lisa Riolo, online marketing professional

What’s the one word you would use to describe the current state of online marketing?

“Irrelevant”
– David Lewis, president, 77 Blue

“Burgeoning”
– Greg Schraff, director of strategy and business development, Brooks Bell Interactive

“Transitory”
– Lisa Riolo, online marketing professional

“Disconnected”
– Matt Ranta, affiliate manager, Vanns.com

“Fabulous!”
– Rosalind Gardner, super-affiliate and author

“Turbulent – as always.”
– Tim Ash, president, SiteTuners.com

“Exciting”
– Joshua Sloan, director of online marketing, 1and1.com

“Evolving”
– Shawn Collins, president, Shawn Collins Consulting

“Important”
– Adam Viener, president, imwave.com

“Heretical”
– Rob Key, founder and CEO, Converseon

“Immature”
– Jeff Molander, CEO, Molander & Associates

“Vibrant”
– Todd Taylor, manager business development, TaxBrain.com

“Crowded”
– Mike Allen, president and chief executive shopper, Shopping-Bargains.com

“Momentous”
– Kurt Lohse, founder & CEO, Keycode.com

“Nascent”
– Wayne Porter, senior director special research, Facetime Security Labs

“Rocketing”
– Anik Singal, CEO, Affiliate Classroom

“Flux”
– John Battelle, founder and chairman, Federated Media Publishing

“Growing”
– Brook Schaaf, principal, Schaaf Consulting

“Fast”
– Brian Littleton, founder and CEO, ShareASale

“Dynamic”
– Scott Hazard, president, Brightside Media

We asked a wide range of industry gurus, experts, affiliates, consultants, program managers and industry watchers four seemingly simple questions about the state of online marketing.

  1. Looking back, what do you think were among the most significant themes to emerge in 2006 in the performance marketing space?
  2. What will be the big thing that we can expect to happen in 2007 in online marketing?
  3. What are the major challenges in the performance marketing space moving forward?
  4. What’s the one word you would use to describe the current state of online marketing?

Here’s a look at what each one of them had to say, in no particular order:

 

Joshua Sloan, director of online marketing, 1and1.com

  1. New trends such as the use of video and advertainment continued to grow in 2006 but pose challenges for strict ROI/CPA advertisers.
  2. More offline ad channels (print/radio/TV) will wake up to the growing importance and measurability of online advertising while more online advertisers will wake up to the branding potential of online marketing despite confusion and difficulties with performance tracking.
  3. Fighting over trademark PPC bidding continued and continues to keep advertisers and affiliates on their toes. What’s legal in one country isn’t necessarily so in others. Ethical and legal dilemmas for companies and affiliates still exist. Click fraud and other forms of online fraud do not seem to be getting better.
  4. Exciting.
 

Shawn Collins, president, Shawn Collins Consulting

  1. Affiliate 2.0, the next generation of affiliate marketing tactics and technologies, was a predominate theme in 2006.
  2. The emergence of mobile phone marketing in the U.S. It’s just a matter of time before affiliates worldwide are able to promote affiliate links via digital and print signage. Consumers will then utilize their video-capable mobile phones to transact with merchants.
  3. Self-regulation is key in 2007. It’s not in our best interest to have the federal government legislate issues for us. Instead, we must band together and squash the bad actors.
  4. Evolving.
 

Adam Viener, president, imwave.com

  1. Clearly 2006 will be marked by what some are calling “The Affiliate Massacre of 2006” where Google updated their quality score rankings in Adwords and started placing penalties on affiliate landing pages. In many cases this caused minimum cost-per-click fees to go from 10 cents to $5 or $10 on many keywords. This effectively shut down PPC advertising for many affiliate landing pages. This change is causing many merchant advertisers to rethink their policies for PPC marketing since publishers who were running large-scale campaigns and linking directly to the merchant’s site using the merchant display URL and an affiliate link were largely unaffected by the recent change.
  2. I think the launch of Microsoft Vista may change the landscape of search marketing and make Microsoft AdCenter more important than it is today. I also think that Yahoo’s Panama project will be a big shift for search marketers. There will be a lot of adjustments as platforms change and traffic starts flowing more toward Microsoft.
  3. From the affiliate’s perspective, performance marketing companies are maturing, and dealing with the growth of the business while keeping up with the constant changes in the marketplace will continue to provide major challenges for performance marketing entrepreneurs.

    Setting the right policies for their programs that will enable them to continue to attract the talented performers who can make a difference in their campaigns. To do this a good affiliate manager needs to understand the numbers, the cost per acquisition of a new customer or sale from ALL of their channels, and craft policies that will enable the company to maximize sales at the best possible cost. In today’s market the old decisions to not allow affiliates to use the company’s display URL in search engine ads needs to be reanalyzed.

  4. Important.
 

Rob Key, founder and CEO, Converseon

  1. Performance marketing is growing up and morphing, although perhaps a bit too slowly. LinkShare’s vision, ValueClick’s growth and Google’s new forays demonstrate that performance marketing is going mainstream and can no longer be seen as a stepchild of the overall media efforts. Performance marketing has always meant accountability. We’re seeing our approaches becoming increasingly adopted by more mainstream media entities. The issue for the traditional affiliate marketing world is how to play with the more mainstream media, and how to get a seat at the table so that it’s taken as seriously as possible to ensure integrated efforts and minimize channel cannibalization. Affiliates has to become fully integrated with search strategies, word-of-mouth initiatives and CPM media buys. With a few exceptions, the big media entities are still slow to embrace affiliate marketing as part of their mix. Part of this is simply terminology and lexicon. It’s time that affiliate and media started speaking more of the same language.
  2. Social media marketing strategies that spawn, leverage and influence consumer-generated media are the hot thing at the moment. They’re also the strategies that many companies are grappling with most. Consumers want to hear from consumers, not traditional marketers. Businesses want to hear from other businesses. Companies and affiliates that create environments where their target audiences can gather, share useful information – and don’t overtly interfere with the experience – are those that will be the most successful. But this world is moving fast. Discrete content communities, social networks, blogs and other CGM venues are emerging daily. These venues are becoming micro-media properties, and like much media, those that get the audience first and provide ongoing compelling content, will be difficult to dislodge. I expect a land grab for these long tail communities by companies and affiliates alike. Both have equal opportunity to spawn these communities. The question is, who will be the quickest and most effective?

    Essential to success here is the ability to listen and map to this consumer-generated media conversation. New technologies, like Converseon’s Conversation Miner that scour and analyze this CGM conversation, are becoming essential elements to any online marketing campaign. After all, if you can’t understand the landscape and listen, as well as talk, you’re going to be talking past audiences, and perhaps overlook the most important constituents. Companies will indeed have to “join the conversation.”

  3. Affiliate marketing has historically been successful because it provided services and capabilities that companies themselves were either unable, unwilling or ill-prepared to tackle. But as merchants becoming increasingly sophisticated, especially with natural and paid search strategies (including long tail search, the affiliate industry can no longer rely on arbitraged search traffic. It’s a diminishing resource. Instead, it’s absolutely incumbent that smart affiliates morph rapidly into the new frontier of online marketing – word of mouth, viral, social media, blogging and other consumer-generated approaches that companies are only now beginning to grapple with. These online strategies are where search marketing was two to three years ago. My advice to affiliates who want to flourish in this environment: Evolve rapidly, now. Darwinism won’t be kind to those who rely on the same old tactics for success. On the other hand, those affiliates who do dive successfully into this new world will provide that value-added marketing dimension that companies are hungry to embrace. There are myriad opportunities for those that embrace the Web 2.0 world.
  4. Heretical. Nothing is sacred. We’re in a state of incredibly accelerated evolution. What can be demolished probably will be. And like in all evolution, there will likely be several mutated states before new stabilized species emerge.
 

Jeff Molander, CEO, Molander & Associates

  1. Scale: The desire to achieve better scale (less overhead, more revenue) drove every major corporate merger as well as ValueClick/CJ’s failed LMI project. It’s what makes Adwords so attractive and wildly successful. Reduction of inventory: Ad inventory is becoming even more scarce and prices are rising, especially in search.
  2. CPA will trump CPC pricing models. Innovative product search players like Jellyfish.com and Snap.com will cash in. Google and Yahoo Search will manage to enter the game although success will be limited and hindered by class action lawsuits focused on click fraud and “bad clicks sold” arising from failure to disclose (and reprice clicks from) low-quality distribution partners.

    Driven by the popularity of MySpace, Facebook and social media, affiliate managers will rush to tap into the long tail of affiliate-related transactions. Social e-commerce will emerge with innovations focusing on peer group favorites and recommendations. The “wisdom of crowds” will begin to drive serious transaction volume in niche markets.

  3. Scale: Retailers experienced in performance marketing are aching to figure out how affiliate marketing can be scaled upward (more leads, more transactions) while concurrently generating a better return on customer retention spending (repeat sales via affiliates) at a fair cost.
  4. Immature.
 

Todd Taylor, manager business development, TaxBrain.com

  1. Even more large companies have entered or are considering performance marketing and Revenue magazine went bimonthly and most importantly there was actually enough slush money in the industry to have a golf tourney at AS06 East – therefore, it must be real!
  2. Video ads will continue to grow in popularity as traditional marketing agencies attempt to maintain their grip on “their” industry as they gripe all the way to Congress.
  3. Second-tier advertiser merchants who enter the industry may have trouble creating affiliate brand awareness for their program, as they must compete for mind-share and visibility against the larger or more established programs.
  4. Vibrant.
 

Mike Allen, president and chief executive shopper, Shopping-Bargains.com

  1. Affiliate marketing went mainstream in 2006 in that major brands and media companies are now willing to invest in and support the pay-for-performance model. After demonstrating strong Q4 successes in 2005, many traditional retailers now see affiliate marketing as what it is – pay for performance – and a way to maximize their advertising dollars with predictable expenditures and results. No traditional media buy can deliver a guaranteed minimum ROI. In 2006, the skeptics of performance marketing began to have a change of heart.
  2. I expect Google will continue to morph into other non-search areas. Under this scenario, Google will begin to offer tools that very much resemble an affiliate marketing or CPA network. This will put many traditional affiliate marketers directly in competition with Google for customers. Those non-branded entities relying solely on search will be hurt the most. Such a move is likely to trigger a rash of online mergers and acquisitions as big names and even traditional brands circumvent the search engines and buy their way into bigger pieces of the pie.
  3. Consolidation and intense competition due to a changing marketplace where search engines no longer do only search. With shareholder pressures on the “big 3” engines to continually grow revenues at nontraditional paces, there will be new efforts to go after non-search money wherever it can be found. Google Checkout is only the beginning. I predict search engines will find new ways to become intimately involved in the performance marketing space themselves.
  4. Crowded.
 

Kurt Lohse, founder and CEO, KeyCode.com

  1. Cooperation. 2006 displayed greater willingness by merchants, publishers and networks alike to adopt cooperative selling strategies.
  2. 2007 will bring far more practical off-line marketing applications online. It will also signify the beginning of the big shift to correct the disproportional ad spend on the traditional mediums.
  3. The major short-term challenges are search engine bias against online marketers and net neutrality laws.
  4. Momentous.
 

Tim Ash, president, SiteTuners.com

  1. Google is actively trying to squash private-label PPC arbitrage affiliates in the name of better user search experience.
  2. International affiliate programs. There is now Internet critical mass in many other countries.
  3. Improving the conversion rates of offer landing pages. If you don’t, you’re dead.
  4. Turbulent – as always.
 

Ben Edelman, anti-spyware consultant

  1. What I hear most from affiliate merchants – not to mention attorneys and even regulators – is the need for improved accountability. It’s all well and good for affiliates to have considerable discretion to find novel and creative ways to promote merchants’ offers. Indeed, that independence is the essence of affiliate marketing. But how can a merchant make sure its offer is presented appropriately, ethically, lawfully and in a way that offers fair value to the merchant as well as to users? At present many affiliates keep their methods secret, and affiliate networks don’t do as much as they could, to tell merchants what their affiliates are doing. Increased transparency would improve affiliate accountability, helping merchants feel confident that affiliates’ behavior is appropriate and lawful.
 

Jim Kukral, publisher, ReveNews

  1. User-generated content such as short online videos will proliferate at an even larger scale and pace and show that it can convert as advertisements.
  2. Supercalafragalisticexpialadocious.
 

Wayne Porter, senior director special research, Facetime Security Labs

  1. Oddly enough a few years ago the answer to that question is whether or not enough people would even bother to shop online. Clearly they have no problems doing so.

    Merchants are beginning to pick up on how sophisticated the fraud issues really are. The key for the winner will be the ability to balance scalability and click/lead quality. Players like Google have relied heavily on being able to machine scale, but have had increasing trouble with quality control and rogue elements that grow more sophisticated all the time; nor are they alone. It is a bit ironic that PPCSEs are not held to as high a standard as traditional affiliate networks.

