Winning With Authority

It’s all good – from online advertising being up 25 percent, according to the IAB; to online commerce on the rise 23 percent, according to comScore; to Google search queries that are up 41 percent, per Nielsen//NetRatings. It’s clear that online marketing grew strongly through the first three quarters of 2007.

However, as industries grow, so does the attention paid by state and federal legislators, regulatory bodies and enforcement agencies. From the Federal Trade Commission (FTC), to Congress, to state attorneys general, to the courts, those empowered to oversee online marketing took a more active role in 2007. While the focus was more on enforcing existing laws to protect privacy and eliminate fraud than expanding authority, the active deliberations over the government’s role in guiding online marketing indicate that more rules could be on the way. Here is a rundown of the key governmental activities and what they mean to your future.

Targeting the Targeters

Behavioral targeting, which delivers relevant ads based on consumer interests as determined by prior online activities, is growing in popularity with online marketers, but privacy advocates are calling for government intervention. Marketers’ ability to more closely track – and share – information about likes and purchases will likely lead to a showdown in the courts or the halls of Congress.

Privacy groups prompted the FTC – for the first time in seven years – to hold a “town hall meeting” to discuss behavioral targeting and consumer protection. More than a dozen privacy groups either spoke at the November event or issued statements calling for greater FTC oversight of behavioral targeting.

Pam Dixon, executive director of the World Privacy Forum (WPF), says more government intervention is needed because the industry has been unwilling to self-regulate, and because it must be made simpler for individuals to prevent their online activities from being tracked. “The oversight has not been there,” Dixon says.

Opting out of cookie tracking through a Web browser doesn’t guard against other technologies used in tracking, Dixon notes. The current system for allowing consumers to opt out of being tracked isn’t working. Her organization issued a report criticizing the National Advertising Initiative (NAI) – a group that was formed after the last FTC meeting on targeting – as ineffectual because technology has far surpassed its requirements.

NAI has been criticized because of a lack of publicity and public awareness, and because many marketing organizations have not joined the voluntary effort. Advertising.com, DoubleClick.com, Revenue Science.com and Yahoo are current NAI members, and Microsoft and Google submitted applications to join late in 2007.

Dixon says technologies such as Flash and Microsoft’s Silverlight have grown well beyond the narrow definition of tracking by cookies as originally set up by the NAI. Deleting cookies and configuring a browser to protect against tracking are too cumbersome for most consumers, she says. According to the WPF report ” … the opt-out is counterintuitive, difficult to accomplish, easily deleted by consumers, and easily circumvented.”

The WPF and eight other organizations are calling for the FTC to set up a national “Do Not Track” list, where consumers could opt out of being tracked. The proposed system would require marketers to comply regardless of the technology being used. “It has to be a one-stop shop for consumers … they should not have to opt out individually to different types of ads,” according to Dixon.

Alissa Cooper, policy analyst at the nonprofit Center for Democracy and Technology, which joined in the request for a Do Not Track list, says legislative action might also be necessary to create and enforce the list. To make consumers more aware of how they are being tracked, Cooper suggests making the privacy controls in Web browsers more accessible to consumers, and to code information into the ads themselves about the tracking techniques. For example, right-clicking on an ad could provide details about the tracking mechanism and how to opt out, she says.

Cooper says marketers have a “tremendous amount of interest in behavioral targeting,” but “it remains to be seen if the cost of building behavioral programs is worth it in the end.”

Just days after the FTC meeting took place, the Center for Digital Democracy and the U.S. Public Interest Research Group filed a complaint with the FTC asking for more involvement in regulating behavioral marketing activities. New marketing technologies “have sharpened the precision with which Internet users are tracked and targeted,” including “schemes on the part of both Facebook and MySpace, that make clear the advertising industry’s intentions to move full-speed ahead without regard to ensuring consumers are protected,” according to a letter from the groups to the FTC.

Mike Zaneis, the vice president of public policy for the Interactive Advertising Bureau, says a Do Not Track list is unnecessary and would be overly complicated to administer. Zaneis says the online marketing industry is “in near unanimity in opposition,” to the government overseeing a Do Not Track website.

Government-imposed protections could “block large swathes of the Internet,” Zaneis says. Sites that personalize e-commerce options or that customize content might be blacklisted under such a system.

What Consumers Want

Unlike the Do Not Call list, which was set up by the government because of frustrations with telemarketers, Zaneis says there is “not the same outcry from consumers.” Research conducted by the IAB indicates that consumers would be willing to pay to receive more relevant ads, according to Zaneis.

One member of the U.S. House of Representatives believes more oversight is needed. Representative Edward J. Markey, a democrat from Massachusetts, urged the Federal Trade Commission to look into targeting practices. “The Federal Trade Commission should promptly investigate the privacy impacts of Internet tracking and targeting techniques to ensure that loss of privacy is not the price consumers must pay to realize the benefits of online commerce,” according to a statement by Markey.

IAB’s Zaneis believes that Congress should not draft new privacy laws, as the FTC currently has sufficient authority to enforce existing laws. “The FTC has enough precedent … in defining the rules of the road.”

Within days of the FTC meeting, social networks Facebook and MySpace unveiled plans for intertwining data about individuals and their purchases with online advertising that could prompt congressional action or litigation.

Facebook’s “Beacon” program was altered in December after an outcry from users. The program originally alerted all of a member’s online friends when a purchase, such as books, CDs or tickets, were made on a partner site. This feature was changed to an opt-in. Similarly, Facebook’s Social Ads puts ads for related products near member’s activities, such as when they rate or purchase music.

Some Facebook members have complained that delivering information to friends about purchases has interfered with gift giving, as significant others prematurely found out about holiday and birthday gifts.

Political action group MoveOn.org is using the social networking tools of Facebook to protest the behavioral program. MoveOn.org, which has successfully organized members to communicate en masse with their congressional representatives, has formed a Facebook group to petition the behavioral programs for what the group sees as an invasion of privacy.

Competing social network MySpace expanded its behavioral targeting program to search member pages for words indicating interest in specific categories (such as music or travel) and enables marketers to target the audience that will see its ads.

The European Union is also investigating behavioral targeting practices, and new rules there could ripple across to practices in the U.S. The Article 29 Working Party is considering whether culling data about buying habits and Web-surfing history violates consumer privacy. While U.S.-based sites may not be directly affected, changes in targeting policies could be enacted globally to provide consistent experience to consumers.

Government Becoming Adware-Aware

The FTC also clamped down on propagators of adware for failing to disclose the less-than-noble intentions of their software. In March, the FTC settled a case against software company DirectRevenue for using unfair and deceptive methods to get consumers to download adware and for obstructing its removal. As part of the agreement, DirectRevenue forfeited $1.5 million in “ill-gotten gains” from adware distribution and agreed to cease and desist from distributing same.

As part of the government’s increasing prosecution of adware peddlers, the FBI and the Department of Justice cracked down on a major distributor who was hijacking computers to generate spurious ad revenue. John Schiefer, a former security consultant, pleaded guilty in November to masterminding the installation of adware on 137,000 computers.

Schiefer installed the software onto a network of unwitting individuals’ PCs to create a botnet that generated ad revenue and also stole PayPal and bank account information. According to the U.S. Attorney’s office of central California, this was the first prosecution for using a botnet in violation of federal wiretapping laws. The software generated more than $19,000 in revenue from a Dutch advertising company, which had to be refunded as part of Schiefer’s plea bargain agreement.

Adware proponents were on the losing end of a significant court battle. In September, software distributor Zango (which the previous year settled an adware case with the FTC) was unsuccessful in arguments before a district court in Washington to prevent software tools company Kaspersky Lab from classifying Zango’s software as posing a potential risk to a person’s computer.

“Zango lost big,” says Ben Edelman, a spyware expert and assistant professor at Harvard Business School. Based on the ruling, Edelman says software tool vendors are “inherently protected” from liability in their efforts to protect consumers from adware, spyware and other malicious software.

Despite these prosecutions for distributing adware, deceptive advertising software is still abundant, according to Edelman. A suit filed in California in 2006 against Yahoo alleges that the search company distributed popups that were bundled with spyware software, generating allegedly bogus ads, says Edelman, who is co-counsel in the case. The ads were also placed on “parked” domains – websites created by scripts that did meet the criteria of quality content that Yahoo promised its advertisers. A trial date has not been set.

Congress Eyes Spyware Legislation

While legislators on Capitol Hill did not take action on many of the online marketing and privacy issues that were investigated by governmental agencies or decided in the courts in 2007, two competing anti-spyware bills passed the House of Representatives.

In May, the House passed the Internet Spyware Prevention Act of 2007, which focuses on providing funding to the Department of Justice for enforcing laws against spyware and the practice of phishing (fooling consumers into revealing personal data). Less than a month later, the Securely Protect Yourself Against Cyber Trespass Act (SPY ACT) was passed, which gives greater authority to the FTC to seek larger fines, and more broadly defines acts that surreptitiously collect personal information.

The IAB’s Zaneis says his organization supports the SPY ACT because it emphasizes greater enforcement of existing laws. The IAB testified in Congress against passage of the SPY ACT because it overemphasizes the requirement for consumer consent and could stifle innovation, according to Zaneis. He says that the Senate has not moved toward developing similar legislation to either House bill, and is unlikely to do so anytime soon.

Affiliate marketing expert and blogger Shawn Collins is wary of any spyware legislation that Congress would craft. “My fear is about some comprehensive anti-spyware law that includes harmless cookies,” Collins says. He is concerned about elected officials’ lack of knowledge of online marketing, worrying about laws “written by bureaucrats who never touch a computer.”

Spammers Put in the Can

No legislation or regulatory action in 2007 addressed the continuing problem of spam, but the existing laws are being enforced more vigorously. The CAN SPAM Act of 2003 was used in the prosecution of “Spam King” Robert Soloway, who was arrested in May for sending billions of spam emails. Also getting busted for spamming were Jeffrey Kilbride of Venice, Calif., and James Schaffer of Paradise Valley, Ariz., who will each spend more than five years in prison. The pair was sentenced in October for spamming AOL customers and others and was asked to return more than $1.1 million.

IAB’s Zaneis says he doesn’t expect any legislation in the near future regarding spam because the existing laws are sufficient. “The industry must keep doing what they are doing … now it’s an enforcement issue,” he says. The industry has “stepped up,” and an FTC spam summit meeting in July provided the necessary feedback about what was working and the latest authentication tools that could block spam, according to Zaneis.

Florida Takes on Lead Generation

An investigation into ringtone sales in Florida could affect affiliates’ lead generation practices across the country. Florida Attorney General Bill McCollum’s office’s investigation of “unfair and deceptive trade practices regarding online ringtone” sales by AzoogleAds resulted in a $1 million settlement from the company and an agreement to change the wording of its advertisements.

Ringtones previously described as free, though they required a monthly subscription fee, will have to include language describing the applicable fees, according to the agreement with AzoogleAds. Collins says that due to the lack of self-regulation among affiliates, “it was a positive for Florida to get involved.” Ideally affiliates would set up their own rules regarding lead generation practices, but Collins says no one in the industry has volunteered to fill that role.

The FTC is also investigating lead generation practices, with network ValueClick in its crosshairs. John Ardis, vice president of corporate strategy at ValueClick, says the FTC began looking into lead generation in the spring, but only ValueClick’s name was made known because it was the sole public company being investigated.

“Lead generation has become big enough in the last year for the FTC to review it, as it should,” according to Ardis. He says that the investigation has “put a cloud over lead generation,” but he hopes that the resulting clear rules from the FTC that will improve consumer confidence and allow lead generation to become “bigger and better.”

A Call to Action

Someone is hijacking your traffic and stealing your commissions. That someone might be a competing affiliate marketer, or worse, the merchant whose products you are promoting.

To my dismay, I discovered that traffic from one of my sites was being diverted when a friend sent me some screen captures of that site’s home page. The first screen shot showed my site open in a browser window with 80 percent of the page behind an AdultFriendFinder pop-up window – despite the fact that my site does not have a pop-up to AdultFriendFinder.com on the home page.

The main domain in the pop-up window’s address bar was AdultFriendFinder.com, but the affiliate ID was not my affiliate ID for AdultFriendFinder, or for any site within FriendFinder’s network.

A portion of the URL included my domain name (preceded by .sub), which clearly indicated interest in referrals from my site. However, this was not so FriendFinder could compensate me – their long-standing, loyal affiliate – for referrals from that page, but rather to ensure that its Zango advertising campaign was returning a good ROI. This fact was made apparent from the prominent white-on-blue banner splayed across the bottom of the pop-up window that read, “This ad served by Zango software downloaded by Zango.com. Click here to learn more.”

Enter Zango, a company formed by a merger of Hotbar and 180solutions in June 2006. During its incarnation as 180Solutions, the company was dropped as an affiliate by the major networks, including Commission Junction and LinkShare, for invalid activity (cookie stuffing, etc.). 180’s detrimental effects on affiliate commissions have been well-documented by anti-spyware expert Ben Edelman and others.

Zango’s current service works as follows. In exchange for access to free programs and tools, surfers are required to download the Zango Search Assistant. With the Search Assistant installed, Zango’s advertisers’ Web pages are popped open when certain keywords are detected in Internet search or browser windows.

Now enter Zango’s advertisers. If a domain address is listed in an advertiser’s campaign and a visitor to that site has the Zango Search Assistant installed on their computer, the advertiser’s window will pop open, virtually obliterating the view of the first page visited. The situation occurs regardless of whether a Zango surfer reaches the page via paid or natural search engine listings.

But wait, it gets worse. Merchants and their competitors are bidding on their own and each other’s domain names, to ensure that their own ads are popped by Zango when their sites are visited. So, even if the Zango surfer finds your site behind a pop-up and clicks on one of your affiliate links, chances are good that the merchant site that opens with your affiliate ID embedded will be covered up by yet another pop-up window coded with an ID that isn’t yours, which means that as an affiliate you can say goodbye to your commissions.

Zango claims a customer base of 20 million users that grows by “more than 200,000 new opt-in consumers every day,” according to a September 26, 2006 press release from the company.

