January 2006 – UtilitesDB

Educating and Informing Your Publishers

As anyone managing an affiliate program knows, educating your network of publishers is a vital and often daunting part of building and growing an affiliate program.

This is definitely true for RealNetworks’ program, which focuses on digital media subscriptions, including Rhapsody, with more than 1.3 million songs, GamePass with hundreds of games and SuperPass with premium news and entertainment content.

Though thousands of publishers may have joined our affiliate program, some may not even be familiar with the products, let alone the tools and tactics for successfully marketing them. So with the limited resources available to manage and grow these programs, it’s important to be efficient in your efforts to educate your publishers.

The keys are constant communication with your network, listening to your publishers’ feedback and implementing change from it and sharing best practices and insights on marketing your products.

Your welcome email, the first correspondence your publishers receive upon joining your program, is extremely important. This is your chance to provide new publishers with helpful information on tools available in the program, as well as to present information on your products and tips for successfully marketing them. Many publishers won’t read your welcome email, but it’s worth making it good and helpful for those who do.

It is also important to communicate with the entire network via an email newsletter on a consistent and ongoing basis. These mailings should include broad information such as updates and tips on marketing your products. Again, many publishers will ignore these e-newsletters, but you should make it as educational and informative as possible for those that take the time.

Next is the important step of segmenting your publisher network. Your top-volume drivers will have needs that differ from your mid-tier publishers, which also have needs that differ from those who’ve barely begun promoting in your program. The size of your segments is also likely to vary. Your top-tier group is typically the smallest, while the largest segment is often made up of newcomers and non-performers (for those who keep them in the program).

How much time should be allocated to each segment is really a matter of preference and experience with the individual program. Some managers might find that working to increase a top publisher by a small percentage has a greater impact on revenue than seeing each mid-tier publisher grow by one transaction a month. Others may find the opposite to be true. That’s why it’s extremely important to test both tactics in your program and at different points throughout the year.

Again, the main elements to the education process are constant communication with your network, listening to your publishers’ feedback and implementing change from that feedback, along with sharing best practices and insights on marketing your products.

So let’s start with the big guys. These publishers are invaluable partners to the company and key players in your affiliate program. For RealNetworks, they are the ones who continue to amaze and impress us with their constant innovation and online marketing savvy. They often build, test and optimize faster than we can and move quickly to implement new products and offers. We stay in constant contact with these publishers, keeping them informed of upcoming launches, providing them with new products and offers first, granting their requests and requesting their feedback.

We provide our top publishers with tips on top-performing search keywords, any new knowledge we’ve acquired through recent testing, customized creative and updates on the constantly changing and increasingly competitive digital music and entertainment space.

Requests coming from these publishers have helped to shape our program and have greatly influenced the development of the tools and processes we have in place.

The mid-tier publishers can be defined in a number of different ways and may even be split into multiple tiers depending on the size of the program and the amount of management resources available. In our program, we consider the mid-tier publishers to be those who have shown some success in generating revenue, but have not reached a certain threshold to be considered a top performer.

There is a great deal of opportunity within the mid-tier, especially since these publishers have already put some time and energy into marketing your products and have started testing and gaining knowledge. One helpful way to gauge the potential of these mid-tier publishers is to keep a spreadsheet showing their best week. This key metric provides a benchmark and an opportunity to understand the potential impact of focusing on this group.

Working with mid-tier publishers often entails a combination of a one-to-many approach as well as a certain amount of individual attention. Consistent, ongoing e-newsletters and email messages to these publishers are a great way to let them know about new promotions, products, tools and tips. Since they probably already have a basic understanding of the products and tools available in the program, we try to focus our communications here on new information.

In addition, we also designate certain times throughout the year when we reach out to our mid-tier publishers by phone or direct email. For those who are interested in taking the time to speak with us, we find it invaluable to understand what is and isn’t working for them, and give them tips and ideas for growing their volume and finding greater success in our program.

And finally there’s the low-tier publishers – those who have barely begun or have not had much success promoting our product, or have joined the program but have not successfully driven a transaction. While some programs choose not to allow inactive or nonperforming publishers to remain in their program, we view them as an opportunity to activate a publisher who has shown enough interest in our program to at least complete the registration process. We take a purely one-to-many education approach with this tier, using similar tactics of sending e-newsletters and emails to educate them on our products, as well as alerting them to tips and tools in our program to help successfully market our products.

I believe that there is a large opportunity within this tier, particularly because it’s one of the biggest segments. For example, our program can, within one quarter, get 5,000 inactive publishers to drive one Rhapsody trial; we that as a fairly significant lift.

There is one important caveat to the segmentation model: If a large publisher joins your program, reach out right away to ensure they are aware of the data feeds and other tools in your program.

By continually informing and educating your publishers, you can ensure success and a long-term, mutually beneficial partnership.

RACHEL LAZAR is a consumer marketing director at RealNetworks. She previously worked at Amazon.com in online advertising and launched the Inshipment Marketing Channel. She holds a B.S. in psychology from Santa Clara University.

Defining Affiliate Marketing

Guerrillas know that affiliate marketing is just a fancy word for selling and treating people well. It’s more common sense and patience than anything else. But people often think affiliate marketing is a bunch of things it isn’t.

You’re going to save a lot of money, time and stress simply by avoiding these many misconceptions about what you really do for a living – especially if it’s you who has the misconception. If you are sharply focused on what your business really and truly is, you’ll disappoint no one, including yourself. I want your expectations to be based on clear reality, not smoky information that will happen when you know for certain what affiliate marketing isn’t. So, let’s look at what affiliate marketing is not.

Affiliate marketing is not advertising. Don’t think for a second that because you’re advertising, you’re marketing. No way. There are over 100 weapons of affiliate marketing. Advertising is one of them. But there are also 99 others. If you are advertising, you are advertising. You are doing only 1 percent of what you can do. If you do think affiliate marketing is running a lot of ads, go immediately to the rear of the subscription list.
Affiliate marketing is not direct mail or email. Some companies think they can get all the business they need with direct mail and email. Mail-order firms may be right about this. But most affiliates need a plethora of other marketing weapons in order for their direct marketing to succeed. If you are doing direct mail or emailing only, you’re off to a brilliant start and I commend you, but I caution you that you are not a guerrilla.
Affiliate marketing is not telemarketing. For business-to-business marketing, few weapons succeed as well as telemarketing – with scripts. Telemarketing response can be dramatically improved by augmenting it with advertising. Yes, advertising. And direct mail. Yes, direct mail. And even email. Yes, email. But be warned, marketing is not telemarketing on its own.
Marketing is not brochures. Many companies rush to produce a brochure about the benefits they offer, then pat themselves on the back for the quality of the brochure. So, does that brochure qualify as marketing? Proudly display it on your website. Offer it all over the place. It is a very important part of your marketing arsenal when mixed with 10 or 15 other very important parts. However, it doesn’t work all by itself. You’ll need more.
Affiliate marketing is not being in the Yellow Pages. Most, and I mean most, companies in the United States run a Yellow Pages ad and figure that takes care of their marketing. In 5 percent of the cases, that’s the truth. In the other 95 percent, it’s disaster in the form of marketing ignorance. Sure, you should have a Yellow Page ad as part of your arsenal – if people are used to finding businesses like yours in the Yellow Pages – but remember that it’s only part of your marketing weaponry.
Affiliate marketing is not show business. There’s no business like show business, and that includes marketing. Think of affiliate marketing as sell business, as create-a-desire business, as motivation business. But don’t think of yourself as being in the entertainment business, because affiliate marketing is not supposed to entertain. If it does entertain, it does so while increasing the momentum that leads to a sale. But affiliate marketing as entertainment? I don’t think so.
Affiliate marketing is not a stage for humor. If you use humor in your marketing, people will recall your funny joke, but not your compelling offer. If you use humor, it will be funny the first time and maybe the second time. After that, it will be grating and will get in the way of what makes marketing work – repetition.
Affiliate marketing is not an invitation to be clever. If you fall into the cleverness trap it’s because, unlike the savvy guerrilla, you don’t realize that people remember the cleverest part of the marketing – even though it’s your offer they should remember. Cleverness in affiliate marketing is a vampire, sucking attention away from your offer.
Affiliate marketing is not complicated. It becomes complicated for people who fail to grasp the simplicity of affiliate marketing, but at its core affiliate marketing is user-friendly to guerrillas. They begin with a seven-sentence guerrilla marketing plan, create a marketing calendar and select from 100 weapons – half of them free. It’s not too complicated.
Affiliate marketing is not a miracle worker. More money has been wasted due to marketers expecting miracles than to any other misconception of marketing. Marketing is the best investment in America if you do it right, and doing it right requires commitment, patience and planning. Expect miracles and you’ll get ulcers.

Before I let you scour the Net for more nuclear-powered gems for your business as well as a myriad of opportunities for affiliates, I feel honor-bound to let you know that affiliate marketing is a way for you to earn profits with your business, a chance to cooperate with other businesses in your community or your industry and a process of building lasting relationships.

As you ponder this, think about the fact that we have left the age of single-weapon marketing and now reside in the age of multiple-weapon marketing. Where once it took but one marketing tool to make the sale, today it takes several. But the principles of saying the same thing in each method of communication remain the same – to advance the relationship to a sale.

Marketing is a topic that intimidates many business owners, so they steer clear of it. For guerrillas, affiliate marketing has no mystique at all and is a whale of a lot of fun because they enjoy launching a marketing attack and knowing they’ll succeed.

JAY CONRAD LEVINSON Is the author of Guerrilla Marketing and the author of the best-selling Guerrilla Marketing series of books, which are published in 41 languages and are required reading in many M.B.A. programs worldwide. His website is www.gmarketing.com.

Home Page Makeover Unleashed

In this first installment of Revenue Magazine’s “By Design Makeover,” I worked with my team at Sostre & Associates to choose one site and give that lucky winner a visual redesign of its home page. After reviewing more than 50 submissions from readers like you, we finally selected – drum roll, please – OriginalDogBiscuit.com.

We chose this site because it serves as a prime example of a challenge website owners commonly face – designing an effective home page. I am convinced that online retailers could drastically improve conversions by redesigning their home page, and I am out to prove it. So stick with me as we walk through this makeover geared toward increasing conversion rates for OriginalDogBiscuit.com.

