Video Goes Viral

Thanks to social networking sites such as YouTube, online video has quickly become an everyday part of the online experience. While marketers have been slow to capitalize on video so far, the low cost of producing content and potential for increasing reach will make it essential to performance marketing.

The audience that watches Web video skews younger, but nearly everyone online is doing it. According to market research firm comScore, nearly 75 percent of U.S. Internet users watched video during the month of May, viewing more than 8.3 billion video streams. Consumers are interacting with video more frequently in a wide variety of destinations, from “newspaper” websites to social networking to blogs. The most popular viral videos can garner millions of views, and video ads have proven to be more effective than their static counterparts in prompting user actions.

In 2008, more than half of the total U.S. population will be watching video online, according to eMarketer, and advertisers will spend more than $775 million in 2007 on video ads, up 89 percent over the previous year.

Since interactive video will catch and hold viewers’ attention longer, marketers are beginning to use the technology in four ways: on their primary websites; on microsites designed for specific campaigns; syndicating them through advertising networks; and releasing them to video search engines in the hopes that they go viral. The first step is to create professional and compelling content.

The Medium and the Message

Video starts with a camera, and MiniDV (digital video) is the industry-standard format for recording video on tape. MiniDV or hard-drive-based cameras are the best match for transferring video to a PC. To make it easy to transfer the video to a computer for editing, the camera should be able to record in MPEG 2 or 4 format and pass it through a FireWire (also known as IEEE 1394) or USB 2.0 (universal serial bus) connection.

These cameras range in cost from a few hundred to several thousand dollars depending on the features, including optical zoom; size of the LCD panel to preview the video; and the technology used to steady the image. Sony, Panasonic and Canon offer high-quality digital video cameras at a variety of price points and options.

For companies that want to tell a personal story in a vlog style, Jim Kukral, who blogs about using video at HowToDoVideo.com, recommends purchasing a set of lights that cost between $150 and $400 and a photo background (or green screen) that sells for approximately $50. Kukral, who produces videos and distributes them via YouTube, also recommends buying a tripod to provide a steadier image than with handheld shooting.

Kukral says videos about a company provide a more personal experience than blogs, and posting them on YouTube can drive traffic to your website. Publishers can “engage customers and illustrate things with video as opposed to [relying on] bullet points,” he says. Kukral posted videos on YouTube with tips on creating videos that generated new clients, several of whom commented that from his videos they “got the feeling that I knew you.”

Editing software ranges from free to more than $1,000, depending on the sophistication of the special effects. Macs include the intuitive iMovie, which provides basic functions for cutting and splicing together clips, adding titles and controlling sound. Similarly, Windows Vista PCs include a drag-and-drop video-editing application, Windows Movie Maker 6.

QuickTime 7 Pro ($29.99) is available for Mac OS X and for Windows, and includes more sound- and video- editing features, including the ability to export videos to iPhones. SimpleMovieX ($30) from Aero Quartet is a QuickTime competitor for Macs that works with more formats and larger files.

Marketers willing to learn more sophisticated programs so that they can add effects such as modifying the lighting, integrating multiple audio tracks and working with more file formats have several not-so-inexpensive options (see sidebar on page 048). Adobe Flash is becoming ubiquitous as a browser-friendly application that enables publishers to integrate interactive elements into their videos.

Kukral says the biggest mistake companies make in creating videos is insufficient branding. Videos should introduce the company at the beginning and reinforce the brand within the content.

For videos that are distributed outside of a corporate website, adding the URL in a title card at the end of the video is recommended. The videos should also be tagged with the URL and contact information, and keywords should be added to optimize the videos for search engines.

Marketing videos can range from a few seconds to several minutes in length depending on the type of content and target audience. Keeping the message short is essential to retaining the viewer, according to Michael Hines, the U.S. manager for network Zanox. Videos that are to be distributed as ads “can’t be 30 seconds long,” Hines says. He recommends that video ads be no longer than 10-15 seconds in length, while videos that introduce a company or illustrate a technology can be longer.

Publishers looking to create video marketing content without investing in editing software or expertise can refine their videos with a drag-and-drop online tool. Launched in August, Digital Canvas is a Flash-based service from Flimp Media that integrates interactive elements into a marketing microsite, according to company CEO Wayne Wall. These customized pages, also called flimps, can be shared as viral content, and built-in tracking mechanisms enable measuring their effectiveness, Wall says. The videos can tell the story of a company, or be used as an interactive component of marketing collateral, he adds.

Companies that lack video expertise or desire the highest-quality production values should consider using a video production service familiar with the optimizing content for the Web. Many of the companies that produce corporate training videos or video news releases are adding online services, with costs ranging from a few hundred to a few thousand dollars depending on the complexity of the shoot.

Putting Videos Online

Putting videos online that have been created on a website is not difficult, but finding an audience for them often requires manually uploading them to other sites or hiring someone to do so for you. Videos in the most common formats (MPEG, QuickTime and Windows Media) can be embedded on Web pages with a minimum of coding. As a more sophisticated alternative, embedding a Flash player on a site provides access to multiple videos and enables publishers to link to other interactive components or Web content.

For publishers with substantial traffic, adding videos provides an opportunity to retain visitors and to satisfy those who would rather watch than read content. If the videos become a runaway success, however, you may need to purchase additional bandwidth from your Internet service provider. Although the video quality can be compromised, uploading videos to YouTube and embedding their video on your site can reduce Web-hosting costs, according to video guru Kukral.

If you want videos to drive traffic to your website, they need to be optimized for search engines and syndicated through a growing number of video-hosting and search sites. As part of the upload process for submitting videos to search sites such as You- Tube, Revver, DailyMotion and Blip.tv, and syndication sites including Veoh, Brightcove and Maven, publishers fi ll out forms on each site and enter tags, descriptions and keywords. This painstaking process can take hours to reach just the most highly trafficked sites.

Companies such as TurnHere and Medialink work with networks of local video production companies to create the content and will also take care of the upload and submission process to sites including Google, AOL, MSN and Yahoo.

Through a partnership with RSS distribution company Pheedo, Turn- Here distributes content to sites looking to add video, including blogs such as BlogCritics and AlarmClock, and publishers including Slashdot, Red Herring, InformationWeek and ABCNews, according to CEO Brad Inman. Inman says travel, automotive companies and book publishers are among the early adopters marketing through online videos. TurnHere client Simon & Schuster has created hundreds of videos with authors talking about their latest books, and Inman says the top authors’ videos are viewed 50,000 times per month.

Local publishers are beginning to experiment with using video to tell their stories directly to customers. Superpages and CitySearch have recently introduced videos into their local listings. Marketing videos are “… really about long tail – not about a million streams, but [marketers] want 100 relevant streams,” Inman says. He recommends local business owners get in front of the camera because “no one can tell their story better.”

Getting the media and bloggers to write about or incorporate your videos can create signifi cant brand awareness and drive traffic to your website. Medialink, which has more than 20 years of experience in connecting companies with print and broadcast media, has video distribution services that start at $2,500. Medialink will host and present a video online and distribute it to local and national media including bloggers, and will also distribute the videos to aggregation and syndication sites, according to COO Larry Thomas.

In the fall of 2007, Medialink is launching Mediaseed, a Web platform that hosts and optimizes corporate marketing and communications materials for distribution. The platform contains tracking features for measuring a video marketing initiative’s reach online as well as on broadcast TV.

While accurately labeling videos will increase exposure on YouTube and the other top video sites, how to optimize content for video or general search engines remains largely a mystery. Google’s incorporation of video results into its universal search will increase the exposure of videos, but search engine marketers are still catching up.

Browsing videos and referrals from other users remain the most common methods by which people discover new videos. Being found on video search engines is not that easy, according to TurnHere’s Inman. People had a “false sense several months ago that ‘I can create a video and have it go viral on YouTube and it will go big,'” according to Inman. The reality is that most videos submitted to video sites will languish in obscurity. “The key is to start creating and experimenting,” he says. Search engines will take 18 months to catch on to the importance of video and properly index the content, according to Zanox’s Hines.

This fall Zanox will launch Zanox.tv, where publishers can post videos that will be used to attract partners. “The intent is to allow publishers to do an alternative to a text ad to encourage people to join as an affiliate,” says Hines. The video ads will likely pay on a cost-per-action basis, with Zanox and publishers sharing the revenue, according to Hines.

Ad Networks Monetize Video

Advertising networks are matching content companies with publishers large and small who are looking to use video to increase their audience. Startup video ad network Affliated.net is betting on a new video advertisement form opening a door into affiliate marketing. The borderless videos hover next to content and feature an actor or actress pitching a product or service. Since the video ads reside in the pixels along the edges of a Web page, publishers don’t have to give up their existing ads, according to Affiliated.net president Chris Skretvedt.

The videos, which range in length from 30 seconds to 5 minutes and will be paid for by Affiliated.net, are created to prompt user action such as generating leads or making a purchase, Skretvedt says. The ads launched in August and are to be sold on a CPA basis. The company is pursuing relationships with the major affiliate networks.

Tremor Media has combined forces with video distribution company ClipSyndicate to match content with relevant advertising. Tremor Media inserts in-stream ads with videos from sites such as DrPhil.com and making the content available to publishers, according to vice president of publisher relations Daniel Scherer.