When you add 100 million MySpace teenyboppers who all want to redesign their profiles with VideoCodeLab’s free design tools – available through a Zango download – it’s no wonder that advertisers are jumping on the Zango bandwagon.

However, I can’t understand why a merchant partner would list an affiliate’s domain name in its Zango advertising campaign and risk accusations of commission shaving, or worse, losing affiliates by the boatload. So, I asked FriendFinder’s CEO Andrew Conru, and Lars Mapstead, vice president of marketing. Both stated that Zango supplied FriendFinder with a list of keywords that included my domain name. In another conversation, Mark Ippolito, Zango’s vice president of sales, confirmed that Zango provides its advertisers with a list of suggested industry-related keywords upon request.

To their credit, FriendFinder removed my domain name from their campaign soon after my request. The pop-ups continued, however, and further research uncovered that LoveAccess.com, another dating service with an affiliate program, was also bidding on my domain name. Steve Piotrowicz, director of marketing for LoveAccess.com, had “no comment” on my request to remove my domain name from his campaign or on how Zango’s advertising tactics impact affiliate marketers.

To find out which of my other merchants’ sites were being advertised on Zango, I opened a test advertiser account at Zango through AdConnect.Zango.com, and learned that the scope of the problem extends into every sector of the industry. Commission Junction merchants such as LowerMyBills, Esurance and Magellan’s had bids up to .518 cents per impression and up to 12 advertisers bidding on their URLs.

Attempts to enter URLs for Google, Yahoo, eBay, WeightWatchers and Expedia were “predenied” by Zango as they were insufficiently targeted, Zango’s Ippolito explained. However, he flatly refused to remove my domain name from Zango’s list. (If only it had been that easy!)

Interestingly enough, when I suggested to Ippolito that advertisers should bid on the term Zango, after hesitating a moment he replied that Zango “retains the right to refuse certain listings.” Go figure.

When asked how he would react if paid traffic to his site was repeatedly diverted to other sites, Ippolito responded that my question was “irrelevant” and “best discussed over a glass of red wine,” followed by another assertion that although Zango’s business methods are “aggressive,” they are “entirely legal.”

Legal? Let’s take that scenario off-line. How long would it take the police to arrest Zango’s workers if they showed up with 10-story sheets of plywood to block 80 percent of a storefront each time someone was poised to enter the premises?

What Zango does is legal only because the case hasn’t yet been properly made. Even given a successful outcome, worldwide enforcement would be a logistical nightmare.

So, what’s an affiliate to do to prevent shaving to the point of decapitation? Ending your affiliation with the merchant would seem to be the easiest solution. Unfortunately, giving up does not solve the problem. Merchants and affiliate competitors will continue to bid on your URLs, and their Zango pop-ups will still obliterate your home pages to divert traffic from the other merchants that you promote.

A more drastic alternative would be to give up affiliate marketing entirely and go back to work for some employer who wouldn’t steal from your paycheck. That, however, is not an option for most of us and it certainly will not make things right.

Here are a few suggestions that may help to start making things right:

  • Open up a Zango advertiser account and enter your own domains and the domain names of your merchant partners to find out which are being targeted.
  • Contact Zango at 425-279-1200 and leave a message demanding that your URL be removed from their keyword lists. They probably won’t respond, but your call will be on the record come court time.
  • Next, contact applicable merchant partners and ask that your URLs be removed from their campaigns immediately. Discuss your concerns for lost revenue, and you may want to introduce the term “commission shaving” at some point in your conversation. If your merchant’s program is affiliated with a network, file a complaint with that network as well.
  • If either Zango or your merchant partners refuse to stop popping in your territory, file a complaint with the Better Business Bureau, the FTC at http://www.ftc.gov/ and your local district attorney’s office.

Regardless of complaints from affiliates or the threat of class action lawsuits, it is time for ethical merchants to take the high road and close their Zango accounts.

As for those affiliates who cherish their little 45-cent Zango leads too much to play on the white side with real affiliates – the Zango affiliate voodoo dolls are currently in mass production.

ROSALIND GARDNER is a super-affiliate who’s been in the business since 1998. She’s also the author of The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People’s Stuff Online. Her best-selling book is available on Amazon and www.SuperAffiliateHandbook.com.

Marketing Muscle

Over the years stories about intimidation and goons knocking on the doors of various affiliates and search marketers have circulated at industry events. Some of these scary accounts have taken on a life of their own – much like a game of telephone where fact and fiction are often intertwined as the stories are told over and over again.

The victims claim to have seen a variety of intimidation tactics including death threats issued over the phone, visits at their homes from large, scary-looking men, threats involving physical harm, character assignation campaigns, general bullying and harassment, as well as cyber attacks on their websites and ultimately their livelihoods.

Most of the victims say the perpetrators of this behavior are typically overzealous business rivals or companies they spoke out against that are seeking to silence them.

Retelling of these accounts is often reserved for late-night, alcohol-fueled chats at a bar with colleagues at trade shows and conferences. But trying to get the sober details is much harder. It’s difficult to confirm and corroborate many of these stories since the alleged victims are hesitant to speak in depth, or on the record, for fear of future recrimination.

So are these frightening tales the equivalent of urban affiliate myths, exaggeration or truth? Actually, it’s often a combination all three.

One industry watcher, who asked not to be named, was skeptical of some of the stories.

“It’s somewhat of a Curtis Sliwa syndrome,” he says, “where he faked some crimes and attacks as a way to get more attention for himself and the Guardian Angels. These supposed allegations on the part of affiliates are a way to boost their profile. I may be cynical but unless I see a police report I tend to believe these stories are a way to raise themselves in the industry.”

However, he does admit that regardless of the veracity of the accounts, “they seem to resonate with people.”

Anti-adware/spyware expert Ben Edelman knows the feeling of having his work, which typically exposes unethical behavior on the part of an adware vendor, spark a negative response from those he has criticized.

Edelman says that he’s experienced several instances of threats at varying levels from a variety of unhappy companies that he’s exposed. The Cambridge, Mass.-based lawyer and Harvard graduate student says that’s he not willing to speak about all the incidents right now. He declined to speak about two incidents that he referred to as “very, very nasty.”

However, he did recall a time in the fall of 2003 when for two weeks, a private investigator hired by Claria (formerly Gator) was parked in a dark-colored sedan in front of Edelman’s apartment. He claims the driver followed him to class, around the Harvard campus and to other destinations. The driver submitted to questioning in a courtroom and admitted to being hired by Claria. The driver also said he was simply attempting to serve Edelman with a subpoena, a claim Edelman, who is an attorney, disputes, noting that if the driver wanted to serve him he could have simply knocked on Edelman’s door and done so.

Edelman says he found the situation “puzzling but consistent with [his] view of the company, which likes to play hardball.”

Edelman also says the “intimidation efforts were unsuccessful.” Although, he claims the company subsequently “did some other things that were more effective.” Those are the matters he doesn’t want to elaborate on.

Others have also seen the nastier side of how unhappy companies deal with dissent. That fear makes most afraid to even broach the subject.

One PPC search marketer questioned about his experiences with a particular company – one that is often named one of the most prolific at stealing commissions from affiliates – yielded this response about the company’s CEO:

“He’s not a guy to mess with either – do your checking very discreetly. I trust you’ll be thorough as well, but honestly, I believe this guy is not someone you want to piss off. It ain’t national security, but my affiliate income depends on keeping my distance from this man. I can go no further than this and provide no details.”

Another source that was contacted via email about the same subject would only say, “This company is a bunch of thugs. Be very careful and watch your back. Seriously, tread lightly.”

So just how far outside the law will a company go to get its message across?

To put things in perspective, Edelman says, “The people that I’m exposing are powerful people, but not that powerful. They can’t rig elections or bribe the government.”

Regardless, Edelman has taken practical steps just in case a company or individual wants to take out-of-court retribution.

“In the event that my apartment building were to burn down, I have an off-site backup of all files,” he says. “It could happen randomly or intentionally.”

He recalled a story from his mother, who actively pursues nursing home reform, where a colleague of his mom’s had her home burned to the ground. “It was proved to be arson; they just couldn’t prove who did it.”

In his Search Insider column from August 2006, David Berkowitz, director of strategic planning at 360i.com, wrote, “Manage your search engine strategies so well that competitors want to kill you – literally.”

The column detailed a discussion Berkowitz had with an unnamed search marketer in the health care field whose wife reportedly fielded a death threat via the telephone from an angry competitor.

According to Berkowitz, “The victim of the threat competes with his search engine marketing firm. He owns more than a few domains related to his business and services, including a growing number of local variations on the top terms. He gives some of the domains to his SEM, keeps some others and sees which sites can rank highest in the natural search results. For more than a few highly searched terms related to his business, he and his SEM will split ownership of the first and second rankings. The funniest part is that he gets irritated when his SEM holds the No. 1 position, since he’s determined to figure out how he can beat it. For several terms, he’s cornered the market, at times holding at least seven of the top 10 listings.”

Berkowitz explains to Revenue that he was shocked to hear this story and that the recipient of the call “was caught off guard ” and they don’t know who was the source of the phone call.”

For the most part, Edelman admits that the bulk of threats he receives are legal “and don’t involve henchmen.”

“Most are threats to see me in court,” Edelman says. “But most are not followed through, because I have the documentation to back up my allegations and I am correct. The best way to protect myself is to be right every single time and be able to prove that I’m right. The bottom line is that if people want to mess with me, they will lose because I have the facts to protect myself.”

Virtual Threats

Still, that doesn’t stop other threats that take advantage of technology. The most common are DNS (denial of service) and DDoS (distributed denial of service) attacks. But someone looking to harm your business via your website can unleash a variety of deadly technical attacks using spam, adware, spyware, Windows Messenger boxes, various worms, trojans, phishing, SQL injection, cross-scripting attacks, botnets, UA porn running, traffic laundering, viruses and rootkits, according to a spyware researcher, who asked not to be named.

In February 2005, Edelman fell victim to a massive DDoS attack that knocked his server off-line for nearly two days. His Web-hosting company claimed he was the target of the biggest DDoS attack they’ve ever suffered – some 600 MB per second. Edelman says Claria did not perpetrate the attack and he still doesn’t know who was responsible.

This potentially harmful behavior is why many of those posting on public message boards claim they prefer to post anonymously.

“It’s not about saying whatever you want without backlash,” says one very vocal poster in an affiliate forum, who asked not to be named. “It’s about protecting your business and your livelihood.”

An event that took place nearly four years ago is probably the one that sparked most of the talk of goons and henchmen being dispatched to the front doors of several affiliates – most of them very vocal posters on the AbestWeb.com forum. Many of the frequent contributors to that message board and community strongly voiced their opinions on the actions of World Media.

At the time, Virus Port had merged with World Media, a big adware company and one of the first to garner people’s attention for redirecting affiliate links. World Media had a huge installed base of users for its popular bundled peer-to-peer program called Morpheus. Many of the ABW posters were not happy with the company’s actions and posted their complaints.

Kellie Stevens, the president of AffiliateFairPlay.com, was among those who received a knock on her front door – but it wasn’t “muscle.” She claims that World Media hired a local private investigator and dispatched him to her home. She refused to let him inside and instead spoke briefly to him through the cracked door so she could get his business card.

Stevens described the man as “preppy and not threatening.” Later that evening she called the PI and had a lengthy discussion with him. He told her he was hired by World Media. He didn’t know the specifics of the situation or why. He was just letting her know that the company was considering filing both civil and criminal charges against her because of something she posted on a message board. She says the conversation went on for about 20 minutes as she explained the situation and the PI, who was also an ex-FBI agent, ended their talk by saying that people have the right to free speech and that, if in the future Stevens needed any help, she could call him.

“I’m careful about what I say and post and I have accurate information,” she says. “As long as I’m accurate in my reporting they [companies] may not like it, but I’m not just trying to cause a flame fest or incite a riot, though I’m aware it can happen.”

A very successful search affiliate says there are a handful of companies that he believes are “dangerous from a business perspective but not a physical one.”

“I point out issues with these companies all the time. I post on message boards. I file consumer complaints. I send information to the CDT [Center for Democracy and Technology]. I have been a thorn in the side of many adware companies,” he says. “My sites are all publicly registered. My name and address are all there. It wouldn’t take much more than five minutes for someone to track me down and it hasn’t happened yet. So, I’m not worried they are going to show up on my doorstep, I’m more worried they are going to launch a DDoS attack and shut down all my sites.”

Still, others who received visitors to their home during the World Media matter say they were intimidated.

“People who might have taken the activism to the next level stopped,” Edelman says. “So it worked – not that those tactics are acceptable, because they are not.”

For most affiliate marketers, the idea of someone showing up at their home is truly frightening – mostly because they work alone and use only the computer to connect to others. It’s not like the typical worker who heads to an office filled with other people, where visitors come and go all day.

“Part of what is scary for most of these people is having others out in the virtual world know where they live, and usually just putting that fear into them is enough to make them stop whatever their activities were,” says one industry observer who asked to remain anonymous.

Berkowitz says this behavior definitely surprises him. Although, he explains that there may be times when a threat is slightly more “merited,” because the person being threatened is not operating in a totally ethical and above-board manner.

“At least when it comes to search there are many ways to game the system,” Berkowitz says. Still, he admits, it’s obviously something that needs to be looked at on a case-by-case basis.

On the flip side, Andy Rodriguez, president of Andy Rodriguez Consulting, an outsourced program management firm, is not at all surprised that this type of strong-arm behavior takes place.

“In this industry, the amount of cash and the revenue potential attracts a lot of people that don’t always make the best decisions and it’s easy to see why threats and violence can come up. Plus, in this day and age, people have the tools and technology to use DNS and computer attacks. It’s the same type of intimidation but they don’t have to go to your front door,” Rodriguez says. “The good news is that the government has the same tools and technology to track down the criminals and those threatening others.”

The bottom line according to Stevens is, “When there is a lot of money to be protected, people will go to great lengths and you need to keep that mind.”

Leading the Way

Online lead generation gets no respect. Online lead generation affiliates less so. While the sector is growing by leaps and bounds – 290 percent over 2005, according to the Internet Advertising Bureau – people like Peter Martin and Robert Jewell just seem to drag its reputation through the mud. These guys had the honor of being sued by New York State Attorney General Eliot Spitzer in March for selling the private details of up to 7 million customers to marketers when they said they wouldn’t. Spitzer called it the “largest deliberate breach of privacy in Internet history.”