Before you design a website it is critical to thoroughly understand the product or service that you are peddling. That’s why we started the makeover process with a conversation with Elyse Grau, owner of The Original Dog Biscuit Co., to learn as much as possible about her products.

Grau says her company’s value proposition is quality. In other words, the biggest benefit of buying her biscuits is the ingredients. The Original Dog Biscuit uses all natural, human-grade, mostly organic ingredients, no preservatives, sugars or salts. The results leave dogs barking for more of this healthier snack.

Grau’s customers are health-conscious dog lovers. So it comes as no surprise that her best-selling products are regular and special diet dog biscuits, with dog gifts and dog supplements taking a backseat to these staples. The Original Dog Biscuit Co. also touts great incentives for frequent buyers, including discounts and free products.

Armed with this information, we needed to understand how users interact with the website. This is User Interaction 101. A first-time visitor has three primary questions: What is this site selling; why should I buy from this site; and how do I buy from this site?

Your website’s home page is charged with providing quick answers (sometimes in less than 10 seconds) before you require anything of the user.

Now let’s check out how the original design responds to those questions.

What is the site selling? The Original Dog Biscuit Co. may have a clear domain name and logo, but the website sends mixed signals. A quick glance at the home page screams of salmon oils instead of the company’s best-selling biscuits.

The three product categories – Dog Biscuits, Dog Gifts and Supplements – are each given the same weight in the navigation. That makes it confusing for customers who came to the site looking for dog biscuits with the best ingredients and best taste.

What’s more, the home page doesn’t display any images of the actual products being offered. This imagery is commonly referred to in the industry as a “hero shot.” And according to MarketingSherpa’s Landing Page Handbook, a good hero shot can increase brand recognition and response rates. That’s our goal!

Why should I buy from this site? As we learned from our business owner interview, the unique value of the doggy treats is ingredients that are far superior to your average grocery store brand. The problem is that the site doesn’t communicate that value proposition.

Well, OK, technically it does in that hard-to-find text blurb in the middle. But people don’t always read text, especially text that stretches across the page with no distinguishing characteristics. And the Our Ingredients link is sandwiched between the Frequent Buyer Program and Privacy Policy links, neither of which will draw much attention. This is where a good tagline comes in.

Wait ” it already has a tagline. Yes, and if you squint really hard you can almost see it right there under the logo. Can you see it? It says, “Best Ingredients. Best Taste.” It’s not the best tagline in the dog-biscuit world, but if it was visible, it might help.

How do I buy from this site? Now let’s assume that a user gets past the first two questions. They understand that the site sells dog biscuits and that the high-quality ingredients make this a much better brand for their canine friends. There’s still one more problem: How do they make a purchase?

Although not immediately recognizable, the phone number isn’t too hard to find.

Since there are no product images on the home page, we have to dig a little deeper to find the dog biscuits we want. But once we get there, adding them to the cart is fairly straightforward.

Bottom line: OriginalDogBiscuit.com could use a few improvements. I’ve pinpointed a few specific areas that need some immediate help:

Too much navigation
When there are too many navigation options, it’s hard for the eye to pick anything out, much less see what’s really important.
Corporate identity inconsistency
The logo is attractive and has personality, but it doesn’t flow with the rest of the page.
Missing unique value proposition
The unique benefit for dog owners who buy from this site is that their pets are getting treats that are healthier than their mass-market counterparts. This value is not communicated on the home page.
Ordering phone number not prominent
Many users still want to pick up the phone and call. The placement of the number is not prominent enough.
Wrong focus
The first thing a visitor sees on the site is “salmon oil.” This is not the primary business of the website and, although there should be a place for news and announcements, it is taking too much real estate in the current design.

Now comes the fun part. Sostre & Associates art director Jason Graham spearheaded the visual aspect of this redesign. He was excited about the project because, “Their logo and packaging looks terrific. They obviously invested a lot into their brand identity, and we can capitalize on that.”

First we took the most important elements and positioned them right in the center of the page. Now their top products are prominently featured, along with their value proposition, and Add to Cart links allow customers to begin shopping right away. Then we surrounded that imagery with supporting elements, like testimonials, articles and frequent-buyer discounts.

“Everything on the home page supports the user’s desire to buy or learn more about the product and the person selling it,” Graham says. “The new home page gives users lots of reasons to feel good about buying the product.”

In the competitive world of e-commerce, online shoppers are always looking for reasons to not buy from a website. Having a less-than-optimal home page can give them what they perceive as a good reason.

Remember the saying, “On the Web, your competition is only three clicks away”? Well, it may be old (in Internet time), but it is still true. This By Design Makeover is sure to keep the competition at bay and dog owners happy with a user-friendly store to buy nutritious doggy treats.

PEDRO SOSTRE is principal and creative director at Sostre & Associates, a Miami-based consulting and development firm, which also promotes affiliate programs, including AudioBookDeals.com, BestCredit Solutions.com, EquestrianMag.com, iTravelMag.com and Look-Your-Best.com.

It’s Just Direct Marketing

As I go around the country teaching workshops on pay per click (PPC) I get asked many varied questions on search engine marketing (SEM), depending on which city I happen to be in. Larger marketers seem to have more sophisticated questions; smaller marketers tend to focus on subsistence tactics. However, one theme seems to reoccur frequently: the myth that SEM is some kind of rocket science.

Smaller businesses and many members of marketing departments at large and even Fortune 1000 companies have bought into the idea that SEM is something that can only be properly utilized by those who know the correct “voodoo” to make it work.

But really, SEM is just another form of direct response marketing and many of the same principles apply. Why else do you think those nasty 24-page sales letters work so well at driving conversions from search engine traffic? Personally, I hate those letters, but I am not their targeted audience.

The marketers who write long sales letters typically have years of experience in direct response marketing and have figured out how to use search to reach the same customers that they would target with any other marketing vehicle. They are successful because their message resonates with their intended customers (mostly Internet newbies) and they apply the same controls to their search marketing campaign as they do to any other campaign.

So how can you apply the same tactics? Don’t get me wrong; I’m not advocating the use of long-winded sales letters with 15 calls to action set in strategically placed buttons. They may or may not work for your product – depending on your offer – whether your consumer is educated in your marketplace and your price point. What I am saying is that you too can adapt their techniques to reach your intended goal.

Here are some direct response marketing principles that should also apply to your SEM campaigns:

It takes work. In order to truly be successful at search engine marketing you have to constantly test your response rates. Those who throw up a campaign and expect to just sit and watch the dollars roll in without any labor investment are just wasting their time. Successful marketers test copy, keywords, placement, pricing, messages, landing pages, etc.
You have to test. In direct response marketing, testing rules is never-ending. Just like testing in direct mail, the cost of the campaign can be justified if the lift in the conversion rate is enough to offset the expense. To measure the effect, you have to A/B split-test your traffic, testing new landing pages against the old. For retail sites with thousands of products, you can minimize the expense by testing just the product pages driving the most sales. If the lift in conversion offsets the cost of optimizing the pages, keep testing and roll out new ones.
You have to track results. Just as savvy offline marketers can tell which piece of mail and from which specific message a customer converted, you have to be able to tell which keyword, message and referrer drove your sale. Tracking is easy to do on PPC, harder on search engine optimization, but critical on both.
Creative is key. Google rewards those with high click-through rates (CTR) on PPC by better placement, and the way to get high CTRs is to write great copy that resonates with your audience. A good copywriter can make the difference between a successful PPC campaign and one that bleeds cash. Similar to an offline campaign, online creative (i.e., your search listings) should be tested frequently because even a small lift in conversion can affect profitability.
It’s all about the benefit. Successful marketers remember that the customers’ needs are paramount at all times. They sell on benefits, not features, and look for the messages that play on their customers’ emotional responses to their product or service. Include in your creative the things that work best such as your unique sales proposition, calls to action, list of benefits, money-back guarantees, etc. Never test more than one element at a time, or you won’t know which one contributed to the lift or falloff. Over time, you will discover offers that work only online, but like offline marketing, it comes through the same test-and-learn discipline.
The “Lead to Sale” conversion rate is important. Just as in the offline world the key to conversions from search is providing the right hook in your listing at the right phase of the buying cycle, and then converting that lead into a paying customer with the right offer on your landing page.
Analysis is your friend. Like any good offline campaign, you learn a great deal from analyzing your testing and conversions. Sometimes, new search engine marketers make the mistake of analyzing all their online test campaigns as one big program. This can really skew your testing as the set of results from one search engine campaign can vary dramatically from another. Likewise one set of keywords can perform significantly better than the rest; but because even changing a keyword from singular to plural can have dramatically different results, you have to test and analyze each variable separately.
It’s all about CPA or CPL. All search engine marketing campaigns need to be analyzed in just the way you would analyze your efforts in the offline world. Cost per acquisition (CPA) or cost per lead (CPL) is your common denominator and the only number that really counts in the long term.
Create customer loyalty.Search engines are looking more and more at how many websites link to yours. But a bunch of links from high-traffic sites are worthless unless those links drive sales. Link campaigns are too time-consuming to do them just for the sake of getting higher search engine ranking. You need customer evangelists driving more sales, and links can provide that.

Not all traffic is created equal. Just as in the offline direct response world, the 80/20 rule applies. In that world we know that 80 percent of your profits come from 20 percent of your sales. The same thing applies in SEM: 20 percent of your keywords will drive 80 percent of your sales. Obviously those are the keywords you will focus 80 percent of your attention on but you can’t discover those drivers unless you test constantly. Some keywords will bring you more traffic, but fewer conversions on the back end. Other keywords may bring you no sales, but be effective in driving branding or eliminating a stumbling block in the buying cycle.

Direct response marketing skills and experience are some of the key drivers in SEM campaigns. There are some nuances of SEM that you can only learn by experience, but if you go into it with the mindset that these rules apply you will demystify the whole experience. Regardless of the source or channel this mindset is what makes the difference between success and failure.

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

Resolutions Require Resolve

It’s mid-January. The holiday revelry is over, Christmas decorations have been packed away and the leftover turkey in the fridge is turning green. What about your New Year’s resolutions? Are they also becoming stale and moldy?