    I look for Yahoo and MSN to attack this front heavily next year as click fraud control becomes a differentiator. We should also reflect on revenue and technology risk. ValueClick via CJ had to rush the LMI issue to provide an alternative to the patent wars, and clearly from Google’s filings there is an extreme concentration risk via JavaScript, which usually is benign. However, there has been increasing hostile attacks on legitimate networks and through an array of vectors – even IM.

    If you coupled that with the frailty of cookies either through malware scanners removing them, users actively deleting them or natural cache attrition as surfers are more active – the performance marketing industry faces some severe risks on multiple fronts moving forward.

  2. There is no doubt in my mind that user-generated content (UGC) will really start to take fire – especially around video. We already see this happening with the popularity of YouTube, Google Video, click-based Revver and innovations like community-powered video such as Magnify.net which can offer large brands the messaging in a format they are accustomed to. Still, merchants will have to be innovative to get beyond the sheer volume of media – music, podcasts, pictures and now video in circulation.

    The indie film thought shapers have been waiting for this inflection point for a long time and they are poised and ready with rifles raised. The traditional gatekeepers still remain in place, but there are now powerful forces to be reckoned with in terms of UGC disrupting the traditional top-down communication stream – much like blogs have done. In addition the emphasis will be on interactive, immersive ad campaigns that cross between the real world and the virtual one. From Second Life grids to the Web to a dead drop on a country road. Users want to be entertained and they want it to be sophisticated.

    This does provide an opportunity for enterprising affiliates who often have better creative DNA than merchants if they can move away from the myopia of simplistic deal structures. Smaller affiliates will continue to feel the squeeze of the powerhouses, but should do OK by dominating niches and working with mid-tier or emerging brands.

  3. The problems are myriad and affect different groups. The erosion of the once-fertile CPA space will happen as the market has become super-saturated with dozens of networks and they must start to shrink unless they too specialize. Co-registration, another once-lucrative market, will suffer. Most “thin” arbitrage players will also get knocked out of the game and affiliates will rise up and realize it really is about being unique and having content. Controlling partner sprawl and the problems inherent with this phenomenon will continue to plague large affiliate networks and PPCSEs. Advertising powerhouses will be forced to provide more visibility into their networks as premium merchants demand to know where and how their brand is being presented. Some are starting to care.

    Once again the rise of a tough and well-funded rogue element is looming – the mass tide of botnets, experienced fraud rings, rampant content theft, aggressive Web agents and the lot are rapidly gaining contextual marketing skills and sociological and technical sophistication. If the e-commerce industry in general ­ – both PPCSE, merchants and network aggregators – do not rise up and clean things up, security companies or perhaps legislation and litigation will do it for them. I am not bullish on this cooperation based on past experience, but it is possible. If security firms, e-commerce firms and law enforcement worked in tandem, the tide could be turned.

    It boils down to an emphasis on quality and restraint and the need to mature beyond the “growth at all costs” mentality as well as adjusting merchants’ expectations and teaching them to think long term so that system pollution doesn’t kill the environment in which we all do commerce, operate and converse.

  4. Nascent.
 

Holger Kamin, executive account director, Zanox

  1. MSN Search Launched; MySpace working with Google; eBay and Yahoo; Web communities and blogs are on the rise. Big mergers are changing the landscape of this industry.
  2. Performance models such as CPO and CPA are the main driver. Advertisers as well as networks/providers realize that success-based commission models are king and key for success. Globalization is the most important issue – globalize or die.
  3. Globalization and multichannel approach to reach each and every possible market on this globe.
  4. Paradigm Shift.
 

Anik Singal, CEO, Affiliate Classroom

  1. Two themes jump out at me, and they are intimately related to each other: transparency and professionalism. The entire industry seems to be waking up to the fact that both sides of the affiliate marketing equation – merchants and affiliates – need to open up to each other about their business practices.

    Every day I talk to forward-looking merchants and managers who are eager to hold themselves to the same standards of transparency that mainstream bricks-and-mortar businesses do. They’re also actively seeking affiliates who are willing to play by the rules of fair business practices. They want affiliates who are well-versed in best practices, diversified marketing methods, compliance and good old-fashioned ethics.

    Which ties into the theme of professionalizing affiliate marketing. The history of business has proven that you can’t have transparency without professionalism. I see merchants and affiliates literally thirsting for professionalism in every aspect of affiliate marketing. They want to raise the bar and see those professional standards become part of their online careers.

    More and more affiliates and managers tell me they actually view the affiliate marketing industry as a lifetime career . To me, that says professionalism will become one of the most talked-about ideas in our industry in 2007.

  2. As an entrepreneur in the field of affiliate education and training, I believe 2007 will be the year in which merchants and affiliates both realize affiliate marketing has been a very lucky industry. We’ve seen massive growth in spite of the fact that all the players have been learning the game – even developing the rules – on the playing field. It’s been very rough and tumble and a wild ride, yet we’ve evolved our own business models, practices, culture and conventions while learning on the job.

    But with that growth – and all that money at stake – all of us, including the biggest players, now need to hold ourselves to higher standards. We must do that if we want our revenue to grow without interference from the outside. That’s why transparency and professionalism will literally force themselves upon us in 2007. The stakes keep getting higher.

    So I expect to see many more super-affiliates stepping up to the plate and saying look, we need to take responsibility for engaging in upright business practices. You’ll see them become open to educating newcomers in the industry. It won’t be about cutting out your competition, but developing a bigger and more powerful affiliate workforce.

    And I expect to see managers becoming excited about the possibilities of capturing the loyalty of those affiliates by becoming truly affiliate-friendly. They’ll be doing that through innovative and humane management practices, such as offering comprehensive and innovative training and development programs.

  3. Many people will disagree with me, but as I work with affiliates in the trenches I see all the Web 2.0 trends making a huge impact on not just performance marketing, but all online marketing. Interactive communities and “spaces,” social bookmarking and social search – those are grassroots trends being developed by audiences that spend lots of time and money online.

    Web 2.0 is not just about teens and college kids any more. Research by organizations like Pew has shown that a significant percentage of grown-up people with grown-up incomes could live without search engines. Who can blame them when the results are relevant one day but off-kilter the next? Spam is also making email a less-reliable form of communication.

    But people have realized that Web 2.0 can satisfy your need for self-expression plus help you build and communicate with a whole network of like-minded friends. That’s why all kinds of people today are blogging, sharing their favorite links and shout-boxing their ideas about everything, including products. While I might be too young to have experienced it, I’m told this is a trend back to the early days of the Web.

    That’s when a list of links on a Web page wasn’t scraped with automated software, but handpicked with care. People want to be able to have that kind of trust in websites. And they are realizing that the only way to reclaim that trust is by finding which sites their online neighbors turn to.

    For the smartest people in performance marketing today, those Web 2.0 micromarkets represent a massive opportunity. Yes, reaching them is not just a challenge, but probably impossible through traditional marketing channels. But it’s the perfect fit for affiliates, especially affiliates who are well-versed in those spaces.

  4. Can I make up a word? Rocketing.
 

Brian Littleton, founder and CEO, ShareASale

  1. There has been a huge shift in traffic sources – with two main groups. The first is PPC, which has been a major source of affiliate traffic in 2006 and has brought with it significant issues such as “brand bidding.” The second is blogs – which I believe will be a major driving force in the coming years as well.
  2. A return to the importance of new-traffic-generating affiliate marketers.
  3. The two sides, affiliates and merchants, have different goals. It is a constant challenge for both parties to try to find a common goal, which isn’t always as simple as just “sell more stuff.”
  4. Fast.
 

Brook Schaaf, principal, Schaaf Consulting

  1. No truly new themes emerged. We saw click fraud penetrate the consciousness of the mainstream media at the same time there is a growing sense of animosity (possibly jealousy?) toward Google inside and outside our industry. Some merchants are reviewing their trademark bidding terms and looking to accommodate affiliates. Finally, you did see a lot of affiliates publicly say they were moving away from black-hat and toward white-hat activities.
  2. I don’t see as much of a buzz around an idea like RSS or rich media as the continued entry into the marketplace of more content and paid search publishers. For their part, merchants will continue to experiment with new channels and partners.
  3. This is a competitive marketplace. Publishers must continue to adapt in order to perform and marketers must manage more and more relationships.
  4. Growing.
 

John Battelle, founder and chairman, Federated Media Publishing

  1. The re-emergence of brand as an important part of the marketing equation after years of focus on ROI/DR/search.
  2. Yahoo and Microsoft will debut new products to compete with Google.
  3. Understanding how to integrate with conversational marketing online, and learning the new “hybrid” model of both performance and creative/branding-driven marketing.
  4. Flux.
 

Scott Hazard, president, Brightside Media

  1. When the situation calls for it, affiliates and affiliate managers can band together and stand their ground on an issue.
  2. Not sure, but I’m afraid it will center around Google.
  3. Keeping links from being whacked by ad blockers and trying to set our sites apart from those in the space, which give the space a bad name.
  4. Dynamic.
 

Mary Beth Padian, senior director, Upromise

  1. Confirmation yet again of the value of relationships.
  2. RSS feeds for special offers and coupons becoming more commonplace on affiliate sites – even loyalty sites!
  3. The biggest challenge moving forward is Sarbanes-Oxley and the network aggregators. There has to be absolute tracking integrity within all the affiliate networks – or the model will ultimately become extinct and be replaced with direct (and auditable) relationships.
  4. Nascent.
 

Linda Woods, president, PartnerCentric

  1. Affiliates/publishers are in the driver’s seat now, not merchants/advertisers. Affiliates have money, power and traffic, and their requirements ­ – business practices and needs – dominate the relationship. Merchants need them more than they need merchants, who are unable to comply or cooperate with terms. They can deliver the goods; can merchants respond adequately to their demands? If not, NEXT!
  2. Tools, tools and more tools for affiliates. With the announcement of CJ’s Web services and many other players creating technology tools to either improve reporting, functionality or efficiency, the next “big thing” is, who can provide what to better service affiliates’ growing hunger for technology tools?
  3. Keeping up with the speed of innovation on the Internet!
  4. Exciting!
 

David Lewis, president, 77 Blue

  1. Search is a bigger part of affiliate marketing than many people thought.
  2. A shift to the extremes. Merchants will begin to completely embrace or flat out reject publishers utilizing search. Past decisions will not be factored in. New decisions will be made and there will be no way to predict where anyone will stand on the issue on December 31, 2007.
  3. Trust. People do not pick their partners wisely and misjudge “the other side.”
  4. Irrelevant.
 

Rosalind Gardner, super-affiliate and author

  1. White hats came into style in a big way, and were even more prevalent after Labor Day.
  2. Content authority and visitor-optimized sites are now all the rage … and everything old is new again as the meaning of “value-added” gains ground amongst the gray-hat set.
  3. Continued decline in the effectiveness of current search engine optimization methods.
  4. Traffic building through social networking media will continue in effectiveness and popularity throughout 2007.
  5. No change here. Getting heard and getting seen. Affiliate managers and merchants will have to work increasingly harder and smarter to put their products in front of affiliates who will actually promote them. Rewards and incentives for top affiliates will increase while commission rates for less-productive affiliates will decrease.
  6. Fabulous!
 

Matt Ranta, affiliate manager, Vanns.com

  1. Video, video and more video.
  2. Effectively and ethically integrating the use of video ads into affiliate marketing.
  3. Disconnected.
 

John Grosshandler, event director, eComXpo

  1. Just how vibrant and powerful the performance marketing community is. This can be seen in the response to LMI, the upward trend in budgets for performance marketing by advertisers and the growth in publications, events and forums serving the community.
  2. Technological innovation will become even more important in 2007. Between the growth in online video, broadband adoption and new tools for contextual advertising, behavioral marketing and detecting fraud, the gulf between those who leverage the newest trends and tools and those who rely on yesterday’s approaches will widen.
  3. Volume. How to sift through the masses to identify the diamonds in the rough, whether they are advertisers, affiliates or partners. Emails and newsletters no longer get through, and when they do, are seldom read.
  4. As President Bush likes to say, “Strategery.”
 

Lisa Riolo, online marketing professional

  1. A few years ago, you could quickly tell whether or not an online marketer “got” affiliate marketing by discussing affiliates. Those that got it conveyed respect for the affiliates. Those that didn’t, well, they tended to use adjectives like “little” or “questionable” when describing their role in the model. In 2006 the performance marketing community witnessed affiliates asserting their right to be treated respectfully. It is no longer acceptable to be a participant in this space and not get it.
  2. Brands will attempt “ubiquitous messaging” regardless of whether the focus is to increase awareness or generate sales. I think a big part of this stems from the promise of behavioral targeting.