“There are people that don’t do things on the up and up,” Dan Felter, chairman of the recently formed Online Lead Generation Association (OLGA), says. “Online lead generation, when done properly, can be done well,” says Felter, who is also CEO of Opt-Intelligence, a lead generation firm.

High-profile busts like Spitzer’s only give a black eye to an industry trying to police itself and keep undue regulation at the door. Last year the online lead generation machine brought in $753 million, according to the Internet Advertising Bureau (IAB), which predicts over $1 billion for the lead gen space in 2006.

Revenue for online lead gen made a healthy gain to reach 6 percent of all Internet advertising spending during the first half of 2005, according to the IAB. That’s $347 million. Go back to 2002 and it was only 2 percent of Internet advertising spending in the first half of that year, or $114 million. But that is a year-to-year increase of 204 percent, IAB figures show.

DEFINING THE SPACE

Just the phrase “lead generation” also means different things depending on who you’re talking to.

When an advertiser needs new potential customers to sell to, one method of getting names and ways to contact these people is to buy a list. This list of people is called the leads. Generally these people have already expressed an interest in the product – be it iPods, real estate, cars, mortgages or other retail goods – and have agreed to be contacted by the advertiser. This is also known as permission-based marketing and in some cases it is called co-registration.

The most popular online lead gen technique is the “opt in.” This is where a customer registers online to join a free newsletter or newspaper or social network and sees a page where he can request to receive additional newsletters or marketing from third-party companies. Generally, you check a box to say it’s okay. Interaction with that page is sometimes required to complete your registration.

Some companies also practice “double opt in,” where you check a box but also must follow a link in an email as a way to confirm your email address but also, in essence, asking you twice that you really meant to opt in. Popular opt-in trends include an effort not to ruin your surfing experience by serving you multiple pages of opt-in options and by allowing you to bypass offer pages.

Suspect practices that used to be commonplace but are now considered intolerable are “opt out,” where you are automatically signed up for other offers and you must uncheck the boxes to refuse; pages where offers outweigh content; offers of free products for forwarding the offer to others; free offers that still involve a fee; offers that require the downloading of adware or spyware; and, of course, offers that do not explicitly say they will not sell or give your private information to other advertisers.

Since there is a commission for every lead generated, it becomes attractive to enter a pay-per-lead or pay-per-sale contract with an advertiser. And with that model being very much like the affiliate marketing model, affiliates have flocked to lead gen. The flood of lead gen affiliates in the online world – like anything – breeds bad eggs and good.

POLICING LEAD GEN

Enter OLGA. Chairman Felter helped start the trade group when he realized what a stench surrounded the word co-registration, or co-reg. When describing what his company, Opt-Intelligence, does he tries to avoid the word co-reg. “If you could see the people’s faces at conferences when they finally got what I did,” he recalls.

OLGA currently has more than 25 lead gen companies as members and considers its mission to define best practices and champion transparency in the industry. Felter boasts that lead gen could become “almost as valuable as search.” However, he adds, “barriers to enter the market are pretty low.” Hence, the surge in online lead gen affiliates operating in a sometimes-ethical vacuum. “It’s the cutting corners that give lead gen affiliates a bad name.”

Felter says, early on, when opt-out was more common ,”advertisers all got burned by co-reg.”

The offers would end up on disreputable sites – such as porn – and the advertiser would essentially receive a “data dump”: raw lead information with no indication if the leads were from opt-in or opt-out and no way to measure the quality of the lead. That’s why Felter hates using the word co-reg, but also why the industry is poised to explode as burned advertisers come back to the well.

And as they return, now is the opportunity to prove that this time around advertisers, publishers and lead gen companies can all get along and share the wealth. “There is something called common sense,” Shai Pritz, CEO of Unique Leads, says. “If somebody is doing shortcuts, it will come back to bite them.”

Jim Vines, CEO of LeaderMarkets.com, agrees that it isn’t really very hard to figure out when someone on your network is doing wrong. “Having been an affiliate myself, I know the way traffic should look.” He claims to know when something doesn’t look right. Usually it is too many leads over a short period of time coming from a single affiliate. Vines says he goes the extra yard by talking to all their affiliates on the phone before sending any offers. “I have to personally see if they know what they are talking about before I send them anything.”

It might stand to reason that an industry that requires so much policing is inherently ineffective. “There is nothing wrong with the tool but how you use the tool,” Vines says. He adds that policing just comes with the territory. At least to Vines, the fun of it all is the personalization. “Leads are just the icing on the cake,” he says. “Whenever an affiliate calls, we know them. Our job is to help our affiliates find the campaign that is working the best for them. We can help them figure out what list is best for them.”

GOOD LEADS

Matt Hill, CEO of eForce Media, says they apply technology and science to matching leads to clients. Others, he says, create leads by traffic driving – but so many requests go unanswered because there is no matching. A guy looking for a mortgage deal ends up getting a thousand calls by mortgage brokers, Hill says. Or leads come but no calls are made because the company can only afford to buy so many leads per day. “Most companies in this space only sell about 50 or 60 percent of their inventory,” he says, “so it doesn’t matter if leads fall on the floor.”

Pritz at Unique Leads also aims high, which is why he runs a closed network. “The affiliate managers will say what offers they want and we create the links for them,” he says. “The control is better that way. There are human beings involved; we do what we can to make sure the system works.” Unique Leads likes to see website screenshots and have an understanding of UI experience of each site they sign and they always make the users sign privacy policy forms.

“Like every industry on the Internet there are black hats and white hats,” says Hill. “It’s a business that’s been around longer than the Internet. But since the Internet, it is becoming more sophisticated.” He says his lead gen company’s mission is to find the most perfect match between leads and clients. He says there are still some big companies who do opt-out co-reg because the volume they get is so big it cannot be ignored – but in the end, he says, “those companies will weed themselves out.”

“Some websites say, if I throw a few opt-outs on my page I make 20 cents more,” says Felter, adding that the websites figure a few opt-outs won’t be noticed. And some companies will turn a blind eye to it all because the sheer numbers of leads (regardless of their quality) are meeting their quotas.

Chris Jeffers does B2B lead generation as CEO of netFactor and says that his buyer is a marketing executive. “They are frustrated because less than 2 percent are converting and completing online registration,” he says. “This is critical for sales – sales says, ‘give me quality’ but marketing is rewarded for providing tonnage.” This means sales and marketing are effectively operating against each other. Quality leads can help close the gap.

GUIDELINES AND BEST PRACTICES

That is another aim of OLGA: to define the best practices for the whole industry. The founding members of OLGA include Felter; Stephan Pretorius of Acceleration eMarketing; president of Feedster, Chris Redlitz; and Kitt Collier Odukoya, director of marketing at EarthLink. Member companies include Active Response Group, CoReg Media, eForce Media, Flatiron Media, Innovation Ads, LeadVerifier, MediaWhiz, Monster Worldwide, ON24, SendTec, Unique Leads and WiseClick Media.

Initial guidelines that OLGA endorses include that advertisers always know where their offer is being placed; that advertisers clarify that they are buying an opt-in only; that the leads did not come from offers “forced” onto customers via opt-out or opting in as a requirement of registration; that it is easy for customers to bypass all offers if they prefer; that the registration process in general is about the content and not all about signing up for offers; that an auto-respond email include opt-out and unsubscribe links; and that it is always clear what exactly the customer is signing up for.

If trade associations and policing succeed there is no doubt the industry will grow even more than it has already, provided there are no more high-profile debacles that could trigger a call for federal regulation. No one wants that. “We need to keep rules flexible so that people can operate their businesses,” says Sujay Jhaveri, CEO of Flatiron Media. He says “pro-business people in the business world” will take care of tempering regulation. He notes that the CAN-spam legislation passed in California was much stricter than a version that went federal. Testing the limits of regulation will probably continue. “You are dealing with a marketplace that is very profitable,” Jhaveri adds. “Online multilevel marketing will mimic off-line eventually.”

Other events to look forward to in online lead generation will be consolidation. Hill of eForce says there are many lead gen companies that have maybe 10 employees who are operating in niche areas that are ripe for acquisition. In fact, eForce just completed funding for that very purpose, he says: to add companies’ expertise to what they do. And, he adds, the transitions are very easy since the employee counts are so low; you see an immediate profit increase by applying the traffic you acquired.

Vines of Leader Markets says being a former lead gen affiliate helped him be a better president of a lead gen network; that is, he wants to remain small. “Some affiliates can do six figures of traffic per month,” he says. “They don’t want to feel like they have come to a cattle call.” That’s why he wants to keep it personal with his network. “I’m not looking to become the next CJ or LinkShare,” adding that while the challenges are many, so are the rewards. “If someone is gun-shy, they probably shouldn’t be in it,” he says.

OLGA’s Felter says the key terms are transparency and awareness. “You’ve got to watch your metrics. What are you getting and is it valuable?”

New Network Flavors

The affiliate network menu is expanding to offer many more options than just vanilla, chocolate and strawberry.

Call them what you wish – ad networks, sub networks, CPA networks, CPA ad networks. No matter the name, these aggressive challengers are mounting pressure on the “Big 3” affiliate networks.

CPA ad networks, which use a cost-per-action payment model, are providing increased competition, which is likely to mean publishers will benefit from more choices, bigger payments, a wider range of potentially lucrative offers and what some observers claim is a more nurturing environment.

Affiliate consultant Shawn Collins refers to ad networks as the “hybrid of affiliate marketing – part merchant and part affiliate.”

Like traditional affiliate networks, CPA ad networks rely on publishers willing to promote their advertisers’ offers. But unlike their cousins, ad networks act more like direct CPA-deal brokers and generally focus on lead generation, registration-based offers and bounty programs. In addition, CPA ad networks often don’t require start-up fees and advertisers to prequalify, thus lowering the barrier to entry. It’s estimated that one needs approximately $5,000 to get a CPA network off the ground.

However, many claim the life span for the bulk of these emerging ad networks is limited and this crop will never be able to truly compete on a larger scope with the bigger established networks such as Commission Junction, LinkShare and Performics. “

CJ started in 1999 and the landscape has changed over the last six and a half or seven years,” says Kerri Pollard, director of publisher development at Commission Junction. “There’s been an increase in competition and new CPA networks.”.

Some affiliate managers argue that CPA networks fail to add value because they poach advertisers who are already in merchant affiliate programs. Others insist CPA networks add tremendous value because they attract new and unique advertisers who in turn, deliver new valuable customers.

Regardless, CPA networks are emerging as major players in the online marketing world. These marketing companies have direct access to groups of advertisers who, through a wide array of techniques, have the potential to drive a high volume of clicks, sales and new customers.

Maybe that’s why you can’t attend a conference or trade show related to online marketing without seeing the booths of the exhibit hall jam-packed with CPA ad networks looking to woo affiliates and garner some attention.”

Who’s on First

With so many players in the game, it’s difficult to keep tabs on everyone. Some well-known current networks include CPA Empire, DirectLeads, Endai Worldwide, Adteractive, Metarewards, The Vendare Group, XY7.com, YFDirect, eMarketMakers and TheBizOppNetwork. In addition, several new ones are popping up nearly every week.

In 2005, many of the major players gained a bigger foothold by partnering with other companies. Affiliate Fuel, also known as Thermo Media, LLC, was acquired by Experian in April. PrimaryAds was bought by Think Partnership for nearly $10 million. And ValueClick purchased Web Clients for $141 million.

For affiliates, much of the appeal of these ad networks is the size and frequency of payments. Affiliate networks usually pay on a monthly schedule or when a certain revenue level has been achieved, whereas CPA networks typically pay affiliates weekly so they don’t need to float the costs of advertising or, in the case of incentive sites, the costs of the incentives themselves. CPA networks often negotiate top-rate commissions for their publishers. In many cases, these deals are much better than what a publisher can negotiate from the merchant’s affiliate manager.

A post on the ABestWeb.com forum from an affiliate sums up the appeal of CPA networks:

“As an affiliate, I love them because they often pay considerably higher commissions than the major networks, they often pay quicker, and most don’t allow reversals,” writes Michael Coley, president of AmazingBargains.com.

While the affiliate appeal is high, some downsides to dealing with ad networks exist, including poor practices, such as cookie stuffing, adware, spyware and spamming. “

The biggest problem I’ve had is that campaigns will get canceled without any notice sometimes, so I end up having to find another source and switch out my links,” Coley continues. “I don’t think any of them are ‘clean.’ Most seem to work largely with email marketers, some of which are notorious for spam.”

Merchants claim to be somewhat cautious for a variety of reasons. Although CPA networks reduce the risks for publishers while maintaining the direct-response needs of the merchant, the merchants have no control over how their offer is presented. “

As a merchant, you don’t know who is promoting you, and the CPA network is not going to tell you, because you’d cut them out of the deal if they did,” according to Collins. “

What I like least about CPA networks is they build loyalty between the network and the affiliate with merchants’ money,” says Beth Kirsch, group manager of affiliate programs at LowerMyBills.com.

J.T. Stephens, director of auctions marketing and business development at Overstock.com Auctions, offers some tips for advertisers dealing with CPA networks:

  • Communicate your business needs;
  • Provide networks with an email suppression list of marketing companies/ affiliates on your blacklist and a list of your top affiliates that the network cannot contact;
  • Be on the alert for unsavory affiliate activities (adware, spam, spyware); and
  • Do not let the networks determine how to market your offer.

Many CPA network advertisers are huge proponents of free iPod offers and promotions. That tactic is likely to bring in customers more interested in the prize or giveaway than the merchant offer. This type of promotion fuels the perception that CPA ad networks only cater to less-savory advertisers.

Still, some figures state that big brand names make up 30 to 45 percent of all CPA advertising. Big-brand sites can also act as affiliates accepting CPA ad buys, such as MSN, when it has remnant inventory. Big-name publishers are selling CPA buys, but often it’s directly to the advertiser and not through the network.

