Casting a Wider Net

Podcasting is emerging as an interesting and potentially lucrative opportunity for online marketers who want to reach a wider audience.

The figures for podcasting vary, but by all counts the podcasting market is poised to explode and online marketers want in. A report from The Diffusion Group, a technology research consulting firm, showed that the use of podcasts is expected to grow from an estimated 4.5 million users in 2005 to 56.8 million by 2010.

Also called audioblogging or blogcasting, podcasting is a term formed from the combination of the words iPod and broadcasting. Podcasting started cropping up with some frequency in early 2004 and, despite its etymology, an Apple Computer iPod is not required – any MP3 player or computer will play the audio files that are created and downloaded from the Web.

These audio files, which can be about a diverse range of subjects (from cooking to computers and religion to comedy), are posted online and, by subscribing to RSS feeds, can be automatically detected and downloaded to a user’s computer.

Until recently, podcasting, like blogging, was the domain of those with a desire to create whatever sort of content they chose without regard to advertisers’ preferences, editorial guidelines, format or demographic targets. They were even exempt from government regulators such as the Federal Communications Commission.

Then in 2005 several events occurred in the span of just a few short months that shone the spotlight on podcasting and pushed the grassroots movement into the mainstream consciousness.

In April some impressive data emerged that showed podcasting was a large and still-growing market. The Pew Internet & American Life Project reported that more than 22 million American adults owned iPods or MP3 players. Nearly 30 percent of them had downloaded podcasts from the Web to listen to audio files at their leisure. Then in May 2005 BusinessWeek put podcasting in front of the average business Joe by running a cover story and special report focused on podcasting.

By October, Apple had announced the integration of podcasting into its popular iTunes music service software. This made it easier for users to search for and subscribe to podcasts. The move struck a chord with users who signed up for more than a million free podcast subscriptions in just two days after the announcement.

Also in October, Apple launched its much-anticipated video iPod. Users were overjoyed to find out they would be able to download episodes of their favorite TV shows including Lost and Desperate Housewives.

Marketers began jumping on board just as quickly. Only a little over a month after the video iPod was unveiled, fast-food giant Burger King sponsored a set of comedic shorts that could be downloaded and played on the new device. The Burger King sponsorship entailed a branded page for video files specially encoded for video iPods.

Also just shortly after the device debuted, a group of users of Adobe Systems’ software launched what may have been the first podcast infomercial, a half-hour tour of the company’s popular photo-editing software, Photoshop.

All of this was bolstered by surveys, data, research and reports predicting huge gains for podcasting.

A November report by radio and media market researcher Bridge Ratings estimates that 4.8 million people have at some time during 2005 downloaded a podcast from either a radio station or other source. iTunes was referenced as the most often accessed portal for podcast downloads. This 4.8 million estimate is up from 820,000 podcast users in 2004.

By 2010, conservative estimates say that 45 million users will have listened to at least one podcast. Aggressive estimates place this closer to 75 million by 2010.

The study shows that approximately 20 percent of current users who have ever downloaded and listened to a podcast do so on a weekly basis. This group downloads an average of six podcasts per week and spends approximately four hours a month listening to those podcasts. More interestingly, on average less than 20 percent listen to their podcast downloads on an MP3 player or other portable digital device.

A lot has changed since a year ago when Allen Weiner, research director with market research firm Gartner, referred to podcasting as largely a hobbyist phenomenon, attracting “anybody who’s ever had a microphone or worked at a college radio station.”

Now this burgeoning podcasting market, which had already quietly developed a huge and fiercely devoted following, was the object of interest for venture capitalists, traditional media players, advertisers and online marketers – all working overtime to figure out how to make podcasting profitable.

And that is a polarizing topic for the podcasting community.

At the Portable Media Expo & Podcasting Conference in Toronto in early November, keynote speaker Leo Laporte said, “If somebody gives you money, you owe them something. I listen to my listeners, but I don’t want to listen to advertisers.”

Laporte, an author and high-tech guru, appears in advertising-supported radio and TV shows but shuns commercial advertising and promotions for his popular “This Week in Tech” podcast.

But for most the basic questions are no longer, Is podcasting an advertising vehicle or a marketing vehicle, or is it an art form or a commercial form? The discussion has moved beyond that to acknowledge that it’s all of those things and more. Now the real question is exactly how and who will make money from podcasting.

Add Advertising and Stir

Adam Curry, a former MTV VJ from the early 1980s, is widely credited with helping get podcasting off the ground. Curry was among the first to create a podcast by working closely with Dave Winer, a programmer, who is also often acknowledged as the first blogger, credited as the father of RSS and a former resident fellow at Harvard Law School’s Berkman Center for Internet & Society.

In November of 2005 Curry’s company PodShow, which promotes podcasts and finds sponsors for them, acquired Podcast Alley, a grassroots podcasting directory that played a big role in sparking the podcast craze. Many define success as a spot in Podcast Alley’s Top 10 list. Those with top rankings are often downloaded hundreds of thousands of times.

The acquisition comes less than a month after news that PodShow, which also helps mainstream companies produce and distribute podcasts, received $9.85 million in funding from Silicon Valley venture capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital. Curry’s plan is to launch a podcast network with anywhere from 30 to 50 shows that will split ad revenues.

While Curry’s been in the podcast mix since the start – he often refers to himself as “the Podfather” – there’s no lack of jockeying for position among big tech players and some newcomers, many of whom are attempting to lay the foundation for selling shows and advertisements. Technology companies including America Online, Apple Computer and Yahoo are jumping into the mix with aggregation services that collect thousands of podcasts in a single location.

Apple’s iTunes offers 15,000 podcasts, and as of press time listeners had signed up for 7 million subscriptions. Listeners confirmed more than 10,000 podcasts can be found at PodcastAlley.com.

And there’s power in numbers. Once podcasts are aggregated it is likely to be easier to sell ads across a group of shows. A lot of different approaches are being tried, including placing advertisements in actual podcasts, offering subscriptions to individual shows and in some cases, getting podcasters to actually do shows devoted to specific products or talk them up, much like the early days of radio.