    Look at the popularity of MyYahoo or Netvibes – and how, with respect to content, the users’ ability to bring preferred publishers’ material to them changes their online navigation. Users can browse in the comfort of their own home page. What does this mean for advertisers? I think you’ll see increased effort by the advertisers to create a presence within user-generated content. Subtle or otherwise, ethical or not, the marketers will not settle for a possible ad to appear over on the right margin in the Google AdSense block. No, they’ll be pushing for coverage in blog posts or a logo in a video.

  3. Revenue Science, Tacoda and BlueLithium represent a possible disruption for performance marketers. The assumption of many is that the budgets will shift away from other display ads. I think behavioral targeting may also disrupt search and affiliate because it is equally data-driven and ROI-focused. The advantage of behavioral targeting is that it focuses on all aspects of the consumer’s buying behaviors, not just the research and purchase decision phases typically pursued by the performance marketers.
  4. Transitory.
 

Greg Schraff, director of strategy and business development, Brooks Bell Interactive

  1. BT seemed to be a popular buzzword but I never really heard too many real success stories. My observation is that online marketers are actually getting comfortable with the basics and are now casting an eye toward testing and optimization in order to squeeze out better results.
  2. Following my comments above, more structured and strategic testing and optimization efforts. A/B, multivariate and companies that provide these services.
  3. Still getting online marketers beyond just keeping their heads above water, i.e., just running the actual marketing campaigns so that they have the bandwidth to concentrate on performance factors and tactics they can employ to improve performance.
  4. Burgeoning.

Sell Green to Make Green

For online marketers, green could be the new gold. The events of the past year opened the eyes of many consumers to the importance of being Earth-friendly, which in turn has created an unprecedented opportunity for the sellers of green goods.

Hurricane Katrina, the popularity of the global warming documentary "An Inconvenient Truth" and President Bush’s epiphany about alternative fuels have collectively vaulted caring for the planet from being the grist of environmentalists to the forefront of consumer consciousness.

"There is no better time than right now to talk about [green] products and services," Cheryl Roth, co-founder of marketing and public relations firm OrganicWorks Marketing, says. Consumer receptiveness to the green message is at the highest point since Roth began promoting healthy living products six years ago, she says.

However, many green companies are just that in their know-how of connecting with customers on the Web. Several companies offering environmentally friendly products online contacted for this article have never engaged in online marketing beyond creating a website. When asked about affiliate programs and search marketing, many company executives openly admitted that they were unfamiliar with search engine optimization, affiliate networks and RSS feeds.

The challenge for online marketers is to assist green companies in learning to master the tools of the trade before the green wave loses its appeal to fickle consumers.

NEW ECONOMY STUCK IN OLD MEDIA

Marketers of environmentally friendly products are spending big bucks to deliver the message through old media, but have done comparatively little online. During the past year General Electric (with its Ecomagination campaign), General Motors and BP (now Beyond Petroleum) gave the green movement national exposure through multi-million-dollar advertising campaigns through broadcast and print media. Hybrid vehicle makers including Toyota, Honda and Ford continued successful marketing campaigns of the past few years as a receptive public snapped up twice as many of the air-sparing vehicles in 2005.

The biggest green marketing campaign of 2006 demonstrated the effectiveness of simultaneously advertising online and with broadcast media. General Motors’ "Live Green Go Yellow" marketing effort explained the benefits of ethanol and promoted the company’s 12 flex-fuel vehicles that can use the fuel derived from corn.

The campaign included extensive TV, radio and print ads and coincided with extensive banner advertising and search marketing. Display ads on AOL generated 336 million impressions as "one of the most successful campaigns in AOL history," according to Bob Kraut, the director of brand marketing at General Motors.

GM launched the TV campaign during the Super Bowl and at the same time bought key search terms including E85 and ethanol to drive traffic to the website LiveGreenGoYellow.com. GM also drove ads to the website by buying banner ads on environmentally themed sites including GreenNature.com, Nearctica.com and MSNBC News Environment.

Kraut says the bounce rate (people leaving a website after visiting the first page) during the campaign was half of GM’s usual percentage, indicating that general consumers were receptive to its Earth-friendly message. Later this year GM will reinforce the green message by emailing registered flex-fuel owners to remind them that they can use E85, Kraut says.

"Buying green has become part of the American vernacular," he says.

THE EDUCATION CHALLENGE

While GM had a substantial budget for interactive advertising, many green companies’ online efforts are as lively as a wind farm on a breeze-free day.

Lawrence Comras, president of e-commerce company GreenHome.com, estimates that 30 percent of consumers would buy green if they knew that products comparable in performance to what they currently purchase were available.

While the market may be ripe, green companies have a threefold marketing challenge: 1) They must differentiate their products versus conventional competitors for quality; 2) Explain their environmental benefits; and 3) Justify why consumers may be expected to pay a premium, as is often the case.

Since the definition of green can be subjective and varies from category to category, the messaging can be complex, according to Comras. For some products, conserving energy is the goal. Other products are considered green because they are made from recycled materials, while using non-toxic chemicals defines others.

"How do you know what’s really green?" asks Comras. Also, chemicals that would be permissible in paint would not be allowed in green soap products, which requires additional education, he says.

"There must be more emphasis on education [than with traditional marketing]," agrees OrganicWorks’ Roth. Consumers previously may not have considered the environmental and health impact of their everyday purchases, so websites need to explain how their products are planet-friendly.

Finding green products within the comparison shopping portals (such as Amazon.com and Half.com) can also be a challenge, as they do not flag their environmentally friendly products, according to Marty Coleman, the president of marketing and public relations firm Green Communications Group.

EXPERTISE WANTED

For many green companies who are passionate about their cause, marketing is not second nature. The lexicon of online marketing is as unfamiliar to many green entrepreneurs as the chemical composition of the greenhouse gases is to most consumers. Marketing companies that partner with green companies should expect to do extensive hand holding throughout the process.

For example, Green Mountain Energy, a clean-electricity company that was founded in 1997, has advertised for several years on TV and radio, but the company doesn’t advertise online. The company’s website is an informational and commerce site that allows customers to order renewable energy power, but the company does not market the website online. We are "using the Web primarily as a response vehicle," says Gillan Taddune, Green Mountain’s chief environmental officer.

The Austin, Texas, company has not pursued affiliate relationships or marketing through blogs or RSS feeds, says Taddune. "The Web is not a leading part of the business," she says. That may change later this year as the company is considering expanding its online profile through marketing initiatives, according to Taddune.

Limited financial resources prevent some smaller green companies from aggressively pursuing online marketing. "Many of them don’t have the dollars to do advertising," OrganicWorks’ Roth says. Several for-profit green companies also donate a portion of their revenue to environmental causes, further reducing the amount of money that can be reinvested in the company.

David R. Kaufer, the president of shopping site GreenForGood, says that when he experimented with search engine marketing last year, he did not purchase category words such as "household cleaner" because the big brands put the price out of reach.

Instead, Kaufer focused on purchasing eco-friendly terms, but ended the program because of poor conversion rates due to his admitted inexperience with online marketing. His ads linked to GreenForGood’s index page rather than specific items for sale, which made them ineffective, he says. He plans on resuming a Google Adwords program soon, but this time with landing pages optimized to promote purchases.

While GreenForGood does not have an affiliate program, the company created a store within the environmental group Sierra Club’s website, with the nonprofit receiving a share of the revenue, according to Kaufer. The company prefers to partner with like-minded environmental websites rather than advertising on general-interest publishers or having its products listed on shopping engines. Kaufer believes he’ll get the greatest return by targeting readers predisposed to his message.

AN ATTRACTIVE AUDIENCE

The demographic of consumers interested in environmentally friendly products is appealing to online marketers. Consumers of green products are more likely than the average consumer to shop online, according to Green Communications Group’s Coleman. A 25-year veteran of marketing research, Coleman says green consumers are more technology- savvy and "are more comfortable with buying online," than the general population.

Green shoppers often go online out of frustration in attempting to shop locally, Coleman says. "Green products are not easy to find in brick-and-mortar stores," she says, as they are often not clearly labeled as such and are mixed in among the rest of the items on store shelves.

For several years Minneapolis-based Caldrea used the Web solely as an information resource to support the retail sales of its luxury home-cleaning products, according to founder and president Monica Nassif. The biodegradable products, which are sold under the Mrs. Meyers and Caldrea brands, are available at Whole Foods, Fred Meyers and other supermarket chains.

Nassif said Caldrea’s website was managed from 2000 to 2005 by an outside organization that had restrictive policies limiting design, which prevented her from optimizing the content for search engines. To enhance the company’s online marketing and sales, she hired Andrew Janis as e-commerce manager and brought management of the website in-house in January of this year.

Caldrea is participating in search marketing with several search engines, and Janis says Google provides the best return for green companies. "We get the majority of traffic from Google," he says. Keyword purchases that focus on "environmental" or green tend to outperform more generic terms, according to Janis.

Caldrea sells its products and advertises through several shopping search engines, and Janis says Froogle "outclasses everything out there." The clickthrough and conversion rates are terrible on other shopping sites, he says.

Janis says the company recently made small advertising buys of banner ads on environmental websites, and Caldrea has contacted a few bloggers and lifestyle publishers to spread the word. The company has not joined any affiliate networks as yet, but Janis may pursue a relationship in the near future.

CAPTURE THE COMMUNITY

Communicating with customers through email marketing is part of Caldrea’s strategy, as the company prominently displays a form to sign up for special offers on the home page. The company does not have a blog, according to Janis.

Consultant Coleman doesn’t recommend corporate blogs. "You should go to the places where the community already is," she says noting that one of the most effective methods of organically growing traffic is to get a positive buzz about your business in the blogosphere. "Community blogs are powerful tools if you can get customers to post good experiences [with products]," according to Coleman.

Coleman says encouraging visitors to become members of a website can be successful because "people who buy green products enjoy being part of a community." Once they join, continual communications from the publisher through email newsletters and promotions will drive traffic to the website, she says.

GreenHome’s Comras says affiliates are helping to grow his business, which has doubled sales for each of the last four years. GreenHome’s 50 affiliates receive a share of the revenue for promoting the company’s products, which include appliances, furniture and clothing.

The retailer has not advertised online because Comras views promoting its products to the general public as not being cost-effective. "It’s tough when you break out of the green bubble because you are probably scattering your seed to the wind," he says.

Comras believes that intelligently partnering with like-minded publishers and nonprofit groups can attract the target audience. "We have to equal the clout of mainstream companies to get [the green] word out."

Green marketers have years of catching up if they want their fledgling online efforts to take root while environmental concerns are still top of mind with consumers. This newfound interest in environmentalism may not last forever, so they must be quick studies in mastering the art that online marketers take for granted.

Many green companies also have a global reason to quickly succeed online. As GreenHome’s Comras says, "the planet can no longer afford for [green] companies not to have online stores."

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

Big Brands Believe

TV commercials and print ads aren’t dead yet. Major brands still believe in traditional media. After all, a blockbuster commercial with a catchy jingle can positively boost brand equity. No one cares to dispute the power of a well-placed Madison Avenue ad. But nowadays, marketing teams are increasingly feeling pressure to account for the dollars they spend; they need to show the hard results for money in a real way.

No wonder many marketers are starting to expand their ideas about what constitutes the best-spend blend. While dollars spent on old-fashioned media can positively impact brand image, many major marketers are frustrated by the paucity of accountability in that arena.

Enter the Internet. A decade ago, it was a way to blast banners and burn through a huge amount of cash. Now with access to high-speed connections the norm, and rich-media taken for granted, marketers believe more and more that the low cost, high measurement and constant tweakability make the Internet a magic formula for marketing.

The growth of online ads isn’t showing signs of slowing down and traditional commercial markets are feeling the loss. For example, the up-front market, the time period during which TV networks show their fall lineups and try to sell ad space, is losing its luster. This year the Walt Disney Co. network did well during the up-front, selling $2.3 billion in airtime, a $200 million increase over last year. But the final network TV up-front haul came out to only $9.05 billion, compared with $9.1 billion last year.

“This year the interesting thing is it isn’t just about TV anymore; there are a lot of other places to be worked into these TV buying deals,” says Stacey Shepatin, senior vice president and director of national broadcast at agency Hill Holiday in Boston.

She points out that CBS put the NCAA games on the Web and drew a huge audience. “Content is on the Web, on iTunes and on cell phones. Clients want to be able to reach consumers wherever they are getting their content and for some clients, mobile phone and the Internet make more sense than network TV.” Shepatin says the networks will be aware of this shift and work out up-front packages to please marketers.

AD SPEND UP

Beyond anecdotal evidence of the trend, data backs up the new reality. While many industry observers like to speculate, few have actually pinned down hard numbers. But Universal McCann’s forecaster, Bob Coen, recently revised his estimates for overall U.S. ad spend downward. However, he’s bullish on Internet ad spending and has revised those particular estimates upward. Coen now forecasts that Internet ad spend (excluding search) will amount to $9.705 billion this year, which is a 25 percent increase over 2005.