Everybody into the CPA Pool

Though networks generally make more money selling on a cost-per-thousand (CPM) basis, some will sell leftover inventory and run CPA offers, according to an executive at one of the major affiliate networks, who asked not to be named for fear that the industry stigma associated with CPA practices would be damaging. In most cases, the networks are “booking these revenues as CPM,” the source says.

Another network executive says her network will continue to stay focused on its overall value proposition.

“We want to make CJ remain the preferred place for the new publishers,” Pollard says. “We have many different categories of publishers. They are the backbone of affiliate marketing. The top request from our 1,500 to 2,000 advertisers is overwhelmingly, ‘How can we help publishers trying to make money?'”

Pollard claims that by leveraging CJ’s connection with its parent company ValueClick, it can provide more value than CPA networks can by going beyond affiliate marketing to include lead-generation business, click integration, tracking and email.

“It’s a bigger and better picture to the clients. We have more synergies and offer them in a streamlined way,” she says. “But there is a lot of value that CJ brings as a trusted third party and the value associated with that is worth a lot to our clients. It’s currently a win/win situation and we want to make sure it remains that way.”

Rob Key, president and CEO of online agency Converseon.com, says the Big 3 are doing well with fraud initiatives and payment services. He also applauded LinkShare’s efforts in the area of analytics, which he says adds a higher level of sophistication to its program. However, he feels there is some room for improvement in the area of data feeds and customization.

“There will always be a place for LinkShare, CJ and Performics,” Key says. “But the space is expanding and people want more customization than the Big 3 can offer.”

He claims the movement toward more customized platforms has “topped out in the networks, which are looking to be all things to all people.” Instead, by offering specialized services, certain network alternatives help “people look beyond the traditional and reinvigorate.”

Converseon’s network-agnostic custom platform is designed to aid companies that are trying to get a view of their data across all channels, Key says. “You can’t do that if the affiliate data is off to one side, like it is with the networks,” he says, adding that the traditional networks will see continued price pressure.

Pollard expects to see consolidation in the CPA network space over the next year or two and says there’s no threat of a CPA network displacing any of the Big 3.

“I also expect that one or two other larger players may come in, but nobody that’s the size of LinkShare and CJ. CPA networks will evolve for months and years, but many of them will not be around for long,” she says.

The increasing power of ad networks was brought to the forefront at the end of last year when Commission Junction ousted AzoogleAds from its network. Because AzoogleAds was a CJ affiliate that grew into its own revenue-sharing network, many industry watchers claim it was just a matter of time before CJ kicked out the sub network.

Joe Speiser, AzoogleAds.com cofounder, called the move by Commission Junction “flattering,” adding that his company was clearly “dangerous enough from ValueClick’s point of view” to warrant giving up the “nearly 80 percent of traffic we brought in on the eBay campaign.” That’s a huge factor, since eBay is CJ’s biggest campaign.

Speiser also says that CJ was threatened by Azoogle’s growing presence.

Pollard says despite the incident with Azoogle, CJ has no plans to ban sub networks.

“Our business is always changing and we never want to put policies in place that hamper publishers and stop them. I want the creativity to remain,” she says. “Sub affiliates are great partners and we want to continue to have relationships with them.”

From Pollard’s point of view, sub affiliates “have found good niches and are good at servicing the advertisers.” However, she notes that it’s important for CJ to maintain network quality and ensure sub networks do not do business with affiliates that are engaging in questionable practices, such as performing downloads and software installations.

Collins says CPA networks are a dime a dozen. “A good amount of them fail quickly. If 10 new CPA networks open today, most of them will fail within months,” he says. “I guess it’s sort of like affiliates; there are a million affiliates and only about 10,000 that are doing things. Some aren’t going to move the needle,” Collins continues. “The networks certainly don’t need to sweat it just yet.”

Rather, according to Collins, pay per click is a much bigger threat to the networks than CPA. He expects a viable challenger to soon emerge (such as Direct Response or KowaBunga) that is backed by significant capital from a public company.

Regardless of the challenges, Pollard claims the good news is that the performance marketing pie is getting bigger and there’s room for everyone.

The Cookie Conundrum

Cookies will drive you nuts. As you know, cookies – or very small files that recognize you as uniquely you to particular websites – are kind of the backbone of affiliate marketing. If the cookie didn’t exist, there would be no way for you to claim the sale or track your core customers. This would effectively kill affiliate sites in their tracks.

Or will it? Recent studies on cookies have only confused matters. Survey respondents have said they delete cookies off their hard drives as frequently as every week. JupiterResearch in April released its cookie study that said nearly 40 percent of those online trash cookies monthly. Burst Media weighed in with its findings, echoing Jupiter’s study: 38 percent of online consumers nix their cookies once per month. Nielsen NetRatings pushed up the panic by stating that 43.7 percent of its respondents said they dumped cookies monthly. An InsightExpress survey said 56 percent. But then it backpedaled, saying probably fewer than that number actually delete cookies, citing data that when study participants were asked to immediately trash their cookies, only 35 percent did it correctly.

Even more baffling to the average user are the different kinds of cookies that exist: first-party cookies; third-party cookies; tracking cookies; local shared objects. It boggles. Even Walter Mossberg, a well-respected tech columnist for The Wall Street Journal, came out strongly against tracking cookies and suggested they be classified as spyware. In the same breath he did admit that first-party cookies are what make the Web a fun, personalized experience.

Even so, the studies seem pretty grim. If the results are accurate, then nearly half your sales would be freebies – meaning that 50 percent of your commissions would also disappear.

But then in April, Atlas Institute released an analysis of some of those studies and concluded many simply weren’t true. Atlas found that 40 percent of those who said they deleted their cookies monthly didn’t do it when they said they did. Cookies were generally present twice as long as respondents stated on their surveys.

It wasn’t a conspiracy. In many cases, it was just bad recall. In some instances, respondents assumed cookies were being deleted by anti-spyware products installed on their computers. Some of the deletion numbers are so high because users think the software is doing it for them. In many cases it isn’t. This puts anti-spyware and anti-adware software makers in a strange position: is it their responsibility to help you manage your cookies, or is it just a whole lot of paranoia?

Of the most popular anti-spyware software, about 75 percent come with “cookie management” options. What that means varies from maker to maker. When most anti-spyware programs do their normal scans (daily, weekly, monthly or however the user sets it) they will catch cookies but rarely do anything about them. The default is to generally ignore them. If the program offers a check box to dump certain kinds of cookies on a regular schedule, it has to be turned on by the user. Most anti-spyware makers believe the majority of their users are going with default settings. In fact, some studies have said that the so-called “computer savvy” also keep cookies longer than they say and believe they are deleting them when they aren’t.

All this misperception, in many ways, boils down to a few basic facts that most anti-spyware software makers can agree on: taken on their own, most cookies are not harmful. Cookies carry no code and so they cannot carry viruses. While cookies may carry information on where users have gone on the Web, most of it is anonymously tracked – meaning such data doesn’t contain personal information. The Wall Street Journal’s Mossberg wrote it was akin to a company knowing what channels you watched on TV without telling you it was monitoring you. Generally it’s more like following a set of footprints in the sand to see where they go, but the tracker has no idea if the person making the prints is Jane Doe, Jane Doe’s mom or Santa Claus.

One of the persistent problems, says Phil Owens, product director of CounterSpy, a product of Sunbelt Software, is that “most average users perceive that the program is doing the [cookie] removing” for them. He adds that most anti-spyware software makers are in a bit of quandary about cookies. They are “gray,” Owens says, because they are not malicious. Therefore, you’d think it isn’t software makers’ responsibility to clean cookies. Owens says this is a tough call. “On the one hand, maybe we should play a role and tell people cookies are benign until proven wrong. We can help quell that concern. On the other hand, market pressure by consumers is great. They will say, ‘This software found this but you didn’t,’ even if it is not malevolent.”

“The general public doesn’t understand the value proposition of the cookie,” says Rick Carlson, president of Aluria Software, which makes Spyware Eliminator. That’s why version 4.0 – released in February – has a whole separate tab in its scan results that lists the newest cookies. “Previous versions never detected cookies,” Carlson says, “but we put it in because consumers wanted it. And they wanted to be able to detect and remove them.” He says that sometimes spyware can place a cookie and that there is an outside chance that spyware reads other peoples cookies. Consumers wanted insurance for those remote possibilities, he says.

One of the most high-profile of antivirus software from McAfee currently doesn’t do any cookie tracking or identification either in its McAfee AntiSpyware 1.1 or VirusScan 9.0. McAfee spokesman Hector Marinez says the programs do not delete cookies or recommend deletion of cookies. He adds that the upcoming McAfee AntiSpyware 2.0 will have a cookie tracking function where cookies are identified and the user can choose to delete them. VirusScan 10.0 will not have cookie tracking.

Currently, anti-virus and anti-spyware from Microsoft does not scan for cookies, in part because the remembered passwords and Web page settings in cookies help tailor the Internet experience for visitors of Microsoft properties such as MSN. To help boost commerce, it’s been reported that the beta version of Microsoft Windows AntiSpyware does not disable tracking cookies. However, GIANT Company Software, the company that developed the anti-spyware product and was acquired by Microsoft in December, disabled tracking cookies.

Owens adds that he can conceive of a function in future versions of CounterSpy where the software scan can tell you exactly what each cookie is for, such as whether it was for a retail purchase you made or whether it was placed there by potential spyware.

Spyware Eliminator has its tabs even though Aluria’s Carlson says he would probably have preferred to have Eliminator ignore cookies. “We are extremely sensitive to the affiliate community,” Carlson says. Within the software tab, it clearly states that cookies “pose little risk.”

While anti-spyware companies are trying to figure out if they will take a stand, marketers themselves have stepped up to the plate and started their own grassroots awareness groups. One of the most prominent is Safecount.org, started by Cory Treffiletti, managing director of Carat Interactive’s San Francisco office, and Nick Nyhan, president of Dynamic Logic in New York. Safecount wants to start a “good list” of sites with trusty reputations. So far, the “good list” campaign is in the very early stages, “to show who plays by the rules,” says Treffiletti. A good list can show “you remain marketer-friendly and consumer-friendly.”

Another body is the advocacy group Center for Democracy and Technology, which is trying to help the anti-spyware industry start at the very beginning and define what constitutes malicious data or vehicles for code versus harmless files. Eventually the center wants to write “dispute- resolution procedures” as well.

One company is even using a kind of backup program that automatically saves a copy of cookies before anti-spyware software can do the job. United Virtualities of New York uses something called persistent identification element, or PIE, exploiting attributes in Flash software. Some analysts, however, have labeled it “deceptive.”

Lawmakers are weighing in as well. So far lobbies have managed to get Congress to keep cookies out of anti-spyware legislation. But the most recent bill, the Internet Spyware Prevention Act of 2005, known as the I-Spy Act, is so broadly defined that cookies could very well be included in a legal interpretation. Marketing agencies are also trying very hard to keep cookies out of legislation.

Right now Safecount.org is a small, all-volunteer movement and may not reach enough momentum by the time some of the top anti-spyware software makers have implemented more hands-on cookie administration in their next versions. Alternatives for the affiliate marketer start with what you can do on your own site.

The first thing you could do is to include a brief introduction to cookies on your website. It doesn’t have to take up a lot of room and could even be on its own page with a link that says something like, “A word about cookies.” You can start by explaining cookie deletion versus cookie rejection. Deletion is when a visitor manually dumps a cookie or when anti-spyware software trashes it either through alerting the visitor or by an automatic setting. This is never consistent because every brand of anti-spyware software handles it a tiny bit differently. Tech-savvy visitors may have set their browsers to reject cookies. While Internet Explorer can be set to not accept any cookies and make users feel a lot safer, most online retail sites need cookies turned on to finish a purchase.

Web analytics company WebTrends recommends that businesses focus on serving only first-party cookies (sent from the website you are visiting) and not third-party cookies (sent from a vendor or advertiser on a Web page). WebTrends also advises only carrying the most necessary information in a cookie to avoid privacy worries. Think twice, company officials at WebTrends say, about employing “unproven and risky alternatives to cookie tracking” such as those in Flash or solutions that “trick” a browser into receiving a first-party cookie.

Also, affiliates could list the benefits of cookies – that a cookie helps remember user’s purchase history and passwords, and helps commissions go to the right people. Don’t be afraid to spell it out for your repeat customers: “Keeping your cookie keeps me in business.” Carlson says groups like the Anti-Spyware Coalition (www.antispywarecoalition.org) can only help so much and that standards just don’t start in a committee room but out in the world. “We are just a $20 million in revenue company,” he says, compared to the really huge anti-spyware makers. “We are the flea on the back of a dog.”

Other proactive measures for an affiliate include going to Internet security sites and staying abreast of the latest in hacks, scams, phishes and technological advances. You may think it is asking a lot to suddenly become an expert in deception, but it might be a comfort to remember that you are not alone. In terms of affiliates or retailers online, if there were a cookie problem that was reflected in the bottom line, there would be an uproar. The retailers themselves would step up if their highest earners were fading. If money is being lost, ears prick up.

As affiliates take a bigger role in what companies sell, you can bet their voices will be heard. As with the grassroots bodies and coalitions, pulling together can make a big difference. Advertising companies on the Web rely heavily on the cookie, and they are already drawing up standards. Affiliates should consider doing the same. After all, what does a salesperson really do: Inform and persuade.

ERIC REYES lives in the San Francisco Bay Area and writes about technology and business. His work has appeared in Business 2.0, the New York Daily News, the San Francisco Chronicle and Worth magazine. He has directed and contributed to websites such as Amazon.com and Excite.com.

Clean Sweep

You’re thinking of working with a merchant, but you don’t want to be involved in any program that includes affiliates using questionable, if not illegal, practices. But how can you know for sure whose program is squeaky clean and whose is not?

It’s not easy to tell which merchants have clean programs. Maybe that’s because it’s not easy to pin down exactly what “clean” means.

“That’s the $64,000 question,” says Kellie Stevens, president of AffiliateFairPlay.com. “The answer varies. Clean means different things to different groups. The definition varies even among affiliates.”