Curry plans to offer advertisers a variety of sponsorship possibilities, including spots where a podcaster tests a product and then devotes an entire podcast to that product or service.

Last November, the women behind Mommycast (part of Curry’s network), a weekly show hosted by two mothers from their homes in Virginia, secured a major sponsorship deal with paper products maker Dixie, a division of Georgia Pacific. In a 12-month, six-figure deal, and repositioning that will be happening this spring.

Another high-profile sponsorship deal was also inked just before Thanksgiving. Martina Butler, a 15-year-old podcaster, snagged sponsorship from Nature’s Cure, a top brand of acne treatment. Butler’s show, Emo Girl Talk, features the life and times of a teen girl who talks about her favorite music and interviews celebrities. Officials from Nature’s Cure said in a press release, “There are a number of teens now listening to podcasts. Sponsorship is an excellent way to increase our brand awareness in an environment that is meaningful and credible to them.”

Many say these deals prove the podcasting medium is starting to gain traction among advertisers, and not just those reaching out to early-adopter males.

Sponsorships typically involve a 15- or 30-second audio ad at the beginning of the podcast. In the past, the popular podcasts usually set flat rates ranging from a few thousand dollars a month to as much as $45,000.

For example: In early 2004, Volvo agreed to pay $60,000 for a six-month sponsorship of the monthly podcast of Weblogs Inc.’s Autoblog, as well as advertising on the site itself. Over that period, the show was downloaded 150,000 times.

Some industry watchers note that because the number of listeners is changing fast, a flat-rate sponsorship isn’t always such a good deal for advertisers.

KCRW, a public radio station in Santa Monica, Calif., cut a deal with Southern California Lexus dealers for a sponsorship this summer, when the station was getting 20,000 downloads a week. Since then the number spiked to 100,000. When the Lexus deal ends, KCRW plans to charge $25 per thousand listeners, according to Jacki K. Weber, KCRW’s development director.

That new rate is considered pretty high given that one morning radio show in New York City (America’s No. 1 market) often charges between $12 and $15.

Venture capitalist Mark Kvamme of Sequoia Capital says podcasting may end up diverting anywhere from $1 billion to $2 billion away from the $30 billion radio advertising market over the next three to five years.

To fend off that possibility, some in the radio business are getting into podcasting in a big way. National Public Radio, which offers 33 podcasts, pumped out 5 million downloads in less than three months. NPR grabbed Honda Motor Co.’s Acura division as sponsor and is wooing others.

Still, some like Laporte are seeking ways to support their podcasts without directly taking ads and instead are asking listeners for donations. Laporte’s “This Week In Tech” podcast has more than 200,000 listeners and asks for donations of $2 per month. It often takes in nearly $10,000 a month, he says.

Tools and Metrics

Once ads get placed, sponsors want to make sure they are getting exactly what they paid for.

The difficulty in tracking podcasts, however, goes beyond the number of downloads and instead is about the portability of the files. Because the player software is often on a mobile device, such as an iPod or other MP3 player that is not connected to the Internet, the marketer loses track of the downloaded file when it leaves the computer.

For that reason, some podcast advertisers are turning to techniques used for traditional media like radio, such as custom 800 numbers or offer codes. And since podcasting uses RSS feeds for distribution – the same syndication and distribution mechanism used by blogs – RSS-centric technology companies such as FeedBurner are leading the way to help podcasters build the format into a moneymaking business.

There are also tools that make it attractive to launch ad campaigns across various mediums including blogs, podcasts and RSS feeds. Blog and RSS advertising network Pheedo is developing a program for advertisers looking to launch integrated multichannel campaigns across blogs, RSS feeds and podcasts.

If your advertising message is in only one of these channels, there’s a chance it will be missed by part of the customer base, according to Bill Flitter, Pheedo’s founder and chief marketing officer.

Advertising buys will be a package deal, with guaranteed impression counts for the RSS and blog inventory, while the podcast portion will be measured by the number of average downloads from previous shows.

While Pheedo has been testing integrated campaigns for a few advertisers since June, the company is still developing technology for podcast ad serving and is building its podcast network. Pheedo’s podcast ad network currently offers ads on about 30 podcasts and has run campaigns for six advertisers. The RSS and blog components are already in place. To date, technology, video game and automotive advertisers and publishers have the most success with blog and RSS advertising, according to Flitter.

While many applaud the moves to provide some basic metrics, they admit that strategic marketers are always focused on the return on investment and need to know who’s viewing the page and who’s downloading the file in order to accurately measure the impact on their own end, according to John Furrier, founder of PodTech.net and host of the Infotech podcast series.

Shelly Palmer, president and CEO of Palmer Advanced Media, a marketing consultancy in New York, says, “If you think about podcasts as marketing vehicles, you would be taking advantage of all the tools available to Internet marketers: tracking software, affiliate marketing schemas, SEM (search engine marketing), and SEO (search engine optimization) methodologies, etc. This makes huge sense since, for the moment, podcasts require a personal-computer-based client and an Internet connection.”

Palmer adds that brand awareness, lift and purchase intent are three of the most common metrics that brand managers use when calculating return on investment for advertising and marketing dollars. “What’s nice about podcasting is that the Internet enables census-based metrics. Properly used, podcasting can tell you a great deal about how effective it is for your business.”

Furrier claims that better ROI calculations won’t be possible until the different systems involved are integrated.

Many are working hard to make that possible. At the Portable Media Expo & Podcasting Conference in November, much of the focus was on tools or ways for podcasters to count audiences, deliver ads and charge listeners.

Furrier’s startup, Podtrac, announced a demographics-and-advertising program that attaches a prefix to the name of MP3- formatted podcasts that will obtain an exact count of downloads per show, thus far a vexing challenge for podcasters because some podcast directories cache shows on their own servers. The company also plans to help podcasters create sales kits and then work to connect them with advertisers, with Podtrac taking as much as a 30 percent cut of the revenue.