Scherer says online video is hampered by a lack of technical standards in how to publish content. De facto standards for formats exist, but there is “no standard that supports integration of in-stream dynamic advertising,” he says. Content owners today are stuck in the struggle between controlling the advertising and monetizing their videos, according to Scherer. “The big puzzle is the upside-down reliance on You- Tube,” he says. If you want a video to be popular, put it on YouTube, but then you can’t monetize it; and if you want to control the ads, then you can’t put it on YouTube, says Scherer. Within the next year, You- Tube parent Google is expected to roll out a new video advertising service to address this problem.

Another opportunity for monetizing videos is to make them interactive so that the products featured within can be highlighted and sold via performance marketing. VideoClix provides technology that makes areas of a video clickable, according to Brent Stafford, the vice president of business development. “If you don’t make [your ads] interactive, you are underutilizing the medium,” he says. VideoClix has created ads for Levi’s and Honda, and shares revenue through CPA, CPC or CPM campaigns.

Once the science of increasing the search rankings of video has been significantly refined, publishers will rapidly increase their efforts to acquire or produce videos to place on their website. This strategy will be similar to how images of celebrities or top search terms are currently used to attract an audience, and will assure video’s place in the spotlight.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the editor of Matter-mag.com.

More Ways to Search

Search powerhouse Google has ascended not only to the No. 1 starting place for most Web searches, but the name has become part of the popular consciousness, even spawning the use of its name as a verb. To Google is to discover the globe.

That’s all about to change and the world of search is about to bust wide open.

Not to say that the top three search engines – Google, Yahoo and MSN – will topple. Far from it. But there are search technologies that have recently launched and some just on the horizon that aim to give searchers new ways to find what they want, especially in niche areas.

The recent growing popularity of video search and search via mobile phones are just the beginning of innovations to come. Some predict that search by image, natural language search and search by speech are the next improvements to the search experience.

As sophisticated as Google is at what they do, it is still an engine that relies on text – text is matched with text and results come from weighing the quality of the potential matches with the text you submitted. And there is slowly growing dissatisfaction with the relevancy of search results. A survey by Outsell stated that “search failure due to irrelevant results” of Google users grew from 28 to 30 percent in the last two years.

Start-up companies have perceived an opportunity to look beyond text search. And some companies believe they have novel methods for using text search to get more specific results.

Beyond Text

Moving completely away from text, Riya – based in San Mateo, Calif. – recently launched Like.com, what it calls a visual shopping search engine. The engine recognizes likenesses – in faces and in clothes, shoes and jewelry – based solely on visual cues. “In some cases words work just fine for search,” says Riya CEO and co-founder Munjal Shah. “But take a tie or jewelry pattern. There are things [for which] words fail us. We introduce the photo as your search start.”

Riya isn’t just going to help you shop for clothes. Using their technology will help families with Flickr accounts organize their vast digital photo albums by allowing users to “train” the Riya system to get better at recognizing people photos and to know when similar faces do not belong with your albums.

Perhaps most importantly, Shah says they now have a business model to go along with the cool technology. “Look inside the photo search paradigm,” he says. “The way it makes money is questionable. Face recognition software isn’t going to make much money. But now we have CPA from some merchants and CPC from some merchants.”

Part of their push is to get merchants to upload high-resolution images since better-quality pictures allow Riya to better differentiate the details of a belt buckle taken from a full-body shot.

With this model, Shah says that he isn’t in the business of competing with Google, but rather any other visual search engine to come. “Our belief is that it is too hard to win [with text],” he says. “We want to think off the map. That big of a paradigm shift is needed.”

Right now Riya is sticking with soft goods – a $30 billion sector – but Shah doesn’t rule out furniture, garden or china patterns eventually. He’s decided soft goods are the “beachhead.” They also have a mobile application that is coming soon and right now people can search Flickr photos of people using Riya’s technology.

Shah is thrilled that the technology is regarded as cool, but is continuing to look for revenue streams. “I’ve changed strategies once; I’ll change it again,” he says.

No Searching in Tongues

Still in extreme beta but looking to launch a public beta in 2007, Powerset, based in Palo Alto, Calif., is a natural language search engine. Barney Pell, CEO, sets it up like this: If you put a stream of text into a search engine, the engine will only find the same characters, he says. “It forces people to do their work on the computer’s terms. You have to figure out what the right terms are for your search.” He says that you are out of luck if you use the words in the wrong way.

Pell says, “Natural search is a complete mess.” You spend a lot of time just trying not to be a spammer, he notes. “The sites that are winning are not the ones that have the best message or solution.” He says the Powerset engine reads all Web pages and matches all words for context, not just keywords. “It can tell the difference between optimized search engine babble and content,” he says. He adds that a ranking on Powerset will rise by focusing on the quality of your site.

Marketers, he says, will love it because advertisers won’t have to anticipate the words people will use. Pell says that for Hawaiian handbags, for example, a user may type in “Hawaiian bags” or “tropical bags” and still not find what they want. “There’s a whole industry around trying to guess the right words and at what price,” he says, adding that with Powerset, marketers won’t have to get up every morning and decide which words to buy that day.

Early adopters will get dramatically better results, he says, because the public beta will probably involve a tool where you can submit according to organized categories and submit to the engine in advance. This way, users can help define the context before the engine officially launches.

Making Search a Snap

While some technologies are focused on the back end, others want to change how the users view search results. Launched in the middle of 2006, Snap.com wants to take advantage of the pervasiveness of broadband to bring the user a more detailed search experience. The Snap.com search engine essentially gives users home page preview panes for the text results when they plug in a search term. Users can rate the relevancy of each result so that the engine gets to know how to better serve keyword results.

“Our search isn’t for everybody,” says Snap CEO Tom McGovern. “We’re not trying to out-Google Google or out-Yahoo Yahoo. Savvy users like the preview feature and it gives us recognition.”

The visual results are meant to make it easier and faster to get to the right information. McGovern says Snap offers a different kind of advertiser experience as well, with a “risk free” CPA pricing model. Advertisers pay only for a predetermined action such as a sale, a lead, a download or other user engagement. The advertiser dictates the desired action and agrees to pay either a fixed rate or a variable percentage. Advertisers also choose the landing page or creative so that they pay only when they get the action and not on clicks. Click fraud is reduced this way. McGovern says their CPA model will be the standard in five years.

When users enter a search word in the field, a list of popular search phrases using your term is already populated in a drop-down window. The preview home page images are not screenshots from last week, but fairly up-to-the-minute captures, which comes in handy when cruising for news sites or video sites (the images are about a quarter of your monitor’s screen – big enough to read larger newspaper-headline- style type but not much else).

Snap – owned by Idealab – has an image search function as well, which still relies on title tags and not visual similarity, but the results are presented in nice thumbnail sizes that scroll horizontally. The site has also launched its Preview Anywhere function that offers blog visitors a preview of hyperlinks.

Other interesting features include the ability to type “movies” with a colon and a search term and it finds that term on the Internet Movie Database. Also, “fact” plus colon and search term brings up Wikipedia, and “define” plus colon plus search term brings up the Dictionary. com definition. With slight variation these features are also in Google except for the Wikipedia element.

“We want to win with the end users,” McGovern says. “They come to us because they like the technology.” He says they know they are not going to displace Google. “We want to be the secondary search engine of choice.”

The Human Touch

Helping users find exactly the right thing from their search is what motivates all these start-ups. ChaCha.com, currently in beta, is no different, but it approaches the problem from a less-technological angle.

ChaCha.com uses human guides to help users find results. Search queries are sent to “a staff of experts” who then chat with the user to help narrow the search. Users do not have to use a guide. They can use the search field just like Google, but the results are custom- culled based on the index of questions that have been asked thus far, so the more questions the guides receive and the longer the search engine exists, the better it gets.

“The vast majority of people do not go past the third page of results,” says Scott Jones, founder and CEO of ChaCha.com. That means, “people never look past the top 30 results even though the top search engines are theoretically returning thousands or millions of results. Therefore ChaCha’s model of returning the very best results on the first page is vital. Users don’t really want millions of results in a split second. They want the answer as quickly as possible.”

There is still plenty of technology at work on the back end. In its first year, ChaCha.com filed 18 patents. Jones was also the brains behind Boston Technology, where he invented a voice mail system that is basically the telecommunications standard, and built Escient, now known as Gracenote, the music recognition software that is used by nearly every music-ripping program and MP3 player on the market.

ChaCha.com has grown its workforce to 25,000 in its first four months of operations, signaling that the company plans to play it big. “Obviously,” Jones says, “when a search company achieves a $100-plus billion market cap in less than a decade, it creates a lure for all those who think they can do it better,” referring to Google. However, he notes, competing with Google is probably not a smart move. “Actually, we consider ourselves a collaborator with Google,” he says. “We are happy to have them around. And we’re happy to have all the other thousands of deep repositories of information that Google doesn’t even know about.”

ChaCha is free and gets its advertising dollars no differently from first-generation search engines. Because of the “very targeted keyword handling,” advertisers, Jones says, can get much better bang for their buck. The site also has its ChaCha Underground, a kind of social site where users and guides can gather together. Targeted display ads go there. Also, it can show targeted video advertisements when searching with a guide.