Are you still hitting the gym regularly, forsaking Haagen-Dazs and renewing your determination to avoid the evil weed with each nicotine fit? What about your resolutions to improve your affiliate marketing business this year? How are you doing with those?

What’s that? You didn’t make New Year’s resolutions related to your affiliate sites? Well, that comes as no surprise, as only a tiny percentage of those who make New Year’s resolutions include goals to improve their business. What is surprising is that a smart affiliate marketer would choose to give their competition such a big advantage to start the year.

Consider this. Super-affiliates who made resolutions and set goals are already executing plans to increase their annual income through market research, new site creation and customer base expansion. Existing pay-per-click advertising campaigns have been reviewed, ineffective keywords tossed and new campaigns and traffic-generation strategies are being put in place. Phone calls are being made to enhance relationships with affiliate managers, negotiate commission increases and forge new strategic partnerships. Last but not least, working methods are being organized and streamlined to save time, money and effort.

While statistics suggest that most of the “resolvers” will venture down the familiar path that ends in this year’s broken resolutions, the “super resolution makers” will stick to their plans and substantially increase their share of the commission pie.

So, do you want a bigger piece of that pie? Well, better belated than never. There’s still plenty of time to boost your affiliate business in 2006 by making and executing a few well-planned resolutions.

Here are 10 tips to avoid the pit of broken resolutions and reach your affiliate marketing business goals in 2006:

Be realistic.
“Make 10 million bucks” is a lofty aspiration, indeed. However, your chances of reaching that goal are about zero to none, unless of course your super-duper affiliate marketing company netted $5 million to $9 million in 2005.
Be specific.
“Make big heaps o’ cash” means different things to different people. Use specific numbers to define what you mean by big. Consider resolving to increase annual gross revenue by 20 percent or to deposit $2,000 in your savings account each month.
Set a deadline.
A goal without a deadline is just a wish. Do you wish to learn HTML, or will you actually learn HTML and upload three pages to a free Geocities domain by Feb. 15, 2006?
Put it in writing.
Write down precisely what you want to achieve and post it in a place where you will see it every day. The list will remind you what you’re working toward.
Make a plan.
When vacation planning, we research destination options, decide when and where to go, how to get there and then make reservations and an itinerary. You may use a similar approach to creating a step-by-step plan for your affiliate marketing business activities.
Use positive terms.
Frame your resolutions from a positive perspective. For example, instead of writing, “Stop joining low-commission nonproductive affiliate programs,” reword your goal to read, “Research and apply to one new recurring or high-commission-percentage affiliate program in my primary niche each week.”
Commit to your plan.
What will motivate you to stick to your plan? Is it the thought of how appealing you’ll be to the opposite sex while driving your shiny new sports car with the top down, or perhaps you dream of a vacation to some exotic and exciting destination? Maybe it’s the promise of creating a better future for your children with a hefty college fund. Whatever your goals, visualize and reaffirm them frequently to strengthen your commitment to the plan and enhance your chances of success.
Be flexible.
Today’s hot market may become tomorrow’s dog – just ask some formerly successful pharmaceutical affiliates. Although it would be terribly discouraging to see your time and hard work wasted, be ready to revise and rework your plan if required.
Be persistent.
According to a study conducted by Elizabeth Miller, a doctoral student at the University of Washington; and director of UW’s Addictive Behaviors Research Center, Alan Marlatt, of those who succeed with their resolutions, only 40 percent do so on the first try. Don’t despair. The rest succeeded after multiple attempts, and only 17 percent required six or more tries to succeed.
Reward success.
Don’t wait until you’ve saved enough for that brand-new Mercedes to reward your success. Take credit when you achieve a resolution and treat yourself. Also, don’t blame yourself if you fail. Instead, discover and dismantle the obstacles that were in your way and change your plan accordingly. The beauty of resolutions and goals is that you can create and revise them throughout the entire year – not just at New Year’s.

Do I follow my own advice when it comes to making New Year’s resolutions? Yes. In addition to my annual “lose weight, exercise more and watch less CNN” resolutions, I did make a few that are directly related to my affiliate marketing business.

For example, to eliminate the annual tax-time stress-fest during which I plow through an enormous pile of unsorted receipts, statements and stubs, I have resolved to do my bookkeeping on a monthly basis. Maintaining the books in a timely manner should spare what remains of my accountant Glen’s hair and save about $1,000 in bookkeeping charges at tax time.

Will my resolution succeed? Well, I’m not sure whether preserving Glen’s hair is sufficient motivation for me to stay the course. However, the prospect of an extra grand in my pocket to buy another pair of Stuart Weitzman boots guarantees its success.

Happy 2006. May this be the year that you reach and exceed all your goals and dreams.

ROSALIND GARDNER is the author of the best-selling guide to affiliate marketing, The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People’s Stuff Online. Her book is available on Amazon and www.SuperAffiliateHandbook.com.

The State of Online Marketing

By the time Revenue magazine hit newsstands in January 2004, performance marketing and affiliate marketing had already had their share of ups and downs. Online marketing had survived the dot-com bust and continued to evolve from the e-commerce craze into something that sparked enthusiasm and life in a shell-shocked market.

The idea that retirees, housewives and those with “real jobs” could work at home a few hours a day (or into the wee hours of the night) and make some extra money earning commissions by promoting products from someone else seemed too good to be true. But it wasn’t. And in many cases, people weren’t just supplementing their income, online marketing had become their main source of income. They were able to quit their day jobs and focus on their new business.

Revenue was born out of that passion and enthusiasm to help chronicle, sort out, explain, educate and bring to light all the pertinent issues facing online marketers. We’ve been here for two years now, and we hope to be here for many more as the market remains on its incredible growth trajectory.

To celebrate our milestone, we’ve brought together some research, voices from the industry and past history. It just may help you navigate your continuing journey into online marketing.

Search is hot. Local search is even hotter. The areas of podcasting and blogging are white hot. Then there are predications for growth in ad spending over the next year. There’s no lack of research to show that all segments of online marketing are going strong and getting stronger. The facts, the figures, the surveys and the data all point to a future filled with opportunities for online marketers. We bring you some of the key indicators (see page 58).

And if you’re still not convinced how the market will shape up, you can forget the numbers and go right to those in the trenches. We asked online marketing leaders to give their opinions on how things have evolved over the last two years, an update on where the online market is right now and where it’s headed. There are comments from a lot of different types of folks, all with different jobs and all with their own perspectives, but the optimism about online marketing is a common thread among them (see page 60).

If you’re wondering how businesses adapt and survive in such a rapidly changing marketplace, look no further than the “5 Who Thrived.” These are five individuals we profiled in our premiere issues because they had already carved out some early success in the affiliate space. We revisit each of these folks and find they all have been able to roll with the punches and not only survive but thrive. Actually, they’ve all grown their respective businesses and have no plans to rest on their laurels (see page 62).

Finally, Revenue magazine has worked hard to stay on top of the constantly evolving online marketing space. And along the way we’ve made some changes in the look of the magazine as well as how we handled the editorial content. Take a stroll down memory lane with us as we revisit each of our past issues (see page 64).

Facts & Figures

Online Retail Sales

Online sales were $96 billion in 2003 and are expected to reach $230 billion by 2008 (10 percent of all U.S. retail sales).
Source: Forrester Research

Online retail sales in the third quarter of 2005 reached $23.32 billion – 26.7 percent more than the $17.6 billion for the same period of 2004.
Source: The Census Bureau of the U.S. Department of Commerce

The proportion of online retail sales to total retail sales reached 2.3 percent in the third quarter of 2005, compared with 2 percent in the third quarter of 2004.
Source: The Census Bureau of the U.S. Department of Commerce

Online Ad Revenues

Total revenues for 2005 are expected to reach $12 billion, a 25 percent increase over 2004’s final tally of $9.6 billion.
Source: Interactive Advertising Bureau

Total U.S. online advertising and marketing spending will reach $14.7 billion in 2005, a 23 percent increase over 2004. It’s forecast to reach $26 billion (8 percent of total ad spending) by 2010.
Source: Forrester Research

Eighty-four percent of marketers had plans to increase U.S. online ad budgets in 2005.
Source: Forrester Research

Almost half of marketers plan to decrease spending in traditional advertising channels like magazines, direct mail and newspapers to fund an increase in online ad spending in 2005.
Source: Forrester Research

Display advertising, which includes traditional banners and sponsorships, will grow at the average rate of 11 percent over the next five years to $8 billion by 2010.
Source: Forrester Research

Search Engines

Forty-one percent of 1,577 Internet users surveyed in September and October reported that they had visited a search engine the previous day. That is up from 30 percent in June 2005.
Source: The Pew Internet & American Life Project

Search is the second most popular task on the Web with 41 percent. Email still leads the list with 52 percent of U.S. Web users saying they had sent or received email on the day before being surveyed this fall.
Source: The Pew Internet & American Life Project

Users average 24 minutes a day on email, compared with less than 4 minutes for search.
Source: comScore Media Metrix

Search engine marketing will grow by 33 percent in 2005, reaching $11.6 billion by 2010.
Source: Forrester Research

The Big Three

Yahoo’s third-quarter 2005 marketing services revenue grew 46 percent, to $1.16 billion, from $797 million in third-quarter 2004. Ad revenues at America Online increased to $324 million in the third quarter, marking a 28 percent leap from 2004. And Google saw third-quarter revenues surge to $1.578 billion – a 96 percent leap from the third quarter of 2004.
Source: Company information

Keywords

The average “cost per keyword” increased from $20 in July to $26 in September 2005.
Source: Performics

Keyword costs for the words kitchen, food and wine-related terms went up 8 percent in the third quarter of 2005. Prices for keywords about apparel and accessories rose 10 percent during the same period.
Source: SEMphonic

Travel

Among the 35 million consumers searching for travel, nearly one-third purchased a travel-related service either online or offline within the eight weeks following the initial search. Among these buyers, 80 percent completed travel purchases online.
Source: comScore Networks, Yahoo and Media Contacts

Only 20 percent of all travel transactions linked to search engine activity occurred directly following the initial search referral, while the remaining 80 percent took place in the days and weeks following the initial search session.
Source: comScore Networks, Yahoo and Media Contacts