Audible.com, which sells audio books and news programs online, has launched a new service called Wordcast that lets podcast creators chart listener usage behavior somewhat like the Nielsen ratings do for TV – a huge step for getting advertisers to make precise choices.

By providing a way to track not just how many times the show is downloaded, but also whether it is played and for how long, Audible hopes to give podcasters some audience information.

The company will charge 3 cents per downloaded podcast to report whether a downloader listened, and for how long. Audible will also offer tools that will stop the podcast from being emailed to others. It will charge 5 cents per download to track listening and attach the access restrictions. For half a cent per download, Audible will insert an ad relevant to the podcast. Audible also would take a 20 percent cut of any subscription fees it collects.

With the tools, “you can build a bona fide rate card” for advertising, says Foy Sperring, Audible’s senior vice president for strategic alliances.

BitPass, a 3-year-old Menlo Park, Calif., company, showed off a similar process that enables podcasters to sell their content, while Taldia unveiled its podcast-production service. The Altadena, Calif., company has a deal with the Associated Press and other news outlets in which Taldia’s army of voice talent, which is spread across the nation, records audio summaries of printed news reports. For $5 a month, subscribers can select what news topics they want to hear about, how many minutes of content they want and at what time of day they want it delivered to their computers.

Microsoft has also announced plans to integrate support for RSS throughout the Windows Vista operating system to make creating, viewing and subscribing to content of all types, including podcasts, easier. Microsoft is also working with companies like Doppler, a podcast aggregator, to ensure it can take advantage of the open architecture in Windows Media Player for its podcast applications.

Lukewarm

Still, not everyone is convinced podcasting is the next big, big thing. Many are tempering their enthusiasm with a healthy dose of skepticism.

Mark Cuban, owner of the NBA’s Dallas Mavericks and an avid proponent of blogging, wrote in one of his posts at BlogMaverick.com that he expects podcasting to level off soon.

Here’s the picture he paints: “The number of podcasts available individually or through aggregators will explode beyond where they are today.” Then, “that will create a massive dilution in the audience size of the early-entry podcasters. Everyone’s audience will fall as the marginal listeners find something they like better. Yes, there will be some podcasts that get more listenership than others, but most of them will be repurposed content that already has demand.”

Finally, “Individual podcasters who don’t have some other means of generating demand other than being on aggregators will fall off first and the fastest. They will just go away, the only trace remaining will be tiny Web pages on the Wayback Machine. So in about three years, the podcast phenomena will have run its course and will just be a normal part of the digital media landscape.”

Ted Schadler, vice president at Forrester Research, says, “Podcasting feels like the Internet first did: a whole new way of experiencing the world. But at the end of the day, radio is radio and consumers will only listen to things they find valuable.”

Schadler says there are many people with various agendas. “To the rising tide of podcast hosts, podcasting is better than blogging for becoming famous. To venture capitalists like Kleiner Perkins Caufield & Byers, Charles River Ventures and Sequoia Capital, podcasting is a bet on the next big thing. To commercial operators like Clear Channel, it’s yet another channel for selling advertisements,” he says. “Each of these groups expects podcasting adoption to mirror Internet adoption with giddily exponential growth. Alas, there is another precedent that all must consider: Push. Push exploded on the scene with Pointcast, landed faddishly on millions of desktops, and then just as quickly died away. (Of course, push has been rehabilitated as RSS, but push’s big problem – content overload – remains.)

Schadler’s bottom line: “Podcast listening will follow a natural progression: enthusiastic experimentation, disenchanted abandonment, and value-driven adoption.”

By the start of 2006, Schadler says, “Enthusiastic experimenters will find that most podcasts aren’t worth listening to and even the useful ones pile up unopened in the podcast corner of the hard drive. After all, who has an extra hour a week to listen to a radio show? Disenchanted, consumers will abandon most podcasts.”

However, it’s not all so grim, according to Schadler. “Somewhere in the midst of the experimentation and abandonment phases, podcasting will become valuable to consumers that want control over radio or access to niche content. Thus, value-driven adoption will characterize the mature phase of podcasting.”

And based on a historical analysis of Internet radio adoption and a forecast of broadband and MP3 player adoption, Forrester expects 12 million households to be regular podcast listeners by the end of the decade. That’s a far cry from Bridge Ratings’ estimates of 75 million users by 2010.

That kind of conflicting data is likely why some advertisers are also not jumping into the deep end with both feet.

A survey by the American Advertising Federation rated blogs, podcasts and Web-enabled cellular phones as newcomers in the market that are worth watching, but have yet to prove they’re worth major investments.

On a scale of 1 to 5, respondents rated the three new Internet-based channels in the middle of the scale, which is considerably lower than where they placed traditional media and other forms of online advertising.

An AAF representative says that because these media are so new, people are more cautious and are taking a wait-and-see approach. The “cornerstone” of advertising remains the 30-second spot on television, but consumer adoption of new technology is forcing ad execs and marketers to look beyond newspapers, magazines, TV and radio, and question their return on investment.

Pod Porn

One market segment that is always lightning fast to react to new media and new technologies is adult content.

Andrew Leyden, founder of Podcast Directory.com, is quoted in a Newsweek published report saying, “No matter what the technology is, sex finds a way to get involved.”

This shouldn’t be surprising since 85 percent of those who use the search engine’s podcast directory are men according to Yahoo senior product manager Joe Hayashi.

At PodcastDirectory.com, six of the top 20 shows are adult-oriented. On Apple’s iTunes store, “Open Source Sex” is No. 11 and climbing. “Porn” is the second-most-searched-for term at Podcast.net; “BBC” is tops.

Industry watchers also say the plentiful storage capacity, portability and privacy afforded by MP3 devices make it enticing to listen to such titillating adult content. The video iPod is only expected to increase the amount of X-rated content available for download since anyone with a microphone, a video camera, a computer and some privacy can create such adult content, according to Violet Blue, the host of the Open Source Sex podcast. “You don’t need big breasts or big advertisers.”

