December 2009 – UtilitesDB

The Right Niche

With over 400 ad networks, segmentation has become a big part of successful performance marketing campaigns.

Katrina Toft loves sushi. So it’s only natural that the designer, a recent college graduate, started a blog about the Seattle sushi restaurants she haunts. Already, she’s making enough from BestSeattleSushi.com to feed her fish habit. Now, she’s working on a site for gamers.

The explosion of ad networks – we count more than 400, and rising – makes it easier for people like Toft to make money from some very niche content for very small groups of readers. Vertical ad networks that segment according to their incomes, interests or ethnicity, help marketers hone in on these spot markets.

There are all sorts of ways to segment American consumers. Forbes Ad Network goes after high-earning executives, while BlogHer addresses women with wide-ranging interests, and Complex Media focuses on cool young guys. But one of the best opportunities lies in ethnic marketing, for two reasons: First, the spending power of Hispanics, Asian-Americans and African Americans is growing faster than that of U.S. consumers as a whole. Second, because advertisers tend to lump them into mass-market ad campaigns, those who address them directly have an opportunity to grab new, loyal customers.

For example, even during the recession, the purchasing power – and spending – of Hispanics has grown. According to Ethnic Technologies, a research firm focused on global multicultural marketing, because Hispanic-Americans tend to abhor debt, they weren’t overleveraged like so many other American consumers. The Conference Board’s Research Center forecast the purchasing power of Hispanics less than 44 years old will grow from $295 billion in 2008 to $397 billion by 2010 – that’s about a third in two otherwise sluggish years.

According to the Selig Center for Economic Growth at the University of Georgia’s Terry College of Business, African-American buying power is projected to top $1.1 trillion by 2012 – a 34 percent increase over a five-year period, while the purchasing power of Asian-Americans, the third-largest minority group, is forecast to grow 45.9 percent in the same time, reaching $670 billion in spending by 2012.

But tapping into this market via horizontal networks may miss many of them, according to Alicia Morga, CEO of Consorte Media, a vertical network focused on the Hispanic markets in the United States and Latin America.

In order to reach Hispanics, Best Buy worked with Consorte on a banner and paid search campaign in English and Spanish to bring new customers to Espanol.Best-Buy.com. Dealix, a company that provides leads to auto dealers in the United States, ran a lead generation campaign with Consorte to find the Hispanics it knew it was missing with its generic campaigns.

Are You Being Served?
The Hispanic market is well-served by a variety of performance- and CPM-based ad networks, including Batanga Network, Hola Networks and ImpreMedia. In addition, Yahoo, MSN and AOL operate Spanish-language portals to reach U.S. Latinos.

There’s a dearth of ad networks focused specifically on other ethnic groups. AdGroups.com and the Nubian Ad Network target African-Americans, while BET ad network focuses on music, entertainment and lifestyle sites. For reaching Asian Americans, there’s the Asian American Ad Network.

However, networks for non-ethnic demographic and interest verticals are popping up like mushrooms after a monsoon. According to comScore, vertical ad networks as a whole doubled their reach from 2008 to 2009. More important, comScore found that content-targeted verticals were significantly more engaging to consumers. People reached by vertical ad networks spent at least 60 percent more time in those site categories than the average category visitor.

The marketplace may get still more crowded, thanks to Adify and DevHub, two services designed to let publishers easily build and manage their own ad networks. Adify also operates a larger ad network spanning all the properties
on the platform.

Wide or Deep
Of course, advertisers also can reach Hispanics – or whomever – via the large portals: AOL, Yahoo, MSN and Google. These mass, horizontal ad networks segment via behavioral targeting, a technique that uses a unique cookie to track consumer behavior both within the major property, as well as over its network of third-party sites, in order to build a richer profile of each individual. The profile includes interactions with both content and ads, and the aim is to gather insight that can be used to show ads that are more relevant to each person. For example, a woman who reads pregnancy-related content may be a desirable target for an automaker with a vehicle that appeals to new families.

Horizontal networks can help large advertisers reach more consumers in a vertical than some targeted networks can.