Over the last year, Merrill Lynch reported that direct travel supplier sales increased 27 percent compared to 19 percent for online travel agencies. Travel search engines were driving direct supplier sales and accounted for $600 million in direct bookings last year.
Source: Merrill Lynch

Youth

Nearly 60 percent of children ages 6 to 11 go online at least once a month, and about one in 12 goes online daily.
Source: Mediamark Research

Forty-four percent of teens have purchased something online. Teens spent an average of $73 on their last online purchase.
Source: Teen Research Unlimited

Music

Apple Computer’s iTunes music store now sells more music than Tower Records or Borders. Apple has maintained more than 70 percent of the PC-based digital music download market throughout 2005.
Source: The NPD Group

Digital music sales accounted for slightly more than 4 percent of the market during the first half of 2005, up from about 1.5 percent during the first half of 2004.
Source: The Recording Industry Association of America

Gambling

Worldwide online gambling revenues will top $10 billion in 2005, up from $8.5 billion in 2004.
Source: eMarketer

In July 2005, 30 million U.S. Internet users (18 percent of all Internet users) visited gambling sites. This is comparable to the number of Internet users who visit retail music sites and is double the number who visited gambling sites in December 2001.
Source: comScore Media Metrix

Local

Local online advertising has more than tripled since 2000, going from just over $1 billion to more than $4 billion.
Source: Borrell Associates

More than 26.3 million online users had visited a top 15 classifieds site in September – 80 percent more than the 14.6 million in the year-ago period.
Source: The Pew Internet & American Life Project

Blogs, Podcasting and RSS

Sixty-four percent of respondents are interested in advertising on blogs; 57 percent through RSS and 52 percent on mobile devices, including phones and PDAs.
Source: Forrester Research

An estimated 5 million people will have downloaded podcasts in 2005, compared with just 820,000 in 2004. That figure is expected to reach critical mass in 2010 with 62.8 million users.
Source: Bridge Ratings

Newspapers

Almost one in four U.S. Internet users now reads online versions of newspapers.
Source: Nielson//NetRatings

More than 39 million unique Internet users visited newspaper websites in October 2005, up 11 percent increase from the previous year, and more than three times the year-overyear increase of overall Internet users.
Source: Nielson//NetRatings

Video

Spending for Internet video advertising in the U.S. will nearly triple in 2007 to $640 million from 2005’s $225 million.
Source: eMarketer

Navel Gazing In the Trenches

The Past

What’s been the biggest change in affiliate marketing over the last 24 months?

How could it be ANYTHING but Google AdWords?
– Seth Godin, Marketing Expert, Author

The biggest change we have seen is the surge of search-enabled affiliates.
– Joe Speiser, Co-founder, AzoogleAds.com

Google’s AdSense altered the pay-for-performance landscape forever!
– Beth Kirsch, Group Manager, Affiliate Programs, LowerMyBills.com

The negative campaign against ad-ware and the declining conversion of email marketing.
-Michael Stark, President, PostYourProperty.com

We saw more big players entering this industry, both good and bad, and the many different ways they capture the attention of the search engines and visitors.
– Greg Rice, Affiliate Program Manager, Commerce Management Consulting LLC

Gone are the days of putting a banner into rotation or some text links and waiting for revenue. Professionals realize that generating real revenue can only happen when they master the advanced toolsets available.
– Wayne Porter, Associate Editor, ReveNews

The demand for ethical marketing practices by networks, affiliates and merchants. Affiliate managers today aren’t just remarked upon because of how well they grow a program, but also how well they police that program.
– Chris Sanderson, Marketing and Affiliate Partner Manager, Mondera.com

The Present

What’s been the greatest development in online marketing during the last 2 years?

The need to be transparent. If you lie, you get nailed.
– Seth Godin

Complete and total domination of the search channel.
– Beth Kirsch

The emergence of blogs/RSS being leveraged by affiliate marketers has opened up a new frontier of quality, content-based real estate for affiliate ads.
– Shawn Collins. President and CEO, Shawn Collins Consulting

Probably the intelligence that can be built into online advertising. Intelligent advertising can be presented when the likelihood of a sale is at hand.
– Greg Rice

The rise in popularity of blogs and RSS feeds combined with the availability of contextual advertising technologies like Google AdSense.
– Adam Viener, President and CEO, IM Wave

There has been a turnaround in attitude on the part of media buyers. They have learned to trust the medium again and are bringing the dollars back.
– Dana Todd, Executive Vice President, SiteLab

Describe the state of online marketing right now.

Still chaos, because people haven’t figured out how to regularly and consistently test and measure.
– Seth Godin

Online marketing is here to stay, but it’s much too early to predict the methods we will use to market in the next couple of years. Truly disruptive innovations are yet to happen.
– Elizabeth Cholawsky, Vice President, Marketing ValueClick

The current state of online can be best summed up as The Second Coming!
– Michael Stark

The industry is very young still and needs time to mature and develop rules and regulations to play by.
– Brian Littleton, President, ShareASale.com

Exciting and fun! The shift from offline to online spend that we all have been talking about in the past 10 years is happening.
– Ola Edvardsson, CEO, Performancy

The key issues are confusion and consumer trust. Some consumers are becoming so turned off by the Internet pollution it hurts e-commerce as a whole and our emerging global community.
– Wayne Porter

Crowded, chaotic and filled with confusion. A massive cleanup is needed to sort out the bogus from the real and make it easier for legitimate firms to do business in an environment of trust.
– Chris Sanderson

The Future

What are the largest hurdles for online marketing going forward?

Standardization of data is a significant challenge. Until we can make it simpler to run online campaigns effectively, we’re excluding the small and medium businesses from full participation.
– Dana Todd

Enhancing customer trust and redefining online marketing ideology. The gap between reach and budgets will decrease and success-based models will be the future.
– Holger Kamin, Executive Account Director & Special Projects RoW, Zanox

Marketers must allow the consumer to choose which advertisements they would like to see anytime and anywhere.
– Elizabeth Cholawsky

Unreasonable client demands combined with impatience.
– Seth Godin

Once the major ad agencies fully embrace the Internet and its measurement and performance benefits, then the industry will really explode.
– Joe Speiser

Strategically, to bridge the gap between traditional brand/media advertising with the means to track and measure the ROI of online marketing. More tactically, to clean up the sleaze factor of online marketing including hammering the nail in the coffin on the spyware and spam issues.
– Beth Kirsch

I think we’ll see some overzealous enforcement of current and future laws related to email, adware and online advertising in general. Plus, there’s always the bogeyman of an Internet sales tax being enforced across the board.
– Shawn Collins

The constant abuse of the end user experience. As a marketer you always need to ask yourself: Is what I am doing really benefiting the end user? Is this the way I would like to be treated myself? The Golden Rule does apply in online marketing as well.
– Ola Edvardsson

Trying to make sure that we don’t behave so badly that the government steps in with strict regulation on tracking technologies.
– Brian Littleton

Where do you expect online marketing to be two years from now?

The separation between online and offline advertising will begin to blur. Online methodology will dominate and make the growth in online advertising appear even more dramatic than just the numbers would suggest. The handwriting is on the wall.
– Elizabeth Cholawsky

There will be fewer players, but they will be the more sophisticated, rule-abiding marketers that stick around through 2007.
– Shawn Collins

I think we will see far more sophisticated tools, better analytics and an emphasis on Web services.
– Wayne Porter

Online marketing will become a science of sorts. Since we’re able to track everything that happens online, we’ll see more companies focusing on analytics.
– Rachel Honoway, Vice President of Sales and Marketing, KowaBunga

Who Thrived

In our premiere issue we noted only about one in 50 affiliates finds real success. We profiled five affiliates who had beaten the odds. Now, two years later, we look at what’s happened to each of them over the last 24 months and what they’re up to now.

Rosalind Gardner

WHEN WE FIRST MET: Gardner had just finished writing her book, The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People’s Stuff Online, and she was running Sage-Heart.com, an online dating service. She was making about $30,000 to $50,000 a month and had the business running to the point that she only needed to spend a few hours per month to keep it going.

WHAT’S HAPPENING NOW: In addition to being a columnist (Affiliate’s Corner), Gardner has been very busy with many projects. She’s working on more books – one is about how to make money selling books online. In the future she’d like to write books that have nothing to do with Internet marketing. But for now, she’s very in demand in the affiliate community. Gardner is consulting on a regular basis, speaking at high-profile conferences and seminars including Affiliate Summit and Affiliate Bootcamp, and building several affiliate sites.

Of course, Sage-Heart.com is still her bread-and-butter site, but she claims that NetProfitsToday.com, the site where she offers affiliate advice and a newsletter and sells her Super Affiliate Handbook, is taking up more of her time. She has what she calls a “virtual assistant,” but he only puts in an hour or so of work each day. Gardner recently started a forum on NetProfitsToday.com – something she had consciously avoided in the past, due to the huge amount of time forums require for monitoring, removing spam comments and just generally keeping things rolling.

The good news is that Gardner gets to unwind a little more. These days she works like a fiend for a stretch then heads off to China or Mexico for several weeks of rest and relaxation.

Wendy Shepherd

WHEN WE FIRST MET: Shepherd was a mom to three boys by day and a super-affiliate at night, working five to eight hours running her flagship site, TipzTime.com, plus a half dozen other retail merchandise sites. She was making about $40,000 a year and sending out her popular opt-in newsletter to more than 30,000 people.

WHAT’S HAPPENING NOW: Shepherd’s load certainly hasn’t lightened over the last two years. She’s still super busy home-schooling her boys, running two main sites (TipzTime.com and ChartJungle.com) along with about a dozen others and working into the wee hours of the morning. However, she has tripled her revenues of two years ago; she’s working on a top-secret unique site that will be launched later this year; and she’s thinking about hiring someone to help out with the Web development end of her growing business.

In addition, her husband stepped down from his managerial role at his job and is now working only about 30 hours instead of 50 or more. That means there’s a little more family time, which is more important than money or business, according to Shepherd, who admits that she never has time to be bored. Shepherd has been asked to speak at industry conferences and seminars, but declined – mostly because, she says, she “just can’t travel right now.” Meanwhile, she’s also contemplating writing a couple of books in the near future. She wants to help and encourage others.