The flip side of the emergence of sex-related content is religious programming. There are already many religious-themed podcasts – often referred to as godcasting – including Dharma.net, GospelAudio.com, Catholic Insider, Pray-station Portable and Pagan Power Hour.

“Casting” is also being co-opted by all sorts of other industries, market segments and groups. There have also been suggestions of food marketers looking into gastrocasting, music marketing called rockcasting and pharmaceuticals delivering medical education to physicians via medcasting.

In the end, it looks like everyone, including God, is looking for podcasting to pay off in a big way.

Defend Yourself Against Click Fraud

The sky is falling! The sky is falling!” That’s what the Chicken Littles of the world would have you believe when they discuss how click fraud will doom the world of pay-per-click (PPC) advertising. Of course, some Chicken Littles have a vested interest in raising awareness of this supposedly rampant problem, considering many of them are the purveyors of products that help protect you from this threat.

I don’t mean to make light of click fraud. It certainly exists and if it is left unchecked it has the potential to cause serious harm to advertisers. But does anyone really expect the search engines to sit idly by waiting for hackers to kill their very substantial profit margins? The search engines take click fraud very seriously and have teams of folks whose job it is to try to protect advertisers from spending millions in a tide of click spam.

The search engines are not waiting for the problem to go away, and neither should you as an advertiser. You need to protect yourself from an issue that has the potential to kill the golden goose of PPC marketing and severely impact your return on investment.

First of all, if you are spending a decent amount of money on PPC (in excess of $1,000 per month), assume that you will become the victim of click fraud at some point. If you are marketing in a competitive channel, with a large number of keywords, top positions, high click value (over $1 per click) and a large marketing budget, you may have already seen traffic to your site rise in a suspect fashion on certain keywords.

As with any impending threat on the Web, protection comes down to vigilance. If you are a frequent Web user, you know you shouldn’t surf the Web unprotected. You need a firewall and an Internet security program to protect you from the shenanigans of those who propagate trojans and worms and phishing schemes. Seriously, if you have an unprotected computer, you better drop this magazine right now and go purchase the necessary software. You’ve got bigger problems than PPC fraud.

A good vigilance campaign deploys the following methods: take advantage of the tools the engines provide to you; purchase tools that allow you to see immediately if there are spikes in traffic and their source; and monitor your campaigns frequently.

Tools From the Search Engines

All of the major search engines monitor clicks across many different points of data. The majority of click fraud gets caught by the engines and never shows up in your reports, because they strip out those clicks before they bill you. Unfortunately, a small percentage can slip through mainly because the algorithms that perpetrate fraud are constantly adjusting. Just as it’s hard for the antivirus programs to keep up with the worms, etc., it’s also hard for the search engines to catch every piece of fraud when they are constantly under attack.

This is where you come in. Constantly review the reports that the engines provide to you, and if you see a spike in traffic start looking for reasons. Maybe it’s simply because one of your products was listed in a press release, but it could also be because one of your keywords is under attack.

The engines also provide billing reports. Pay attention to emails you get advising you of charges to your credit card. If you see an increased frequency of charges, it’s time to start investigating.

Tools You Can Purchase

Any of the basic tracking solutions allows you to see at a glance where spikes in your traffic are coming from. By viewing click data at the IP level, you can see if a large amount of traffic is coming from a specific IP address. That can be a good indicator that the traffic source may not be a good one.

Going to the search engines with these types of reports in hand will guarantee you an investigation and will likely result in a refund if the traffic is found to be bogus. Unfortunately, the types of reports you get from just viewing most Web logs are not detailed enough for search engines to conduct a thorough traffic investigation. You need the more detailed analysis that a tracking solution provides.

If you just want tracking on your pay-per-click campaigns, two good tools are Who’sClickingWho and Click Auditor from Keyword Max. These tools allow you to see at a glance what might be amiss with your PPC campaign.

Of course a more extensive tracking solution allows you to see traffic from every marketing campaign you are running and enables you to determine where you should be spending your money. Before buying one of these tools decide whether you just want to analyze PPC or if you would prefer to calculate ROI and conversion rates across all your campaigns. There are many great tracking solutions out there – both inexpensive and expensive – that let you do so. Many will give you a free trial version of the software.

Monitor Your Campaigns

Checking your campaigns frequently enables you to see patterns in your traffic and determine if something is wrong. If you are in the retail space you will definitely see seasonal and monthly changes in traffic, but service and B-to-B sites can also see varied traffic patterns.

If you have deployed a good tracking solution and are also using a bid management tool, you may only need to monitor your campaigns on a monthly basis. However, if you haven’t implemented those tools, at the very least you should take advantage of the free conversion analysis tools the engines provide, and watch your campaigns on a weekly basis.

Resign yourself to the fact that click fraud, just like phishing scams, isn’t going away. While the Net creates a global competitive marketplace for business and products, it also creates the same opportunity for thieves and scoundrels. But just as Chicken Little protected herself with the umbrella, you too can protect yourself and your business. Stay vigilant and monitor frequently, and you will be fine. Remember, PPC works and we all have a vested interest in ensuring it continues to do so.

MARY O’BRIEN is a partner at Telic Media. She was formerly senior director of sales at Yahoo! Search Marketing and is currently presenting their Advertiser Workshops around the country.

Pimp My Shopping Cart

A former computer special effects artist, Christina Hills, ditched her star-studded career working magic for Star Wars: Episode I – The Phantom Menace, The Lost World: Jurassic Park and The Perfect Storm to move to Northern California’s Sierra Nevada and launch her business as a shopping cart consultant.

As owner of ShoppingCartQueen.com, an affiliate of 1Shopping Cart.com and a few other related merchants, she quickly found that "the more affiliates can match the look of the merchant’s site to the look of their website, the better their sales will be."

