Indie Labels by Chris Trayhorn, Publisher of mThink Blue Book, July 1, 2004 As the affiliate manager for Calendars.com, Hilary Poseski hawks more than 6,000 different calendars. They feature dogs, fashion models, families, folk art, God, teens, transportation, lesbians, history, cooking, ethnic groups, patriots, sports, cars, photos, travel, nature, music and wild animal tamers. Among many other things. “Whatever your hobby is, we have a calendar for it. These all translate into niches to find affiliates to work with us,” said Poseski. “Since we focus on affinities, the customers our representatives generate for us are highly responsive to the additional marketing that we do. Affiliates who come in are highly qualified, with great conversion rates because they come from Web sites that have a strong affinity for our product.” Her success is not only due to having great affiliates, it has to do with how she finds them. Unlike the vast majority of companies, Calendars .com runs an independent affiliate program with the help of off-the-shelf software, shunning the popular option of paying a network to run its program. From retail giant Amazon.com to smaller players such as ABCLeads.com and ChoiceShirts.com, there are hundreds if not thousands of companies that choose to take on the task of running their own programs. And they have no problem finding affiliates. Sixteen percent of affiliates prefer to work with indies instead of networks, according to AffStat, a statistical study published by Shawn Collins Consulting. Another 41 percent said they have no preference. Of course, there are drawbacks. It’s more work for both the affiliate manager, who has to make payments, recruit affiliates, fix technical glitches and handle myriad other tasks. And it can be harder for affiliates to work with a lot of different managers instead of collecting a single check through a network representing multiple programs. Networks are quick to point out the positive things about working with them. “As a trusted party, we offer value much greater than the cost of the network,” said Elizabeth Chowalsky, vice president for marketing and product development at Commission Junction. “Certainly the software that allows you to do it in-house handles the technical issues, like tracking. But when you run a network there’s a relationship between the advertisers and the publishers, and we make sure they all abide by the rules of the advertisers.” And then there is the sheer bulk of the networks. CJ, for example, claims 70,000 “active” publishers, which the company defines as affiliates who’ve earned commissions within the last six months. LinkShare claims 10 million “partnerships,” but Ã by policy Ã doesn’t purge inactive affiliates from its ranks (see story, p. 38). Nine of the 10 leading online retailers work with CJ, Link Share or Performics, including such giants as Sears, JCPenney, QVC and Gateway. For affiliates who depend on big brand names to lure customers, that’s a big incentive to work with networks. The notable exception is Amazon.com, a pioneer of the affiliate marketing industry that set up its own “associates” program in 1996. “A company deciding whether to out- source this or do it in-house has to decide whether having expertise in online marketing is important,” said Sara Spillman, senior manager for Amazon.com Associates. “For us, understanding consumer buying behavior is most important, along with encouraging Web sites to merchandise our products. That’s our key to success.” Amazon has a whopping 900,000 affiliates. Spillman said the percentage of active associates is “healthier than average,” but wouldn’t say how much revenue the program generates. “We are very intent on optimizing the experience and creating a compelling program. We continue to invest in this program, which should tell you that it’s very successful,” she says. Part of Amazon’s success stems from the number of authors who promote their own books, then steer customers to the Amazon site. “I get more money on Amazon clickthroughs buying my book than I get in royalties from the publisher on the same sale,” said Michael Dean, who writes textbooks and novels. His titles include $30 Film School and $30 Writing School. “I make $1.10 per book from Amazon.com, and $1 from my publisher,” said Dean. Some affiliates see a bit more risk working with indies, depending on the nature of the affiliate and the time they have to work on their programs. Take PhillyBurbs .com, a local news site that supports itself in part through both independent and network revenue sharing programs. “Affiliation is a small portion of our revenues, so investing too much time into one of them isn’t good,” said Executive Editor Karl Smith. “When you’re dealing with networks, the real upside is consolidated payments. But the downside is that some of their affiliates use predatory tactics that can steal business away from us. If the company is an indie, it’s much easier to know for sure what their practices are.” CJ’s Chowalsky chafed at the notion that networks are havens for predators. Her company monitors all of the links from affiliates and, if they catch anyone redirecting traffic from other affiliates, the