Zac Johnson

WHEN WE FIRST MET: Johnson started his first Internet business at the age of 14 in 1997 selling website banners for $1. By 2004 Johnson was signing up people for free stuff like catalogs, coupons and samples on his site MoneyReignNetwork.com. He was also working with PostMasterDirect.com to push newsletter subscriptions by collecting names, addresses and email addresses through a double opt-in system. His income was in the low six figures.

WHAT’S HAPPENING NOW: Johnson’s MoneyReignNetwork.com site was recently redesigned and expanded to include more than a half dozen websites focused on games, celebrities, entertainment and community. He’s out of the email and newsletter business and more into building traffic through viral marketing. About a year ago he tried his hand at launching an ad network, but closed it quickly. A few of his new sites have cracked Alexa’s top 10,000 ranking. Johnson, who spends a “ridiculous amount of time working,” says 2006 will “easily be his best income year to date” as he prepares to add a couple of new sites to his growing stable.

Elisabeth Archambault

WHEN WE FIRST MET: After quitting her part-time job as a technical writing instructor, Archambault opened her flagship site (BuckWorks.com), a virtual mall that sold everything from auto parts to prom dresses. Her revenue was going up and down, depending on the month, but she claimed in a bad month she might make $3,000 and then make something in the low five figures in a good month.

WHAT’S HAPPENING NOW: Archambault continues to operate BuckWorks.com, but now it’s just one of nearly a dozen active sites she runs. She has expanded into areas beyond consumer shopping, and another site, which she won’t name, has become her money maker. Archambault also owns over 1,200 domain names along with a huge file of “great ideas.” In November she traveled to four cities and was able to conduct much of her online affiliate business. Her goal is to set up her business so she can completely run it from anywhere. Meanwhile, she’s doing more affiliate consulting work, which accounts for 20 to 30 percent of her business. She’s been so busy that she has turned down requests to speak at various industry conferences.

Ulrich Roth

WHEN WE FIRST MET: Living in the Canary Islands, Ulrich was running Last-Minute-Reisen-Weltweit.de, a travel service offering vacation packages, flights, rental cars, cruises and vacation homes. A native of Germany, he focused on the German travel market and was earning $150,000 per year, with monthly revenues ranging from $10,000 to over $20,000 at peak season.

WHAT’S HAPPENING NOW: Last-Minute-Reisen-Weltweit.de is still up and running and lists Roth as the contact. There is also a photo of Roth on the site’s landing page. However, he did not respond to attempts to reach him via telephone and email. The site continues to cater to German travelers and offers various last-minute travel packages to such exotic destinations as Ibiza, Mallorca, Turkey, Spain and Portugal.

Richard Kohl: This is No Retirement Party

Richard Kohl may be 70, but he sure knows how to party. As the head of a big family – he’s got four children and six grandchildren, while his second wife has four children, 15 grandchildren and two great grandkids – Kohl has hosted and attended lots of family functions in his day, and now he’s on a mission to make it an exciting, fun and pleasurable experience for others to throw their own shindig.

Kohl’s affiliate site, MyPartyMall.com, is a virtual mall that brings together at one site everything someone would need to create, plan and throw a hugely successful party. Kohl says he and his second wife were looking for a business they could operate together out of their home. They wanted to supplement their retirement income, but they also wanted to do something that would “stand out in the crowd.”

The online world was relatively unfamiliar territory for Kohl, but trying his hand at new businesses was not. “I’m not afraid of failure. I’ve had my share of it. But I’ve always liked business and have always been involved in selling and marketing. I love reading Forbes and Fortune and Business 2.0,” he says. “I’m not afraid of calculated risk. I’m not the type to get in a hot-air balloon or bungee jump, but I like the calculated risks of business.”

His previous lines of work included a stint selling insurance “back in the day” and owning his own business selling water softeners via direct sales. He later did some consulting setting up dealers in the water softener business. In the ’80s Kohl was thinking about a new business. He did some research and discovered that home burglar alarms had some big potential.

“We thought that would be a good business for us,” Kohl says. “I figured I know business and this looks like a great opportunity.”

He was right. Business boomed and Kohl expanded to three offices. But in the early 1990s his first wife, Jeannette, was diagnosed with Alzheimer’s disease. As the disease progressed he built an apartment for his wife next to his office and brought her to work with him. That only lasted about a year, however. “I couldn’t concentrate on both,” he says. He then sold all his businesses to raise enough money to pay for his wife’s medical care and be her full-time caretaker until she passed away in January 2004.

After his wife’s death, Kohl became more interested in the online world. Two years earlier, he had bought a used computer at a garage sale, but didn’t use it much, going online occasionally to look for new home-based business opportunities.

He didn’t see the real value of the Internet until he signed up for a Christian dating service, where he met Joan, whom he married in July 2004. “She lived 200 miles from me, and the Internet brought us together,” Kohl says. “That’s when I realized the Internet was very worthwhile.”

As the retired newlyweds started their new life they were looking for a business that allowed them to work together out of their home. “I was aware of affiliate marketing at that point but didn’t know how it worked,” he recalls.

Kohl did some extensive research into keywords. He looked at the inventory at Overture. He found that more than 280,000 people were looking for party supplies. That intrigued him, so he looked at more than 350 party shops online. What he found was that no single site brought all aspects of planning a party and buying supplies for all kinds of celebrations and events into one place.

He also went to a costume and party trade show in Chicago and realized that party shops are a $20 billion-a-year industry, with more than 5 million people searching for party supplies. Then he recalled a story about a friend’s daughter who spent more than $400 for her daughter’s Barbie-themed birthday party. He also remembered there was not a party shop in their little town of Williams, Iowa (population 425). The closest one was 35 miles away in Ames.

“People either went to Kmart or the local drugstore like Walgreen’s and picked out party supplies from whatever they had, which wasn’t much,” Kohl explains. “I wanted a site where a mother or father having a party could find everything for that party: decorations, supplies, gifts, apparel, dresses and invitations.”

He adds, “Back in 1973 I had a rack-jobbing franchise and did a job for a party supplier in a supermarket. I figured the affiliate thing would be like having 100,000 locations of party racks in one place.”

So, the couple started MyPartyMall.com in October 2004, when Kohl wrote a business plan, which included a mission statement, a business operation manual and a business marketing manual. “These were the three areas to help keep my wife and I focused on our objective of creating a one-stop party shop online,” Kohl says.

In December 2004 he contracted with a firm in California to build the site. He says he knew how he wanted it laid out but had no knowledge of how to create a website.

“I didn’t have anything to go on other than my gut. We ended up changing the site nearly 100 percent once it got up there. It wasn’t the look and feel I wanted, but now it’s totally what I was looking for. I wanted it to be usable and repeatable, and I’m not disappointed,” he says.

They signed up as a publisher with all the major networks, including Commission Junction, LinkShare, Performics, Red Galoshes and ShareASale, and began putting merchants on their site last May. As of November, MyPartyMall.com had 28 shops and more than 230 merchants.

The Kohls spent most of that stretch from October 2004 to the launch of their site in July 2005 immersing themselves in the world of affiliate marketing.

The first newsletter Kohl subscribed to was Rosalind Gardner’s Net Profits Today and her book The Super Affiliate Handbook was the first one he bought. “In total, we have purchased 14 books and have subscribed to nine magazines on the subject of marketing, the Internet and affiliate programs, as well as numerous online e-zines and newsletters,” Kohl says.

Getting familiar with affiliate marketing has been challenging. “It has been a real experience as neither of us had much computer or Internet knowledge when we started,” Kohl says. “Sifting though all the hype and clutter and not knowing who had the real scope has been challenging and somewhat expensive, but isn’t education always that way?”

The couple claims they have learned a lot about affiliate marketing in a very short time and they continue to get educated. “I doubt if the education process in this business is ever completed,” Kohl says. “One thing I can say for certain is, your startup will cost twice as much as you figured and will take twice as long to complete it, and this is a neverending project.”

Kohl loves to learn new things and is always soaking up information. And when he thinks something is a good idea, he acts quickly. In early November he launched a blog at MyPartyMall .com after reading a cover story on blogging in Forbes magazine and an article in Revenue’s Fall 2005 issue, and after chatting with the Revenue photographer sent to take Kohl’s picture for this article.

“I had recently been reading about how blogging was an excellent way for businesses to promote themselves and drive traffic to their sites. I didn’t really understand even what blogging was when I first read about it, but then I saw another article explaining it. It seemed like a great idea. Then the photographer Revenue sent had a blog and was talking to me about it. I practically set up the blog during the photo shoot.”

For Kohl, who loves to create new businesses, learning is a big part of the fun, but so is being able to set his own schedule and work at home with his wife, who does the bookkeeping.

The couple’s command center for MyPartyMall.com is their 14- square-foot dining room, which is filled with three computers (one for Richard, one for Joan and one strictly for record keeping and word processing). There are also three printers, three phone lines, a fax machine and a copier. They now have satellite access to the Internet, as they immediately found their dialup connection just wouldn’t cut it.

Despite being retirement age, the couple adheres to a strict work schedule.

“We are not retired people doing this part time,” Kohl says. “We spend eight hours every day working on this business, but it’s an enjoyable type of work.”

The Kohls are up by 7 a.m. every morning. Then it’s down to the kitchen for a coffee and light breakfast, followed by one hour of bible study and reading before getting started at work around 9:30 or 10 a.m. They head out for lunch late in the afternoon, return around 3 p.m. and work until 9 p.m. when the computers are all shut down. Sunday is a day when the computers are never turned on, and the Kohls seldom work on Saturday.

But even when they aren’t sitting at their desks officially working, they are out promoting their business.

Think Local

To begin marketing their new business, the Kohls initially took an old-fashioned approach, spreading the word to family and friends. They also spent much of the summer attending county fairs (they went to about a half dozen) to market the site and gather opt-in email addresses. They came away with more than 500, and that list has now grown to over 800.

Kohl jokes that it’s mandatory that everyone in his family use MyPartyMall.com whenever there is any kind of family celebration or gathering.

“There are three weddings coming up in the family. We also promote our business at church. And every time my wife sends a bill she includes a business card. Also when we go out to eat we leave a card. And we also leave them with the receptionist at the doctor’s office and whenever we visit a local business,” he says.