Industry watchers say customers clicking from one page to the next don’t want a disconnect; they don’t want to realize they’re suddenly on another site. That makes them wonder what page they landed on and if they can trust that site. It also makes them nervous about entering their credit card information. Internet experts cite these reasons, even if they’re not always conscious thoughts, as chief among why customers abandon the purchases in their shopping carts and move on.

A solution for these issues is affiliate-side shopping cart functionality. Orders go from your affiliate site to a software system that requires only one input of customer purchase and shipping information and then parcels out the individual orders to the respective merchants – all while counting toward each of your merchant’s affiliate program sales.

It’s a tricky endeavor when you consider all of the routes an affiliate sale can take and the different order coding each merchant requires. But resourceful affiliates are making it work.

"Most of our clients are affiliates," says Martin Toha, founder of OrderMachine .com. "They started marketing for a company, realized they could do it for themselves better, started becoming affiliates and did it that way. Many even buy the shopping cart to resell it." Sure, it’s easy for customers to make purchases using Buy Now buttons that send them straight to, say, Amazon.com. But the merchant’s sales message isn’t specifically honed to your customer’s needs. And once the buyer jumps off your site, there’s no guarantee they’ll be able to find their way back to shop your other merchant options. Besides, the payoff for affiliate-side carts is more than just continuity. It also boosts sales, says Martin Wales at 1Shopping Cart.com. "We’ve seen 300 to 400 percent increases in sales when [affiliates actively upsell and start using] their own carts." The percentage of affiliates using their own shopping carts is small, but growing.

"How much would you pay the worst support person in the world to follow up with all your customers and take phone calls?" Wales says. "Compare that to a cart that takes 15 minutes to set up and does all of the work and reporting for you."

Return on Investment

Even 1ShoppingCart.com’s most expensive version, selling for $15,000, is still a deal, Wales says. "There are people getting that money back in two and a half months."

Advanced functionality also makes today’s carts the ultimate in affiliate branding. "Because our system includes the warehouse and the affiliate functions together," says Dan Steinberg, an international payment consultant at OrderMachine.com, "the invoice can actually indicate the name of the affiliate that brings the sale in. The entire process, from beginning to end in a sale, can be private-labeled."

OrderMachine’s partnerships with Yahoo’s store, Amazon.com and other merchants and payment gateways simplify the process: Any products sold through these partners can be imported into its system so customers can create an order right at the affiliate’s site. For 3 percent of gross sales, affiliates can now offer customers an easy, one-step process to order all kinds of affiliate products directly from their own site. That’s a huge plus.

Other advances in affiliate-side technology include 10-year-old WebCart.net, which now offers new customer-friendly features, such as regular credit card alongside PayPal processing (also offered by 1ShoppingCart.com), affiliate gift certificates and even affiliate-generated coupons.

"It’s up to the merchant and affiliate to negotiate how the commission and the coupon will be paid," says WebCart CEO Jason Ciment. "If you negotiate well, you can credit the coupon against your commission."

Plus, WebCart offers private-label capabilities and is programmed with freeware database software MySQL. "MySQL gives it the power of an Oracle-based system; it could store 30,000 products and it wouldn’t blink," says Ciment, who developed the software initially for his sites Mountain Net.com and MagMall.com. It sells in $500 (no private labeling or subscription modules), $800 and $2,500 versions.

Even more shopping cart vendors are integrating behind-the-scenes functions that help affiliates’ businesses run much more smoothly. The new shopping cart model, says AISMedia.com CEO Thomas Harpointner, is to "really integrate the website into just standard business instead of something on the Web. From a modular standpoint, I think we’re going to see a lot more integration in the future, like shopping carts integrating Peachtree software for accounting."

His company’s newly revamped Excerpo Storefront integrates features such as OrderMachine-like manual filling of orders, robust product comparison engines, automated cross-sell engines and couponing based on the amount of business customers have previously done with the site.

"These are features common on enterprise sites, but not readily available for small businesses," Harpointner says. "And an average increase of 10 or 15 percent on every order can really add up over time." Built from custom software upgrades originally done for big-name merchants, it also allows affiliates to enter all of their products – along with affiliate links – into their choice of high-functioning, merchant- quality site templates.

Unlike carts such as OrderMachine and Yahoo Small Business, Excerpo doesn’t charge transaction fees. It’s $99 to set up, with one-time licensing fees from $99 to $199.95 plus $39.95 per month for hosting (includes technical support, 250 megabits of data space, updates). It, like many others, can grow with you, so customers can consistently use the same functionality they’ve grown accustomed to even if your site goes from 10 items to 10 million.

1ShoppingCart.com’s cart pages can even be hosted on up to 100 different sites; a great solution for those hosting multiple sites who only want to purchase one cart and gather reports on all online income.

"A basic shopping cart can really just take orders," says Rob Bell, creator of 1ShoppingCart.com. "But it takes so much more to even get a potential customer to that point. That’s why [the new] services provide it all."

Typical costs to run 1ShoppingCart.com – if you opt not to purchase a one-time license – is $29 per month for the basics and $79 for added functions like autoresponders, affiliate tracking, customizable layouts for private-label partners and newsletter database management.

"There’s a big advantage to having a hosted solution like ours, which has invested a quarter of a million in appliances just to protect from server attacks and has 99.9 percent uptime; it takes all the technology worry out," Bell says.

Affiliate-only sites frequently use the system to build prospect lists and qualify sales, even if they plan to send customers to merchants for actual purchases.

Templates Make It Easy

For shopping cart functionality without all the bells and whistles, templated services have sprung up. Sites like open-source developed osCommerce.com, ZenCart .com, AlgoZone.com or CubeCart.com offer shopping cart functionality in freeto- download catalog templates with standard administrative back-office functions. Most allow PayPal or AuthorizeNet for customer payment, so affiliates won’t need a merchant account or online gateway to make use of it.