In December, Coen predicted that online advertising spending would total $8.7 billion in 2006, or an increase of 10 percent over 2004. But in the first quarter of this year online advertising spend increased more than 19 percent from the first quarter of 2005, according to Coen. To give you an idea of the contrast, he now predicts that overall ad spending will increase to $286.4 billion in 2006, a 5.6 percent increase from 2005. In December, he had forecast 5.8 percent growth. The Internet numbers are enough to leave even skeptics believing that this online ad thing has real momentum.

Other numbers also prove the point. The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers announced that Internet advertising revenues reached a new record of $3.9 billion for the first quarter of 2006. The 2006 first quarter revenues represent a 38 percent increase over the first quarter 2005 at $2.8 billion and a 6 percent increase over the fourth quarter of 2005 total at $3.6 billion.

Some types of companies are quicker to catch on than others. Not surprisingly, high tech companies are among the first to get hip to trending their ad spends toward the online universe. Yahoo’s chief marketing officer Cammie Dunaway agrees that a commitment to “performance- based marketing,” like the Internet, is more effective than just doing branding on network TV alone. Yahoo has also ventured into getting its brand seen in off-line environments, with a Sheraton hotel deal in which Yahoo sponsors the wi-fi lobby Internet connections. Yahoo plans to continue its much-lauded street marketing stunts but will also continue to refine its online and search efforts.

“I really believe in interactive. Soho Square [New York] is our overall agency that pulls in WPP partners,” Dunaway says. Yahoo did a lot of promotion for its music product and in addition to buying TV spots on the broadcast of the Grammy’s and throwing parties in Miami, it did a lot of online work.

“We had great online creative as well; you could throw Green Day’s equipment with your cursor – we had a fun, engaging online element. OgilvyOne [also in New York] handles online, and ours is very extensive. We do so many online campaigns! Great branding makes your search work harder. In 2006, our marketing will be a blend. We’re do search engine marketing as well as branding – ad campaigns, buzz marketing and partnerships like Sheraton,” Dunaway adds.

Those looking to reach a youth demographic, including large brand advertisers, are spending billions online. Sprite was an early blog advertiser and trailblazed IM ads featuring a hip-hop cartoon personality known as Miles Thirst.

John Vail, director of the interactive marketing group for Pepsi-Cola North America, says the company isn’t as much about clickthroughs. To gauge effectiveness, the soda giant is participating in an experiment run by Yahoo and market research company ACNielsen that tracks the online behavior and offline purchases of about 36,000 U.S. families. PepsiCo Inc. doubled its online display advertising spend in 2005, allocating just 2 percent of its total U.S. spending. But Americans spend close to 20 percent of their time online, so there is a gap.

Advertisers aren’t really taking advantage of the fact that a fifth of our time is spent online. So there’s a great opportunity for even more expansion.

PRINT IS NO LONGER THE KEY

But at least one advertiser has woken up to the reality of the way consumers are currently choosing to view media. Absolut vodka, known for its iconic print ads, is at the cutting edge. It has radically altered its marketing strategy away from print to the Internet. The company says it changed directions because consumers’ tastes were changing and many competitors were entering the marketing.

“Online plays a more important role than print. Print is not the key media anymore,” according to Patric Blixt, communications manager for new media at Absolut in Stockholm. “Our consumer is more focused on the Internet and mobile communication so we’re shifting also. We’re evolving the iconic advertising, making it more inclusive and modern with the same wit and creativity we used in our off-line advertising.”

While Absolut won’t abandon print, outdoor and TV advertising, those media will take a back seat to the Web. “Even if the print media budgets remain larger, the print is now much more seen as the first window into the Absolut world, driving interested users to the whole brand experience online,” Blixt says.

Absolut will increase its online spend to about 20 percent of its media budget. This would account for about an $8 million outlay in the U.S. as the brand spends upwards of $40 million annually.

And Absolut is probably smart to target consumers online. But marketers of electronics would be wise to follow suit. More than 50 percent of Americans were ready to upgrade their home electronics this summer, according to research from Pioneer and Roper. Before they hit the stores, however, 90.2 percent of them went online for product research.

A survey from the Pew Internet & American Life Project finds that 45 percent of American Internet users have turned to the Web for help with a purchase in the past two years and that 57 percent considered the Internet “the most important source of information,” so many marketers know the Internet is a smart place to be.

Automakers are another group that is riding the wave of the sea change. Ford Motor also dropped its magazine ad allotment from 23.5 percent to 21 percent last year but increased its spending on the Internet to 3.5 percent from 3 percent, according to AdAge.com. The company’s overall ad budget remains flat. General Motors also plans to spend 20 percent of its marketing budgets online this year. Automakers, like Audi and Lexus for example, have been quick to champion emerging media and buy advertising on blogs and podcasts.

TECH TALK

You’d think that technology companies would be at the forefront of parlaying their expertise into taking advantage of the way media is developing. While guerrilla marketing and sponsorships are becoming more popular with tech companies, Internet ad buys are also a big part of their focus. Microsoft is also keen to take advantage of online ads. This year it will spend a hefty $500 million to promote its new “People-Ready” message. However, the long-awaited release of its new operating system (“Longhorn” which was later renamed “Vista”) isn’t slated until 2007, and a new version of Office might not see corporate offices for some time. The company hasn’t announced when it will air ads for either product. But vice president Mich Matthews says Microsoft will spend a nice chunk of its “People-Ready” budget across more ROIeffective media, namely the Internet.

Google has begun selling advertiser image ads, which are displayed on its publisher partner sites. And according to Sheryl Sandberg, vice president of global online sales and operations for Google, the search giant recently introduced a “click to play” advertising service that lets brand advertisers pay fees when visitors click to play video ads, which are often construed as brand ads.

Ad options in the online universe will continue to grow. The variety of newfangled online ads is proliferating. Blog spending increased in 2005, with over $16 million reportedly spent. Podcast advertising earned more than $3 million last year and is forecast to grow, with a projected 2010 revenue of more than $300 million, per research from PQ Media in Stamford, Conn. Companies such as EarthLink, for one, are experimenting with ads on Internet video blogs. And mainstream household names like Whirlpool are testing the waters of podcastlandia.

Meanwhile, traditional media is far from dead. Instead, it is adapting. TV is beginning to mimic the Internet. Not only is it becoming a more on-demand media format (along with TiVO), but it’s also shaping up to be more measurable, too. Several media buyers, such as Zenith and Starcom, have signed on to receive Nielsen’s minute-by-minute ratings data, which will show exactly what viewers are watching. They’ll be able to find out which commercial breaks viewers actually watch. Some agencies are expected to also negotiate prices based on where a commercial falls within a program, or within a commercial break.

eMarketer data shows that large projected increases amount to 24.4 percent in online ad spend, compared with much smaller growth (4.2 percent) for all media.

Things have changed since the late ’90s as advertisers have become more comfortable with the Internet as an advertising medium. It was very easy for them to pull dollars from the Web or ignore it completely, but you just can’t do that today.

During the previous boom, “traditional advertisers hadn’t yet embraced the medium, so growth slowed,” says Denise Garcia, an analyst at WR Hambrecht + Co. “That’s not going to happen again because Procter & Gamble, large auto manufacturers and other companies have said they are decreasing spending on traditional media, like television, in favor of online media.”

Despite frequent reports of its demise, TV advertising is far from dead. JWT, in fact, has bought up all the front-page ads on the news blog site HuffingtonPost.com for one week, inviting users to view, comment on and share some of the agency’s best TV ads. The ads invite users to view JWT commercials for clients such as Ford, HSBC and JetBlue. After clicking, visitors are taken to a separate section where they can see nine different JWT spots, leave comments and forward the link to a friend. Jonah Peretti, a partner at HuffingtonPost.com, said the effort is a joint experiment to see if social media sites are fertile ground for TV ad messages to enjoy a viral effect: “If you make excellent advertising, good content and put it in an environment [where] it can be shared, you can learn a lot about how to improve what you’re doing.”

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for the Industry Standard, Brandweek, HotWired and Wired News. She lives in San Francisco.

The Social Security

Sites that rely on user-generated content are altering the human fabric of the Internet and the way that performance marketers reach out to customers and merchants and communicate with each other. Online marketers are testing all of the new communication methods – blogs, social networking sites, wikis, and photo and video-sharing sites – to see if these platforms can help them drum up business.

And with good reason. The popularity of many of these emerging areas is seeing steady, if not explosive, growth. Blogs, which allow users to easily post new content to their site as well as effortlessly link to other sites, are on fire. Forty-four percent of American Internet users read and post on blogs, discussion boards and other consumer-generated media outlets according to a February 2006 Pew Internet & American Life project study. Technorati reports that approximately 70,000 new blogs are created every day and that the total number of blogs doubles at least twice a year.

But it’s not just blogs. Social networks, such as Bebo and MySpace, are communities in which an initial set of founders sends out messages inviting members of their own personal networks to join the site, and new members repeat the process, are a new national phenomenon. As of July, MySpace has 72 million members, Bebo has more than 57 million members and hi5 has more than 40 million.

In addition, there are single-use social networks where people share one type of topic such as YouTube.com for video, Flickr.com for photos, Digg.com for news stories, Del.icio.us.com for links and Wikipedia.com for encyclopedia articles.

All these types of collaborative platforms are the crux of the Web 2.0 model where the ease-of-use technology allows anyone the ability to contribute.

These sites are built to harness the breadth of experiences so everyone can benefit from the collective wisdom – they have the advantages of collaborative group input but because these services are online and can be anonymous (through aliases), users are not afraid to dissent, according to Jim Nail, a former analyst at Forrester covering the social networking space, who is now the chief marketing officer of Cymfony. “Therefore there is not concern about the dangers of ‘groupthink,’ when individuals intentionally conform to what they perceive to be the consensus of the group.”

And when it comes to growing social groups MySpace.com leads the pack. In July, Hitwise announced that MySpace.com, for the first time, was the No. 1-ranked website in the United States based on the number of visits. MySpace.com accounted for 4.46 percent of all Internet visits in the U.S. for the week ending July 8, 2006 and has propelled past Yahoo Mail. Bebo increased its market share of visits by 21 percent from May 2006, the largest percentage increase among the social networking websites.

THE SOCIAL BUTTERFLIES

So who’s hanging out at these social networking sites?

Nielsen has identified a group, called “My.Internet,” that’s especially likely to visit networking sites. Sixteen percent of Web users belong to this group, which has a median age of 32. Nearly all members of this group – 99 percent – visit blogs; 84 percent are members of an online community; 57 percent have their own blogs; and 22 percent use RSS feeds. Nielsen reported that “My.Internet” users tend to be highly engaged with most of the websites they visit, as measured by 10 factors, including whether they “liked” the site and were likely to return.

With all of the promising information about traffic and demographics, advertisers are eager to get their messages in front of the young and wired demographic that favors the social networking sites. Combined spending on blog, podcasts and RSS advertising skyrocketed 198.4 percent to $20.4 million in 2005. It is expected to grow another 144.9 percent to $49.8 million in 2006, according to an April 2006 report from PQ Media, a custom media research firm.

But advertising on social networking sites can be tricky, and marketers need to take strategic and creative approaches. The audiences skew younger, and often these younger audiences are exceptionally adept at tuning out traditional banner advertising – therefore pushing ads no longer works.

Mark Brooks, an analyst for OPW.com, says, “Interruption marketing is old school and not appreciated by the younger audience. Marketers wanting to use social networks need to put their thinking caps on and get creative.Case in point: Burger King is sponsoring downloads of episodes of 24. Very cool and very viral and plays to the MySpace demographic perfectly.”

In addition to advertisements and sponsorships, marketers know that the buzz generated on social networks is much more of a powerful endorsement than any form of promotion. In fact word of mouth is widely considered the most powerful form of marketing and the wave of the future for influencing sales. According to a December 2005 McKinsey report, approximately two-thirds of all economic activity in the U.S. is influenced by shared opinions about a product, brand or service.

Forrester Research’s 2004 study showed that over 60 percent of consumers trust product recommendations found in online sources like discussion boards. A 2004 RoperASW report, now part of GfK Group, found that over 90 percent of Americans cite word of mouth as one of the best sources of ideas and information. Further, they rate word of mouth twice as important as advertising or editorial content and put one-and-a-half times more value on it today than they did 25 years ago.