So far, much of MyPartyMall’s traffic is coming from friends and family and those who stumble on it by accident. And Kohl also sent 35 press releases to local newspapers. But the Kohls have yet to begin doing any search engine marketing. “We haven’t spent much time yet learning about search engines and the best ways to get better results. This is something we are exploring but don’t have a good handle on yet,” Kohl says.

To date, Kohl is pleased with how well MyPartyMall.com has done. In July his site’s ranking on Alexa was around 3.8 million out of 16 million sites. When he checked again in October it had climbed to 1.8 million.

He explains that his initial idea was to “be a local operation and mass advertise in a town,” but he also wanted to have more control over his income.

That’s why MyPartyMall.com has a banner advertising program (he calls it relative advertising) for offline merchants, whereby their ads are placed on relevant pages. For example: Bakery shops could advertise on MyPartyMall.com’s birthday or wedding pages. Catering services can advertise on the pages for bridal showers or wedding shops.

Just two weeks after offering this to offline advertisers, the site had more than a dozen merchants on board. “There are 40 offline merchant categories that are very relevant to our online merchant sites,” Kohl says.

He adds that this form of advertising gives him some control over his monthly and yearly income.

“I have far less control over the affiliate part of my business. This allows me to have total control over some element of my income. It also helps the local retailer since the consumer is already in a buying mode.”

Selling this ad space also fit in perfectly with the overall goal of the Kohls, which was to ensure they made a certain amount of money per month. Originally, they were aiming for $500 per month to supplement their retirement income. That goal has changed. They are won’t give out their target, but did note that they want to fund several missions that their church is involved in as well as send at least four of the grandkids to a private – and very pricey – Christian school. They’ve got about two more years before those grandchildren are eligible to enroll, and the Kohls are confident they’ll have the necessary funds when the time comes.

Meanwhile, in early October, the Kohls attended a family reunion. Not only was it a chance to catch up with far-flung family members, it also was a great opportunity to pass out lots of business cards.

An Unbridled Love of Shopping: Q & A with Michelle Madhok

Michelle Madhok has a lot of experience mixing content and commerce online. She has worked at CBS Broadcasting as a director of entertainment marketing for the new media group and was group director of editorial products for AOL. Madhok understands the power of promotion when it comes to the world of online shopping. Her latest venture, SheFinds.com, offers information to busy women who don’t have time to read five-pound fashion magazines to keep on top of the latest styles. The site, which is packed with information about the must-haves in beauty and fashion, features a daily blog and an online forum that underscores her mission and motto: “We shop the Web so you don’t have to.” With 16,000 subscribers and approximately 300,000 unique visitors per month, SheFinds.com blends Madhok’s ideas about melding editorial and e-commerce.

Madhok recently talked with Revenue writer Alexandra Wharton about the value that affiliates offer merchants for building their brands. She also expounded on her thought that sites, such as SheFinds.com, should be treated as any other form of media. Madhok claims that because affiliates can help retailers reach new customers and niche markets, they should not be limited to commission-only compensation. For Madhok it’s all part of the importance of value-add partnerships and relationships in the world of online merchandising.

The newly married Madhok talked with Wharton, also a recent bride, about her fall wedding, which she pulled together through websites – many of them affiliate sites. This inspired Madhok to purchase the URL for WiredBride.com, her latest idea to create an online shopping guide for brides.

Alexandra Wharton: What was the inspiration for SheFinds.com?

Michelle Madhok: When I was at AOL, I became the beauty director and we started a column called Ms. M. It promoted beauty products every month. It did really well. We started offering swag – we would put up some kind of cosmetic and it would sell out. One time we had to contact a factory to get more of a certain color we had promoted. It really showed me that content and commerce was going to work.

So I’ve been very interested in mixing content and commerce for a long time. I’d been pitching it at AOL over and over but I couldn’t really get any traction with the bureaucracy and its changing management. So I went home and started this business and we’ve been doing very well. It has been almost 18 months now and we have 16,000 subscribers today. It’s all been word of mouth. Every Tuesday we send a “style mail,” and every Thursday we send a “sale mail.” The thing about these subscribers is that they are highly qualified. At AOL I learned that you can have a ton of impressions and it does nothing for you. It’s more important to have really quality people, even if it’s a smaller audience, because they buy.

We launched SheFindsMom.com five months ago, because we were getting a lot of interest about kids’ clothes and maternity stuff. So we decided to separate that off. I very much believe in psychographics, not demographics. For example, you and I are both brides, and we’re interested in the same thing that a 24-year old bride is – you know, we both need to know about cake toppers or whatever.

AW: What is your biggest category?

MM: Our biggest category seller, which kind of surprised me, has been underwear. We are working very closely with Bare Necessities. We figured out how to do a “Zagat” guide to underwear. We email people about their favorite underwear. And, believe it or not, people are passionate about bras and underwear and shape-wear. So we sold a ton of underwear. Dan Sackrowitz of Bare Necessities and I did a presentation at the LinkShare Symposium. Bare Necessities has made more than $2.50 per name from the SheFinds.com subscriber list.

AW: Can you comment on the benefits of value-add partnerships for merchandising?

MM: We frequently feature eLuxury.com as a place to buy luxury goods. We’ve moved $20,000 worth of merchandise for them this year, and remember, this is on a list that just reached 15,000 subscribers. I also know that there have been thousands of dollars in non-commissionable sales because we’ve exceeded the return days. We sell big-ticket items for them – $1,000 Louis Vuitton bags. I think it’s very valuable that they are reaching our highly qualified audience. We are providing brand awareness for them, and I think that they are beginning to understand that and support us with ad buys.

AW: Do you spend most of your time working on affiliate relationships with merchants?

MM: The affiliate thing is a little bit of a conundrum for me because I feel like sometimes affiliates/retailers – they don’t distinguish between different affiliate sites and they [merchants] treat us as the sweat-shop workers of the Internet. I feel with some sites – they [merchants] only want to do things on commission and I don’t think that’s right. I feel like you’re paying to have placement in magazines, you’re paying to have placement in newspapers, you’re paying to have placement on television, why should you disregard the branding opportunity I bring you?

I’ve been saying my new thing is I don’t work on a purely commission basis. In editorial I do that. But if you want ad placement, or some special email, we work on a combination. Basically, if you do affiliate links with me, I’ll take 20 percent off my rate card. But you are still going to pay a placement fee. Because I believe that I am building your brand. We did this thing with SmartBargains.com – we did a combination. They did really well. And a lot of people told me they had never heard of Smart Bargains before. I’m building awareness, and who knows how much of a value that person is in a life span? I think that we should be treated the same as other media. On the other hand, coupon sites can live off of 5 percent commission or whatever people want to pay.

I don’t like that we get lumped into the same area because I’m trying to create a quality product and get you the best users that you want and create your brand image. If you’re going to throw yourself up on a coupon platform, yes, they’re going to make more because they play dirty. They spam the search engines, they post codes that are out of date, and they don’t keep things up. Yes, they make a lot more money than I do, so I can’t compete with it. I really feel like that’s a problem that affiliate marketing is having right now.

AW: Do you work with a network?

MM: I work with Commission Junction and LinkShare. I work with pretty much all of them.

AW: And do the networks help you to attract new merchants?

MM: Well, LinkShare has gotten to be much more helpful. I’m doing a bunch of holiday – it’s Q4 – and so they just brought me some advertisers. I think this is kind of a new hybrid of part placement fee, part brand image, and it works for everybody. They brought me Godiva and Apple. I didn’t come from a sales background so I need to figure out how to get on the brand advertiser radar.

In the magazine industry it’s clear that if I scratch your back, you’ll scratch mine. They don’t talk about it, but you will see that all the beauty products that are pitched are also advertised in the magazine. We definitely have editorial integrity; we definitely don’t pick anything that we don’t think is good. But we also think that if all things are equal, we want to go with the company that’s supporting us. Almost every company now has an affiliate relationship. For instance, we are working with Bare Necessities – they were one of our first big supporters. So if we are going to write something about underwear, then we usually use them, and also they usually can get discounts for our readers. For our 2006 underwear guide, I asked our readers, “What is your favorite underwear?” I had someone write me back and say, “Mine is Hanky Panky; can you get us one of those Bare Necessities deals?” So you see that we have built up some brand equity for them by working together.

AW: Does anyone ever ask, ‘What happened to the separation between church and state?’ Do people understand that this is an affiliate relationship?

MM: I don’t publicize it in the newsletter. But I could write bad editorial with no affiliate links and then I think people will leave you anyway. I mean look at the growth of magazines like Lucky and Shop Etc. Even the Bliss catalog has become hugely successful. You have to provide a good product no matter what. So if you become a complete shill, then I think people will turn away from you.

AW: You say on your website: “I don’t push anything that I myself wouldn’t wear.”

MM: Right. Also the playing field has become equal. Everybody’s an affiliate. At this point, it’s not like I have to pick from a small amount [of websites]. Pretty much anything I write about is [from] an affiliate site.

AW: Interesting.

MM: The shoes that we pick quite often are from Zappos.com. They have an enormous inventory, and they have free shipping and free returns. So that to me is a client bonus.

AW: So you planned your whole wedding through the Internet and a lot through affiliate sites?

MM: The No. 1 affiliate site I used was eBay. Now I think eBay is a great place to get things. I got my shape-wear through eBay, because it was sold out on my lingerie sites, BareNecessities.com and FigLeaves.com. I got my veil off of eBay. But some of the stuff was not necessarily through affiliate sites, although I did definitely peruse them and would suggest others. For instance, StyleBug.com and EdressMe .com are carrying simple wedding dresses, which is a genius thing because the wedding dress industry is a complete racket. I was invited to sample sales so I ended up buying four dresses. I sold two on the site PreOwnedWeddingDress.com.

For instance, I get hit up by jewelry designers all of the time. I ended up having one of them (www.jeannenicole.com) make custom necklaces for my bridesmaids. Another one I was looking at was on a site called Trunkt.com; they are actually an affiliate site. And I found a site through them called Indigo Handloom.com, which has these beautiful shawls. So I ended up getting the shawls for the bridesmaids and for myself. And they’re woven with this silk called mugo, which is from India, and it’s supposed to be good luck. An affiliate site for groomsmen’s ties is Fozieri.com. I shopped for cupcakes online and used Evite for the pre-wedding parties.