For $59 to $159 there are off-the-shelf shopping cart programs from Atomic Shops.com or eCommerceTemplates.com. Off-the-shelf options vary. AtomicShops automatically secures credit card payments through Verisign certificates (a monthly hosting fee applies). ECommerceTemplates offers fully customizable stores with drop ship features for affiliates to manipulate in Frontpage, Dreamweaver or Adobe GoLive. Many facilitate PayPal and back-office payments. Some even negotiate merchant accounts, like those through MBank Card.com: "They allow people like momand- pop shops, maybe with a little less credit, to be able to sell online," says Patrick Schrodt, Atomic Shops’ affiliate manager. MBankCard.com charges $10 a month, plus 0.25 percent of the transaction and a 29-cent transaction fee.

A templated site works best when used either as a complete retail site, with its own domain name, or as a stand-alone storefront accessed off of an existing site offering things outside of products – such as advice, forums or newsletters. Some templates, however, do include functions like newsletter databases and distribution software. Mal’s e-commerce freeware, at Mals-e.com, even allows affiliates to design the cart to match the look of their sites and incorporate PayPal as the payment option.

For some reason, the templated sites also show up more frequently in natural search listings, a boost for past customers who just can’t quite remember your site’s name. Search engine placement is critically important these days. Shopping service Shopzilla found that 59 percent of Internet buyers start shopping at a search engine rather than going directly to a merchant, up from 46 percent three years ago.

But maybe a single shopping cart doesn’t offer the bells and whistles you’re after. Or maybe you’d like to try your hand before committing. Aside from trial versions there are other strategies for giving customers a faster and friendlier checkout process.

My Credit Card Information

Visitors create their own wallet-type information at a secure section on your site, where the contact and credit card information is logged for later processing. Most merchants allow back-end fulfillment, which means that you can take the information you have and manually send individual orders to their individual merchant – all using the same customer information for that order. Some merchants even give incentives to affiliates who do their own processing.

Taking an active part in processing orders also gives affiliates a real-time sense of what products are selling best. They then start stocking the products that sell well, cutting deals with merchants for wholesale prices on those items, forwarding the orders to designated dropshippers for fulfillment and passing the savings along to the customer.

Personalize for Customers

Bring visitors back by helping them create wish lists, or personal "homepages" with links to items they’re interested in. Remind visitors to actually make the page their homepage (or at least bookmark it) and refer friends there for gift ideas. Encourage wedding, birthday or new-home registries – anything to make a hectic person’s life easier. Keep logins simple by having them just type in their email address. Capture the email addresses and you can send out helpful suggestions for new, similar items they might want to add to their list.

Automate Clickthroughs

When it comes to helpful emails, some shopping carts have the ability to automate this for you. CEO Joshua Baer of Unsub Central says a number of affiliates are using automated programs for "time-based" emails, staying in touch with customers as soon as they click on a link. The program automatically sends them an email, written based on the link they clicked, that suggests similar merchants or products they’ll find on the affiliate’s site.

If this feature isn’t offered with your shopping cart, then Baer has this suggestion: When customers click the Submit button, have the merchant’s landing page open in a separate browser. That way, when they’re through placing the order and close the window, they are already back at your site.

Program Submit buttons to open a new screen on your own site, and then you also can immediately show your customers alternate selections to the one they just clicked. "For those that are using it, the results are incredible," Baer says. "[An affiliate] that normally might get a 10 to 20 percent open rate might jump to 40 or 50 percent." The implication, of course, is that this strategy also works for customers.

Niche Gateways

Let’s say you manage a travel site making money from clickthroughs to various travel merchants. World Choice Travel, at WCTravel.com, has an integrated shopping cart feature that searches all airlines and travel programs online for the best fares.

By opting to go with one merchant that supplies links to all of your potential product options, you greatly simplify the search for your user and can even brand the process all the way to the credit card statement.

If you offer five types of product categories, you often can find one merchant for each category offering an affiliate program for all the products you normally would sell separately. This makes it easy to structure your sites as either a "gateway" for products in different categories or create five different landing pages, where visitors will go when they search, that are your branded pages for the new all-in-one merchants.

Back-End Fulfillment

Chris Malta, an eBay-certified solution provider and CEO of drop-ship directory provider WorldwideBrands.com, has seen more people combining affiliate techniques with their own drop shipping. As mentioned above, this method enables you to pass along discounts your customers wouldn’t normally get by ordering with the merchant’s Buy Now link. Drop-shippers handle the software portion of getting orders to the merchants. Only about 30 percent of drop-shippers handle shipping for orders placed outside of their respective countries of origin, so shop around if you’re looking to add international sales.

Thanks to advances in shopping cart technology, affiliates now have a lot of ways to help their customers through the online process – even if those affiliates aren’t filling orders themselves.

 

JENNIFER MEACHAM‘s stories have been featured in the Wall Street Journal, Kiplinger’s Personal Finance, the AARP magazine and CBSMarketWatch.com. She’s a former reporter for the Seattle Times.

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.

Three Great Search Engine Marketing Myths

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Search For Tomorrow

It was the summer of 1998 when GoTo.com launched its pay-per-click (PPC) program in a fairly straightforward way. Back then, there were few competitors and the bids were low. Often a top slot could be had for a penny a click, and the reporting was bare bones.

It was morning in paid search country.

Six years later, the paid search landscape has gotten a lot more crowded. According to PayPerClickSearchEngines.com, there are now about 600 PPC engines. It has also gotten a lot more expensive, with the minimum of a dime per click at Overture. And all that has made things a lot more complicated.

If you want to know what the future holds for the fusion of paid search and affiliate marketing, strap in and hold on tight.

The typical affiliate program is heavy on affiliates utilizing either natural optimization or paid placement. A third of all affiliates promote their links in PPCs, according to a survey in the AffStat 2004 Report. Additionally, 16 percent cite data feeds as their preferred method for promoting an affiliate program.

When CAN-SPAM (Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003) took effect on Jan. 1, 2004, the email affiliates were significantly bridled. This has resulted in a seismic shift by affiliate programs and their growing reliance on search engine affiliates.

According to Kevin Lee, CEO of the search marketing technology firm Did-it .com, paid search is moving toward more personalization, automation and the greater emergence of vertical portals. There are also some changes on the horizon with regard to use of company trademarks by affiliates, says Lee.