A Slice of Google’s Pie

While every new search engine touts its originality, many seem to be trading in on the text search market that Google pretty much has cornered.

Some other interesting search variations include Trexy.com, which is a browser toolbar that saves a trail of where users searched and what they found along the way. Users can save the information found so that next time they plug the search term in to the toolbar, it goes right to the page set as the preferred destination – kind of like favorites.

Indeed.com is an engine for job seekers that culls listings from all over, adding more than a million new jobs each week. Users fill in the fields for job title and location and the direct links to the jobs on the hirer’s websites are displayed. And Eurekster.com is built kind of like a wiki, called Swickis, which are search engines generated by individuals and used by groups. The groups then learn from users how to deliver more targeted results.

On the horizon is Jimmy Wales, who started Wikipedia, and his announced venture into a wiki-inspired search engine, but details are scarce at this early stage in Wales’ project.

Everyone is coming after Google, but the search behemoth is not standing still. John Battelle, search guru who wrote the book, The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture, thinks a voice-driven search engine is the next innovation. He says that Google is working on search based on the engine’s understanding of a user’s previous search history “in a way that makes sense.” And while not Internet search, Battelle would like to see a desktop search capability that is intelligent.

What all these new search engines are really offering is a multiple search engine world, where users choose the engine based on what kind of information they need. And observers say that finding an engine that works for each user is about to get easier and easier.

Guiding Lightly: Q & A with Anne Holland

Anne Holland is the president of MarketingSherpa, which aims to help marketers advance by sharing real-world marketing data and hard-won lessons. The Rhode Island-based company publishes a wide range of metrics guides, buyer’s guides and how-to reports, as well as a 500+ case study library. Prior to founding MarketingSherpa in 2000, Holland spent 20 years in publishing. She also served as the head of marketing for Phillips Business Media – a $100 million publishing company where she helped launch one of the world’s first profitable subscription sites in 1995 – and the trade publications Interactive Marketing News in 1994 and min’s New Media in 1995. Started in Holland’s spare bedroom, MarketingSherpa was recently acquired by marketing research firm MEC Labs out of Atlantic Beach, Florida. Revenue Senior Editor Eric Reyes asked Holland about her company’s role in moving marketing forward and what lies ahead for the performance marketing space.

Eric Reyes: What was the genesis of the MarketingSherpa idea? How did you perceive the need?

Anne Holland: Before I led MarketingSherpa I was a marketer myself, so I had a pretty good gut-level understanding of what marketers needed that wasn’t being provided by research firms or publications. However, that doesn’t mean I trusted my gut! Instead I toured the U.S. and U.K. for about six months, asking marketers themselves what information they really needed to do their jobs more easily and/or with better results. The final company – MarketingSherpa – was built directly from those suggestions. Turns out our target audience wanted lots of case studies, benchmark data, creative samples and how-to instruction at a practical yet advanced level. So that’s what we provide. We still tour regularly as well as surveying and talking directly with customers weekly to keep on track.

ER: Can you outline your inventory of content – how much is available and how has it grown?

AH: There’s a lot! Basically it breaks down into three areas – all of which are created by research and reporting teams in-house here (we don’t accept contributed content).

  • Case studies and how-to articles – based on hour-long interviews with actual marketers. We delve into what worked, what didn’t, what the data was and include creative samples. We’ve got a library of thousands of these, searchable by tactic and by company/brand name. They’re all exclusive.
  • Benchmark guides, buyer’s guides and tactical handbooks – based on research into what’s working for real-life marketers. We survey tens of thousands of marketers every year, and profile hundreds of consultants and vendors. These 200- plus-page reports come in PDF for instant question answering, and we also ship a printed-and-bound copy to every customer for easy reference.
  • Summits – every year we hold three big summits for marketers: in New York, San Francisco, Boston and a fourth city (next year it’s Miami). The topics include email marketing, selling subscriptions to Internet content and B-to-B demand generation. Naturally our summits feature loads of peer-presented case studies and new data.

ER: Now that MarketingSherpa has been acquired, what will change for you and the company?

AH: Pretty much since day one, there have always been a lot of people who wanted to buy us out or invest in us. I held out for seven years because I wanted our growth to be driven by our readers’ needs, not some board of investors. Every six months I take a few days to step back and review the progress and future of the company. When I did that this past June, I realized it had gotten too big for me to handle alone anymore. It’s a common fate for an entrepreneurial- driven company. You grow it as big as you can and then you hit the ceiling of your own desires and abilities. I wasn’t born to administer this fast-growing multi-million-dollar organization. I was born to research, write and keep in touch with the needs of the readership.

So that’s when I started looking for a new corporate parent for Sherpa. The goal was to find someone who would understand and appreciate our readers and our mission, plus appreciate the great team of employees and researchers we’ve built – not just someone who would wave a bunch of cash at me. By finding the right buyer, in effect I was hiring Sherpa’s new boss. Several organizations were in the running – after carefully interviewing several of them, I chose MEC Labs based on fit.

They are a research firm that partners with folks such as The New York Times to conduct experiments on live campaigns to discover what works (and what doesn’t) in marketing. We are a research firm that partners with our 237,000 readers via surveys and studies to discover what works in marketing. Culturally the fit works too. We are all fairly intense, hardworking people who also like the ocean. Their headquarters are on the beach in Florida. Our headquarters are about a block from the beach in Rhode Island.

MarketingSherpa won’t change much – aside from continuing to grow and serve our readership even better. We’ll just have even stronger corporate leadership to allow us to reach bigger goals and do some pretty amazing research projects. On the personal side, I’ll still be here. Only instead of being stuck in meetings with accounting, HR and IT, I’ll get to focus all my time on the things I really love – research, writing and the art of marketing. And, maybe a little more time to walk on the beach.

ER: What are some of the most important goals you have for MarketingSherpa next in the 12 to 15 months?

AH: Keep her on a steady, focused course. It’s easy to get overwhelmed with expansion opportunities, or to let success go to your head so you do crazy things, launch big new ideas that don’t hold to your core business. I’m an idea person, so it’s probably toughest for me. But our big idea is No New Ideas.

Aside from that, you’ll see several launches that have been enormously researched and several years in the making, the biggest of which is our upcoming membership site launch. At the base, it simply means instead of paying $5 to $9 per article every time you want to read something, you can pay one flat annual fee. Convenience is a wonderful thing. There are also some new features – but the dev team will shoot me if I talk too soon. Watch for December-January and you’ll begin to see.

ER: Are there industry segments that MarketingSherpa is not currently focusing on but would love to get into, and why?

AH: We set our course for a very specific marketplace from day one, and it’s a darned big one that will take us many more years to serve completely. Our chosen marketplace is marketing professionals (including advertising, PR and online) in corporate America at the manager to VP level. That’s about 140,000 marketers. We also serve the consultants, agencies and vendors who serve marketers. That’s about 10,000 folks. So it’s a total market of 150,000.

ER: How much effort is dedicated to the affiliate marketing space by MarketingSherpa ? And the performance marketing space? And do you see that changing in the future?

AH: We cover affiliate and performance marketing from the point of view of the merchant or brand-side marketer. That’s who our reader is. Although many affiliates also read us, they aren’t our target audience. So, for example, the affiliate marketing team at eBay reads Sherpa, but most of their affiliates probably don’t ” and that’s fine with us.

Our coverage in the spaces is decided by the input of our readers – they tell us what they want us to focus our research on and that’s where we go. I personally would like to cover affiliate marketing a bit more than we do, but for many of the merchant-side marketers, it’s just not all that critical to their jobs.

Often an e-commerce or lead generation site will have one marketer who is responsible both for affiliate and also managing SEM. That’s crazy – too much work for anyone to do well. But that’s the way it is. We try to educate marketers via our annual Affiliate Marketing Special (now in its fourth year) every January and other studies such as our Ecommerce Benchmark Guide. Many, however, many, especially in consumer software marketing online, are not there heavily yet, if at all.

ER: What are the next two or three things you think will turn Internet marketing on its ear?

AH: Frankly, I don’t see much changing over the long haul with the exception of a lot more mobile activity in the U.S. (at long, long last) and of course video, video, video. I’m sure what we’re going to see next is a lot of “shovelware” video [sticking your TV ad online], badly measured corporate podcasts and way too many text-voting entertainment campaigns.

If mainstream off-line marketers – the giant retail chains and consumer packaged goods firms – could easily measure Internet activity against their off-line sales, then you would see the world change. The biggies still spend single digits online. Bear in mind, all of SEM spending for this year is less than everything spent on promotional products such as embossed pens and T-shirts given out as marcom. We who research Internet quite a bit tend to forget how incredibly small the spend still is compared with other vehicles.

In the meantime, the real focus that every marketer should be spending their time and money on is not what’s new, but rather, how to make the old stuff work better. Our data show that if you just improve the copywriting on your site a tiny bit, your conversions leap up. Copywriting! That’s as old-fashioned a tactic as you can get. True success is about testing the basics.

ER: You do a lot of public speaking gigs and you also conduct many of the interviews for case studies. Is there one facet of your job you prefer, and why?