Dave Evans, moderator of the social networking panel at Ad:Tech San Francisco in May and co-founder of Digital Voodoo, along with Dave Ellett, CEO of Powered, examined the purchasing funnel of ACP (awareness, consideration, purchase). They saw that the majority of traditional advertising dollars, such as interruptive efforts like television commercials, is applied at the awareness point in the ACP. But because consumers are increasingly finding ways to block advertising through TiVo, spam filters and do-not-call lists, the impact of these types of traditional advertising has diminished. Now marketers are not only tasked with how to get their messages through to potential customers, but they must also worry that their potential customers are increasingly talking with each other and “comparing notes.”

To counter this problem, Evans says that, “When marketers reach out in the consideration phase, they contact consumers at the precise moments that they are thinking about a product or service. Through consumer-generated media and word of mouth, evangelists can actively impact consideration processes.”

The advantage of social networking for marketers is that it does not involve interrupting like an advertisement (which is in the awareness phase) does.

LEVERAGING SOCIAL NETWORKS

There are a variety of ways marketers are taking advantage of consumer-generated media and word of mouth. Social networks are having an incredible influence on how business is getting done. Organizations, ranging from movie studios to sneaker manufacturers, are changing the way they make decisions, connect with customers and market products because of the increase of new tools that enable people to express themselves more easily online.

“There is a new paradigm where consumers drive the conversation and have the control. Companies have to let go of the marketing speak and let people communicate with each other in an unfettered environment,” Geoff Ramsey, CEO of eMarketer, says.

One opportunity is for marketers to take ideas from social networking sites and apply it to their own business, he says. For example, GlaxoSmithKline is working on a social networking site for the weight loss community that lets users talk with each other and answer each other’s questions about how to lose weight, such as diet and exercise. GlaxoSmithKline is doing it for two reasons:

  1. To gain learning from these affinity groups – marketers can find out a great deal about how this group of people define and express themselves. They can use the language or phrases observed for purchasing keywords for search campaigns. They can apply the learning to sales copy in magazines, radio campaigns or on the Web.
  2. To participate at the site, the visitors must register there and provide some demographic information. Now GlaxoSmithKline has a list of consumers to market to when the weight loss product launches.

By listening in, marketers have an opportunity to hear how people really feel about their brand or product. With such learning, they could correct misperceptions in the marketplace or make effective changes to their products or customer service.

“Until you have demonstrated that you listened and responded accordingly, you cannot deliver hard-core messages to people,” Ramsey says. For this reason, there are many natural language processing companies that can determine what users are saying.

One company, Cymfony, offers a product that follows the flow of the message, tracks the positive and negative reactions to it and measures its influence on the audience. It scans and interprets the voices of users in blogs and social networks to determine how these discussions are impacting potential customers.

Nail points out, “In Web.1.0, the marketers’ job was to appear adjacent to that content but now that users are generating the content and are looking for a social engagement, marketers’ messages need to be part of the content.” To do this, companies need to know what their customers are saying.

Another way that companies can use social networks is to create profiles on the sites. For example, MySpace is currently charging upwards of $50,000 per month for big brands such as Pepsi, Adidas, Dell and Ford to build and promote profiles. Although this seems like something that members would dismiss as sheer commercial promotion – a quick look on MySpace shows that Jack Box, the character behind the Jack in the Box restaurants, has 130,989 friends (meaning that these MySpace members intentionally linked to the Jack Box profile). Of course, MySpace must be careful that selling these types of member profiles does not cause a mass exodus of its members.

Another way that marketers are leveraging user-generated content is by having consumers create their advertisements. The benefits are multifold: It gets consumers involved in the brand; the ads feel more authentic; it saves marketers money because they don’t have to hire an advertising agency; and if the ads are funny or interesting, they propagate themselves by being sent around on platforms such as YouTube.com or GoogleVideo. Companies like Volkswagen and MasterCard have harnessed the affection that some customers have for their specific brand by asking them to create and vote on ads, and created successful campaigns and tremendous buzz in the process.

AFFILIATES GOING SOCIAL

When it comes to testing the waters in burgeoning areas, affiliates are usually eager to dive in headfirst.

Rosalind Gardner has a blog called Net Profits Today, which she updates daily. She says: “I love my blog. They make posting new content to the web such a breeze. No uploading required. Just write and publish. It doesn’t take much to copy and paste a merchant offer and add a few of your own editorial comments. Another advantage is the free search engine traffic that blogs invite. Search engines love fresh content, so I’d highly recommend that any affiliate who isn’t blogging yet, start ASAP! Of course, the best benefit is that blogs are yet another way to enhance the relationship you definitely want to build with your visitors as an affiliate, especially in light of how difficult it is becoming to make sure the mail gets through nowadays.”

One social network specifically for affiliates is the Affiliate Summit Social Network. Consultant Shawn Collins, the Affiliate Summit co-organizer, says the network “helped Affiliate Summit by enabling attendees to network in advance of the conference, as well as to brand themselves through posts to their journals, sharing bookmarks, etc. This value-add assisted us in selling Affiliate Summit, and I think it is conducive to our goal of bringing the community closer together.”

He adds, “Now that the [July] show has ended, I will be focusing on getting more attendees to register after the fact. The ongoing network will benefit them, and we will be using it as a retention tool that ties to our mission of creating a unique educational environment and networking opportunity that facilitates the exchange of information about affiliate marketing.”

Affiliates are also testing the waters of mainstream social networks, such as MySpace. Collins has created a profile on MySpace, with the user name affiliate manager, and posts the content of his blog, AffiliateTip.com, on his MySpace blog. “My goal is to get more eyeballs for my blog. The goal is awareness – to get incremental readers – the ultimate goal is to recruit managers for affiliate programs. The first thing I talk about in my profile is that I am running these two programs and I have banners up to join them – PayLess Shoes and Snapfish.”

One clever affiliate whose social networking site has garnered lots of media in the past six months, including spots on CBS Early Show and Good Morning America, is 23-year-old IT manager Kevin McCormick. Six months ago he started DressKevin.com, a site that is a graphical database of his wardrobe, where users vote on what Kevin should wear on a daily basis and later comment on it. DressKevin.com inspired a second site, MyDrobe.com, a wardrobe management system for users. Both sites keep track of the last time an item of clothing was worn, the size, brand and style details.

On DressKevin.com, the clothes descriptions sometimes include a link to the merchant or affiliate program where it can be purchased – but not for every item. “If affiliate marketing did not exist, I would be providing uncompensated referral links anyway. I am trying to maximize it without comprising the integrity of the site. That is why affiliate marketing works well for me. I have Old Navy shirts on my site and they have links to Old Navy through Commission Junction. But I also have descriptions of my shirts from Hollister and Express with no compensation because I like their shirts.”

He attributes this growth and popularity to the credibility and authenticity of his site. McCormick says he started his site not to make money but to see if it would catch on and people would pass it on to their friends. “I was uninformed about CPC advertising, media, PR, affiliate marketing or even making a website.”

McCormick does not actively seek out affiliate agreements with merchants. He signed up to participate with some retailers such as Old Navy and Macy’s through Commission Junction. He appreciates the convenience that the network offers in terms of finding him appropriate merchants to sign up with, and the tracking and processing of commission paychecks.

McCormick’s other site, MyDrobe.com, offers more opportunity for generating revenue. It is a wardrobe management system that is a database for clothing, and enables users to manage their wardrobe and create a profile as well as enabling people look through other people’s clothes and to see what they are wearing. MyDrobe.com has 4,900 registered members and the demographic is heavily female, with a significant amount of girls between the ages of 13 to 16, followed by a concentration of girls in the 16-to-20 age range.

“Any website that focuses closely on brand-name products like clothing is a great candidate for utilizing affiliate marketing channels that will pay a commission on referral sales. MyDrobe’s clothing descriptions have ‘click here to buy this shirt online now’ for those who see a particular item of clothing that they like in someone else’s wardrobe and would like to buy it for themselves as well,” he says.

The site offers complete product catalogs that are provided by affiliate networks in “vendor showcases,” which are made for a single clothing company. For example, at the vendor showcase at MyDrobe.com/gap, users can browse through clothes currently for sale at Gap. Users can add clothing to a wish list, post comments and provide ratings and click on links that will bring them to Gap.com.

“Product feeds make this possible because MyDrobe will automatically update these vendor profiles based on what is currently for sale, so that my site does not need to continually manually enter new clothing into the site. XML technology makes this easy to implement for both the clothes manufacturer and site operators,” McCormick says.

Another property exploring how much social networks affect e-commerce is the brainchild of Lisa and Brian Sugar in San Francisco. In March 2005, they started a blog devoted to celebrity news called PopSugar and a community developed rapidly around it. By June 2006 they had 4,000 registered users chiming in about Jennifer Aniston’s new YSL bag or Britney’s second pregnancy.

In June 2006, they launched TeamSugar, which offers its readers a service similar to MySpace, providing registered users with their own profile, Web page, blog and the ability to send messages to one another. FabSugar, a fashion blog, launched in July with other sites devoted to topics like technology, home decor, and fitness to come subsequently. Brian Sugar, who previously was the chief Web officer at Bluelight.com and vice president of e-commerce at J.Crew, explains that “eventually, we will have 12 categories that sit on top of your social network which is called TeamSugar.”

Sugar’s goal is to get 100 million page views and 25 million unique users per month from the combined sites that will target trendsetting women between the ages of 18 and 35 and the advertisers that seek to reach them. He points out that, “TechCrunch and MySpace cater to guys, and DailyCandy is about fashion but without the celebrity gossip component. There is a massive crossover between InStyle and RealSimple and Allure and I don’t think the readers are getting served online from social networking and an editorial standpoint.”

FabSugar blogs about style and beauty products; for example, it contains an entry about the flats that Kate Bosworth and Sarah Jessica Parker are wearing, with links to two sites that sell them. Right now the site has text links with no merchant agreements yet but Sugar thinks that, “We definitely will be linking at Sephora and J.Crew. If they offer an affiliate program, we will sign up. If they don’t use affiliate programs, I think we will be able to broker the deals,” he says. “We have always believed that the majority of revenue would be from our advertisers.”

LOTS OF BUZZ

Another site that drives word-of-mouth commerce by leveraging the community aspects of a social network is MyPickList.com. The effort integrates a user’s profile and his or her favorite product recommendations into a networked community.

It works like this: Users create a list of their favorite items from multiple categories, called a pick list. They add the product, choose a preferred merchant for product sale, write a short product review and tag it. Only products that are sold through a retailer in the MyPickList network are eligible for a product commission. Once the pick list is created there are four ways to get a pick list viewed/distributed: Send to a userdefined buddy/email list; RSS feed; a banner ad creation (MyPickList.com badge/widget) that allows users to create custom ads to promote their pick list on websites and blogs and MySpace page; and direct from the MyPickList.com website.

Jeff Eichel, CEO of MyPickList, says it helps users become affiliates “by allowing them to recommend products and services under their MyPickList account. If a product that a user recommends gets purchased from the pick list, that user will earn a commission ranging from 1 percent to 10 percent. Most of these people would never get approved for affiliate programs on their own, but because they are under MyPickList there is no approval needed.”

Another social media platform for affiliates is Affilipedia, which, like Wikipedia.com, uses Wiki software to allow users to contribute articles and edit entries. Novices to experts can submit new information on affiliate marketing as well as edit the existing pages in the affiliate marketing encyclopedia if they disagree with the explanations of affiliate, merchant, commission or other affiliate marketing terms.

This egalitarian collaboration works – Cymfony’s Nail points out “Wiki in general is a collaborative platform and therefore they don’t have [to have] a centralized editorial staff. They are not limited to how much you can afford to pay.”

Although the sharp increase in content presents more prospects, it can be risky to be associated with some of the uncensored and often-critical material of user-generated content.

“You might come to the conclusion that this is not a ‘safe’ environment for advertising your product or service,” says eMarketer’s Ramsey.

If affiliates do decide to invest their time and effort into a specific social network, they should be aware that although members can be loyal to their favorite sites – studies find that users are driven to return often by ever-changing content and membership – audiences (especially young audiences) can be fickle and move on to the next great thing and online marketers need to be ready to move on as well.

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

eBay: What’s in Store

Describing eBay as a commerce website is like saying Elvis was a singer. The 11-year-old company that began as a virtual flea market similarly has become an international phenomenon, spurring the creation of cottage industries and sustaining thousands of small businesses.

And despite being one of the Internet’s forebears, the company is in many aspects just getting started. As eBay grows, so will the myriad of obvious and less-apparent methods that marketers can use to profit in, around and through eBay.

By economic standards, eBay is a medium- sized country. In 2005, the value of the sales through its marketplace ($44 billion) and financial transactions through its PayPal service ($27.5 billion) together were slightly more than the gross domestic product of Belarus, an Eastern European nation of 10.2 million people.

The eBay network includes much more than online auctions, encompassing vertical marketplaces (Motors, Rent.com), fixed-costs sites (Express and Stores) shopping sites (Half.com, Shopping.com), as well as a telephony company (Skype) and PayPal.