Personalization Per Click

Affiliates using Google AdWords can now target regionally and locally, so they can reach the prospects who are most appropriate for the affiliate program they are promoting. For instance, if an affiliate is running a fan site for the New York Jets, it wouldn’t make a whole lot of sense for them to use paid search to push a Jets banner to a national audience. But with regional, city-level and IP targeting (using the address uniquely identifying a certain computer on the Internet), affiliates may focus on specific cities and metropolitan areas to market Jets goods. Google even enables affiliates to define their own target area by choosing a point and a surrounding radius of 20 or more miles or by picking points in order to define a border.

Personalization could be focused on regions or interests. “Rich media search, image search and news search will gain in popularity, and paid results will become available within these areas,” says Did-it’s Lee. “All the search engines will roll out some kind of personalization or personalized search where the engine remembers things about you. This will help with targeting ads better as well as algorithmic results.”

You can expect affiliates to begin using this option more extensively, bringing in a more attractive and effective CPM (cost per thousand advertising impressions) and CPC (cost per click).

Automate To Elevate

Affiliates have long relied on spreadsheets to manage all of their keyword bid campaigns, but as the paid search space matures, the administration and tracking of PPC campaigns is getting more advanced.

“In order to continue participating in the ever-increasingly competitive marketplaces for keyword bids, marketers will be forced to use marketing automation techniques that take into account order profit values and lifetime value, not just simple ROAS (return on advertising spending) or immediate ROI (return on investment),” according to Kevin Lee.

Some of the more popular tools for automating paid search processes are Atlas OnePoint (formerly Go Toast), the Maestro Client from Did-it.com, and PPC Track from KowaBunga Technologies. Additionally, search engine marketing firm iProspect unveiled iProspect Search Engine Bidding Agent (iSEBA) in the summer of 2004. ISEBA manages the keyword bidding process for pay-per-click advertising campaigns on both Google and Overture’s paid search programs.

Making A Vertical Leap

As affiliates get deeper into personalization, it’s natural that they’d also gravitate to vertical portals that serve the channels for the affiliate programs they promote. While search engines do not generally define themselves as servicing certain types of users, the MarketingSherpa Search Marketing Metrics Guide reveals that just like any other media property, each search engine has a remarkably distinct type of user.

This MarketingSherpa report, which surveyed 3,007 marketers in July, reveals that highly educated men with an interest in technology tend to use Google. Kids are more likely to Ask Jeeves for their search results. Older teens rebel by making MyWay their way. Moms tend to prefer MSN search.

So for affiliates trying to reach the men and kids, Google AdWords is the way to go to get your ads on Ask Jeeves, MyWay, and of course, on Google itself. But if you want to hawk wares to moms, you’d better be using Overture to place your targeted ads on MSN. Bear in mind that things may change due to consolidation and new business arrangements, so keep an eye on who’s serving whom.

Lee expects that vertical portals will become hotter, including the shopping portals, as well as portals within specific industries or customer segments.

On Your Mark. Get Rules. Go!

In the early days of affiliates bidding on keywords, there were no regulations being enforced by the affiliate programs. This can be attributed to a number of issues, including good old-fashioned ignorance; many affiliate managers have never been affiliates and don’t know how they do what they do. However, you could also attribute it to self-preservation. Affiliate managers are aware of activity that’s not particularly beneficial to their company, but it makes the affiliate program look better. This resulted in an environment where multiple affiliates, and the trademark owner, were competing for ad placement on trademarked terms.

The bad news for affiliates is that things are changing. Over the past year, there’s been a significant shift. In a poll of affiliate managers on the AffiliateManager.net Forum in August 2004, 65 percent said they were no longer allowing affiliates to bid on their trademarks.

And why wouldn’t they feel that way? It’s a low hanging fruit that converts well, and if the company isn’t in a bidding war with their affiliate, it’s a cheap cash outlay. Why outsource that sort of thing to affiliates and pay exponentially more for it?

Don’t Jerk That Knee

But all things considered, merchants ought to be most concerned about controlling what’s above the fold. At least that’s the contention of David Lewis, president of 77Blue, which operates private- label shopping portals and coupon sites with more than 800 merchants in three countries. “There are unintended consequences to restricting trademark bidding. It’s not all about ROI. You have to consider PR,” says Lewis.

Lewis’ view is decidedly merchant-centric, which is surprising for an affiliate. According to Lewis, “Advertising on a merchant’s trademarks is a privilege and not an affiliate’s right. Merchants should consider creating a separate agreement with two or three affiliates they trust, and allow them to bid on the trademark,” he says. “This gives the merchant control that is forfeited when banning trademark bidding.”

By banning affiliates from bidding on trademarked terms, Lewis argues, “merchants are giving management of their brand to Google and Yahoo, with whom they may have no relationship. I would want to control the results that come up when a user searches on my trademarks, especially knowing that most users click predominantly on the first 10 results.”

While the majority of merchants are currently banning their affiliates from bidding on trademarks, Lewis’ view is gaining ground. Beth Kirsch, the affiliate manager for Audible.com, had a policy against affiliates bidding on her company’s trademark. But after taking Lewis’ thoughts into consideration, Kirsch did something of an about-face.

She says, “While Audible is our trademark, it’s also an everyday word. No affiliate PPC bidding left room for other companies to promote ‘audible’ products. It clearly damaged the brand. David’s input made us change our policy, where we now allow a couple of trusted affiliates to bid on our trademark,” she says. “What’s a few bucks, when we have spent millions to build a brand?”

Another affiliate, Steve White, sounds a similar note. “Affiliates have an incentive to apply creativity to the bidding and keyword selection process. That incentive is more commissions,” he says. “Therefore, a dedicated group of affiliates can far outweigh the internal efforts of a program, unless that program has the resources to hire full-time search engine experts, as well as the capital to bankroll the campaigns. The affiliates bring both to the table at no cost (to the merchant), and the results are almost instantly calculable.”