AH: My job has really evolved as the company has grown over the past seven years. Research is now run by our research director Stefan Tornquist and his team, while editorial is run by editorial director Tad Clarke and his team. We also have teams running summits and memberships. These days I’m doing less research and writing myself and far more leadership. So I get to attend departmental meetings and guide the company as a whole. I miss the old days when I was chief cook and bottle washer ” but now we have so much more capacity to serve our customers’ needs. So that’s a delightful thing.

Now my favorite things are speaking about new research studies (it’s so fun to say, “Hey, here’s info marketers are yearning to know – let’s go get it!”); speaking at shows, especially when I get to meet readers who have ideas about research studies or stories we should cover (many of our best case studies come from me meeting folks on the road); and once a week personally conducting a marketer-side interview for a story I or one of our reporting staff might write.

ER: During many of your talks you give real-life Internet shopping examples of good and bad things that you’ve encountered. How many of those incidents spark research on that topic?

AH: Actually events often spark our research because attendees will ask great questions… . Those questions drive the research. I’m way, way, way too close to the research we’ve done and the marketing world to know what marketers really want to know.

When you’ve studied something intensively for years, you’re the wrong person to come up with new ideas for studies. You’ll end up in esoteric or newfangled places that your audience couldn’t care less about. One of our biggest stories – in terms of readership and reader feedback – last year was research we’d done in partnership with CNET’s B-to-B Network on what white paper titles got downloaded the most. I thought it would be [just] an OK article, but my God, it hit a huge nerve: floods of thank-you email letters from our readers in the B-to-B space.

So, you have to let your readers tell you what’s hot and what’s not. Don’t ask your editor or newsletter writer. I’m shocked that so few email newsletters do reader surveys asking about content. They all need to.

ER: What are some of the benchmarks for maintaining the quality of MarketingSherpa research and other content?

AH: We never publish data that doesn’t have enough evidence behind it to be statistically reliable. That drives me nuts about other studies (including the DMAs). They’ll survey 10 people and then call it a “study” and make a big stink about findings. We don’t publish charts if the data has to be sliced “too thin” to get a number.

We know that many readers are using us for their budgeting, forecasting and to sell their marketing plan to their CEO. We don’t want to feed them misinformation or slanted data and mess that up.

Unlike most of our competitors, we do not publish third-party content. We don’t solicit editorial from vendors or consultants or anyone else. Our editorial is researched and created in-house. That’s a lot more expensive, but it’s worth it.

On the research benchmark side, we do create partnered studies with some folks where we survey the marketplace or examine results stats we could not do alone. We also gather best-of research from some third-party sources to fill in holes and provide perspective. But we’re not like eMarketer where 100 percent of the data is compiled from other people (they do zero primary research). With us, it’s about 20 percent.

That combination of our data plus partnered studies plus best-of-third-party data is a killer combo. You get everything in one place. It’s all about convenience.

Sometimes people question our data – for example, recently several SEO experts questioned whether our data on the industry slowdown was based in reality because, from their personal perspective, business was booming. Thing is, we had data out the wazoo – data from more than 3,000 client-side marketers, from 104 top SEO firms and from third-party studies. We had more data than anyone on the planet on search marketing. From our perspective, the industry was slowing like crazy and I was able to defend that very easily.

ER: MarketingSherpa covers so many areas of online marketing. Do you consider yourself an expert in any one area of marketing?

AH: I suppose my main personal areas of expertise would be e-commerce, lead generation landing pages and email marketing. I’ve personally been involved with research we’ve conducted in all three and met many, many of the marketers themselves in these fields. I’ve also been heavily involved in our SEM research and coverage over the years, but I think SEM is something that you really cannot be expert in unless you’ve rolled up your sleeves and you do it every day yourself. I don’t. Few of the press covering SEM have.

ER: What is the next logical evolution beyond paid online content?

AH: I am so psyched about buying TV episodes online! In a past job, I was the marketer for a paid subscription [print] newsletter called Interactive Video News. Back then in the early ’90s we were all talking about 500 channels and pay-per-view cable where you’d be able to view anything on demand. Well I have on demand at home on my cable now, but it’s a very clunky interface. However, our research director Stefan Tornquist brags he doesn’t own a TV at all ” he just buys and downloads anything he wants to watch from the Internet.

Mainstream TV networks are now cross-promoting new shows by running them on cable for a few episodes to get the word out. Broadcast TV is, in effect, now just a marketing vehicle for content that’s paid for with some ads. I buy the TV episodes directly by episode online now. Love it to death. That plus buying music song by song for iPods, and the huge long tail of that, is very exciting. Media consumption is changing hugely in the way purchasing changed in the past five years due to search engines for research and ecommerce.

Video Ad Explosion

In early August, Foster’s Beer announced two changes. First, they’ll no longer try to be “Australian for Beer” and, second, they’re moving all their television ad spending online.

Although the decision only affects a $5 million ad budget, it’s a bellwether: Companies are flocking to online video ads as the way to reach customers.

Recent reports claim advertisers will spend $74 billion to buy airtime on TV in the U.S. for 2006. The online ad spend is set to reach $26 billion or 9% of the total US market.

“This [online video ads] could very well become the dominant form of online advertising … probably within the next 18 to 24 months,” says Bob Hanna, senior vice president of sales at Burst Media, which offers a network of publishers for advertisers.

A recent local online advertising report by market researcher Borrell Associates expects local video advertising to become a trackable category in 2007. And the biggest online ad opportunities currently revolve around real estate and automotive. Combined, these two categories comprise slightly more than one-third of all local online advertising, which is expected to grow 31.6 percent to a $7.7 billion category in 2007.

For its new online video ad push, Foster’s Beer is on Heavy.com, the online video site geared toward young males. Prior to Heavy content, which ranges from videos of scantily clad young women to spoofs on America’s Funniest Home Videos, you can find video ads for candy, beer and cars. But the edgier and more risque videos run without pre-roll ads.

Online Is Not TV

Heavy’s motto, “Because TV Sucks,” is instructive. For five years, it has been said that online content is constitutionally different from television: Advertisers will have to change their approach to creating video ads. A panel of online advertising, media and Web executives at the OMMA conference in New York in September agreed the most effective online video ads should be 15 seconds in length or less. The panel also promoted the idea of creating spots specifically for the Internet and digital media rather than repurposing existing television advertisements. That way the ads can be developed to enable consumers to click through to gain additional product information.

Advertisers may also have to be more open about where these ads end up as demand increases.

McKinsey Quarterly, an online business journal from consultant group McKinsey & Co., recently determined that in 2005, 80 percent of online video ad inventory was being used.

“The maximum supply of video ads is currently about $600 million a year – far less than future demand, which we expect to reach $1.4 billion to $3.2 billion in 2007,” the article “A Reality Check for Online Advertising” states.

Still, Randy Kilgore, chief revenue officer for Tremor Network, says, “The juggernaut called online video advertising is here to stay.”

And content providers are rising to the challenge. In August, Google, Viacom and YouTube made announcements about video advertising solutions. Two months later, Google purchased the less-than-two-year-old YouTube for a whopping $1.65 billion.

YouTube, which shows about 100 million videos daily, won’t disclose its advertising fees for visible ad spots. Google, at the end of June, also started testing an advertising model that features some video ads in a sponsored section. Google would also not disclose the fee for those video ads.

Not only are publishers opening up space, but technology solutions are also increasing; for example, Burst Media is now facilitating streaming video within banner ads, and Klipmart, a video ad solution heralded for interesting innovations in video ads for movies, was acquired by DoubleClick in June. DoubleClick is also the parent company of affiliate network Performics. EyeWonder and e-line Technologies are also in the space.

Despite television screens getting larger and flatter, viewers are enticed by the flexibility of on-demand viewing that the Internet enables.

One source for online video placement is on television network sites. Fox is streaming more than 40 episodes of prime-time shows online, with Toyota as the sole sponsor, and other networks are following suit.

That’s because most Internet users have watched online video; 25 percent watch regularly, at least once a week. Users regularly see online video ads and, according to the Online Publishers Association, 44 percent have taken some action after viewing an online video ad. Much of this reach comes during times when people wouldn’t normally be watching TV, given online video’s growing domination of the day-part audience.

And broadening the marketing window into daytime hours can be put to profound use. Thursday-night TV is no longer the last, best opportunity to influence consumers going into the weekend – that title is now held by the Internet on Friday mornings and afternoons.

Within these online shows, pre-roll, mid-roll and post-roll advertising is offered: just like on television. For instance, Heavy.com runs a static ad for Virgin Mobile for five seconds before one of their “Behind The Music That Sucks” shorts. There are also longer, more elaborate ads for Nike and Coors with production quality that is indistinguishable from television ads – and these ads are arguably as good as the content they precede.

Viewers are sometimes unable to fast-forward through “pre-roll” ads. Mid-roll ads crop up in the middle of a video. This format of advertisement would not be practical in a video short but makes sense in a streamed TV show. And, because content is limited, some companies offer ads at the end of videos – post-roll.

New Opportunities

One benefit of streaming prime-time shows and live sporting events is ad opportunities go to marketers who would traditionally advertise with these shows as well as new advertisers who could not afford network television ads. But online video, except in cases like Fox’s shows or news shows like Evening News with Katie Couric (which is being streamed online), doesn’t look like television and should not be treated like television by advertisers.