The general consensus at the most basic level is that a clean program will not allow parasites of any kind to sign up and will remove offenders if they are discovered. This means that affiliates with downloadable applications that are installed without the knowledge of the consumer or that redirect affiliate links or overwrite affiliate cookies are out.

But there are those even stricter in their definition.

“For some, even if a user can opt out of the download, they consider that parasite-ware,” Stevens says. “So if a merchant partners with that affiliate, they are considered to be supporting the parasite financially and they risk being labeled as unclean.”

“As far as some affiliates think, there is no clean program,” says Shawn Collins, a consultant. “They have a very black-and-white view of anyone who uses adware. They think there are no possible [good] intentions from anyone who uses adware.”

Collins calls that “a simplistic and lazy viewpoint.” “Maybe they don’t understand the issues completely or they are taking this stand from a selfish or competitive viewpoint,” he says.

Under that stringent definition of clean, Collins says any affiliate manager that partners with any loyalty, reward or incentive program would be considered dirty. He disagrees.

“If an affiliate is using the adware for something like shopping and the application is very compliant in allowing users to uninstall the program, I think that’s okay,” Collins says. “Not all adware should be grouped together. It’s not like they are all drive-by downloads or installed or bundled without users’ consent.”

He notes that many in the online marketing community do not consider RemindU from UPromise a parasite, but notes that it uses the same technology as eBates, which is often targeted as being a parasite by affiliates.

Affiliate managers themselves seem a little more lax about what constitutes a rogue affiliate. According to a poll on AffiliateManger.net, a community message board and forum, 54 percent of affiliate managers stated that some adware affiliates are dirty and some are clean. Talk about straddling the middle ground.

But affiliates don’t always see eye to eye with program managers. Most affiliates agree that parasites typically prey on merchants that are ignorant about such nefarious practices or affiliate managers that turn a blind eye to these activities because their program is making a lot of money from rogue affiliates.

It’s a Matter of Trust

That’s why developing trust between affiliates and those managing programs is a crucial component of doing business. Both parties must feel that they’ve entered into a partnership. When you do business with partners there is an implied level of trust that the relationship needs to work for both parties.

“The trust sustained between a network and affiliate is paramount,” says Bret Grow, vice president of LinkMo Advertising Network. “Our affiliate trusts that we keep our links alive, pay a competitive price for their sales/traffic and report it honestly. Networks trust affiliates to provide credible data and lawful traffic no matter the level of volume.”

Andy Newlin, affiliate marketing supervisor for SierraTradingPost.com, knows about trust. He’s earned it. Two years ago, his program was widely criticized by very vocal affiliates. But Newlin listened to those critical affiliates and worked hard to weed out the bad affiliates. His continued clean up efforts and willingness to listen earned him a certain level of trust and respect with the online marketing community. Now if a bad apple slips in, affiliates alert Newlin and he takes care of it immediately. In other words, affiliates are now willing to cut Newlin a little slack.

“Back then I didn’t know about running a clean program and relied on affiliates to educate me,” Newlin says. “And once I had a good idea what a bad affiliate was, I took on every affiliate account and tested it myself and then made a decision on whether or not they were clean and could stay in the program. Every now and then an affiliate will alert me that a spyware or parasite-ware affiliate has snuck in. I’ll thank the affiliate for letting me know and then take the appropriate actions right away.”

Newlin says that if you take the advice of good affiliates and ask for their help, they get over the hard feelings.

Some affiliate managers are revered by the affiliate community as managers who run clean programs. Chris Sanderson of AMWSO, an affiliate marketing firm based in Bangkok, Thailand, and Andy Rodriguez of Andy Rodriguez Consulting are the most notable and mentioned the most often.

“Eighty percent of the [ABestWeb] board hates LinkShare,” says Haiko de Poel Jr., president of ABestWeb.com. “But they love Chris Sanderson. And if he says a program is clean, then come hell or high water, affiliates believe him. By definition, a trusted program is a Chris Sanderson program or an Andy Rodriguez program. There is a huge trust factor with those guys and affiliates.”

This summer Rodriguez held the first Affiliate Program Manager Certification seminar in Florida. The response was so overwhelming that Rodriguez has a second one planned for October.

“Andy is probably the most trusted affiliate manager out there, and it comes as no surprise that he’s the first to offer such a seminar,” says Greg Rice, an outsourced affiliate program manager with Commerce Management Consulting in Medina, Ohio. “As a veteran affiliate, I’m very interested in this topic.” Rice worked as an affiliate several years ago when Rodriguez managed the affiliate program for Tiger Direct.

“That’s where I got firsthand knowledge of how he inspires trust in people. If he says he’ll do something, he does it. He quickly resolves issues and he did a lot of cleaning up of that program to get the parasites out,” Rice says.

Rodriguez says it’s all about building relationships with people.

“If you respect people and are honest with them, they respond to that,” he says. “In my opinion that is what affiliate marketing is about – people and treating them with the same respect you expect to be treated [with].”

But people change jobs, so don’t confuse the merchant with the affiliate manager of that program, advises de Poel. “I know of a couple of programs that were well-managed and clean, but once the affiliate manager left, the programs went to trash. Things like that happen every day.”

Investigate, Sherlock

To get more information on a merchant, you can also talk to affiliates already in the program.

“The quickest way to find out about an affiliate program is to check in with existing affiliates,” Newlin says. “The affiliates will definitely know if the program is clean. With most other sources – such as lists on websites – you run the risk that they may not be up to date or they could be run by a competitor.”

Also check the online affiliate forums or message boards. Many have lists that are frequently, but not constantly, updated. And with thousands of active affiliates, you can always pose questions on the boards about a specific program and see what kind of response you get.

“Trust the forums. If a program is not clean, the posters on these boards won’t hesitate to chime in and tell you immediately,” Newlin says.

Rice agrees: “There’s a good chance that if someone is up to something, then someone on the boards have caught wind of it.”

And in some cases, companies that are known for using adware or parasite-ware will post a list of their partners right on their website. “Once you see who is on that list, we can avoid doing business with them,” Rice adds.

Protect Thyself

Making sure someone is running a clean program is hard work, but for most online marketers it’s something that they need to do for themselves.

Newlin says that both for affiliate managers and affiliates the only real way to be sure about anything is to do your own testing. While it takes some level of expertise to perform the testing and you have to know what to look for (such as testing applications to see if they override the affiliate tracking or the affiliate cookie), it’s worth the effort, he says.

“Before you put the links on your page, actually cut and paste the links into the browser to make a test purchase to see if it tracks,” AffiliateFairPlay.com’s Stevens suggests.

For affiliates, de Poel says there are key things to look for and specific questions to ask affiliate managers. Look for programs that offer a fair commission rate in the industry. Find out if the affiliate manager has more than one point of contact. Can you reach them by phone, email, instant messenger? Make sure the program has the tools and resources to help the affiliate (data feeds, product showcases, frequently updated creative). Is the affiliate manager active in the industry? Do they post on message boards? Are they visible at industry events? Does the affiliate manager quickly address concerns?

While Stevens is sympathetic to affiliates’ concerns, she wants to see them take more action.

“We need to put more focus on holding the affiliates’ feet to the fire,” she says. “They are right that they are losing justly earned revenue, and they are entitled to that. But they need to take a stance and do less complaining. It’s always ‘Microsoft should be detecting problems. Google should be doing this or that.’ They want everybody else to take on the issue. They need to say ‘What can I do for myself to fix these problems?’ “

Especially since affiliates are unlikely to get support from consumers on this issue.

“The average consumer has no idea what link hijacking is and that cookies are being overwritten,” Rodriquez says. “They don’t have a clue and they don’t care. The pressure has to come from the merchants and OPMs that are managing programs. This is crap and it’s hurting the industry.”

Certification or Regulation?

LinkMo’s Grow says that one of the biggest problems his company faces is a lack of affiliate identity verification. His company is inundated daily with fraudulent affiliate sign-ups. “Manually sifting through all of them to find those who are legitimate is time-consuming,” he says. “But no matter how much work it is, it’s critical to weed out crooks that would send bad data and spam across the network.”

Instead of guessing who is doing what, Grow says a possible solution to the problem is an industry-wide, third-party, affiliate verification service. LinkMo is developing a new service called Certified Affiliates to determine which affiliates are legitimate and which are fraudulent before they gain access to any network. LinkMo plans to reward affiliates who get certified through CertifiedAffiliates for the time and expense the service saves LinkMo.

Certification is not a new idea. de Poel says he tried it a few years ago. He started ATrustedMerchant.com, a program that gave out certification logos to merchants that met the predefined criteria for running a clean program.

But several companies that failed to receive certification due to the inclusion of parasitic affiliates raised a stink about their competitors being certified. Calls from the legal department at one of the companies followed, and the whole situation raised issues about the legality of compliance.

“It really become a pushing point for me,” de Poel says. “Everyone keeps on wanting me to make a list of clean merchants, but it got to a point where the list was not valid and there was inaccurate information on the site. It’s just too dangerous to certify merchants as being clean or trusted. Things change too fast to make sure that once a merchant got the certification they stayed clean.”

de Poel was also surprised at the lack of volunteers to help in his efforts, given the volume of messages on his forum devoted to voicing complaints about dirty programs.

“The community is coming out and saying they all want clean programs. Managers want this and affiliates want this, but no one is willing to do the damn work to make it happen. They all want to pass it off to someone else to do the work,” de Poel says. “I asked for help with ATrustedMerchant.com and only five people offered to pitch in. That’s not right.”

Stevens agrees there are many obstacles to certification. “It’s a huge technical challenge, and whoever undertakes such an effort is going to need a large pool of resources in terms of the time it takes, people and money,” she says. “I just don’t know if certification of affiliates is a viable financial business model.”

Consent is a huge issue in the certification process. Clean merchants will readily agree to a voluntary accreditation process, but anyone using questionable practices is not likely to submit to the necessary scrutiny, according to Stevens.

“It’s a sticky wicket,” she says. “People that want to conduct tests regardless of having the consent of the merchant or affiliate may face a lawsuit if they don’t pass.”

Instead Stevens would like to see some test-purchase protocols that could be used by affiliates.

The Networks’ Role

Some claim that the solution might not rest with affiliates, but rather with pressuring the networks to kick affiliates with parasite-ware out of their networks.

“A certification process is no good if networks continue to allow dirty affiliates in. At that point it doesn’t matter if I’m certified as clean,” Rice says. ShareASale.com is the largest network that has rigorous policies regarding adware, spyware and parasite-ware. To ensure no offenders enter its program, ShareASale does not allow any downloadable applications. Period.

“Affiliates could pressure the networks by refusing to do business with them,” Rice says. “The whole issue is driven by money, and right now the networks think that allowing parasites means more money for them. Affiliates need to show them it’s short-sighted and untrue.”

Many vocal affiliates are always informing the networks about nefarious activities. But these whistle-blowing affiliates often don’t feel that appropriate measures are taken against the offenders.

“The networks need to take action on the information from affiliates about bad practices,” Newlin says.

Collins says it’s going to be hard to satisfy all parties. “There’s just no way to placate people. If affiliates are required to provide more information about themselves to get into programs, then they consider that an invasion of privacy, but on the other hand the same affiliates are hollering that programs often let anybody in, including rogue affiliates. They want things to change but they don’t want it to impact them,” he says.

He cites LinkShare’s implementation of more restrictions with its Athena program, an enhanced affiliate registration and management system that allows merchants to verify affiliate contact information when an affiliate first registers in the network and when the affiliate changes any element of their contact information.

“People were screaming from the rooftops that this was an invasion of privacy,” Collins says.

“Project Athena is a great idea that was needed and I give kudos and credit to Steve (Messer, Linkshare CEO), but the execution of the project was chaotic and a disaster,” Rodriquez says. “When launching something of that level, you need to test in beta and retest in beta and test again and then bring it out. They had the launch before it was ready, but it was good for the industry.”

Many affiliates remain distrustful of the networks and say that despite publicly paying lip service to the issue of parasites, most networks are not doing enough and will get their comeuppance.

Rice says he believes “a day will come when this activity is illegal and affiliates will remember who did business with parasites and they will get what they deserve.”

Some encourage affiliates to vote with their wallets.

“Return on investment is key for the networks,” Rodriquez says. “And the networks don’t own affiliates, so affiliates should go where they can get the best return on their money.”

If the networks aren’t doing enough, then some would welcome government intervention.

SierraTradingPost.com’s Newlin would like to see the government step in and take over the regulation of affiliates. “I see parasites stealing hundreds of thousands of dollars, and they should be sued for it. The government should help,” he says. “I envision it like the CAN-SPAM regulation.”

But Newlin concedes that the government lacks the manpower to truly crack down on cyber-crimes. “They are probably not hitting 90 percent of the spammers,” he says.

Some affiliates say New York Attorney General Eliot Spitzer may be the one to finally exterminate parasites.

Spitzer, a candidate for governor of New York in 2006 is best known for his high-profile crusades against conflicts of interest in business. Now he’s focused on cyberspace. In April, he filed a civil lawsuit against Intermix Media of Los Angeles accusing the company of secretly installing software that delivers nuisance pop-up advertisements. He says such programs are fraudulent and threaten to discourage e-commerce.

Spitzer has publicly stated that he looks forward to a time when technology will provide a comprehensive solution to stop spammers, parasites and spyware, but until that time there needs to be a cop in cyberspace who will stop the most egregious abuses.

But any mention of the government getting involved raises heated debate. Rodriquez is opposed to the government getting involved. “The last thing we need is for the government to say this is under their control. That is the very last thing we need. Still, he admits that the industry has evolved and there are tools and companies that are taking advantage of the system.

“If some of the activities in the online world were happening in the regular brick-and-mortar space, some of these people would be in jail,” Rodriquez says.

The Clean Advantage

But just because a program is clean doesn’t mean it is well-managed, according to Newlin.

It’s a lot of work to run a clean program, but there are rewards.

“If you are clean, then legitimate affiliates will promote you harder,” Newlin says. “A lot of super-affiliates will not even touch merchants that have parasites. If the affiliate manager is not selfish in driving their own channel within their company, they will make sure the affiliate program isn’t going through the roof. It’s in their best interest to see if the parasite applications are stealing affiliate commissions in their own channel.”