“Performance advertisers may need to reach a certain audience, but at the end of the day, they’ll be judging the success of the campaign based on performance. Simple things need to be there: They need the reach, and they need the data and optimization tools to drive the performance,” says David Zinman, general manager of the Yahoo! Network.

Michael Sprouse, CMO of Epic Advertising, a performance marketing company that operates the AZN ad network focused on big brands and super-affiliates, says that because his network is so large, advertisers can reach a niche as well as a vertical – at a cheaper price. “We don’t change our pricing considerably based on how specific you want to get. We take the model that is used to appeal to large constituencies and hone that to reach something very specific,” Sprouse says.

Buys on horizontal networks also tend to be cheaper. As a replacement for contextual targeting, BT could let that automaker reach the pregnant lady with ads placed on lower-cost media. According to Amy Manus, director of media for interactive marketing agency Nurun, 70 percent of horizontal networks and portals either already offer this kind of targeting or plan to.

“The latest trend is for advertisers and brands to utilize networks to determine who they should be targeting through audience analytics like Blue Kai, Quantcast or Personifi. These allow you to find untapped target audiences. It has really become more about psychographics than demographics,” Manus says.

Boutique Approach
“The Hispanic market is easier to understand in terms of language preference. One third is Spanish-dominant, one third is English dominant, and one third is bilingual. So, an advertiser might be missing a portion of that pie they want to reach,” she says. For example, if you advertise on Yahoo en Español, you’d miss English-dominant and bilingual Hispanics, while advertising to Hispanics who visit English-language sites would miss the Spanish-speakers.

Vertical ad networks sell their deep knowledge of their customer segment and their publishers’ passion for it.

Says Genia Stevens, publisher of the Women’s Blog Ad Network and the Lesbian Blog Ad Network, “The advantage of using a targeted network like ours is that bloggers tend to have that trust relationship with their readers. Blogs tend to be more engaging and speak more to their readers, so ads can feed the conversation.”

In addition, the vertical networks consult with advertisers to share what they know about their audience’s interests and what they respond to. “They are people who understand their market deeply and select the sites that speak to the passion of the audience. They also maintain a long-term relationship with their publisher that helps them understand what the community cares about,” says Joelle Gropper Kaufman, SVP of worldwide marketing for Adify.

They can use this expertise to help marketers fine-tune their messaging. Colors used in ads, key phrases and photography all can increase performance of ads, according to Candace Kennedy, sales and marketing director for Ethnic Technologies, a market research firm. “It’s more warming to the individual, so there’s higher chance they’ll read it and do business with your company,” Kennedy says.

For example, an auto maker ran its mass-market campaign on AdGroups.com, a vertical network of 300+ independent publishers focused on the African-American market, with not-so-great results. After consulting with AdGroups, the advertiser included images of African-Americans in the ads for the network and saw response triple.

Roary Wilder, CEO of AdGroups, says that, in general, these tactics increase the response by about 300 percent. “The relevancy of what you’re able to do in a niche network is always going to be more powerful,” he says.

Vertical content networks also claim that their ads reach consumers when they’re more receptive. For example, a stockbroker might be interested in a call from a mutual fund while she’s at the office, and incensed to receive the call at night, when she’s home with her family.

“It’s the right target but the wrong environment and the wrong frame of mind. We’ve got the same people as the horizontal networks. The difference is the ability to reach somebody in the right frame of mind,” says Robert Pietsch, Forbes co-president and chief advertising officer. Adds Brian Silver, CEO of the Travel Ad Network. “What makes my network special is that, because we are trying to monetize the travel audience at all times, we have the ability to understand where someone is in the purchasing lifecycle and target the appropriate ad.”

Premium Placements
All these factors position verticals as premium networks, able to charge more and insist on terms – at least in theory. Other factors that go int0 making a network “premium” include curating the sites in the network and using the CPM ad model.

On the Adify network of vertical blogs, “We focus on great brand engagement. Your advertising will perform better in the right context, but the right context is often expensive,” says Kaufman.

Content- or interest-targeted vertical networks tend to carefully select publishers and keep networks to a manageable number.