The bread and butter of sites like AtomFilms, Heavy and Yahoo Video is short video. Most video online is less than five minutes long, and advertisers can’t run one-minute commercials they’ve shot for television.

Companies who have a difficult time understanding that are “trying to apply an old media solution to new media,” says Forrester senior analyst Brian Haven. “In the long run, that’s just not going to be a very successful way to approach online advertising.”

DoubleClick’s vice president of rich media, Ari Paparo, notes that for online video ads, less is more. “You aren’t going to be able to repurpose TV ads – a 30-second ad doesn’t work online. Fifteen seconds is the maximum for a single ad unit.” Paparo suggests a new model: a short preroll spot of three seconds and then the content, then a long post-roll spot. He also believes interactive video ads show real promise, where you can telescope when it’s over to find out more – like for a high-involvement product like a car.

But companies who have strong-roots advertising on television, direct marketing companies, may have other challenges. Edith Bellinghausen, vice president of new media of Razor & Tie, an entertainment company that includes a record label and direct marketing operations, is watching where online video advertising is going but says the company is not ready to rush in.

Razor & Tie will try online video marketing soon “because we have to, but we’ll never move away from TV altogether.” The placement of their spots depends on the product; their children’s music CDs might, for instance, be advertised on Nickelodeon. The documentary Biggie and Tupac was advertised on MTV and VH1, among other cable stations. But sometimes a television campaign is more cost-effective and focused when it’s run on local cable stations.

Potentially, online video advertising could work in a similar way, for focused campaigns for companies with lower marketing budgets.

Bellinghausen notes that YouTube already has videos posted by parents at shows for Razor & Tie’s Club KIDZ BOP. But when considering their children’s CD products, she points out another question facing advertisers who are looking to jump on the user-generated content bandwagon: Are advertisers protected from ad placement next to undesirable content?

“We’re intensely focused on them not ending up somewhere they don’t want to be,” insists Tacoda’s CEO Curt Viebranz. Tacoda sells ad networks based on behavioral segments and YouTube is now in their network. But Viebranz notes, “If you begin to drill down into YouTube’s site, we’re not there. We’re where you enter the site.” Because advertisers are sensitive to being placed near questionable content, Tacoda errs on the side of caution by placing ads near the home page, rather than in the murky underbelly of YouTube’s offerings.

The anarchic nature of user-generated video sites means that brands will have to deal with some uncertainty about placement. “Brands have to think a little more openly about what they’re associated with,” urges Haven. He also believes that online video advertising will cause a philosophical shift in marketers’ approaches: “What YouTube is really doing is issuing a challenge to marketers. You’re not going to just put an ad up on our site, you’re going to have to participate in our community and you’re going to have to be creative about how you do this.”

The shift will force marketers to think more like content providers and will ultimately result in more entertaining creative. The interactive, participatory aspect of the Internet was long held as the reason that television-like ads would not work online. But consumer-generated sites have enabled the ultimate level of participation: consumer-generated ads.

Get Users Involved

While the Coca-Cola/Mentos viral ad on Revver is a great example of a user-generated video that was eventually purchased by Mentos and accepted into their advertising arsenal, companies can go one step further thanks to CurrentTV. CurrentTV, the Al Gore-backed San Francisco-based company that allows users to submit content online for possible broadcast on television, also offers consumers the opportunity to create ads for L’Oreal, Sony Electronics and Toyota.

The first ad to be accepted for television was created by a 16- year-old and sanctioned by Sony. Viewers can rate the ads, which are posted on the site after being thoroughly screened. If the ad makes it to the network, the creator gets $1,000 and is given a licensing agreement. And if the ad makes it to cable or satellite television, the viewer makes $5,000 – for network television it goes up to $10,000.

CurrentTV’s president of sales and marketing, Anne Zehren, says it seems counterintuitive that major brands are the ones participating in this experiment. “At first, people thought the larger brands would have the most resistance because they’d have to give up control as brand guardians. But their marketing departments are now brand hosts; they’re craving innovation and the smart ones want to take a risk, as long as it’s not a free-for-all.” Zehren emphasizes CurrentTV’s commitment to making quality content, with greater control than one finds on other user-produced video sites.

Of course, users have been creating (unsolicited) video ads for companies and posting them on YouTube but most have yet to be formally embraced by the marketing departments of those companies. At the same time, it is certain that brands participating on YouTube’s brand channels will host their own contests to create video ads now that YouTube has announced the creation of brand channels as a way to monetize the site. Initially, sites like YouTube attracted movie advertisements – streaming trailers on such sites makes sense.

And short-content format is ideal for music videos: Warner Bros. has announced that they will promote Paris Hilton’s music debut on YouTube. But YouTube also seems to be a draw for small businesses, companies that would never have the budget for a television campaign.

Several months ago, Allison Margolin, an attractive, young, Beverly Hills-based criminal defense attorney, posted a video advertising her services on YouTube which voiced her disagreement with marijuana laws. The question is, how many people watched the ad before a Los Angeles Times article about her in August mentioned it?

Viral video is also a big deal. Lured by the prospect of reaching millions of consumers without also spending millions of dollars for television airtime or space in print media, companies have shifted more ad dollars to the Net. Video viral marketing has expanded from a negligible piece of the advertising pie to a $100 million to $150 million industry, researchers estimate.

“We’ve recently engaged top talent to help us build viral videos for brand awareness during the off-season, produce training videos to help our online partners to sell our product and to create product videos that sell the features and benefits of TaxBrain. All of these videos are intended primarily for online consumption,” Todd Taylor, manager of business development for TaxBrain, says.

Measuring Up

Right now one can only guess how many people are watching online, especially compared with the number of customers reached with television ads. There are two unresolved issues: online video advertising’s reach and the ability to track it.

“What’s missing right now is what is the return on investment and all the technology surrounding this. How are we sure it’s been placed contextually?” asks Forrester’s Haven.

But Tremor’s Kilgore, the former vice president for Dow Jones Online, disagrees and says, “Audience accountability is a significant advantage for marketers when they consider online video advertising.”

He claims that advertisers can count actual viewers of video when they are actively watching – not getting up for a snack. The other advantages are the ability to track completion rates and geographic data, frequency and targeting based on historical behavior and optimization of spots based on real-time effectiveness – where there’s no need to wait for the focus group. Also, with companion units, online video advertising can offer immediate user interaction. Advertisers can choose geotargeting, demo targeting, behavioral targeting, day-parting, etc.

Hotspotting

Five years ago, there was speculation that hotspotting would be the way to monetize online video advertisements. That is, brands would partner with content creators for product placement in online videos. Viewers could click on items on a counter or an actor’s sweater and be whisked off to a site to purchase it. Hotspotting is finally here, but not widely adopted yet. But if a viewer were watching some cartoons online, would he really click on the Coors ad to get a six-pack of beer delivered to his house? Hotspotting only works for particular products.

Hotspotting did make sense, however, to French clothing company Shai. Their online porn video ads have caused a minor sensation, but not necessarily more customers. Viewers can click on the clothes the actors are wearing as part of an interactive catalog. Before they take them off, that is.

With improved measurement capabilities, big brands jumping on the bandwagon and cheaper costs, video and video advertising are becoming a staple of doing business.

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

KATHI BLACK is a professor of philosophy (ethics) at The University of San Francisco. She was previously an online entertainment reporter and senior researcher at the Industry Standard.

Sex Education

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

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

Spoil Your Partners

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

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

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

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

Promoting Competitors

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

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

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

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

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

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

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

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

Leading the Technical Charge

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

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

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

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

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

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

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

The Upper Hand

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

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

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

Lessons Not Learned

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

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

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

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

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

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


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

Performance Marketing Prognostication

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Irrelevant”
– David Lewis, president, 77 Blue

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

“Transitory”
– Lisa Riolo, online marketing professional

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

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

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

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

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

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

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

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

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

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

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

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

“Rocketing”
– Anik Singal, CEO, Affiliate Classroom

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

“Growing”
– Brook Schaaf, principal, Schaaf Consulting

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

“Dynamic”
– Scott Hazard, president, Brightside Media

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

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

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

 

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

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

Shawn Collins, president, Shawn Collins Consulting

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

Adam Viener, president, imwave.com

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

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

  4. Important.
 

Rob Key, founder and CEO, Converseon

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

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

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

Jeff Molander, CEO, Molander & Associates

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

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

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

Todd Taylor, manager business development, TaxBrain.com

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

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

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

Kurt Lohse, founder and CEO, KeyCode.com

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

Tim Ash, president, SiteTuners.com

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

Ben Edelman, anti-spyware consultant

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

Jim Kukral, publisher, ReveNews

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

Wayne Porter, senior director special research, Facetime Security Labs

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

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

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

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

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

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

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

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

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

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

  4. Nascent.
 

Holger Kamin, executive account director, Zanox

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

Anik Singal, CEO, Affiliate Classroom

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

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

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

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

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

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

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

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

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

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

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

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

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

  4. Can I make up a word? Rocketing.
 

Brian Littleton, founder and CEO, ShareASale

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

Brook Schaaf, principal, Schaaf Consulting

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

John Battelle, founder and chairman, Federated Media Publishing

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

Scott Hazard, president, Brightside Media

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

Mary Beth Padian, senior director, Upromise

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

Linda Woods, president, PartnerCentric

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

David Lewis, president, 77 Blue

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

Rosalind Gardner, super-affiliate and author

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

Matt Ranta, affiliate manager, Vanns.com

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

John Grosshandler, event director, eComXpo

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

Lisa Riolo, online marketing professional

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

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

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

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

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

TV Tunes In

Broadcasters are jumping on board the online bandwagon as bandwidth makes video a reality for users.