AW: Did you order your wedding invitations online?

MM: My parents did it, but I’m familiar with how they did it. I did order some things from ChelseaPaper.com. I ordered thank-you cards from them.

AW: Did you buy your bridesmaids’ dresses online?

MM: Everyone picked their own strapless black dress. I sent suggestions as links from BlueFly.com and Nordstrom.com.

AW: How about the location for the wedding?

MM: Well, I definitely used the Internet to search. I was looking for some type of outdoor space, like a hotel. TheKnot.com has lots of reviews. And Craigslist.com was indispensable for the wedding. I found the reverend on Craigslist. I found my wedding coordinator on Craigslist and my video guy on Craigslist. It was nice to not have to troll stores looking for things. And I wanted to have gold shoes, and I was able to set up with eBay so they would email me every time gold shoes were listed.

AW: That’s a good idea.

MM: I found my seamstress through a site called ManhattanUsersGuide.com. I found on Craigslist my makeup guy as well. As for the rings, I didn’t buy them, so I didn’t buy those online, although I did search for styles online. I left it up to [my husband]. There’s a diamond guy in the diamond district here [in New York], so that’s where everyone buys.

AW: Will your website, WiredBride.com, be an affiliate site?

MM: I don’t like the term affiliate site ” that implies we are only out to push the retailer’s promotions. We build sites to help women shop, and brides have a lot of very confusing shopping to do. We will use affiliate links where applicable.

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

Flipping the Switch

Maybe your relationship with your network has soured. The reports are frequently late, revenue is down and your questions are not being answered in a timely fashion. You’re thinking about switching to another network, but that means learning new tracking processes and establishing relationships with an unknown group of affiliates.

So, is it really worth all the potential trouble to move over to another network?

Switching networks is a disruptive business decision that temporarily reduces income and requires additional commitment of resources to restart your affiliate program. Yet merchants large and small are choosing to change networks primarily out of frustration.

Anger Management

Merchants cite a variety of customer service reasons for jumping to another network, but they share a common theme: Merchants aren’t happy with the way things are and think they can get better service elsewhere.

While increasing revenue is the ultimate driver of most business decisions, the impulse to switch is usually a reaction to negative experiences. A nagging feeling of neglect from the network foments the frustration and leads a merchant to end the relationship. These feelings of frustration can be found on merchant and affiliate blogs and message boards and are aimed at each of the largest networks.

Ask a dozen people about the performance of their network and you are likely to get a range of opinions from highly positive to very negative, according to Noelle Bermingham, site manager of affiliate SavingsWatch.com. Bermingham says it is similar to the opinions rendered about mobile phone companies. While some people switch from company A to B to get better customer service, others are switching from B to A for the same exact reason.

Each network also has its strong and weak points, according to Bermingham, who worked as a consultant for Home Depot on its affiliate program before becoming a publisher.

The networks “all have their issues,” says Bermingham, who has worked with many of the leading networks during her career, including Performics, LinkShare and Commission Junction.

Lee Gientke, affiliate manager of ProHealth.com, was dissatisfied with the service she was receiving and decided it was time for a change. In August she switched from Commission Junction to LinkShare. A few months after the switch, Gientke is thrilled, saying she has already eclipsed her previous high in monthly income.

She attributes her improvement to LinkShare’s superior reporting capabilities, as well as a “better commitment to service,” she says. She is saving money because LinkShare includes services such as emails to affiliates at no cost that previously required paying additional fees.

Seth Greenberg, who runs eHobbies .com, used a change in technology platform as an excuse to re-evaluate his entire operation and change networks. He shares the blame as to why his program with Commission Junction was under-performing. “We haven’t done a great job internally with affiliate programs,” he says. “We weren’t taking advantage of them in a positive way.” Greenberg says that oversight of the affiliates was an internal bandwidth issue.

Greenberg decided to move eHobbies from internal fulfillment and Yahoo’s online store platform to Amazon.com’s technology and distribution services. Reprogramming the site for a new network at the same time would eliminate the need for another round of updates later.

For Greenberg, the risk was outweighed by the opportunities of starting over. “We didn’t have much to lose because we weren’t taking advantage of the channel,” he says.

Change Is Good

Regardless of motivation for switching networks, merchants undergo a cathartic experience in ridding themselves of a negative relationship. Similar to periodically cleaning out your wardrobe closet, it feels good because you are being proactive, closely evaluating what stays and what goes.

As part of the housecleaning process, merchants will cut the ties with under-performing affiliates and focus on what is being done right with the 10 to 20 percent that are bringing in the cash. While revenue will hopefully increase as a result of the change, you feel better for having done something, which will likely motivate you to work smarter in the future.

During the network switch, merchants also reflect on the internal processes that have been successful. In many cases, this new attitude and focus makes it difficult to determine whether it is the change in network or improvements within the merchant’s operation that prompt subsequent increases in revenue. If a merchant reverts to bad management habits, then the improvement could be only temporary.

Preparing to Switch

Reducing the disruptive impact on your revenue flow of switching networks requires several weeks of preparation to bring your most effective affiliates to the new network, as well as learning the new system for reporting and communications. Although sometimes the work can be done within 30 days, a two-month period of preparation will increase the likelihood that a merchant will start earning comparable revenues from a new network.

The first two weeks of a planned switch are dedicated to contacting the top performers who bring in 90 percent of your revenue, according to Todd Crawford, vice president of sales for Commission Junction. Successfully recruiting the top affiliates, setting up their accounts and updating their links can take up to 30 days, Crawford says, after which the attention is focused on the remaining affiliates that merit moving over. Merchants may see a dip in revenue during the transition, but ordinarily that disappears quickly.

During this time Commission Junction also notifies the top 20 to 30 performing affiliates on its network that a new merchant is coming on board. These affiliates often share the news about the new merchant’s arrival with their peers, creating the “network effect” of additional affiliate relationships, Crawford says. If done correctly, growing the stable of well-performing affiliates should boost revenues above previous levels.

Before notifying your current network that you are leaving, merchants should make sure that another network relationship is cemented. Commission Junction carefully screens merchants and accepts only 50 of the 1,000 or more that apply each quarter, according to Crawford. The network looks at the merchant’s existing revenue figures, and if Commission Junction isn’t sure it can do better, the company will decline to accept the merchant.

“I would rather have someone unhappy that they are not with us than have them unhappy for being with us,” Crawford says. He says it is important that both parties agree up front on realistic expectations for revenue growth and earnings per click. “The last thing I want is for people to join from a competitor and be unhappy and go back.”

Crawford, who recently won the business of outdoor equipment maker REI and shopping site Buy.com from competitors, says larger merchants are less likely to switch networks than small and mid-size merchants because the amount of work and perceived risk is greater. “It’s similar to the difficulty of turning around a large versus a small boat,” he says.

Commission Junction isn’t happy when a merchant chooses to go with another network, but Crawford says the company doesn’t want to impede a merchant’s business. He says the company allows the existing network links to stay in place for an overlapping period of 30 to 60 days. “If we turned it off as soon as they went live with someone else, we would be foregoing some revenue,” he says.

More Than Money

Merchants that switch networks primarily to save on costs or reduce the revenue share are likely to be disappointed, according to Heidi Messer, president and chief operating officer of LinkShare. Messer says merchants focusing on costs are more likely to “under-invest in the channel” and have unrealistic expectations. LinkShare screens potential customers to make sure that they will make the necessary investments in the technology platform to make the affiliate program succeed.

Having the contact information of your existing affiliates is crucial when switching networks, according to Messer, who says LinkShare has won more than 40 clients from other networks during the past year. “A migration is only as useful as the information you have about your affiliates,” she says.

Messer recommends that merchants expect the switch to a new network to take several weeks, although it can be accomplished more quickly if necessary. However, she advises merchants against overlapping the networks because it makes managing revenue and crediting sources difficult.

If a merchant switches networks, Messer says, the impact on most affiliates will be minimal. Most affiliates likely have relationships with all of the networks, so they are familiar with how to code their links and work with their reporting systems, she says.

A merchant that frequently switches networks also risks losing partnership opportunities, according to Linda Buquet, president of affiliate consulting company 5 Star Affiliate Programs. Merchants that regularly require their affiliates to change their links will develop a reputation as a “network hopper” and have difficulty finding new affiliates.

Buquet spoke with one merchant that had switched from Commission Junction to LinkShare and then back to Commission Junction. She declined to work with the company because it was viewed as untouchable by many affiliates.

Sharing Affiliates

Merchants that also have in-house affiliate programs should consider if they want to convert any of these relationships to the network as part of their switch, says James Green, affiliate manager of MingleMatch.com.

Moving your high-performing affiliates to the network could raise your earnings-per-click statistics, making you a desirable partner for affiliates, Green says. By boosting EPC, “you represent yourself better to recruit other affiliates,” he adds, but at the cost of having to share a percentage of the revenue with the network.

While adding your best affiliates to the network could enable you to attract new affiliates, you may also lose some of the direct connection, as communications must then go through the network.

Merchants might avoid having to switch if they better understood the strengths and weaknesses of each of the networks. For example, LinkShare is great at protecting large brands while being weaker at publisher development, according to SavingsWatch.com’s Bermingham. Commission Junction offers hands-off affiliate programs that enable merchants to “be more of a do-it-yourselfer,” and is improving the way it works with larger merchants, she says. Performics’ strength is in comprehensive affiliate management, but the company does not have programs that allow merchants to manage affiliate relationships themselves.

Turning the Tables

The frustrations of one affiliate lead to the creation of a network competitor. J. P. Sauve, who ran several affiliates, says he was frustrated with not being treated well by the major networks’ “our way or the highway” attitude. His emails to network representatives went unanswered, statistics were often incomplete and campaigns sometimes disappeared without warning, he says.

After sharing his frustrations with peers, Sauve co-founded MaxBounty as a competitor to the large networks. “Our policy since day one has been to treat all affiliates, big and small, with the same respect we’d expect from others,” he says. The network encourages direct communication between the merchants and publishers and competes on price by charging a lower percentage of the revenue, according to Sauve.

The decision to transfer networks requires careful consideration of your existing relationship and a dispassionate critique of internal business practices. It is a good time to focus your energies on what is working while eliminating affiliates that have not been contributing. Terminating the relationship with your network sends a clear signal that service is important, which needs to be communicated to the next partner to ensure that the problem does not recur.