AffiliateFairPlay’s Stevens expects things to change as the industry evolves and affiliate managers become more savvy about the online market, “but it’s not going to happen overnight.”

Rodriquez says that, in the end, in order for the online marketing space to grow and succeed, everybody has to win. “To become successful you need to help others be successful.”

Being Ben Edelman

You’d be hard-pressed to find someone more knowledgeable or dedicated than Ben Edelman when it comes to the evils of spyware. The 24-year-old assiduously tracks the proliferation of adware from his own computer lab. He’s a fierce critic of spyware practices and has testified in several high-profile adware-related lawsuits.

Talk about overachievers: Edelman is a Ph.D. candidate at the Department of Economics at Harvard University and a student at Harvard Law School. He currently is analyzing methods and effects of spyware, uncovering affiliate commission fraud and examining Internet filtering efforts by governments worldwide.

DIANE ANDERSON: Where do you do most of your work?

BEN EDELMAN: I work primarily from my apartment. All the equipment is in my office, the second bedroom in my two-bedroom apartment. I currently have six PCs in my lab, though I’ve had more from time to time. In general, I install one spyware app on each PC, then test its behavior under controlled experiments. For some projects, I install spyware in virtual machines on my fastest PC – which lets me return the system to pristine condition for multiple rounds of tests of install-uninstall or for testing of many different programs in sequence.

DA: How did you get started researching spyware and adware?

BE: It was something I had long been interested in. My recent work focuses on the intersection of law and the Internet – generally including writing software to study whatever software I’m looking at. Programs that show extra pop-up advertisements are a natural candidate for study in this way, because by careful testing I can learn which ads are shown when, how the programs get installed, what personal data they transmit and so forth. I was thinking about these kinds of questions as early as 2001. My earliest publication in this field came in mid-2002, when I served as a technical expert in the case brought by The Washington Post, New York Times, Wall Street Journal and others against Claria (then Gator) as to its pop-up ads covering their sites.

DA: There seems to be a lot of confusion about what the differences are between behavioral targeting, adware and spyware.

BE: I think the differences are often surprisingly small. There’s a large class of programs that use behavioral targeting – meaning watching what a user is doing – to figure out what ads to show (an “adware”-type function) while also sending back information to central servers about users’ online activities (which some might call a “spyware” feature). So I see great overlap between the three terms.

The various programs using these methods have a lot in common. For one, users don’t generally want these programs on their PCs. For another, users don’t generally seek out even the most benign of adware programs. Instead, users get the programs through some kind of bundle, or auto-install (“drive-by”) that occurs when users visit certain Web pages. A further similarity: The resulting advertisements cover Web sites with, in general, their competitors’ sites – a result that I found incredibly surprising when I first experienced it, and that in my experience users continue to find surprising. What an odd thought that the ad you see, when you type in LLBean.com (and are otherwise looking at L.L.Bean content), is in fact an ad for L.L.Bean’s direct competitor!

Of course, there are other kinds of contextual advertising. Google shows ads according to what searches users conduct. Sometimes these ads are controversial – sites’ advertising being triggered by direct competitors’ brand names. But Google certainly isn’t sneaking onto anyone’s PC. The Google ads, at least, are within Web pages that say google.com, so even the most inexperienced user can always understand that the Google ads are there because Google put them there.

DA: What should affiliates and affiliate managers know about search engine cloaking?

BE: First, let’s step back for a quick definition: Search engine cloaking is a set of methods whereby sites attempt to boost their search engine rankings, primarily by giving search engines content different from ordinary users.

Cloaking is a risky strategy. It has rewards, but it has a downside too. For those with savvy competitors or critics, who might notice the cloaking and report it to authorities, the risks are particularly pronounced. Google’s FAQ says it may remove sites from its index, permanently, as a penalty for cloaking.

That said, to date the penalties for cloaking have been pretty limited. Cloak for a year, and you might never be caught. Even if you are caught, you might get at most a slap on the wrist, especially if you’re powerful and can convince Google to be lenient. So the fact is, lots of sites are using cloaking.

DA: What are you working on now?

BE: This year I’m finishing my last year of law school, and planning my dissertation for my Ph.D. in economics. I also have some ongoing testing of more spyware and stealware, work I expect to publish on my Web site in the coming months.

DA: What stealware is the most pernicious these days?

BE: It’s hard to know. If I knew which software were most problematic, I’d surely make it my highest priority! Generally, I try to keep an eye on the programs with the largest installed base – figuring that they’re the programs affecting the most users, and that they’re the programs best positioned to show a large number of pop-ups or to falsely claim a large volume of affiliate commissions.

DA: You’ve studied these programs for some time. What do you think are the biggest dangers facing affiliates right now?

BE: I think the biggest danger is complacency. Affiliates would be wrong to assume that all is well in the affiliate marketing space – that they can simply link to merchants, then wait for the money to come rolling in. Fact is, powerful outside forces seek to profit from affiliate marketing and garner their profits by interfering with the referrals made by other affiliates.

DA: What actions would you suggest affiliates take to protect themselves?

BE: I wish there were more that affiliates could do. As it turns out, the major stealware problems are problems for merchants, primarily, and for affiliate networks to the extent that the integrity and value of their tracking systems are called into question. Ordinarily, rule-abiding affiliates lose out when stealware seizes their commissions. But there’s not much an ordinary affiliate can directly do to address the problem.

That said, it’s always good for affiliates to be informed, and to help spread the word. Revenue readers are surely better informed than most. I’m a big fan of ABestWeb, where there’s lots of savvy discussion about which programs are doing what. Those affiliates who have personal relationships with merchants can learn what’s going on and can help keep their merchants in the loop, especially as to programs found to target their merchants.

DA: You write about 180solutions, WhenU, Claria. Which companies are the most egregious violators?

BE: I was, and remain, particularly concerned about the behavior I have observed from 180solutions software. 180’s software was setting affiliate network cookies even on “organic-traffic” type-ins, where users reached merchants’ Web sites directly (not through any other affiliate). So merchants would be paying commissions to 180 for traffic that resulted from their own background marketing efforts. 180 was also overwriting cookies set mere seconds before by other affiliates – so merchants would be paying 180 when the commissions should have gone to other affiliates. These activities had been going on for at least six months when I began to write about the problem publicly. But somehow the existing processes – merchants’ fraud control efforts and affiliate networks’ efforts – had failed to detect what was happening, or to do anything about it.

Claria is notable for continuing to be installed on a huge number of PCs, some 40-plus million, according to recent reports. That’s a lot of users getting extra pop-up ads!

DA: What can be done about them?

BE: To the extent that these programs set affiliate cookies in violation of merchants’ and networks’ rules, I would ordinarily expect merchants and networks to detect the behavior and to issue sanctions, presumably including forfeiture of ill-gotten commissions. Litigation also seems like a possible way forward. After all, merchants might want refunds of commissions wrongly paid six months ago, not just of the most recent months of commissions not yet paid to stealware companies.

In thinking through enforcement options, it’s important to realize that affiliate networks face some odd incentives here. Remember that merchants pay networks a share of the amounts merchants pay affiliates. For example, if a Commission Junction merchant pays $10,000 of affiliate commissions, CJ’s 30 percent fee might be an additional $3,000. Usually, this is a good thing: Networks make more money when affiliates make more money, so networks have an incentive to stop merchants from cheating their affiliates. However, networks also make money when “stealware” affiliates claim commission they’re not entitled to. So networks face an incentive to look the other way and to allow or even to promote programs that claim affiliate commissions in violation of merchants’ and networks’ rules.

Set against this incentive are networks’ overall reputations for honesty and integrity: If the networks try to cheat the merchants too much, or if the networks let the merchants get cheated too much, then networks’ reputations are likely to go down the drain. But these forces are in tension, and my sense is that lots of merchants are coming to question whether they can count on networks to make sure affiliates, especially affiliates using software downloads, are in compliance with the necessary rules.

DA: What role does government play? What are your opinions about the various bills?

BE: I’d love to see legislation that truly addresses the problem of unwanted software getting on users’ computers. So far, though, I’ve failed to see much legislation that addresses the subtlety of the situation here.

The real problem, as I see it, is defining user “consent.” It turns out to be pretty easy to get a user to press an “I accept” button – especially if that button is in a box that looks official, or if it comes as one step in a many-step process of installing some software the user actually wants. But what should we infer from the user pressing “accept”? Can the user, with one quick click of a mouse button, allow a software distributor to claim commissions on the user’s every purchase? Allow the distributor to install whatever software it wants, from whatever third parties, at whatever point in the future? Can the user authorize the software provider to create on-screen advertisement displays that are, to many users, not just annoying but also misleading and confusing, and that many online publishers regard as damaging to their brands?

Then there’s the problem of licenses not actually shown to users. In many drive-by installs, the user gets a message like, “Do you want to, after reading our license (click here to view it), install [program name]?” How should we understand this prompt? If a user clicks on “yes” without reading the license, is the user still bound? What if the link were broken, such that clicking on the license link didn’t actually produce a license? If the unread license claimed “user will pay software provider $100,” I suspect we’d all consider the license unenforceable. What is so different when the license instead says, “We will cause your PC to show extra pop-up ads”?

I’ve been surprised at how many courts have been willing to accept the “consent” argument – giving so much weight to a user’s thoughtless and hurried press of the “accept” button. Most legislation also places great significance on “I accept” – sometimes requiring that users be given specific information before they accept, which I think is a good start, but ultimately letting users accept almost anything, no matter how one-sided. I’m not usually one to intervene in free markets – so I, too, have the instinct that if users actually want this stuff, we should let them have it. But my experience is that few users actually do want it. Instead, they’re just not paying attention when they “accept.” So I think there’s a role for government to be helpful here, in requiring consumers to really think before they leap, to read a few screens of disclosures and to press a few different “accept” buttons in a procedure reminiscent of signing a rental car agreement. The formalism of the multiple steps of acceptance might go a long way to helping users understand that pressing “I accept” is actually a big deal.

DA: What are your biggest current concerns?

BE: The current fight over unwanted software on users’ PCs actually seems to me a very big deal. As a society, how do we make sure that users have the freedom to install what they want on their own computers, yet that big companies can’t trick users into signing away (or should I say “clicking away”) their rights for nothing? In the real world, we’ve built up various kinds of unconscionability laws – a prohibition on various kinds of misleading real-world offers that make a user think he’s getting one thing, when the truth is far removed. Can we find the right online balance? Or will corporate interests run rampant and seize users’ computers for their own benefit?

More generally, I’m interested in the balance between public and private on the Internet. The fight over spyware ultimately comes down to how easily users can give up their own desktops – how much of a showing a software company must make to defend its right to be on a user’s PC, when the user quite likely didn’t actually want it there, but when the company claims the user pressed “accept” and granted permission. We shall see.

DIANE ANDERSON is an editor at Brandweek. She was the managing editor of Revenue Magazine for Issue 4 and she previously worked for the Industry Standard, HotWired and Wired News.

Stumped About Stopping Spyware

Tuan Le is mad. And when he’s upset, he speaks quietly, deliberately and very thoughtfully. He’s hardly a hothead. But nothing gets him more riled up, if you can call it that, than knowing he’s losing a large percentage of revenue from his two affiliate Web sites to other affiliates that are acting in unethical and unfair ways.

Le, who’s been an affiliate for the last few years and owns wholesaler.com and findcheapauctions.com, has spent a lot of time researching spyware and adware and has many times considered taking legal action against the companies that use spyware or somehow interfere with his affiliate commissions. But he’s been reluctant to make waves.

“I think there is a percentage of what is supposed to be coming my way that is being diverted,” he says. “I want to do something about it, but I’m not sure what I can do.”

And Le isn’t alone in this. Whether you call it spyware, adware, parasiteware or any of the many other names used to describe the software that positions itself between Web publishers and their merchant partners, the pernicious applications are causing thousands of affiliates to lose a lot of money.

According to an industry watcher who asked not to be named, affiliates are losing up to 40 percent of their annual revenue to illegitimate affiliates (often called bad actors) that entice end users to download free software in exchange for being served advertising.

Le estimates that figure could be as high as 50 percent.

“It’s the most horrible thing on earth. It’s intrusive, evasive and it’s just a very nasty thing to do; and it’s fast becoming one of the hottest ways to generate traffic on the Net,” says Jason McClain, president and CEO of PrimeQ Solutions, an Internet marketer and lead generator.

Once loaded onto the user’s desktop, these free applications often replace ads, redirect links and disable existing browser cookies. That means the ads that users see are not those paid for by affiliates – a consumer is often clicking on another affiliate’s advertisement to make an online purchase or going to a competitor’s site to buy goods. For affiliates that means a loss of commissions and traffic, which ends up hurting their revenue stream.

This issue has been a huge one for affiliates for more than the last four years, according to Kellie Stevens, president and founder of the affiliate marketing resource Web site AffiliateFairPlay.com.

“Affiliates feel the most pain – their cookies are being written over, the merchants are then paying out commissions that are not warranted. The merchants feel the second level of pain,” says Gary Stein, a senior analyst for online advertising and marketing at JupiterResearch.

At the crux of the issue is, who owns the desktop, the browser or the application?

Those companies that derive the bulk of their revenue from selling advertising on free downloadable applications take the position that the user owns the desktop and that consumers have a right to decide for themselves what is displayed on their own computer screens, not publishers.

Thomas Storm, vice president for online services at VentureDirect Worldwide, a performance-based marketing firm, claims the desktop doesn’t belong to a publisher, and if a user agrees to receive an ad, that is their choice. He acknowledges, however, that user agreement licenses for the free software are often so complex that few people actually read them. Or, if they do, few know exactly what they are agreeing to. Still, Storm believes it is the responsibility of users to make sure they understand what they’ve read before they agree.

“If there are three or four steps in the download process and users don’t read through all of them, then that’s their fault,” he says. “You can’t get away with claiming ignorance in a court of law. That won’t fly.”

A Big Problem

Although most market researchers who follow this space do not have specific numbers on the size of the spyware market or how much revenue is generated by the traffic, they agree the market is huge. Anecdotal evidence puts the spyware market at nearly $500 million, and some oft-quoted figures claim that nearly 90 percent of personal computers are infected with spyware or adware.