Television networks have spent much of their 60-plus-year media reign continually adapting their revenue models for new delivery platforms such as cable and satellite. After many years of hoping that interest in multimedia Internet content would fade as quickly as sitcoms featuring former Seinfeld stars, the networks are now fully embracing online video distribution.

Now that online consumers spend just as much time at the keyboard as with the remote control (14 hours per week, according to JupiterResearch), the TV networks are joining the party. The top networks are creating custom content and partnering with online media moguls to develop streaming and download services.

Making even a fraction of the vast reserves of current and archived television programming available through streams or downloads to portable media players and mobile phones will greatly increase the partnership and revenue opportunities for online advertisers, search marketers, publishers and affiliates.

Video Takes Action

The networks’ initial forays into distributing content online primarily featured clips of programs that were distributed for free and without advertising.

News dominated the early offerings from CNN, MSNBC, Fox and the big three broadcast networks (ABC, CBS, NBC). NBC was the first network to stream an entire regular newscast, when it launched its webcast of the NBC Nightly News with Brian Williams.

Late last year that trickle of content became a steady stream, thanks in large part to Apple Computer. Apple sold more than 1 million video downloads within the first three weeks of its iTunes video store opening in October 2005. Over the next few months Apple signed deals to sell downloads of TV programming from NBC, USA Network, ABC, Disney, Showtime and others through its iTunes service for $1.99 per program.

The global market for pay-per-content broadband was $360 million in 2005, and it is expected to skyrocket to $7.5 billion in 2010, according to ABI Research principal analyst Michael Wolf.

He says that previously the networks were wary of putting premium content online, afraid it would cannibalize their broadcast efforts, but Apple’s successful introduction of a new version of its iPod that plays video files convinced the networks of the feasibility of selling television content online.

According to Wolf, the most dedicated followers of popular TV shows such as Desperate Housewives or The Office are likely to also be active online media consumers.

CBS’ website had the most unique visitors among video publishers, followed by MSN Video, AOL Television and Yahoo TV according to December 2005 data from Nielsen//NetRatings.

In order to broaden the reach of video content beyond their own websites, the TV networks are turning to search engines and portals to distribute content. CBS partnered with Google to sell downloads of some of its top-rated shows including CSI and Survivor as well as “classic” shows such as The Brady Bunch and I Love Lucy through the Google Video Store. Disney is developing a broadband channel that could make up to one-quarter of its prime-time offerings available on demand.

America Online is offering old TV shows from parent company Time Warner including Alice, Chico and the Man and Wonder Woman. AOL also purchased video search engine Truveo in December 2005. Yahoo is teaming up with actors/producers Matt Damon and Ben Affleck and reality show guru Mark Burnett to develop an online reality show called The Runner.

However, the online video market still has some things to learn about alerting consumers to its offerings. Unlike television viewers who have several options to find programs of interest, online consumers are currently dependent on search to find programs.

To find what’s on broadcast and cable TV, viewers can look to TV Guide, newspaper listings, online programming guides and advertisements on the networks themselves. Currently, it’s the early days of television distribution on the Internet, and video search engines from Google, MSN, Yahoo and AOL do not offer TV directories or guides. Instead users are primarily using search boxes. Users plug in terms and hopefully find what they are seeking.

The next 12 to 18 months will be the prime time for the expansion of television programming online as the networks and search engines reach out to large and niche publishers to aid in content distribution. But the portals are not alone – specialty video search engines including TVEyes.com and blinkx.com are challenging the biggest players for a share of the advertising revenue from online television programs.

San Francisco-based blinkx has signed up E Entertainment, BBC, ABC, NBC, HBO and British news broadcaster ITN to deliver TV programming through its video search engine. blinkx CEO Suranga Chandratillake says, “2006 will be about telling other people to put our search on their sites.” The company is also partnering with performance marketing network Miva to expand the distribution of its video search.

Publishers can “splice and dice” the blinkx television feeds to create custom channels that match their individual audiences and will be paid via a revenue share, according to Chandratillake. For example, publishers could choose to limit searches to celebrity news, or make available only content from the A&E network.

Chandratillake says that to simplify the indexing of content, the TV networks provide metadata describing each program. blinkx enhances the quality of the search results through speech-recognition technology that identifies the subject matter being discussed.

Arise Ye Networks

Although most of the current revenue from full-length TV programming is derived from subscription services or downloads, income from advertising-supported content is expected to rival payfor- content. Advertising revenue will come from banner and contextual ads displayed on search results pages, as well as video ads that appear within the program.

Since the beginning, advertising has largely financed consumers’ almost-endless appetite for television, and online it is likely to be the same. The advertising market for online video will reach $8.6 billion by 2010, according to ABI Research.

“Broadcast TV shows are filler between the ads,” Peter Carlin, a TV critic for The Oregonian newspaper, says. He recently attended the Television Critics Press Tour where the Internet rated “above ratings” as a leading topic of discussion. Figuring out how to capitalize on online video distribution is top of mind for many TV executives, Carlin says, as they are anxious to exploit the lucrative online audience that tends to be younger and slanted toward males.

Carlin says broadcasters are learning how to maximize their revenue from digital content by exploring relationships with search engines and portals, and by testing new advertising models. “Nobody wants to be like the Betamax of new media age” and be left behind, he says.

To fully exploit the possibilities, TV broadcasters must learn about search engine optimization, developing affiliate networks and performance marketing revenue models. Carlin expects that the networks won’t have a problem with taking lessons from the online experts. “Being entirely reactive is not something they are uncomfortable with,” he says.

Video Ad Specialists

Demand for video ads will also create a new industry of production companies and interactive agencies that specialize in developing and distributing video ads. Companies such as ROO, PointRoll and Eyeblaster will work with online publishers to place ads within their online and downloadable content.

Repurposing TV programming for online distribution could also ignite interest in interactive technologies that link from videos or advertisements to landing pages. The networks have turned to escalating the use of product placement within programming to offset some of the revenue lost to online advertising, according to Carlin.

American Idol has blatantly pitched Nextel’s wireless service and placed large cups with the logo of Coca-Cola prominently in front of the judges, Carlin says, and The Office has an executive producer whose job is to determine how to incorporate products into the storylines “without prostituting the show.”

Microsoft is developing technology for its AdCenter platform that will enable video ads or broadcasts to link directly to other websites and with new technologies. This could open the door for the interactive TV market that has been much ballyhooed for a decade.

Dollars Drive Creativity

The revenue generated from online video distribution is likely to affect the creative process by increasing the demand for content and opening up the market for short forms of content. Television networks will likely use feedback from their websites to assess the viability of existing shows as they debut new programs online first to gauge audience response.

Carlin believes online distribution “increases appetite for shows that are less obviously mainstream.” The TV networks are quicker than ever to cancel shows, and online metrics could give the networks valuable input in determining a show’s fate. For example, fringe shows like The Office may get more consideration by the networks because of their popularity online.

Cable channel Comedy Central is aggressively pursuing an online audience and will develop 24 new online-only programs this year, according to Lou Wallach, senior vice president of original programming and development at Comedy Central.

Comedy Central has developed a media player called the “MotherLoad” to showcase its repurposed and original content. Wallach says that comedy is well-suited for short-form videos (five minutes or less) that have become popular online. Comedy Central’s online lineup includes sketch comedy and parody shows, such as All Access: Middle Ages, which pokes fun at the black plague and the crusades. The short-form video will also give increased exposure to digital and stop-motion animation, according to Wallach.

Wallach says one video ad will be shown in between every four to five segments. In addition to banner and video ads, Comedy Central is also considering sponsorships and product placement as revenue options.

Artists are embracing the new format, Wallach says. “The talent community recognizes that this form is here to stay.”

During the next year, television broadcasters will shift from experimentation in online distribution to expecting positive returns on investment. There is a strong incentive for publishers and advertisers to work with them to successfully exploit the medium. If online video distribution fizzles, the networks will likely cancel their online programs and invest more in competing video-on-demand services delivered to televisions.

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

Have You Heard the Word?

Tell a friend: Word of mouth rocks. It’s how many people find a dentist, a plumber, a pediatrician and a realtor, even a shrink. You tend to trust your friends. So when one of your close pals swears by her hairstylist, raving about what a “shear” delight he is, you are apt to give him a shot rather than thumbing through the phone book and blindly calling random barbers. Then you’ll tell your friends. “

Small wonder this type of hype is highly coveted.

Now countless companies are trying to glean lessons from the phenomenon of friend-given recommendations. It’s increasingly difficult to cut through the advertising clutter, as consumers gain more and more control over the messages they receive in this world of DVRs and video on demand. Thus, companies invest an estimated $100 million to $150 million a year on word-of-mouth or buzz marketing.

Intelliseek’s “2005 Consumer-Generated Media and Engagement Study” polled 660 online consumers and explored attitudes and opinions across key consumer-generated media venues – including Internet message boards, forums, blogs, direct company feedback and offline conversation. The study found that, compared to traditional advertising, word-of-mouth behavior continues to grow in importance in consumer awareness, trial and purchase of new products.