The San Jose, California, company’s revenues continue to grow at an unusually high rate for a mature company, jumping by 35 percent during the first quarter of 2006. “eBay has its own weather pattern,” analyst Greg Sterling of Sterling Market Intelligence, says. In addition to the many people who make a living selling goods on eBay, Sterling says the rapidly growing eBay economy also impacts “off-line eBay enablers, including packaging and shipping companies.”

INSIDE INFORMATION

While the auction service is eBay’s signature sales venue, it is only a fraction of the revenue opportunities available to marketers, many of which do not require selling goods. Publishers are leveraging the site’s considerable traffic to complement or as a portal to their own websites.

The eBay audience of active purchasers grew to 75.4 million users in the first quarter of 2006, up 25 percent from the previous year. The same strategies used to attract consumers on the greater Web, including search marketing, optimization and email advertising, can be used to capture traffic within the eBay universe, according to eBay Power Seller Skip McGrath.

“A lot of people use [eBay] as a marketing gateway, to market to them later,” says McGrath, who is the author of seven books on the company including “Titanium eBay, A Tactical Guide to Becoming a Millionaire Powerseller.”

Even if consumers don’t make a purchase, publishers can still profit by linking to their sites from within eBay, according to McGrath. “A substantial amount of people make more money from the advertising on their own sites through traffic from eBay than from actual [auction] sales,” he says. “I get 2,000 to 3,000 visitors per month just from people clicking through from eBay,” he says.

Publishers must be careful in promoting external sites, as eBay will ban anyone who violates the company’s linking guidelines, according to McGrath. For example, only the “About Me” page of an eBay Store can contain external links, and those must be at the bottom of the page. But McGrath has commandeered substantial traffic by including the URL of his business in the image he created for his About Me page, which he says is okay by eBay rules.

Maintaining an eBay Store not only provides the possibility of selling items for fixed prices, it also enables sellers to advertise to eBay’s massive audience. The company has one of the largest inventories of advertising positions to sell, as it is ranked as the fifth-most-trafficked website, according to comScore Media Metrix. In May of 2006, 77 million people visited the site, or 60 percent more than Amazon.com

eBay sellers can promote their wares by purchasing keywords on the site, but the ads can only link to eBay Stores. eBay Stores are promoted through Google’s Froogle shopping engine, and eBay spends about $250 million per year advertising with Google’s AdSense program to increase traffic, according to analyst Sterling.

eBay offers an email marketing program for contacting registered users. Power Seller McGrath says he increased the traffic to his website by including links in a newsletter that has 35,000 subscribers. “It’s a great platform to reach international markets, as it is hard to promote a website overseas [through search marketing],” McGrath says.

Marketers looking to improve the performance of their products on eBay or to identify the valuable keywords to promote in search marketing can license data from the company, says Greg Isaacs, the manager of eBay’s developer program. Publishers “can determine fair market value of items that are for sale” by analyzing data about sales at a fixed price versus at auction, Isaacs says, but eBay does not license personal data about its registered users.

To capitalize on the potential of the wildly popular social networking phenomenon, eBay recently launched two of its own Web 2.0 services. During the eBay Live users conference in June, the company unveiled Member Blogs, which enables members to promote their products and stores. Bloggers can expand their social network through posts in which they are not restricted from promoting and linking to their websites. The company automatically creates RSS feeds of the blogs to facilitate syndication and continually update readers.

Also announced at eBay Live was the eBay Wiki, a user-created encyclopedia of insider marketing tips and best practices for participating in the eBay economy, which publishers can use to showcase their marketing savvy.

“The next level [for eBay promotions] will be social commerce,” says Robb Hecht, a business blogger who publishes the Media 2.0 site. He says getting the blogosphere to build a community around the company and its products will be an important factor in maintaining eBay’s growth.

In addition to promoting themselves within the eBay cloister, marketers have a plethora of opportunities to generate revenue by promoting eBay commerce throughout the Web. Through advertising, integrating eBay listings and affiliates, marketers are spreading the gospel according to eBay and earning commissions.

An advertising system under development by eBay will enable publishers to generate commissions by referring users. AdContext, which competes with Google’s AdSense, searches the content of a Web page and automatically generates links to relevant eBay categories.

“Contextual advertising allows us to leverage content on any website, and connect it with any transaction [on our site],” says Lily Shen, a senior manager who oversees eBay’s affiliate program. Or, publishers can manually match their content with eBay keywords using software available to eBay affiliates.

Affiliates interested in AdContext sign up through network partner Commission Junction, according to Shen, who says affiliates are prohibited from using AdContext to link to their own eBay Stores. Commission payouts are tiered based both on the volume of new eBay users referred and the dollar amount of the winning bids that referring consumers make, says Shen. While referrals to eBay Marketplaces (including eBay Motors and eBay Express) are aggregated toward reaching the tiered goals, affiliate referrals to other eBay companies (such as PayPal, Half.com or Shopping.com) are not, Shen says.

Affiliates who promote other eBay companies receive separate revenue and traffic reports and must sign up for each program individually as every eBay property has its own commission structure, according to Lisa Riolo, senior vice president of business development at Commission Junction. Riolo says the addition of AdContext could help eBay to reach new publishers, although “there aren’t too many publishers who aren’t aware of eBay.”

Would-be publishers looking to create their own Web identity can use an eBay commerce and content tool. ProStores.com is an eBay subsidiary that offers an email marketing system for sending permission-based newsletters and promotions.

BUY DON’T BUILD

While eBay provides an extensive list of application programming interfaces (APIs) that publishers can access to integrate content into their websites, a growing number of third-party programs provide the shortest route to assimilating with eBay. The roster of eBay’s developers doubled last year to 30,000, according to eBay’s Isaacs. Applications developed by independent programmers generated 25 percent of the listings on eBay, he says.

Specialty retailers can boost their inventory by incorporating eBay Marketplace listings into their stores. For example, by customizing an eBay API, ticket reseller FatLens.com displays eBay items alongside tickets from other vendors, says president Siva Kumar.

While Amazon.com has more mature software, eBay’s technology is straightforward to use, and Kumar is impressed with the quality of the listings. “eBay has many long tail items like Civil War uniforms, things you can’t find in a regular store,” he says.

Advertising company Scope Aware recently introduced SmartyAds, a program for companies that want to participate in search engine marketing with the leading engines but do not want to manage multiple programs. Scope Aware acts as an agent, managing the campaigns for marketing eBay Auctions, eBay Store, and eBay Express listings across MSN, Google, Yahoo and Ask.com, according to founder Ali Gungor.

Scope Aware’s software “automatically analyzes goods for sales and comes up with the keywords to buy,” says Gungor, who charges a setup fee and percentage of the value of the goods sold. SmartyAds creates the ad copy and suggests the language for landing pages, Gungor says. By acting as an agent and negotiating with the search engines, Scope Aware enables small advertisers to participate in paid search dominated by large companies, he says.

Even though eBay’s commerce business is more mature than search, the company and its partners continue to develop new services for marketing and selling products. But maintaining that growth in the face of competition from Google, which is just beginning to exploit commerce, and Amazon, which is adding content to its retail properties, will be a challenge according to analyst Sterling. “It’s unclear how broadly eBay can expand.”

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

Domain Reign

Domains are the undeveloped land on which e-commerce properties are built and like real estate, it’s about location, location, location.

Gary Kremen is driving along I-5 in San Diego. He’s talking on his cell phone and sounds like he’s just had a pot of coffee he talks fast and furiously. Kremen is not from Southern California, but he seems to relish his newfound role as alien resident, an East Coast boy playing the part of the laid-back, easygoing renegade entrepreneur.

“I’m even more of a disgrace here than the Heaven’s Gate cult was,” proclaims Kremen, who is living in a mansion in the tony enclave of Rancho Santa Fe, a neighborhood known for its wealthy residents, in a six-bedroom, Spanish-style spread that he received as a result of a court ruling.

He may be a disgrace, but divine grace smiled on him when the court gave Kremen the beautiful property, a luxurious villa once occupied by Stephen Michael Cohen, a con man who forged documents in order to take away Kremen’s money-making cyber-property – that of the domain Sex.com. Cohen now owes Kremen $65 million and is out of the country and on the lam. But Kremen is still hopeful he’ll recover some of what he’s owed. Even if he doesn’t, he’ll be OK – in addition to the real estate, he had another windfall earlier this year, when the Sex.com domain sold for a cool $13 million.

Kremen’s experience was a harrowing ordeal; he paid investigators to track Cohen’s whereabouts and he endured long-fought battles in court. But Kremen’s experience is also an object lesson in how trading in the domain-name space can prove lucrative. The stakes are high, and counting on fortunes to be made isn’t a sure bet. It takes a tough constitution to weather the ups and downs of playing the domain-name game.

Luck

Kremen says that when he originally registered names (in the mid-90s), he snapped up Jobs.com, Housing.com and Autos.com. He also bought a site you may have heard of – Match.com. He paid $2,500 for Match.com; when he left Match.com, his payday was in the tens of thousands. (He was asked to leave because he refused to sell Match.com to Cendant for $7 million; after he left, the sale went through and Cendant later sold the name for $50 million.)

Fresh out of business school, Kremen thought the domain game was fun. On a lark, he bought Sex.com. Then he largely forgot about the site and focused on other pursuits.

But Cohen noticed the domain, and forged documents to take advantage of the cyber real estate. Kremen got lucky and found out that Cohen had fleeced his way into Sex.com. Kremen wrested back control of the site in 2001; Cohen had bilked so many others that Kremen had other litigants to back him up.

Even before selling Sex.com for millions, Kremen made a mint; it’s been reported that ad revenue for Sex.com was bringing in $8 million a year, a nexus of adult-entertainment websites offering products and services. His story shows that marketing geniuses can clean up if they know what they’re doing in the domain space, even if they don’t own domains with as flashy a name as Sex.com.

Easy Street

Plenty of other domainers are laughing all the way to the bank. Mike Bahlitzanakis sold Cellphones.com for $4.2 million in cash, a domain he paid $90 for in 1996. And others are profiting from the fact that today’s technology makes it easy to set up a revenue stream. According to Ron Jackson, publisher of DNJournal.com, “It’s such an easy process. In two minutes, I can set up a thousand domain names. I know quite a few guys making over a million dollars a year from advertising on their domains. It’s like a 24-hour money-printing machine.”

And it seems like easy money. With operations like GoDaddy offering a domain name – and a potential chance at untold riches – for less than seven bucks, the allure is rather appealing. It’s like playing the lottery; in this case, pick the right name, wait the right amount of time, play your cards right, utilize the name wisely or sell to the highest bidder and boom, you’re a winner.

Ad Dollars

Domainers, as they call themselves, are living as if it’s the dot-com heyday all over again. In the ’90s it was all about buying a name and then selling it to some sucker for a mint. Some domainers still approach it that way. But now, many prospectors are buying names in order to cash in on the riches that are freely flowing into online advertising.

Various winners view the idea of using their domain names wisely in different ways. Take Dan Warner, the COO of Fabulous.com and Dark Blue Sea Limited in Australia. His companies own thousands of websites and manage another 500,000 for other people. According to Warner, 4 million websites are owned by only a few hundred professional domain owners: “These domains attract $750 million in search advertising spend each year, and are actively traded as real estate.”

People are snagging scads of domains, like DigitalCameras.com, for example, and loading them with pay-per-click advertisements using services from Google and Yahoo. If you happen to visit one of these sites, you might see a review or two but you’re certain to be overloaded with text ads for products or services related to the domain name.

News of a New Boom

Pay-per-click advertising is prompting increases in the number of domain-name sales and the dollar value of deals. The space is red hot, and recent news underlines this fact. GoDaddy, with a $250 million market cap, has been reported to be going public. eNom merged with eHow and was bought by Demand, run by a former MySpace exec.

Cambridge, Mass.-based Sedo managed the sale of $17 million worth of domains in the first 10 months of 2005, up from $8 million in the same period in 2004 and $3.1 million three years ago. Domain sellers pay Sedo a 10 percent commission. Afternic Inc., of Orlando, Fla., brokered the sale of $5 million of domains last year. In 2004, the firm managed the sale of $2.2 million of domains, and in 2003 it did less than $1 million. Its standard commission is also 10 percent.

The domain-name market is also attracting new investors. It used to be for Internet entrepreneurs only, but now public companies and venture capitalists want a piece of the action. Domain aggregator Internet REIT is raising $250 million to buy domains, because Web addresses can be long-term investments that provide a steady stream of revenue.

Sedo managed the sale of Website.com for $750,000 this year, and according to Matt Bentley, CEO of Sedo, the business is shifting: “The fact that it is moving from individuals to larger corporations ” represents a legitimization of the domain-name industry.” For years, many in the industry had a bad rep for “cyber squatting,” registering names associated with famous brands in hopes of selling them to a big company at a hefty price, which fueled trademark legal feuds. But now that there are legitimate domainers and not just squatters, that is changing.