The Other Trademark Issue

Even though affiliates may not be able to bid on the trademark for Company X, they can bid on the trademark of Company Y (the chief competitor to Company X). The bids on Company Y can then direct traffic to Company X. This is an escalating problem, says Lee of Did-it.com.

“There may be some significant litigation regarding trademarks and search engine marketing (SEM),” he says. “Some marketers may try to encourage affiliates into bidding on competitive trademarks (not their own) in an attempt to shield themselves from litigation.”

In the past, Google granted requests from advertisers to bar competitors from bidding on their trademarked names. However, Google will now only review trademark complaints that relate to text appearing in sponsored listings on its Web site and those of its partners. So affiliates cannot mention a company in copy for their competitor, but they can bid on the trademarked name of that company, and that could be a liability for the affiliate program they are promoting.

Trademarks aside, the bulk of affiliate programs permit bidding on most keywords, and there are still bidding bargains to be had. Communication between affiliate managers and affiliates is essential, and the well-informed affiliate is the most efficient affiliate.

Audible’s Kirsch knows this, and she makes a “keyword kit” available to her affiliates. It’s a document outlining which keywords affiliates cannot bid on, as well as a list of suggested keywords for affiliates to use that convert well.

It’s The Brand, Stupid!

In some cases, affiliate programs have forbidden SEM outright for their affiliates. For instance, the fund-raising affiliate program for the Republican National Committee doesn’t mince words when it comes to how their affiliates may promote them. The description of their program states: “Please note that search marketing is NOT allowed. Affiliates will NOT be paid for donations generated through search engine marketing.”

Often, the reason that companies will ban affiliates from utilizing search engines in their promotion efforts is that they are concerned about the way affiliates will represent them if left to their own devices.

“We’re seeing some increased dissatisfaction from consumers who are clicking on paid search ads and being directed to an affiliate site,” commented Rob Key, president and CEO of Converseon, a communications agency. “Companies need to think very carefully about how they allow affiliates to bid on their brand names. For brand-sensitive companies, we recommend they own their brand names and derivatives. With inflation expected to grow in paid placement, finding efficiencies is absolutely critical. A merchant’s affiliate network cannot afford to work at cross purposes.”

One cautionary tale, or marketing parable, depending on where you are sitting, was on a popular marketing message board. As affiliates debated whether it was okay to use pay-per-click search to promote affiliate programs, one affiliate comments, “If in doubt, just do it!” This was followed by another affiliate who commented “It’s always easier to get forgiveness than permission in anything … just do it.”

It may come as little surprise that when affiliates were asked in the AffStat survey, “When signing up for an affiliate program, do you read the affiliate agreement?” only 45 percent responded that they always read it.

Ignorance of the affiliate program terms is bliss for some affiliates. And when an affiliate program is on autopilot, it makes it that much simpler for affiliates to game the system.

So where are we headed with all of these changes? Well, we have seen the future of affiliate marketing and paid search, and with all of the personalization, automation, verticalization and gate keeping, we will be better equipped than ever before to measure ROI.

Gone are the days of pray-per-click.

SHAWN COLLINS is CEO of Shawn Collins Consulting, an affiliate program management agency; webmaster of the AffiliateTip.com affiliate program directory; and a founder of the Affiliate Summit conference. He authored the book Successful Affiliate Marketing for Merchants and the AffStat affiliate marketing benchmark reports cited in this story.

Using Data With Integrity

A crucial element of building and maintaining a database is data integrity – making sure your information is accurate and in the correct format, unchanged by technical glitches. You can personally verify information if you are entering it manually, but when users are filling out forms on your Web site, and that information goes directly into your database, you need another approach.

There are two places to check data validity: on the client and on the server. Checking data on the client involves adding scripts to your Web pages that examine what the users enter before they submit forms to your server. A script checks that the data in the form meets the criteria you have established. If there is a violation, the script can pop up an alert message and request a correction.

To check data on the server, the user must submit the form and let the code on your server verify the data. If there is a violation, your server can return the form again with a notation of the error that needs correction.

In general, server-side checks can be more thorough, as you can check other resources on your server to validate the information. For example, you might have a database of valid discount codes, or you might check that an email address is not already in your system. However, client-side checks provide more immediate feedback to the user, and can save iterations of submitting a form and then correcting any errors. A balanced combination may prove the best choice.

A simple check on the client side could be a matter of confirming whether the user entered any value at all.

More Sophistication

Your checks can be more sophisticated. For example, you can make sure an area code was entered as three digits. And you can see if an email address contains invalid characters like a space, or if it’s missing the @ character.

In some cases you may need to examine more than one form element at the same time, such as only validating an area code if the user has selected the US or Canada. You can add a name property to the form tag. Your JavaScript function would be passed the name of the form, let’s call it “myform,” and could reference a specific form element value like “myform.test.value.”

Once your form has passed all of its client-side checks, it gets sent to your server where more sophisticated checks can be performed. If you have a database of area codes, you can validate that the user entered a legitimate one. Or, you can ensure that a user has not already signed up for your program or for your service.

If the data you receive from a form is placed directly into a database, then it is even more important that you check the information on the server before storing it. Depending on how your server performs its database access, it is possible that users may include data-base commands in their submission that could directly affect your database.

Another example is a search form, where your server performs a search through your database. If the user can search for an email address based on a name in your maillist, and the server executes “select email from maillist where name=”<name>'”, where <name> comes directly from a form submission, then the user could get your entire maillist.

If they submit the name text “‘; select * from maillist where name matches “*”, then both selects would get executed. The first would produce no results, but the second would match every entry in your maillist. If your code looped through and displayed the results of the select, assuming that only one or two matches would occur, then this example would end up displaying your entire maillist.

In both cases the user would have to guess the name of your table, but it seems there are people out there with nothing better to do.

EDWARD ARENBERG, vice president and CTO of EPage, created one of the first fully dynamic Web sites. He manages and develops for EP.com, Epage.com and AdConnect.com.