“We have our bloggers all sign the editorial guidelines, and we have humans who are reviewing every blog all the time, making sure they are blogging regularly about their vertical, that there are no paid endorsements or paid posts, and no unacceptable content,” says Elisa Camahort Page, co-founder and COO of BlogHer.

Tactics like these assure advertisers that the quality of traffic on the sites is as good as the content. In addition, most networks provide statistics on what percent of Internet users they reach, as well as how many times they can reach an individual, on average. They often do user studies to help advertisers understand their readers. Information on the demographics of visitors to media properties is also available through third-party media analysis and tracking services, including comScore and Nielsen@plan, paid services used by large networks, and Quantcast, a free audience measurement service.

Premium CPAs
In today’s tight-fisted economy, even brand advertisers are looking at CPAs – even if they’re paying based on CPMs. The difference is, when they advertise on CPM networks, they do some reverse-math to analyze how the CPM translates to whichever action metric they choose.

“In display, there’s always a back-end metric. For example, an advertiser may have a $7 CPA target on the back end. We may charge $10 CPM, and if the campaign garners a $12 CPA, we can see the lowest-performing sites, eliminate them and we’ve reduced the CPA to $6,” says the Travel Ad Network’s Silver.

Large advertisers and agencies, such as those that advertise on Forbes Audience Network, often have their own, very sophisticated analytics platforms used to track conversions; they may also use their own optimization services. Others make use of built-in analytics and dashboards provided by the ad networks.

The Big Deal
When it comes to the publisher’s revenue share, some, like the Gay Ad Network, let publishers set their own CPMs and fill unused inventory via other networks, a process known as backfilling or tethering.

“They can use us as the primary sales channel, but if we’re unable to sell their inventory at their minimum CPM, we’ll relinquish it and send it over to Google or whatever backup they choose. If a publisher knows what their effective CPM is, if we don’t hit it, they’re no worse off, because we’ll redirect back to what they’re using today. It’s like a no-risk trial,” says Gay Ad Network CEO Mark Elderkin.

Other networks demand exclusivity, but say they make up for it with the quality and quantity of advertisers they can provide.

“Our brand lends credibility and an access to advertisers that most networks don’t have,” Pietsch says. For example, a major financial advertiser on Forbes.com, the publisher’s original content site, wanted to reach small business owners. It targeted them via IP address on
Forbes.com, and then also ran ads targeted by content on the Business and Financial Blog Network.

Some networks have a reverse sliding scale, rewarding high-performing super-affiliates with better splits or custom models.

DevHub gradually raises publishers’ percentages as they build up their sites. Says Mark Michael, co-founder and SVP of strategic marketing for Evo Media Group, which operates the service, “Out of the box, you get our standard rev share. As you’re building that site, one piece of content today, another tomorrow, slowly your rev share would go up.”

Power in Numbers
Large publishers and superaffiliates on the Casale network – those with more than 250,000 unique visitors a month – may be able to negotiate a guaranteed CPM or exclusive representation.

“Everybody starts with us in a revenue-share scenario, so we can have the opportunity to evaluate the property and audience, as well as advertiser demand for the inventory. From there, we set a benchmark, work with publishers to improve how their traffic is performing, and recommend where we could take the relationship potentially,” says CEO Julia Casale-Amorim.

CPMs and rev-shares are all over the map. Casale Media pays 70 percent of ad revenue to the publisher, while BlogHer shares 45 percent and Forbes offers 40 percent. Some networks we spoke with didn’t disclose their revenue shares.

Ultimately, though, what’s more important than the CPM or the rev-share is the publisher’s net revenue. Says Gay Ad Network’s Elderkin, “Whether it’s 90 percent of a five-cent CPM or 50 percent of a $10 CPM, the percentage almost doesn’t matter. Sites that perform well get a larger percent of campaign dollars and a higher percentage fill-rate, while sites that don’t, get optimized out of the campaign.” Another key factor is the audience growth a vertical network can provide by operating a portal or central hub that features all the sites in the network.

Says BlogHer’s Camahort Page, “We do a lot to try to cross-promote our sites, and foster the amplification effect across our community.” For example, every blogger, regardless of the size of her audience, sees her headlines run in rotation in a “what they’re saying” box on all the other blogs in her group. Selected headlines are also distributed to iVillage.com.