Personalities

Rick Schwartz is another prominent name in the business. He owns thousands of names (some are in the “adult” category and some are not). It has been reported that he wears a $65,000 Rolex on his left wrist and lives in a waterfront house in Boca Raton. Other people have invested in smart names – Candy.com, CellPhones.com, AthletesFoot.com – and can bring in hundreds of dollars a day, while the owner does little work to bring home the bacon.

Schwartz, for instance, directs his traffic to one of the many small companies that serve as go-betweens with Google and Yahoo, the two behemoths that have revolutionized online advertising and marketing. The middlemen aggregators do the major work, creating the sites, buying keywords and tapping into one or the other of the search engines’ advertising networks to add the best-paying links. Some other big domainers cut out the middlemen completely and work directly with the search giants themselves.

A Domain by Any Other Name

So what’s in a name? “Domains are the undeveloped land on which e-commerce properties are built, and like real estate, it’s about location, location, location,” says Dark Blue Sea’s Warner. “They can be bought, sold or leased and there is a limited amount of valuable property.”

While many Web-address purchases are motivated by investors looking to earn money from ads, some aren’t. Last summer, the owner of Dog.com bought Fish.com for $1 million. The buyer plans to grow an online pet supply store.

Pets United CEO Alex Tabibi wanted to expand his firm’s list of pet-related domains, which include Horse.com and Bird.com. He says the new site will sell fish food, fish tanks and accessories.

Pets United LLC, parent of Dog.com, acquired Fish.com from Dan Farmer, a tech exec. Afternic Inc. brokered the deal. Farmer, CTO and founder of computer security firm Elemental Security Inc., bought Fish.com in the early ’90s and used it for a personal website. He had multiple offers for the domain over the years. “I glibly decided that if anyone offered me a million dollars that I’d sell,” he told the Wall Street Journal. He said he used the after-tax proceeds to pay off the mortgage on his condo and “gave a bunch to charity.”

Large Portfolios

Several firms have quickly amassed huge portfolios of thousands of domains. A single site may get relatively little traffic, but aggregators aim to earn enough ad income across their network of sites to cover the expense of buying existing domains and registering new ones.

Houston-based Internet REIT, launched last year, has quickly acquired tens of thousands of domains, including MutualFunds.com. The company’s lead investor is Jacobson Family Investments Inc., an investment vehicle for a wealthy New York family.

Internet REIT’s president and cofounder Marc Ostrofsky purchased Business.com in 1995 for $150,000, and sold it four years later for $7.5 million. He also had the smarts to snap up Bachelor.com and Consulting.com. Internet REIT takes its name from real estate investment trust, a legal term for a company that buys, sells and operates properties. CEO Bob Martin compares it to owning and developing real estate: “Rather than having a speculative approach to what a domain name could be worth, you can now generate cash flow from these assets and value them like securities.”

Internet REIT wants to buy domains from hobbyists and retain them, rather than resell them. It uses “Google AdSense for domains,” a variation on Google’s popular search-ad network. Owners of large numbers of domains, those that generate more than 750,000 page views a month, get ads for their sites. The companies and Google share the revenue.

Other big domain buyers are looking to make money with pay-per-click ads without ruling out the possibility of selling their domains to other businesses. BuyDomains Holdings has 500,000 domains, like JobFinder.com and TravelChoices.com. Highland Capital Partners Inc., a venture capital firm in Lexington, Mass., bought a stake in the closely held company, which has advertising- oriented domains in 90 “verticals,” including travel, music and finance.

Marchex wants its portfolio of 200,000 domains to become destination sites filled with relevant content, but the sites mostly sport ads right now. The company paid $164 million to get domains such as Debts.com and Camcorders.com. Ad revenue from Marchex’s direct navigation sites totaled $7.7 million in the third quarter, up from $6.4 million in the second quarter.

The Future

The enormous growth means new businesses. A handful of companies now sell “domain parking” services. You can pay a parking service to create a page filled with pay-per-click ads so you draw revenue, which is distributed among the domain owner, the parking company and the advertising broker, like Google or Kanoodle.

The surge in online ads is also contributing to a big increase in the number of registered Web addresses. VeriSign estimates that about 10 percent of all .com and .net domains being registered are created to host pay-per-click advertising. The risks? Consumers could hate being deluged by ads and advertisers could shy away if the backlash gets too great.

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for Brandweek, the Industry Standard, HotWired and Wired News. She lives in San Francisco.

Full Steam Ahead: Q & A with Chris Henger

Performics’ new VP of affiliate marketing claims the industry is still growing and is fueled by performance-based marketing.

Earlier this year Chris Henger, a veteran of affiliate network Performics since 2002, took the helm of the company’s affiliate marketing business unit. As vice president, affiliate marketing, Henger is charged with representing publisher interests to advertisers, a role he takes very seriously. In his former position as senior vice president of marketing and development with Performics, Henger dealt with affiliate issues from a different and broader perspective. Prior to joining Performics he was senior vice president/general manager at Emusic.com, which was acquired by Vivendi Universal. Revenue editor-in-chief Lisa Picarille spoke with Henger about his new role at Performics, some short-term goals for the Chicago-based affiliate network and where the online marketing space is headed.

Lisa Picarille: You recently took on some additional responsibilities; can you outline your new duties?
Chris Henger: Running our affiliate business unit for Performics is a responsibility that I took on with great enthusiasm. I am passionate about this industry and about Performics’ opportunity to take it to the next level. I represent the affiliate business within DoubleClick’s management team and manage a talented team of affiliate marketing professionals. In my role I am responsible for the growth and prosperity of our affiliate operations and that means making sure clients are satisfied and that publishers are productive and well-compensated. The possibilities for improved publisher productivity are endless and that is an area that receives a great deal of my attention and Performics’ resources.

LP: That sort of makes you the face of Performics, at least for affiliates. That can be a tough position with some very vocal critics. Talk about how you plan to interact with the affiliate community.
CH:
I am proud to take on the responsibility of Performics’ leadership for the affiliate community. I am active at industry events like Ad:Tech and Affiliate Summit and I am always looking for ways to have more direct contact with publishers. We recently established a Publisher Advisory Board and this group has already proven to be an honest and insightful sounding board for ideas. I also represent our publisher interests to our advertiser clients. It is important that they understand the implications of the decisions they make, and I spend a lot of time talking to advertisers about publishers. There are tough critics in our industry but they have good ideas and the key is to absorb the feedback and use it to make sound decisions.

LP: Do you have mechanisms in place for addressing negative comments and effecting change?
CH:
Monitoring and addressing comments are a shared responsibility at Performics. The affiliate marketing director keeps careful track of the media, blogs and other forums, and the product manager is active in the community. Our publisher services team fields inquiries from publishers and they are the first line of support to quickly address comments and effect change on behalf of our publishers. I meet with these teams on a regular basis to anticipate changes we need to make. We also have an internal blog that we rely on to get the word out to the program managers if there is a particular issue or change in the marketplace that needs attention.

LP: What are some of the goals you have for Performics in the next 12 months?
CH:
The next 12 months are going to be very exciting for Performics. We have an aggressive growth plan in place and a lot of innovation coming with our product road map. Personally it is my goal to ensure that our employees continue to feel good about what we are building and I want to deliver the message to our publishers that I care about their needs and about growing their businesses. Actions speak louder than words. We are a heads-down team that is always striving to do right by our employees, advertisers and publishers.

LP: Performics recently announced it is providing network-level data for advertisers in the ConnectCommerceSM interface. What other functionality is planned?
CH:
Performics is committed to continuous improvement and we have an aggressive product development road map for the next 12 months. One significant feature in development has been in beta with a small group of about 25 publishers for several months. The product feature, now called OrangeLinks, was integrated into our ConnectCommerce platform in June. This feature enables publishers to sign up to receive all updated links via email or FTP and eventually via RSS. The links are pre-generated and ready to be added to the publisher’s site. We saw a phenomenal increase in sales from the beta group, and other publishers should be able to increase their commissions with OrangeLinks.
Another important feature that will be released this summer is the availability of publisher contact information within ConnectCommerce. Performics and DoubleClick have recently adopted a new product development methodology called SCRUM. With this methodology in place we are working on short “sprints” to accomplish bite-sized feature improvements or components of larger enhancements. We have dramatically reduced the development cycle and improved deliverability. You are going to see seven or eight small releases a year, instead of one or two large releases.

LP: Why does Performics work with so many catalog retailers?
CH:
We do have a very strong catalog client base that goes back to Performics’ roots as the first full-service affiliate provider. When the company was founded in 1998, the vision was to fill a gap in the marketplace for affiliate marketing services. Traditional direct marketers didn’t have the in-house expertise to tap what was the wild world of online marketing in the late nineties. The full-service value proposition really resonated with catalogers in the late ’90s, and the unique agency approach we take to affiliate marketing still resonates today.
Performics is also headquartered in Chicago, the birthplace of direct marketing and the home of large traditional catalogers like Sears and Spiegel. As a matter of fact, Spiegel was one of Performics’ original clients and we continue to manage the affiliate program with the new management at Spiegel. The other aspect is that affiliate marketing is nirvana for a direct marketer; catalogers “get it.” They really understand the power of performance- based marketing. Because of our roots in direct marketing we are pushing the envelope for catalogers today and helping them understand the dynamics of multichannel marketing.

LP: I know that Performics doesn’t accept affiliates from religious-related organizations; why?
CH:
Performics has a comprehensive, quality affiliate network and we ensure that quality through editorial review. Just like major search engines, we have human screening of all affiliate applications and we have to provide that group of screeners with a set of criteria. To date, we have not allowed applications for sites with religious content and the policy is meant to minimize subjectivity from our editorial review process. Performics’ policy is not to allow sites that are focused on a particular faith. We don’t want our staff to have to make a judgment on whether or not a site with content from one faith or another is appropriate for advertisers. Recently I have seen some church-specific sites that are doing some very interesting things with affiliate links and using the commissions as a fundraising effort. This is certainly an example of innovation and we are willing to reconsider the policy.

LP: Are there any other types of affiliates that you don’t accept, and why?
CH:
Yes, we do screen each application and there are many, actually thousands of applications that we reject each month. The most common reason we have to reject an application is that the publisher’s website is not available for review. But upon review of the site we do have criteria about content that we evaluate. The policy is posted on our website and available to any affiliate:
Websites or publishers engaging in online activity that contains, promotes or has links to any one of the following will not be accepted into the network:

  • Pornographic, obscene or offensive content
  • Violence or hate-oriented speech
  • Extensive religious commentary or attempts to preach or solicit members for a particular church or faith
  • Gambling
  • Libel or defamation
  • Illegal substances
  • Unsolicited commercial email (spam) or trademark infringement
  • Any type of misleading, fraudulent or illegal activity

LP: Are there segments you believe are ripe for affiliate expansion?
CH:
Blogs are certainly one segment that we expect to drive increasing volume. In recent years the affiliate channel has moved heavily toward commerce-driven sites. Coupons, discounts and shopping-related publishers garner a substantial chunk of sales volume and we have seen phenomenal growth from loyalty and reward sites. We’ll continue to see the bulk of the volume come from those categories. Publishers in those categories have grown increasingly sophisticated and many consumers have come to rely on shopping-related affiliates as an intermediary, as they are perceived to add value to the transaction chain. As for new expansion, we are likely going to see affiliate marketing go back to its roots and witness growth in the area of content. AdSense and programs like it are geared toward content- driven sites, and a lot of people talk about small publishers monetizing content as if it’s a new initiative. Monetizing content is what affiliate marketing is all about and that segment is ripe for expansion.

LP: You have a deep background in online music and music-related businesses. Are there any initiatives at Performics related to online music merchants or affiliates?
CH:
I often rely on my experience in the early days of interactive marketing. Our business model back then is not far removed from effective affiliate marketing – build a loyal audience of consumers and at the same time attract advertisers that wish to engage those consumers with products and services. There was no question the promise of digital music was going to drastically change music distribution; the question was when. One of the core things that was lacking was a ubiquitous device, and obviously the iPod has solved that, and now the companies in the online music business are flourishing. A lesson I learned was it is critically important to stay focused around the core value proposition you provide your customer. This certainly applies to how we manage at Performics, as we stay focused on our two core businesses: affiliate marketing and search marketing.