Consumers are 50 percent more likely to be influenced by recommendations from peers than by radio or TV ads, which is a slightly higher level of influence and trust than found in a 2004 study coauthored by Intelliseek and Forrester.

Yes, everyone knows that good word of mouth can do wonders for a company’s reputation and its bottom line. Of course, the flip side is that the masses can also bad-mouth you and ruin your chances at future fame and fortune. The reality is that, while everyone wants to get good word-of-mouth buzz, not many companies understand how to garner that much sought-after street cred and high regard.

If you’re an affiliate, buzz marketing is an affordable way to generate interest and develop traffic. Even the smallest of affiliate sites can engage customers in this way. It takes strategic thinking but not an ad budget to rival Coke or Pepsi. What is required, however, is some dedication to spreading an idea, a few passionate people and a willingness to talk. A lot. The payoff is that you’ll encourage some folks to check you out online. And you might even earn better commissions as a result.

But currently, word-of-mouth marketing appears to be a fickle business, but if marketers apply some strategy, they are sure to be singing its praises. Whether you tell your friends your secrets or not is up to you.

Take a Bite From Apple’s Book

Apple Computer is one of the best-loved brands around. Even though it claims less than 5 percent of the PC market, fans are rabid about its products. And take a look down the street – see any white ear buds? The prolific iPod phenomenon is proof of how Apple is transforming the music business through good buzz.

One reason Apple got to be so popular in the first place can be traced to Guy Kawasaki, best known for his former role as chief evangelist at Apple; he helped spread the company’s Macintosh operating system through word of mouth. Soon after, other tech firms like Microsoft hired their own evangelists. Kawasaki has authored eight books on marketing, and he thinks that today’s high tech changes will make it easier to spread the word.

“The ubiquity and freedom of broadband are absolutely changing the world, making it easier to build brands, not harder. You used to have to have $3 million to buy a Super Bowl ad,” Kawasaki says. “MySpace and Facebook have been able to build great products and use word-of-mouth and guerrilla marketing to build amazing brands. Nowadays, blogging and podcasting are considerably more powerful means of word of mouth than people simply spreading the word by, well, word of mouth.”

Kawasaki’s advice to marketers hoping to build buzz is to first create a great product and then let customers try it out, let them test-drive. And maybe, just maybe, they’ll spread the good word.

G’head, Squeeze the Charmin

A couple of marketers are taking Kawasaki’s advice and letting the public experience their products in a very hands-on way in the form of “pop up” stores. It’s tough to cut through the clutter, so some brands are renting space on a short-term basis to let consumers experience their goods and generate buzz.

Kodak and Illy Caffè both wanted to let consumers see and experience their products in a hands-on environment. So each opened brief “art exhibits” at their self-created temporary galleries. Kodak’s galleries, which were open during the month of November in New York City and San Francisco, didn’t have merchandise for sale, just photos on the walls and new cameras for gallery-goers to check out.

“The vision behind the Kodak Gallery is to invite consumers in to experience photography and to feel and touch the products. It is much more about the learning experience and getting immersed in the digital experience,” says Kate Imwalle, who helped put together the Kodak Gallery in San Francisco’s Cow Hollow neighborhood. “This gallery is about the power of photographs and celebrating community.”

Kodak promoted the gallery and encouraged foot traffic, but a key component of the experiment was the lack of outright product-pushing. That way, gallery-goers could relax and enjoy the environment.

Galleria Illy at 382 West Broadway in New York had a coffeehouse vibe and tons of art events – acclaimed painter Julian Schnabel created coffee mugs, and NYU film students shot a series of films – to get American consumers hip to its brand. The rental was short term in the high-priced SoHo neighborhood; it opened Sept. 15 and closed Dec. 15. The idea was to give people a chance to experience the brand in the artsy milieu of a coffeehouse/art gallery.

“The galleria was a physical manifestation of our brand. It was like our business card,” says Greg Fea, president and CEO of Illy Caffè North America. “People got to experience Illy and education and culture. They had a full immersion experience with the brand. It was received really well. We’ve been extremely pleased. We had events around art and culture, because culture is a big part of coffee. ” People in New York got to know us better. We served 20,000 coffees, like 300 to 400 on weekend days, and 200 a day during the week.”

Kodak and Illy both advertised without being overt about it. Instead, they created places where people gather and could talk about photographs or coffee. They created communities.

Create Community

Communities happen online, too. A perfect example of how rock bands have used word of mouth to gain recognition for their songs and gigs is found at MySpace.com. Basically, MySpace combined the Internet Underground Music Archive’s song-posting service with Friendster.com’s meet-your-buddies’-buddies community model while ditching that site’s control-freakish attitude on how members can and can’t use the service.

More than 42 million members have joined MySpace.com since its inception in 2003. Rupert Murdoch’s News Corp. bought the website for $583 million last summer.

“Our band has been a part of MySpace since 2003, and we have like a million friends now,” say Pete Wentz, lyricist and bassist of Fall Out Boy, a punk/pop band that will be featured on a MySpace record compilation. “There’s a whole group of kids who are disenfranchised. So you’ve got to go to sites like MySpace.com to reach those people.”

MySpace.com founder Chris DeWolfe says that his company will remain true to user-generated, not corporate-dictated content. “Music labels now understand word of mouth. It happens in an organic manner on MySpace.”

Viral Videos

Now that broadband is a reality, videos can get passed around virally. Spending on online video advertising is anticipated to triple in the next two years, according to research firm eMarketer. Spending will reach $640 million in 2007, up from $225 million 2005. Advertisers will spend at least $1.5 billion or more by the end of the decade.

Coffee company Illy has video podcasts to immerse people in the brand. And Nike has a stealth video campaign out, too. In it, Brazilian soccer sensation Ronaldinho sits on the grass. Someone hands him a metal box. He takes out new cleats, laces them up, then juggles a ball and kicks it into the crossbar four times in succession. A swoosh is subtle but clearly visible through the 2-minute, 44- second commercial. And no, this isn’t a Nike spot on TV.

This “Touch of Gold” video was viewed at a nascent website called YouTube.com an astonishing 1.9 million times after being up on the site for only a month. Nike, a pro at underground publicity, creates under-the-radar campaigns that spread like wildfire – and doesn’t shell out millions to do so.

Nike’s latest play-for-no-pay stunt also includes “Dance with the Ball” and “Don’t Tread on Me: Manifesto.”

“If you want to talk to U.S. soccer fans, you have to go online,” says Nike spokesperson Dean Stoyer. “Soccer is a huge initiative for Nike, and the soccer community lives online. We’re always looking for new ways to be on the cutting edge.”

A few weeks ago, YouTube.com was just two guys – Chad Hurley and Steve Chen, CEO and CTO, respectively (both early employees of PayPal). Currently, YouTube uploads 10,000 videos per day, moving 12 terabytes of video daily – an entire Blockbuster store and a half worth of footage.

The site highlights the most-viewed videos and who’s linking to each clip. MySpace, BlogSpot.com and Friendster all helped steer traffic to Touch of Gold. The best part: YouTube is like photo-hosting site Flickr.com, only for videos – and it’s free. People can upload and share clips with the world.

Beware the Backlash

A word of caution to any would-be word-of-mouth marketers: Be careful what you wish for. For example, take Sony, which recently hired graffiti artists in various cities to paint comics on outdoor surfaces (it paid local merchants for the right to do so). The artwork showed kids playing with various toys with dazed, expressionless faces and hypnotized eyes. Upon closer inspection, the toys they are playing with aren’t rocking horses, marionettes or skateboards, but Sony PSP (PlayStation Portable) game devices.

The ads never mention the company or the product. The concept behind the campaign was that people would see the graffiti, recognize the PSP, think they were cool and tell others to check it out.

The only problem was that in locations like San Francisco, real artists tagged the work “Fony” and wrote scathing manifestos telling the electronics giant to leave city sidewalks alone. This is a perfect example of attempted word of mouth gone terribly wrong. Sony got plenty of buzz, but it also branded itself a poseur in the indie art community.

Likewise, the Intelliseek study found strong negative reaction to shill marketing or artificial buzz, in which consumers are paid or offered incentives to recommend products or brands. One-third of respondents said they would be disappointed if a trusted contact did not fully disclose a paid or incentive-based relationship; 26 percent said they would never trust the opinion of that friend again; and 30 percent said they would be less likely to buy a product or service.

“Trust is the currency of effective advertising,” says Pete Blackshaw, Intelliseek’s chief marketing officer who oversaw the study. “But it’s highly fragile.”

Boston-based BzzAgent has clients like Lee Jeans, Penguin Books and Ralph Lauren. Its “agents” are regular people who volunteer to receive products and plug them. Technically, disclosure is encouraged, but it’s left up to the individual. Tremor, Procter & Gamble’s four-year-old word-of-mouth division, has a group of selected “cool” teens to help hype products. Both firms have gotten a lot of buzz for the buzz they create for clients. But not all the buzz is bueno.

In October, nonprofit advocacy group Commercial Alert sent a letter to the Federal Trade Commission urging a thorough investigation of P&G’s Tremor, which has enlisted about 250,000 teenagers in its buzz marketing salesforce. Commercial Alert charges that Tremor targets teens with deceptive advertising.