fraudster gets the boot, she said. The single biggest consideration in deciding whether to work with networks or remain independent is, of course, the cost-benefit equation. Networks charge fees, often large fees. The fees may be thousands of dollars a month, since the cost structures are as high as 30 percent of total payouts. So the question becomes: Are the services rendered worth it? ABCLeads.com didn’t think so. The company generates sales leads for licensed long-term care insurance agencies. It started out paying network fees that kept the company from paying its affiliates more than $7 per lead referred. After it brought the program in-house, ABCLeads was able to raise payouts to $8 and to keep more money for itself. ABCLeads Marketing Manager Karen Hudgins said network rules also prohibited it from paying recruitment bonuses. Now it pays affiliates 50 cents for each lead generated by an affiliate they’ve referred to the program. Control is another big reason that indies go it alone. At DomainDirect.com, Affiliate Program Manager Bessy Nikolaou noted that 20 percent of her 2,400 affiliates produce 90 percent of her sales, so she likes to shower affection on them. “The small mom-and-pop shops that are listed with the mega-networks have never proven profitable with us,” she says. “I want to have control over who can participate in our partner program. My main focus is on identifying potential partners whose product offerings complement our domain and hosting services.” Likewise, says Pat Matthews, CEO and affiliate manager for WebMail/Excedent. “We almost went with a network, but I didn’t like their managed model,” he says. The network “works with a lot of regular retailers as affiliates. We prefer to recruit webmasters and consultants for our enterprise email solutions. You have to find the right affiliates to promote your products and services.” Poseski said Calendars.com’s customer acquisition costs are much lower as an indie than they were when the company was in a network four years ago. The cost of software is quickly offset by the lowered costs of being independent, she says. Another tradeoff is the time it takes to run an independent program. “The biggest challenge is the time and effort that it takes. But this is also what makes the program successful. I stay really involved. It’s grass-roots marketing,” says Poseski. It helps that Calendars.com is part of a larger company, CalendarClub, which has its own accounts payable and customer service departments. Kerri Kaufman, the affiliate manager at ChoiceShirts.com, found some affiliates aren’t very “sophisticated” when it comes to promotional and technical issues Ã a potential time drain. “But once we get in touch with them and help them get going, it’s easier to get them to stick around,” she says. “A lot of prospective affiliates apply to a bunch of programs at once, so once you approve them, you want to get them to come to you rather than to another merchant.” Kaufman says the time factor also helps to make sure her affiliates are productive. “We deactivate a lot of affiliates who don’t become active because we can’t spend the time trying to work with a small affiliate who won’t generate enough revenue,” she said. That limits the program size to several hundred affiliates, but Kaufman boasts that two-thirds of them are active. Being independent can also save time. At ABCLeads, Hudgins said they were seeking leads for long-term care insurance, but many network affiliates would ignore the very important adjectives before the word insurance. “One affiliate drove 12,000 leads to our site seeking health insurance, and we had to get refunds [from the network] on all of those. That kind of thing happened more than once,” she says. Now, if affiliates send any mismatched applicants, it’s much easier to eliminate them from consideration, in part because Hudgins is in direct communication with the affiliates Ã she requires affiliates to list their contact information on their sites. “This fosters stronger relationships and makes it easier for us to get in touch with them,” she says. Under the network system, the only way she could contact affiliates was through the network’s messaging system. Rapid communications often translates into quick profits. For example, when illusionist Roy Horn was mauled by a tiger during his Las Vegas show, Siegfried and Roy souvenirs started selling, well, like wild. Calendars.com’s Poseski quickly got in touch with the operators of fan sites, alerting them to push for sales of calendars based on the famed duo. “We understand the multitude of niches that we market to, and no network can do that for us,” she says. “We retain the ability to respond really quickly when a new affinity catches on. Trends come out of nowhere, and you have to capitalize on them.” Running an indie site just might be one of those trends. JACKIE COHEN has been covering affiliate marketing since 1998. She previously edited the Net Returns section at The Industry Standard. Filed under: Revenue Tagged under: 03 - Summer 2004, affiliate marketing, affiliate networks, Affiliate Recruitment, Features, merchants, mtadmin About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.