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.

Taxing Times

Back in the early days of the dotcom boom, rampant speculation arose about how or even if online sales should be taxed. For consumers, e-commerce was almost too good to be true: an ultimate extension of mail order, where any product could be ordered from an out-of-state seller with the click of a button, avoiding sales tax, albeit paying any shipping fees that were charged. However, since the mid-90s the e-commerce industry has evolved and U.S. economic conditions have changed, sparking legislators to make a serious push to implement some type of standardized tax code for purchases made online.

As a source of potential revenue for state governments, the topic of Internet taxation cannot be overlooked nor can the impact it may have on online marketers and affiliates searching for profits in an increasingly competitive medium.

According to a July 2004 research report from the Center for Business and Economic Research at the University of Tennessee, states are still losing billions of dollars in uncollected sales tax revenues from transactions that occur through electronic commerce. For 2004, the report estimates that states lost between $8.9 billion and $10.8 billion from e-commerce sales alone and predicts that this amount will continue to grow. By 2008, the report estimates that revenue losses from online sales will range anywhere from $11.8 billion to a high of $17.8 billion.

These figures may sound high, but they are actually below the previous estimates made in 2001. At that time, forecasters didn’t factor in an economic slowdown and miscalculated on volume of business-to-business transactions, according to Neal Osten of the Federal Affairs Counsel, which was behind drafting the legislation known as the Streamlined Sales and Use Tax Agreement (SSUTA).

The Legislation

The SSUTA (outlined at www.streamlinedsalestax.org), became effective on October 1, 2005. It lays the groundwork for standardizing the way participating states define, charge and collect sales and use taxes.

The idea behind SSUTA is that by taking the burden of sorting through tax jurisdictions away from retailers, the participating states could in turn ask federal lawmakers to introduce new legislation, which could challenge the 1992 Supreme Court decision that forbids states from forcing a business to collect sales taxes unless the business has a physical presence within their state.

SSUTA required at least 20 percent of the population of states with sales tax to sign on in order to get rolling. At press time, 13 states had made all the changes in their sales and use tax statutes and administrative rules to comply. Those states are: Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota and West Virginia. Utah, Tennessee, Ohio, Arkansas and Wyoming are next in line to comply.

“It is the intent of the SSUTA to treat all transactions in a competitively neutral manner,” explains the Federal Affairs Council’s Osten. “That is, sales, whether they are made in a brick-and-mortar retail operation or purchased online, are treated similarly for sales tax purposes. The agreement provides simplicity and some uniformity for out-of-state sellers in collecting a state’s sales taxes.” It’s important to emphasize that currently the agreement is voluntary for both states and sellers. “The states, whether they comply with the agreement or not, do not have the authority to require remote sellers (such as affiliates) to collect their sales and use taxes,” he says.

Osten explains that until Congress passes legislation giving those states that have complied with the agreement mandatory collection authority, remote sellers, online or not, have the option to volunteer to collect for sales made in the states that have complied with the agreement as of October 1, 2005.

If a remote seller volunteers to collect for one of the states in the streamlined system, they would have to collect for all the states in the system. Besides being compensated for collection costs, remote sellers that volunteer to collect are also given amnesty by these states if they may have had past collection responsibility in one or more of the states and did not collect sales taxes.

After Congress passes legislation and makes sales tax collection mandatory, amnesty will no longer be granted. Basically, nothing really changed for online sellers on October 1 unless they volunteered to collect for states where they did not have physical presence. Osten says that even if a company has a physical presence in one of the 18 complying states, it is not required to abide by the new agreement, which brings about an interesting point – compliance.

“The biggest problem that I foresee with collecting sales tax online is enforcement,” says Alan Townsend, a LinkShare affiliate and marketing manager for PersonalizationMall.com. “Who’s going to be responsible for determining who’s in compliance and who isn’t? There are so many opportunities here for loopholes it’s mind-boggling. What state is the business registered in? What state is the domain name registered in? Who is it registered to?

What state is the site hosted in? What state do the products ship from? The only way for this to be fair and effective for the states and the businesses involved is to have all 50 states participate. But overall, I think the states are headed in the right direction to achieve their goal with the SSUTA; not that I’m for more taxes.”

Taxation Inevitable

Some say the push for online taxes was coming. It was just a matter of when.

“I think the recent surge in interest by both old-world brick-and- mortar firms as well as by legislators to collect more taxes from Internet sales is, in the greater context, an awakening to the explosive growth and potential of online firms and our industry in general,” says John Lemp, CEO of online affiliate network Clickbooth.com. “Ten years ago, these types of laws were extremely unsuccessful. Even five years ago such laws would never have dreamed of passing, but now traditional firms are seeing the growth Internet companies are experiencing and how a law like this could slow migration of their customers to the Web.

“In the shift from offline to online spending the big losers are the states that collect less tax,” says Ola Edvardsson, CEO of interactive strategy firm Performancy.com. “Since they are in the business of collecting taxes they are not going to sit by the sidelines and watch.”

Dave Taylor, business blog strategist at Intuitive.com, adds that “arguably the situation is different today simply because the nation faces more debt with the war in Iraq, Hurricane Katrina and so on. Does that justify greater taxes? Perhaps.”

The Burden

Still, some worry about the impact this move will have on continued growth and how smaller businesses will handle the burden of dealing with complex tax regulations.

“Whether this slowdown will be very minor or very large is still up for debate,” Lemp says. “Personally, I wouldn’t worry about the larger- and mid-sized Internet firms as they will respond to the market and growth will continue – it’s smaller firms or individual proprietors trying to keep up with compliance that worry me the most.”

Townsend says he believes this is a Pandora’s box. Lemp agrees. “Even if these new laws are 100 percent successful in getting all 50 member states to enact them and they have consistency, they will still create enormous new costs and workloads for any small business attempting to sell products,” he says. “I have sold products in the past and the amount of paperwork and technological systems we had to create to keep up with one state’s laws was difficult enough for a small business. I worry more about the thousands of eBay sellers or small product sellers creating simple websites trying to sell products in their spare time or building product businesses from scratch. These are businesses with very limited resources and if significant amounts of those resources are tied up in purchasing compliancy software, hiring staff to file the sales and use paperwork with 50 separate states, then the new administrative and technological overhead could be too much for them.”

Although Osten has said states will pay for all the collection costs, the other obvious burdens on business owners appear to be equally daunting.

While the idea is to level the playing field, Lemp believes the opposite may happen. “Businesses that are attempting to comply and are located in states that are enforcing the new rules will attempt to compete with businesses in states not enforcing the rules or simply not complying, making an unequal playing field. Consumers are getting smarter than ever and will check prices at multiple sites and factor in sales tax and so forth when making purchases. If done right, eventually a more lenient national or at least uniform and extremely simple sales and use tax code would have much more success than what’s currently being presented.” Even Amazon.com, the king of online retailers, has stated it will not enforce the policy, bringing the competitive pricing issue further into the limelight.

Affiliate Impact

Besides all the possible logistical hurdles and potential negative consequences raised by the SSUTA, it’s important to note that the agreement does not even make clear what to tax or not to tax. Each state that complies with the agreement will still decide what’s taxable, according to Osten. The agreement only provides uniform definitions for the states to use to decide to tax or exempt an item. The agreement also does not define marketing and/or ad sales and any taxation thereof.

On the marketing front, Townsend says, “most affiliates will not be directly affected in my opinion. The vast majority of consumers shop online for the selection and the convenience of shopping whenever and wherever they want. That’s not going to change. In addition to that, online retailers will always continue to offer promotions such as coupons and free shipping; they have to in order to stay competitive online. Even if you take the convenience factor out of the equation, consumers can still get a better deal online because of the great selection and retailer promotions.”

Edvardsson agrees that affiliate marketers don’t have much to worry about. “It will have little direct effect on affiliates except if conversion rates go down in retail-based programs due to sales tax implementation,” he says.

Furthermore, advertising inventory itself is unlikely to be affected.

“Marketers that sell tangible products will be responsible for complying with these new laws,” Lemp says. That is if, in fact, it becomes law. “As far as I know, marketing, ad sales and intangible goods will not be taxed. These items should never be taxed, as a taxation system on them could possibly destroy certain industries. Intangible goods and payment systems such as PayPal do not have a physical delivery location and a location of origin can be near impossible to accurately calculate without losing significant percentages of sales.”

On the larger e-commerce front, Townsend says, “Very few retailers promote the fact that you don’t have to pay sales tax if you’re ordering outside of their home state. I can’t recall the last time I saw a banner ad for a retailer that read ‘Shop here ” no sales tax!’ Instead, online retailers promote selection, value, convenience and service, just like offline retailers do. This is what consumers are looking for.”

Additionally, shoppers will look at the total price regardless of taxes, shipping or other charges.

Down the Road

That’s not to say that there won’t be any long-term implications of either a voluntary or government-imposed online sales tax.

“The long-term effect for established businesses will be a readjustment of the marketplace unless there is still a good chunk of competing businesses that are not complying – whether international, eBay sellers or businesses located in states without consistency,” Lemp says. “The long-term effect of using the current system will be a hindrance of growth for very small, growing businesses and sole proprietorships.”

He says that as an affiliate network that works with more than 300 separate advertisers, anything that is affecting even a small portion of his affiliates could ripple back to impact his company. Though, he says, it’s not likely that the true effects of these laws would be felt for several years.

“Internet marketers can continue to do what they do best – react to the marketplace,” Lemp says. “If new regulations are put in place, advertisers will need to respond to these regulations and the marketers that work with these advertisers will need to continue to work side by side with their clients to fulfill any new needs that may arise.”

Townsend says that online retailers and affiliate marketers are smart and resourceful people and will likely invent new ways to survive.

“The cost of entry into the online marketplace is much lower than it is for offline retailers,” he says. “This drives competition and ultimately better deals for the consumer. With or without sales taxes, online retailing will continue to grow for a long time to come.”

DAVID COTRISS has spent the last 10 years writing about business, technology and entertainment for such publications as MIT’s Technology Review, Entrepreneur and Streaming Media. He has a B.S. in advertising from San Jose State University and currently resides in Los Angeles.