“The Commission should carefully examine the targeting of minors by buzz marketing, because children and teenagers tend to be more impressionable and easy to deceive,” says Gary Ruskin, Commercial Alert’s executive director. “The Commission should do this, at a minimum, by issuing subpoenas to executives at Procter & Gamble’s Tremor and other buzz marketers that target children and teenagers, to determine whether their endorsers are disclosing that they are paid marketers.”

DIANE ANDERSON is an editor at Brandweek. She previously worked for the Industry Standard, HotWired and Wired News.

Power Tools

Sometimes even the simplest tasks can only be performed using the right tools. There’s no point in using a chain saw when a paring knife will do the job.

These are not reviews, ratings or recommendations. It’s just a collection of software, services and tools that we’ve come across and wanted to share with you. Here they are in no specific order.

T3Report.com

CyData Services Inc., based in Austin, Texas, has taken its competitive analysis reports that detail the linking relationships of websites, previously sold exclusively to the online adult industry, and adapted them for the affiliate and performance marketing space.

Called T3Report.com, the subscription service performs its own spidering of the Web to gather data from more than 100,000 Web pages. The service can offer its subscribers competitive market analysis about who rivals are linking to and who is linking to them. It would allow affiliate managers with merchants to see the affiliates of their competitors. And the idea is to then target those affiliates to also join their programs or possibly emulate the strategy of competitors, according to officials at CyData.

The company claims all of the data gathered is publicly available, but previously it was hard to obtain – mostly because other services such as Google and Alexa go through only the first 1,000 pages of relevant data, leaving much data untouched.

There is a full-featured version as well as a light one of the offering, which can be subscribed to on a quarterly basis. Users pay to access the T3Report.com online system, which the company claims can be easily navigated by even novices after a brief tutorial.

The pricing is based on the number of domains in the report. For detailed analysis of less than 500 domains, the price is $2,700 per quarter. Pricing goes up for more than 500 domains.

The full version gives subscribers three levels of domain-linking information. For example, users would be able to find out who Walmart.com links to, who is linking to Walmart.com and then who links to those linking to Walmart.com. The light version does not delve as deep and offers only the first two levels of linking information for the user.

The company claims that, given an affiliate network link, the product can map that to the merchant, basically revealing what is in the “black box” with the affiliate network. This works because networks use LinkSynergy.com as the linking domain by affiliates, and then they redirect to the merchant. T3Report.com has more than 650,000 LinkSynergy links in its database, with more than 5 million added each day.

For each domain, the product can show how many unique domains link to it as well as the number of links. These statistics can reveal how many websites are promoting a specific merchant.

Company officials claim that they can spot all the websites that belong to a specific affiliate and track which products they are promoting. And given the same product on two networks, they can show which is doing better as far as promotions by affiliates.

ReturnOnAffiliate.com

These days communication is a big issue for online marketers. Return on Affiliate, an online affiliate marketing meeting space, is attempting to bridge the gaps of this industry and bring affiliate marketers, managers and associates together in a single place to communicate.

ReturnOnAffiliate.com is a community that includes message boards, instant messaging, private messaging, the ability to link to other members, invite friends and colleagues (like LinkedIn) into your circle, as well as the ability to create blogs. It’s free to set up an account, and members have access to searchable profiles of Return on Affiliate members.

Just one month after launching at the start of 2006, the site had more than 700 members. The groups include all types of affiliates, merchants and industry types. Everyone from working moms to Overstock.com executives are members. The site is attempting to use the popular social-networking concept to make managers, community leaders and even CEOs accessible to affiliates.

SimpleFeed Version 2.6

SimpleFeed (www.SimpleFeed.com), based in Palo Alto, Calif., unveiled an updated version of its SimpleFeed RSS service.

The new release (Version 2.6) rolled out in February builds off the company’s most recent major upgrade (Version 2.0), which came out in November. That edition was aimed at giving marketing departments more options for personalized content and increased control over the management, measurement and branding of RSS feeds by using templates as the basis for creating collateral to communicate with customers. By using templates, users are able to publish RSS feed that look like their websites, including the same images, colors, fonts and the like that customers use.

SimpleFeed Version 2.6 includes a handful of new features and functionality such as secure feeds and the ability to automatically import content as well as a light version of the product.

Like the previous release, SimpleFeed continues to publish RSS feeds through a URL that is unique to each subscriber. Version 2.6 now offers content creators the option to require a security code or authentication. Those feeds are also sent out over a secure SSL link. If a specific Web portal doesn’t support such authentication, such as Yahoo, then only a summary of the feed, not the actual feed content, will be sent. The next version of Windows – called Vista – along with Microsoft’s forthcoming upgrade to Explorer, will both support passwords and authentication.

The product’s new Web Import feature also allows content creators to put together RSS feeds another way. Users can choose a specific page number or a page range and the SimpleFeed software will automatically spider the user’s website to pull out the correct content. That content will then be queued up to be published on the site and then subsequently pushed out in an RSS feed. This functionality enables content creators to skip the step of putting together RSS feeds manually or with templates.

SimpleFeed is also offering a light version of the product, which gives users less reporting functionality. (Users get eight reports rather than the 48 that are included in the full-featured Enterprise version.) Users of the light version do not get a fully templated RSS feed. The feed is in a template, but it cannot be changed or fully customized. Company logos can be added to feeds, however. Company officials say the light version is a good way for smaller businesses to evaluate the technology at a reasonable price ($100 per month per feed).

The product also builds on capabilities from the previous version, including SimpleTag, a personalization technology that enables customers and prospects to subscribe to content categories using checkboxes on an uncluttered subscription page. The product’s Measurement and Analytics Suite sports 48 customizable reports providing insight on key RSS statistics such as subscribers, content views and clickthroughs. Feed Publishing and Management is a Web-based tool that allows feeds to be created and managed without any prior technical knowledge. New privileges provide companies with granular control of users and workflow and can readily comply with corporate communication policies.

The Affiliate AIM List

Here’s another way to facilitate communication via a very simple concept. Affiliate AIM List (AffAimList.com) is a list of the AOL Instant Messenger handles of people in the industry. Members opt to sign up and are then added to the buddy lists of all other members. That allows everyone on the list to see who is offline or logged into IM and then contact them directly.

The Affiliate AIM List was created by affiliate Adam Viener to facilitate communication among the many different parties comprising the affiliate community. Viener, president of search marketing affiliate IMWave, is a fan of AOL Instant Messenger from way back and thought the communication tool would be a great way to foster better and more frequent communication between people. The list is not a money-making vehicle but more of a community service, Viener says.

To date, it’s been well-received, and the ever-growing list boasts some high-profile industry leaders from top companies including Circuit City, Commission Junction, eBay, Fat Wallet, HomeGain, KowaBunga, LinkShare, Performics and PrimeQ. Viener says that while he’s getting lots of requests to be added to the list, only two users have asked to be removed.

SmallPalace.com

VentureDirect Worldwide recently launched its newest online lead-generation portal, SmallPalace.com, which is aimed at the home finance and home services markets.

Mortgage refinancing has exploded into one of the fastest-growing sectors of the financial services industry. In 2005, one-third of all homeowners used cash- out mortgages to refinance their homes, and more consumers are planning to divert discretionary spending to home improvements.

SmallPalace.com focuses on delivering Web-based, category-specific leads that are generated from applicants actively seeking information on new home purchases, mortgages, refinancing or a variety of home services categories such as home security and contractors.

The SmallPalace portal joins other online lead-generation sites developed by VentureDirect Worldwide, including Direct Degree (www.DirectDegree.com) for online education, Let’s Franchise (www.LetsFranchise.com) for franchise opportunities, and The Free Forum Network (www.FreeForum.com), a co-registration site.

Pic2Vid for Marketers

Sister Technologies, which provides applications and hosted services for the automated creation and management of multimedia marketing content for online retail and mobile environments, recently released its Pic2Vid for Marketers solution suite.

Pic2Vid is a Web-based solution that automatically generates streaming video content with voiceovers from digital photos and text, enabling online marketers to enhance each product and listing with attention-grabbing video clips.

The Pic2Vid for Marketers solution suite consists of two parts: Pic2Vid Hosted and Pic2Vid Enterprise.

Pic2Vid Hosted is a fully hosted, Web- based solution aimed at auction-site power sellers, small and mid-size retailers and service providers, and online marketers and affiliates. The company’s Pic2Vid Enterprise is a turnkey, scalable hardware/software solution for large brick-and-mortar retailers with significant online businesses, including auction sites, shopping sites and industry portals, as well as resellers such as aggregators, service providers, Web publishers and creative agencies. A demo of the Pic2Vid Consumer version can be found at Pic2Vid.com.

Sister Technologies is also working on a new tool, based on the Pic2Vid and “M- Plat” online editing platforms that will enable advertisers to create short video clips that would appear alongside organic search engine listings.

There are only a handful of steps involved in creating a video, and within approximately two minutes a user can create a 15-second clip that could appear beside their organic search listing or as part of a paid listing. Pricing is about 1 cent per minute of broadcast. A one- minute clip that receives a thousand views would cost the advertiser $10.

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.