“It’s very hard to get a sense of how big it is, but it is big, and the perceived impact is significant,” says Stein, who notes that a quarter of the advertisers Jupiter surveyed are “philosophically opposed” to adware. Furthermore, 7 percent said their respective companies issued mandates prohibiting them from buying adware.

In October, EarthLink, along with anti-spyware and system utility software maker Webroot Software, published their SpyAudit Report, which scanned more than 1.1 million PCs for the period of July through September and found an average of 25 spyware-related applications running on each system. That is a slight decrease from the instances of adware and adware cookies, as well as a decrease in the number of system monitors and Trojan horse applications, on Internet surfers’ systems for the period of January through March 2004, when the average was 26.5 percent.

This downturn was attributed to the increased awareness of spyware and adware infections and the increasing number of software tools available to fight the threat. Antivirus vendors, including Symantec and McAfee, have been adding some level of spyware and adware detection and removal tools to their software.

Defining The Problem

It’s hard to fight something that is not defined. One of the biggest issues is one of the most basic – defining what is and isn’t spyware. Spyware is a catchall term typically used to describe computer programs that are designed to stealthily install themselves on people’s computers – often when the users attempt to download seemingly legitimate programs. The most benign spyware programs – also called adware – simply serve up a barrage of pop-up messages, while the most intrusive ones can track online movements, steal passwords and hijack sensitive data.

The fact that different groups use different terminology to describe these malicious programs (see sidebar) has made it difficult for various entities – especially the government – to curb the problem, according to Steve Messer, CEO of network service provider LinkShare. “Everyone’s definition is different. There is not a definitive answer,” Messer says. “Managing this problem will depend on how the community comes together.”

There are a handful of companies that are most often named as perpetrators of these types of acts, including Claria (formerly Gator), WhenU and 180solutions. All say they are not spyware and are legitimate advertising networks (see page 44).

Still, many are upset at the practices employed by these and other firms.

“California and Utah have given Gator and WhenU a clean bill of health, spyware-wise. Now these two guys are legitimate in those states,” says Haiko de Poel, president of ABestWeb. “But parasite- wise they are dirtier than hell.”

Claria, 180solutions and WhenU have all been named in suits that involve improper use of trademarks or unfair trade practices related to advertisements and targeting. Gator’s activities have prompted more than a dozen legal challenges from companies including the New York Times, The Washington Post, Extended Stay, Hertz, Lending Tree, Overstock.com, Quicken Loans, Six Continents Hotels, TigerDirect, UPS and Wells Fargo, among others.

One merchant, who asked not to be named, says he had to drop 180solutions. “I made a lot of money with them working with us on an affiliate basis, but my sense in talking with other retailers is that they were avoiding them like the plague.”

Who Is Responsible?

So whose responsibility is it to try to stop spyware: the government, affiliate networks, the affiliates themselves, end users, anti-spyware vendors? Most think the answer is all these groups.

PC makers have recently joined the fight against spyware in order to control their technical support costs and avoid any legal repercussions, according to Russ Cooper, senior scientist with TruSecure.

Forrester Research analyst Jonathan Penn says a spyware-related support call can cost $15 to $45, and a company may lose business if end users believe the spyware problems are related to its products. “Security is a component of loyalty,” Penn says. “People want all these various services, but they expect security to come with it.”

Yahoo, EarthLink and AOL have all begun offering spyware-detection tools. Hewlett-Packard and Dell also offer limited free trials of anti-spyware software preloaded on their systems.

Messer says he is shocked that some people truly believe the spyware situation can be resolved. “This problem is never going to be solved. It’s like spam or the war on drugs or illiteracy. You just have to manage it and do the best business you can.”

He adds that the concept of obliterating spyware is one of those lingering ideals from the early days of the Internet. “The idea that the Internet would be this free, safe, great place still lingers, but the reality is that we will have to deal with [spyware] for the rest of our lives. So, we need to work together to manage it.”

“I agree that we are not going to solve the problem, but we can minimize it,” says Trey Barnes, president of Public Policy Partners, a Washington, D.C. legal firm, and president of the Consortium Of Anti-Spyware Technology Vendors, a nonprofit organization of anti-spyware vendors that addresses the issue of spyware.

Barnes adds that the solution has to be multifaceted and must include the anti-spyware vendors, legislation, have a consistent code of conduct from the network service providers (see page 36) and focus on education.

“We need to get the word out about the risks of spyware to all the impacted parties without scaring them,” Barnes says. “Education is pre-emption, and pre-emption then goes a long way to help manage the problem. Spyware is not going a way, but if we don’t get it under control then it will threaten the commerce and growth of the Internet.”

Steps To Stop Spyware

Even though the affiliates are most impacted by spyware, they have not been able to mount a concerted and cohesive effort to fight it. Most are like Le. They are aware of the problems, but don’t want to make waves at that level. They fear repercussions from the networks or the spyware companies that could mean the loss of even more revenue.

In addition, there are so many affiliates, each with different strategies, varying levels of technical and business acumen and different opinions, that group efforts have yet to result in a consensus.

“Affiliates are an independent lot,” Stevens says. “Every group effort seems to fall apart due to differences in opinion. And individually they are not effective.”

The affiliates that are most impacted are mom-and-pop Web publishers. This group is not typically technically savvy, and some may not realize how much they are losing.

“Some affiliates don’t have any idea how much revenue is being lost,” Stevens says. “They figure that they are making $5,000 per month and paying their bills. But they are not put in the context that they could be making $12,000 per month. Most of these are smaller affiliates that started with this as a side income and were then able to quit their jobs. This is the first time they’ve been self-employed, and they don’t have as much experience with management.”

Many, like Stevens, believe the networks are in the best position to combat spyware problems. “The networks haven’t taken all the necessary steps,” she says. “Maybe with pressure from the affiliates they will do more. Maybe if the affiliates scream loud and long enough something will happen.”

While all the major networks have anti-spyware policies (Performics and Commission Junction have adopted a code of conduct, while LinkShare has its own contractual effort to curb spyware see page 36), some say those policies do not go far enough or are not enforced with regularity.

“Codes of conduct don’t mean beans if they are not enforced,” de Poel says. “And many times these guidelines are not enforced.”

Le says he believes the networks are dealing with the threat of spyware by setting up departments that are supposed to monitor and handle any inappropriate activity, but he also worries they are just a corporate façade.

“These are things they need to put up in order to get new accounts. They can say they have an enforcement department that exists, but if it’s not at all effective then that’s the issue,” Le says.

Stevens calls the networks’ policies related to spyware shortsighted. “When spyware and adware applications started, the networks were struggling,” she says. “Then they started to see revenue and traffic increases, and now they are top performers and have some really good statistics to attract more merchants. It’s like they were boxed into a corner.”

Others say blaming the networks is misguided.

“It’s not the networks’ fault that illegitimate marketers are trying to come up with ways to surreptitiously get to users’ desktops,” says Tim Hickernell, vice president at META Group. “Unlike spam and email, spyware and adware do not correlate to a service that users consider valid. With email, users thought it was a valuable service. Nobody said, ‘let’s do away with email’ to get rid of spam. It’s not the same for spyware. Consumers don’t understand the value at all.”

“As long as [spyware companies] are clearly stating that they will install a program and it’s easy for the user to understand what they are installing and say no, they don’t want it – and as long as users can clearly uninstall the program – then they are legitimate marketers,” he notes.

Still, the networks have not had an easy time policing their affiliates. In September, LinkShare awarded – and then revoked – its $15,000 Titanium Award to the affiliate with the highest quarterly percentage increase because the recipient, TheDesktopShopper.com, was accused of using spyware.

LinkShare took back the award after other affiliates complained on AbestWeb, an advertising/affiliate marketing chat site, that TheDesktopShopper.com had been blacklisted by several watchdog sites. To date, TheDesktopShopper.com has not been kicked out of LinkShare’s network. This was the second time LinkShare had to revoke its Titanium Award because an affiliate allegedly used suspect practices.

And while some companies with reportedly offending practices often remain in their respective networks, many note that trust between the networks and the affiliates may be eroding.

“The networks themselves are in a great position,” Stein says. “They are getting all the traffic, getting all the commissions, but they are degenerating the trust of the network. And when that trust goes away, the affiliates will abandon the network.”

Many, including de Poel, make no bones that the bottom line for all of this is money.

“The networks aren’t doing anything about it, because they are making money off of those guys. It all boils down to the dollar, the dollar, and the dollar,” de Poel says.

de Poel suggests that action is more likely to be taken when parasites start impacting the merchant’s organic traffic and not just the affiliates. “The merchants need to make the networks do something or they should leave. This left-handed administration of the programs just isn’t working, and the networks are not trusted third parties anymore.”

For Le, the turning point will be when merchants get real proof they are paying out unnecessary commissions. “That’s when this will come to a head,” he says.

Spyware-Free Networks

Brian Littleton, president of ShareASale, says spyware is a large overall problem. That’s why his affiliate network provider will not allow any affiliates to sell downloadable software applications.

“It’s a customer nuisance, and I didn’t want our company and my brand and me doing business like that,” he says. “As we saw the problems it was causing affiliates and merchants on other networks, it reinforced the view that we wanted to stay away from it.”

He says it’s not a difficult stance to take. Instead, it’s about working only with those companies that make you feel comfortable. “Financially speaking, you’re better off accepting those affiliates, but that will not change our stance.”

Littleton feels for the other larger networks in their struggles to determine who is complying with their regulations and code of conduct. “It’s not an easy task with so many people trying new tricks, but I have confidence in the other networks that they want to enforce it. It’s very difficult to do so.”

KowaBunga Technologies, a provider of private affiliate tracking and management solutions, has also taken a stance on spyware. Although the company was not able to mandate that its clients become free of adware and spyware, it sent a message to its more than 1,800 merchants alerting them to the findings of an August 2003 study by Harvard graduate student and antispyware activist Ben Edelman (see page 50). The study focused on the practices used by 180solutions (also known as MetricsDirect) and Claria.

“This affiliate/company [180solutions] has recently been exposed as engaging in possibly fraudulent activity ” ,” the KowaBunga memo stated. “In summary, this company encourages users to install software on their computers, often in exchange for MP3 downloads or other incentives. This software, once installed, will track the user’s browser activity and, most importantly, will attempt to take credit for any hit to your Web site, regardless of how the visitor finds your site. In this scenario you are rewarding this affiliate for a commission even if the visitor actually found your site through another affiliate, or even if they simply typed your domain into their browser. We believe that these practices not only cheat your other affiliates, they cheat you directly.”

“We received hundreds of responses from our clients and saw that the majority of them removed this ‘affiliate’ from their programs” after KowaBunga sent out the message, says Rachel Honoway, vice president of sales and marketing.

KowaBunga has placed 180solutions and others like them in its Fraud Watch center, an area within its software that allows merchants to alert one another of possible fraudulent activities and the appearance of spyware and adware tactics.

The Upside

However, some think this method of advertising has its strengths and is a very viable tool.

VentureDirect’s Storm says that targeted marketing is a great vehicle as long as the user’s experience is not disrupted. From a consumer’s perspective, they are more likely to get more targeted ads that are helpful if the technology is used properly.

“We’ve got to make sure that we’re forward thinking and tomorrow will come and we will be still be in business. If spyware is wiped out, the end result is that we will be taking away an advertising route,” PrimeQ’s McClain says.

It’s a very effective advertising vehicle, according to Scott Delea, senior vice president and general manager of e-marketing services at Digital Grit. “We are aware of the issue from an industry perspective, and we are trying to be respectful. You don’t want to cross the line; it waters down the overall advertising vehicle and will eventually lead to its demise.”

He notes that affiliates have to be conscious of the brand they are involved with and the product they are selling. Otherwise, targeted advertising is “teetering on the brink of a large abyss where this is no longer a viable marketing channel,” he says.

Even Barnes, who represents anti-spyware vendors, claims that there needs to be consumer respect for distribution methods. “The reason there is not a monetary cost is because the ads are paying for that. My big concern is that all advertising on the Internet is suddenly deemed inherently bad. We need to be more thoughtful than that and focus on types of applications – but not all software that serves ads is bad,” says Barnes.

Ethical Or Technical Issue?

Most claim that the issue is both ethical and technical.

Robert Deignan, business development director at Stopzilla, an anti-spyware software provider, calls the programs that perform browser hijacking and take over a user’s desktop extremely technically savvy. Stopzilla is putting out updates on a daily basis to make sure users have the most current software to render the spyware applications inactive.

Deignan also says “big bucks are at stake” for these spyware vendors. Some of these peer-to-peer programs can easily reach more than 300 million downloads. That means the market for anti-spyware and adware has ballooned over the last two years as well.

AffiliateFairPlay.com’s Stevens says the boom in adware blockers is a no-win situation for affiliates. The affiliates can promote the removal applications to their users to get their computers clean, but then it removes the affiliate’s tracking cookies.

“Programs are getting more clever. Every day they are finding more sophisticated ways to get around protections and to exploit holes,” says Ron Davies, president of joepro.com, which develops affiliate marketing system and trains affiliate marketers and retailers.

“They are using the technology to their advantage. The ideas are usually good, and then they get perverted. Remember, pop-ups used to be the darlings of marketing; now they are the scourge of the industry and people can’t get enough of pop-up blockers.”

Davies is particularly concerned about drive-by downloads, where users don’t even know an application was downloaded on their machine. This can take place in a single step or multiple steps. He likens a three-step drive-by download to a gun.

Some seemingly harmless JavaScript code is downloaded to a user’s system (the rifle). The next day additional code is downloaded, the equivalent of a bullet. So far, those two components are not harmful. But on the third day, the user downloads code that is the trigger. Now all three components click together and become harmful.

Still, Davies believes the issue is more ethical than technical. “A good marketing company has to make the decision of how far are we as a company willing to go to make money,” he says.Clay Lingo, vice president of marketing at Illuminations states emphatically, “I just think it’s poaching. Some say it’s a natural synthesis of search. Someone is searching for a product and a pop-up appears providing a more focused return on what the end user is looking for.” Jupiter’s Stein says it’s an ethical issue, where technology is the weapon. He calls it an “arms race with either side using technology to get ahead.” Others fear the future of affiliate marketing hangs in the balance. “I don’t see affiliate marketing doing well if the thievery and the unethical behavior continue to be condoned and rewarded financially,” says de Poel. Meanwhile, Le says he’ll stay calm. Spyware will remain one of his main concerns, and even though it might not be immediately apparent, he’s fuming. “It is beyond belief. It is bad and it is wrong.”