LP: You attended the MSN Strategic Account Summit recently. What was the most important message you took away from that event?
CH:
One of the underlying messages I took from the event was the importance of having aspirations and high standards. Creating an environment where people are held accountable for high performance often has a multiplier effect on the satisfaction they derive. At the end of the day, people want to feel they are contributors to the overall success of the business – that what they do day in and day out matters. I want to surround myself with the very best people, and share in our collective successes. I jotted down this quote, which rings especially true at Performics: “You strive to create excited, high-energy environments, but not exhausted ones.” In today’s fast-paced marketplace, it’s easy to get exhausted.
You need to have a definition of success so that when you get there it will be meaningful to reflect on the accomplishment. These types of moments are often understated because really, who has the time to laud achievement? The MSN Strategic Account Summit represented one of those instances. I left the event proud in the knowledge that Performics was out in front as the only SEM to share the stage with Steve Ballmer.

LP: Is Performics looking to leverage a more strategic relationship with MSN?
CH:
Our long-standing relationship with MSN is certainly an asset that we value. We have been optimizing data feeds for MSN Shopping for years, and were the first to adopt the MSN adCenter API for Search. We work very closely with MSN, and strongly believe there are many opportunities for advertisers within that platform.

LP: Can you give us an idea of just what role search plays at Performics?
CH:
Search plays a critical role at Performics and within DoubleClick. Performics was a pioneer in search engine marketing and among the first to realize the power of paid search. We are the leading SEM globally, and have a thriving natural search optimization practice. The affiliate and search channels are inextricably linked for Performics – affiliates use search to drive traffic, and we share many cross-channel clients. And more importantly for our advertisers, the Performics business model aligns our interests with our advertisers. A consumer who transacts with our advertiser through either channel benefits the Performics business model, whereas this is a differentiator between us and other affiliate providers.

LP: Is the reign of the “Big Three” (CJ, LinkShare and Performics) over?
CH:
Absolutely not. Performics and our two industry peers are still growing by leaps and bounds. While there will always be changing dynamics in the marketplace, our target clients – retailers – are going to continue to look for affiliate marketing solutions. Multichannel marketers and other advertisers need a proven solution, a comprehensive network and reliable technology, which is core to the Performics offering.

LP: What is the biggest competitive threat to Performics’ business?
CH:
We stay competitive by thoughtfully thinking and planning for the future. We recently completed an extensive three-year strategic planning process across Performics and DoubleClick. There is a very clear plan and set of priorities that the entire company shares on where we want to drive our business. Ultimately, business comes down to customer loyalty. If a company loses sight of the needs and wants of its customers, then it opens the door. We are fanatically focused on servicing the needs of our customers. Through strategic leadership, proactive service and sustained innovation we control our own destiny in creating loyalty with our customers.

LP: Talk about where ad networks and subnetworks fit in the performance marketing landscape and how they impact Performics.
CH:
Ad networks sure are plentiful nowadays. They can provide value in increasing reach through one media buy, and most campaigns are on a performance-based pricing model which has similarities to affiliate marketing as well. In some cases we work with ad networks for select clients, and in other cases we produce leads for our customers directly through our affiliate network.

LP: How important is it for leaders in the online marketing space to be global companies?
CH:
The Internet is a global medium and the barriers between nations, languages and communities are virtually invisible. DoubleClick is the world leader in online advertising solutions and that provides tremendous insight for our clients and employees. We are working to improve our interactions and payment processes for international affiliates because that segment is increasingly important.

LP: What are Performics’ global plans?
CH:
We have an office in London that predates our integration with DoubleClick and we now have 21 offices around the world. We will certainly use that foundation as a platform for further expansion. Currently we license our affiliate marketing technology platform internationally but do not have plans to set up affiliate networks in other markets. Never say never, but we have a huge growth opportunity in the U.S. and that’s where we are concentrating today.

LP: Give me an idea of what you think the performance marketing space will look like in three years.
CH:
It is going to look even better than it does today – more growth, new and different distribution and better data across the performance-based channels. In the next three years we as an industry will have answers to many of the questions we face today. I think there will be a recognized distinction between adware and spyware. We are going to have an industry-wide resolution of ad blocking. I think we’ll see more sophisticated compensation for publishers that are tied directly to delivering on advertiser goals. We are going to have a larger pool of talent to expand with because the industry will be further developed. Performance-based marketing is a key driver in the evolution of online advertising and in three years we’ll see an industry that is taking a larger piece of the overall media pie.

Summer Reading Extravaganza

Forget about what Oprah’s recommending. Put away the latest from Philip Roth and that potboiler from James Patterson. It’s summertime and what’s really sizzling is online marketing. So, now’s the time to catch up on your reading about a variety of hot topics including affiliate marketing, performance marketing, online advertising, search optimization and more. And there’s no shortage of choices. Heck, there are currently more than 200 books for sale on Amazon with the word Google in the title. Here are some books that sound like great reading for the beach, the vacation home or the patio. Don’t forget the sunblock.

Buzz Marketing with Blogs for Dummies


Susannah Gardner (For Dummies) | 360 pages | $24.99


Another entry in the popular and wildly useful “for dummies” series, this one’s specifically on how to get blogs to do the buzz marketing for you. As we all know by now blogs have become an essential part of selling on the Web and this volume helps you get your head around the blog space – such as what a blog is going to do for your product, how it can change the way people think of your product and how the exchange of ideas that is essential to blogging can help you sell.

Newbies also get a pretty good tutorial on blogs – how to set them up, maintain them and what you should say on them. The book also covers, to a lesser degree, the legal issues, design for a better- looking blog and how to get your blog noticed.

Farce to Force:
Building Pro E-Commerce Strategies


Sarah McCue (South-Western Educational Pub) | 240 pages | $27.95


Need an e-commerce strategy? McCue walks you through the best ways to formulate a strategy and even gives you some useful templates to overlay your business model on. She outlines marketing techniques that work well and how to build programs from the ground up. Although the title is a little jokey, the author is well-versed in online marketing.

Go BIG or Go HOME


Wil Schroter (Go BIG Media) | 276 pages | $24.95


Serial entrepreneur Schroter takes a look behind the veil at companies such as Google, Skype and PayPal. He examines what these companies are doing right and what they haven’t done. Having launched nine start-ups makes him a kind of perfect spokesperson for entrepreneurship. He is currently CEO of SwapAlease.com, an auto-leasing marketplace. The companies he started include Blue Diesel, an interactive marketing agency; Kelltech Internet Services, a technology consultancy; and Atomica, a nonprofit arts organization.

Google Advertising Tools:
Cashing in with AdSense, AdWords, and the Google APIs


Harold Davis (O’Reilly Media, Inc.) | 366 Pages | $29.99


Like “Winning Results with Google AdWords” this O’Reilly book takes a stab at making sense (and dollars) from Google’s AdWords. Davis talks about the different associate programs in addition to Google, which provides great context. Topics include how to read AdSense metrics, managing AdWords campaigns, as well as hints on optimization.

Google’s PageRank and Beyond:
The Science of Search Engine Rankings


Amy N. Langville, Carl D. Meyer (Princeton University Press) | 234 pages | $35


This provides a different take on the search dilemma by answering the questions about what goes on behind the Google curtain. This book won’t tell you how to optimize or raise your rankings but will tell you the technical aspects of search. This can be valuable to the geek in us all. The author covers: How do those other Web pages that don’t have your name in them always appear at the top? What creates these powerful rankings?

The reason this book is even on this list is that the early chapters are very accessible and it is only in the later chapters that the hard, mathematical, geeky stuff is discussed. Even so, the authors say there is something for the hardcore audience and the casual one.

Internet Marketing and e-Commerce


Ward Hanson (South-Western College Pub) | 496 pages | $113.95


Even though this is written by an academic, expect ?reworks. “Rigor instead of hype” is how the book wants to be known, illustrating practices that leading companies use, showing how research results can be used to support conclusions and, of course, pointing out the unique qualities of online marketing.

No one is shortchanged here. Hanson looks at Internet marketing from the point of view of large and small business and online startups. It’s a great study in the balance of power that is even now continuing to shift in retail markets as the Web gets more powerful.

The Irresistible Offer:
How to Sell Your Product or Service in 3 Seconds or Less


Mark Joyner (Wiley) | 240 pages | $21.95


Using examples of companies such as FedEx, Columbia House Records and Domino’s Pizza, Joyner explains how to create an “irresistible offer.” As the former CEO of Aesop Marketing Corp., he has seen what kind of marketing works from the trenches. He uses real case studies to make it easy to apply it to your own business. The book is a kind of how-to that shows you how to manipulate your offer so that customers find it more attractive.

Maximum Marketing, Minimum Dollars: The Top 50 Ways to Grow Your Small Business


Kim T. Gordon (Kaplan Business) | 240 pages | $18.95


While not specifically about Internet marketing, any small-business owner can learn from someone on staff at Entrepreneur magazine. Among Gordon’s advice is how to stay on budget but still use expensive-looking marketing; how to tell which niches are right for you; and how to use technology (email lists, websites, etc.) and traditional marketing venues (trade papers, radio, TV, etc.).

Online Marketing that Works!


Catherine Seda (McGraw-Hill) | 256 pages | $21.95


This book hits the shelves on August 1, 2006 and exuberantly wants to introduce you to “cutting- edge Internet technologies” that mean low-cost, high-performance marketing opportunities for ventures of any size. Seda points out the effective online marketing strategies and shows how to get results for little or no cost. Seda has her own marketing consulting firm and is also the author of Search Engine Advertising

Pay-Per-Click Search Engine Marketing Handbook: Low Cost Strategies to Attracting New Customers
Using Google, Yahoo & Other Search Engines


Boris Mordkovich, Eugene Mordkovich (Lulu Press) | 196 pages | $22.95


The mouthful of a title pretty much says it all. This book attempts to crack open the genie’s bottle on getting new customers through search, and illustrates just how it can be done at a cost of only pennies to you. Along the way the book outlines basic concepts, like how pay-per-click works and why it is effective. It also has some advice on how to design a campaign, how to determine what works and how to maximize your return on investment. It also tells you about must-do’s such as get- ting listed on thousands of websites without paying a penny, targeting a specific local area through search engines and how to prevent click fraud.

The book also offers reviews of over 20 search engines, and includes tips on how to get the most out of each one. Experts in the industry also weigh in with their advice on how you can improve your search engine advertising efforts.

Put Your Business Online: How to create and promote a successful, low-cost Website


Al Kernek (Lulu Press) | 172 pages | $19.95


This book is truly for the newbie who wants to get all the nuts and bolts in one place. What you get is everything you need to know in a step-by-step structure designed to leave you at the end of the day with “a low-cost website and some affordable traffic generators that target your specific audience.” This book is written in very straightforward language and is not overloaded with “tech talk.” The “real world” tips and information can also help those who already have a Web presence.

High Performance Affiliate Marketing


by Jeremy Palmer | $49.95


This e-book is unique because the author – a 2005 Commission Junction Horizon Award Winner – updates it constantly. He covers how to find profitable products and services to promote; strategies for keywords; rankings secrets; and how to spend less money for the most traffic. In addition to the e-book, you get access to an exclusive members’ area with original content. He says all over the website that he made more than $1 million in commissions last year, so he must be doing something right.

search analytics: A Guide to Analyzing and Optimizing Website Search Engines


Hurol Inan (BookSurge Publishing) | 56 pages | $19.99


For those of you who plan a very short beach vacation, this lean and mean e-book can probably be read in just a couple of hours. It “explains how and why people search, provides detailed guidelines on analyzing the behavior of search users, and offers valuable search-related marketing insights.” The author interviewed many industry experts and website managers and presents detailed metrics and the required tools to get you started.

Search Engine Marketing, Inc.: Driving Search Traffic to Your Company’s Web Site


Mike Moran, Bill Hunt (IBM Press) | 592 pages | $49.99


This heavy tome has just about everything to do with search marketing in it. There are chapters on how search engines work, developing your search marketing program, measuring your website’s success, defining your search market strategy, how to get your site indexed, choosing keywords, how to attract links to your site and other must-have/must-know stuff. In addition, the book tells you about what people are looking for when they search, how best to sell to the kinds of visitors you’ll get and what to avoid in the way of questionable methods to get better rankings.

Search Marketing Strategies:
A Marketer’s Guide to Objective-Driven Success from Search Engines


James Colborn (Butterworth-Heinemann) | 208 pages | $37.95


Concentrating on the strategic and not the procedural approach, this book goes through all the search standbys: paid search, site side optimization and analytics. Then it talks about branding, sales and customer acquisition. The focus is on marketing strategy and not just on optimization.

Winning Results with Google AdWords


Andrew Goodman (McGraw-Hill Osborne Media) | 376 pages | $24.99


This is a title that should really get most readers’ hearts pounding. Goodman outlines some great strategies for “writing successful ads, selecting and grouping specific keywords, increasing conversion rates and maximizing online sales.” He goes over advice such as “ways to expand ad distribution, why testing ad effectiveness is crucial and how to effectively track results.” Goodman is founder of Page Zero Media, provider of search engine marketing services and strategic advice to companies seeking an online presence. He also co-founded Traffick.com.