LISA PICARILLE is the editor of Revenue. She has more than 15 years of experience as senior writer and editor at CMP (as executive editor of TechWeb.com), IDG and Ziff-Davis.

Been There Done That: Q & A with Shawn Collins

It’s very difficult to find anyone in affiliate marketing better known than Shawn Collins, who earned his first commissions more than seven years ago.

Wearing his newest hat, as president/CEO of Shawn Collins Consulting, he provides outsourced affiliate program management. But he is, perhaps, better known as a co-founder of Affiliate Summit, as the author of the top-selling book Successful Affiliate Marketing for Merchants and for launching the highly successful affiliate program for ClubMom, a membership shopping site.

As a result of his numerous roles, Collins has not only become ubiquitous, but has helped to shape the industry through its childhood. He’s emerged as an expert for spotting new trends. Indeed, Revenue Editor-in-Chief Tom Murphy discovered some surprises when he interviewed Collins about where affiliate marketing is headed.

TOM MURPHY: You’re very well known in the industry as a superaffiliate, a guru, an association leader, a leader of an industry summit and, most recently, as a program consultant. How do you really define yourself these days?

SHAWN COLLINS: I guess I’ve been on every angle of the industry, working as an affiliate and affiliate manager. I worked with First Directory Preferred years ago. I guess, overall, I’d probably characterize myself as a cheerleader of the industry as well as a shepherd trying to push it in a direction that I think will be helpful for the industry.

TM: Do you think there’s a chance of spreading yourself too thin?

SC: I don’t think so, but my wife thinks I spread myself too thin a long time ago.

TM: You recently published your AffStat survey, which had some very interesting statistics in it. I’d recommend it to anyone who wants to know what’s going on in affiliate marketing. I had heard, for example, from a number of sources, that only about 5 percent of affiliates make any real money and only about 2 percent fall into the superaffiliate category. But your AffStat report shows 20 percent of affiliates making more than $2,000 a month. Do you think that’s an accurate figure?

SC: Yes. I had a pretty good cross-section here who were participating in the survey, from the very small mom-and-pops to some of the really big players. And I know who contributed the answers, so I think it’s a very accurate depiction.

One of the things that skews the numbers when they talk about 5 percent or 2 percent is that, in the past, there was a very big emphasis on quantity over quality of affiliates. And people are very proud to claim they had 75,000 or 100,000 affiliates. But naturally, you’re not going to have 15 percent of those being too powerful. These days, you see a lot more of a boutique approach to it, where people have 1,000 or 5,000 affiliates, so it’s much more realistic to have a good 20 percent or more be superaffiliates.

TM: I’d like to hear your thoughts on a few of the issues facing affiliates, including PPC, predatory advertising, Froogle and things like that. But, first, do you think these things taken together are really just symptoms of an evolving industry?

SC: Yeah, I really think they’re inevitable. It’s a more sophisticated industry than it was back in the ’90s. I think they’re good things. They’re hurting some of the smaller affiliates, but they’re making things easier for the affiliate managers because they’re shrinking the number of affiliates they have to deal with.

TM: It sounds almost like a natural, evolutionary process where there’s a survival of the fittest. Do you think that’s what is taking place?

SC: Absolutely. Back in 2000, and earlier than that, you really didn’t see any superaffiliates out there. You had SchoolPop and some others, but there’s been a big emergence of these sites over the past couple of years – various sites that have a tremendous amount of traffic, with membership sites and things. They’ve really taken a big bite out of the industry. They account for a big portion of the activity that goes on.

TM: Predatory advertising seems to be perceived as public enemy No. 1 in the community. Do you see that as a problem that’s getting better or worse going forward?

SC: I think it’s been limited to a degree over the last year or so, but it’s still a very relevant issue and I think it will be around for a while. Certainly, some of the affiliate managers have taken a cue from the networks. I think the affiliate managers have to be more proactive in their approach to stopping it instead of just sort of waiting for something to happen.

It is sort of a double-edged sword because a lot of the affiliate managers on a moralistic level would like to get rid of predatory advertisers. But when they have pressure from their bosses on the bottom line, they end up having to take those (predatory) affiliates because they’re seeing higher numbers with them. It puts them between a rock and a hard place. They want to do the right thing, but they want to keep their job[s].

TM: There’s a similar thing with spam. Nobody likes it. It hurts the image of the community. It hurts the consumers. And, arguably, it hurts the merchants and manufacturers, who spend a lot of time building up brand names. Do you think that’s also a double-edged sword for the merchants?

SC: With the parasites, there are some good adware products. But I think with spam, there’s never a good spammer. I think that has really hurt the industry tremendously because it’s resulted in the CAN-SPAM Act and that changed the face of affiliate marketing in one fell swoop this year.

TM: You wrote about the CAN-SPAM Act recently in a brief and in your blog. Could you reiterate your key points?

SC: Basically, a lot of the CAN-SPAM [requirements] are logical things, like you have to have an unsubscribe option and take care of things that any permission mailer always takes care of. But one of the things that makes it very difficult for affiliate marketing is the need to have a suppression list. If I’m an affiliate and I usually feature four different merchants in my newsletters, I’m now going to have to crush my entire subscriber list against their list of unsubscribes who never want to hear from them again. That makes it awfully challenging, not only to get that technology and make it work, but it throws some hurdles in front of affiliates who run email promotions.

TM: Some affiliates are feeling deeply threatened by Froogle, Google’s spider-driven shopping service. What kind of impact do you see from that in the affiliate area?

SC: Just from the power of Google, I think it’s certainly going to have a greater and greater impact on the smaller affiliates. A lot of the merchants like it because it gives them more exposure, the same as Shopping.com or Yahoo’s comparison-shopping engine. I think it’s a very positive thing in terms of affiliate programs getting more exposure and more penetration, but it’s definitely one of the things leading to a smaller world of affiliates out there.

TM: From what you said, it sounds like the number of people making some real money is on the rise, but the overall number of affiliates is declining. Is that right?

SC: Yes. Through a sort of natural selection, I guess. Since people used to take all comers, you’d get tons of sites from Geocities, and the free sites on AOL, and different free hosting services. So a lot of affiliates would be made up of free services where they never even bothered to put a link up. I wouldn’t even characterize them as affiliates because they didn’t know how to put a link up.

TM: I saw you referred to a lot of affiliates as “dead affiliates” in your report, people who haven’t provided a click in the last month or so. What sort of proportion do you think that is of the total number of affiliates out there?

SC: For the larger programs that haven’t done any sort of maintenance to clean out people who’ve been inactive for a while, they probably fall into that 95-5 rule (where only 5 percent of affiliates are making money). But (for) people who’ve tried to communicate often with the inactive affiliates, and sweep them out if they haven’t been active, it’s a much different percentage. But I think 80 percent of the programs probably have the 95-5 rule going on.

TM: That’s a pretty high proportion. And it’s contrary to a lot of other things we’re seeing going on with big business today. Most businesses in the last two years or so since the recession have been trying hard to maximize their efficiencies. And it seems like the affiliate program may be one of those areas that’s been overlooked. At the same time, I see affiliate programs contributing a bigger proportion of top-line growth to corporations these days. What’s your advice to corporations in general?

SC: It makes all the sense in the world to shrink the number of affiliates to just those affiliates who are going to be performing and who show some promise. But affiliates who have emails that bounce back and haven’t shown an impression in six months, I don’t think it’s worth carrying them on the affiliate roles. One of the reasons you see this perpetuating is that it’s all performance-driven. So even though they may be taking up some bandwidth, they’re really not costing anything for the companies that are keeping them on. But it makes more sense to me to shrink the size of the affiliate program so you know who’s promoting you and how they’re doing it, and you have a relationship with them.

TM: How do you think pay per click is changing the world for affiliates?

SC: In the last couple of years, there were a whole lot of affiliates basically using PPC – not even having their own Web sites. It was quite a successful tactic. I did it myself for quite a while, just driving activity right to the merchant. But in the last six months, a lot of merchants have been clamping down and adding a lot of restrictions because they found they’ve been bidding against their own affiliates and paying more than they have to. They’ve been concerned that a lot of searches normally would have ended at their site anyway. When an affiliate buys the keywords for a trademarked name, it’s a waste of money for the merchants because it would have been organic traffic for them.

TM: Do you think that’s an issue that will go away on its own because merchants will put a stop to it?

SC: I think what a lot of them are doing is damming the ability to bid on trademark names. Then they’re selecting certain generic keywords and saying, if you want to be in our program you can only bid a certain amount for these terms. And if you don’t like it, you just can’t do any pay-per-click promotions with us. Eventually, it will just sort of fade out and the affiliates will still do it successfully because there are a ton of words you can use without having to infringe on their trademarks. So I think that will be a strong channel for affiliates for a long time to come.

TM: Another interesting statistic in the AffStat report – I’m combining a couple of categories here – says 40 percent of affiliates have negotiated higher payments from programs. Does that fit with your anecdotal experience? And does that present a headache for affiliate managers?

SC: I was actually surprised by that figure myself. I’ve found, in personal experience, even for some smaller sites of mine, if I approach affiliate managers and tell them what I think I can do for them, a lot of them are willing to negotiate and make a special deal for you. So I think it’s really possible for just about any affiliate to do that. A lot of them never ask because they don’t realize it’s a possibility. But I don’t think the average affiliate manager would mind being asked, because then they know it’s an engaged affiliate and they can get more activity out of them.

TM: As a consultant, would you recommend to affiliate managers that they keep the door open to negotiations with affiliates? Or is there a time constraint that may limit their activities and put a lot of pressure on them?

SC: It’s something you’d have to model for. You just can’t put out projections for a year expecting to pay the rate you advertise on your site – say, a 7 percent commission. If you do that, you’re going to end up blowing out your budget. Because if you say you’re going to pay a 7 percent commission for everybody and you give 10 percent to superaffiliates, you might spend twice as much as you expected on commissions. If you don’t model for that, you’re going to be in trouble.

TM: How do you see the future for networks versus in-house programs? Do you see a bigger share for networks, or a bigger share for in-house programs?

SC: The networks still have the bulk of the activity in the space. When I did the AffStat report at the end of 2002, I think the networks had about 80 percent of the market share. But I think we’ll see an expanding role for in-house programs such as My Affiliate Program and DirectTrak. They’re getting more and more of the network programs to switch over, and they’re very aggressively recruiting new clients. I think in the next couple of years, we’ll see more prevalence of that kind of program.

TM: What do you think that means to the affiliates out there?

SC: It makes things a little more challenging to them in some ways if they have to go to a lot of different places to log onto their stats. But, otherwise, it’s a good thing for affiliates because it’s a little cheaper to run in-house programs so, theoretically, the affiliate programs can pay more to the affiliates in commission.

TM: The merger between Commission Junction and ValueClick is now a done deal. Nobody is sure what will happen to CJ in the future. What do you think is the future for big networks? And do you think this merger and other trends in networking open more opportunities for niche networks?

SC: It’s exciting to see this happen. It sort of validates the way the industry is moving, that it definitely has a future. It’s sort of surprising to some people that it took this long for there to be some consolidation because there have been rumors about various companies getting together for years and years. But it definitely sets the stage for some niche players out there who can take care of certain types of clients, with certain levels of start-up fees, because right now the bigger networks are not really an available resource for some of the mom-and-pops who are out there. It leaves an open door for ShareASale and MyAffiliate programs to capitalize on anyone who’s not in the Fortune 500.

TM: There are always new technologies coming down the pike, and I think we can all agree that’s a good thing. There wouldn’t be affiliate programs now if there hadn’t been technologies in the past few years that make it possible. Some technologies, such as the Norton firewall product introduced recently, block banners and can make links unclickable. Are there ways the affiliate community can change things when a company introduces a product that creates obstacles to what they do to make their living?

SC: I think the individual affiliates are powerless. We really have to rely on the networks banding together and going to Norton or whoever might make a similar product. One of the prime targets of these products are the domains that are serving all the banners and the clickable URLs for affiliate programs. The products are going after the URLs for LinkShare and Commission Junction and other companies, so it’s certainly in their best interest to get their hands dirty and try to take care of this as soon as possible. (See ReveNews.)

TM: Do you know if they’re doing that?

SC: I don’t know. I know in the past that was going on. Then, the end-user was asked if they wanted to block ads, and now it’s a default that I’ve just heard about. I don’t know how active the networks are. I would imagine they’re out there trying to find some sort of resolution for it.

TM: What will be coming up at your summit this year?

SC: The plan for the whole agenda is to be very focused on networking. We’ll certainly have our share of speakers and panels. But for every conference I’ve gone to during the last decade, it seems like the feedback from the people is always that they wished there was more networking, and nobody seems to be catching on to that. Every time you go to a conference you see the same cast of characters up there on a panel and running some PowerPoint, and it seems like it’s boring everybody. But the organizers aren’t seeing that. So my partners, Missy Ward and Ryan Phelan, and I figured we’d create a conference for people who hate conferences. We’ll have an emphasis on the things people love: the formal and informal networking as well as the educational sessions. And so we’re sort of expanding beyond what the past affiliate marketing conferences have been to make it more of a performance-marketing conference for affiliates.We’re also bringing in the experts on email and search to all get together for a four-day event. I don’t know if you ever heard of speed-dating, where people date for 30 seconds and then move on. We’ve sort of adapted that goofy concept to speed-networking, where you sit opposite another person for 30 seconds and give them your card and have these mini-meetings. You get a lot more comfortable and have a lot more interaction on a level that you can’t really see. (Note: For more information about the upcoming summit, please visit AffiliateSummit.com.)

TOM MURPHY, editor in chief of Revenue, has been writing about business and technology for more than 25 years. He is also the author of Web Rules: How the Internet is Changing the Way Consumers Make Choices.