That audience growth translates into more revenue for publishers. Says Richard Antoniello, CEO and publisher of ComplexMedia, which publishes a print magazine and original content on Complex.com, “Say Nike or Brand Jordan comes to us. We run the campaign on Complex.com, but of course they also want to run on NiceKicks.com (one of the independent sites in the network). We usually end up running a little more on the individual sneaker site, but Complex.com is successful as well, because we get a smaller slice of lots of ads.”

The Intangible Factors
And then, there are the intangibles: better branding, a sense of community and the availability of technology and services to improve a site may all be important.

If affiliate marketing and blogging are solitary businesses, the right ad network can ease the loneliness. BlogHer hosts annual conferences, as well as conference calls where network members can ask questions and share knowledge. Even some large networks like Epic try to leave the door open to help publishers improve site performance and traffic.

Networks may also provide technology beyond what most indies can easily acquire. “Publishers are as loyal as the biggest check, which doesn’t always come from the CPA that runs across my banners. If you’re site 1,000 in the long tail of 10,000 travel sites, you’re going to look to see who’s going to drive higher CPM, but also, what products and services do they have that I can add? When you come to us, you can extend your pages through microsites, or add widgets, and make more money from those,” says Silver of the Travel Ad Network.

Evo Media also promises an expandable platform for publishers. Says Michael, “No one should ever outgrow the platform – even if you get ridiculously popular. If you want to add a forum or chat layer, it should be right there for you in your publishing dashboard.”

A Tidy Marketplace
Clearly, the CPM model removes the risk of many types of fraud facing super-affiliates. But there are different gotchas publishers should watch out for.

First, they should read the fine print to determine what a network’s fill rate is, says AdGroups’ Wilder. “That’s where the sneaky language starts coming in from networks with lower fill rates. They can fill a certain amount of inventory at a certain CPM, but it’s only 20 percent – and the rest is filled in with CPMs at less than a dime. That’s the language some inexperienced publishers will
miss.”

Don’t forget to ask about when and how you’ll get paid, warns Casale-Amorim. Some networks don’t pay publishers until they get paid by advertisers. “Net 30 would be the ideal,” she says.

Seasonal Sunshine

Despite the gloom hanging over the holiday shopping season, affiliates can boost sales by giving consumers what they crave: value.

Last year, Kim Berry gave her husband Dennis a miter saw and a massage chair pad. He gave her a high-end juicer, a DNA test for their mixed-breed dog and jewelry. There were also plenty of smaller gifts under the tree, and they spent $1,200 on gifts for their parents, a grandmother, brothers, sisters, nieces and nephews.

This year, Kim, a corporate writer, moved to a different company and took a 20 percent pay cut. Her husband’s IT job was outsourced overseas.

"Where we once had two professional incomes, we are now living on 80 percent of my income," she says.

This year, she and her husband will exchange gifts worth less than $100, and Kim’s sisters and their families will get nice greeting cards. For his large family, the’’ve agreed to keep the budget below $250.

"We’re not sure how we’re going to divide that yet. We may not be able to buy things for the nieces and nephews this year," Kim says.

Welcome to the holiday shopping season, 2009 edition. Expect a replay of last year, when consumers kept their wallets zipped until the last possible moment and spent less when they finally spent. Despite recent assurances from Ben Bernanke and other economists that the worst is over, there’s plenty of gloom among consumers, who are facing the highest unemployment rate in a quarter century.

Research firm eMarketer forecasts that online retail spending will stabilize by the end of the year, that is, growth in sales will be zero year-over-year. But that’s no growth from a memorably bad quarter in 2008. "Last year was very disappointing, there was a real contraction. It’s going to continue to be tough for the rest of this year," says Jeffrey Grau, eMarketer’s senior retail analyst.

And that’s the good news. According to the U.S. Department of Commerce, ecommerce sales in the second quarter of this year fell 4.5 percent year-over-year. Optimists called that a slight improvement from the 5.8 percent year-over-year decline in the first quarter.

Indications from the back-to-school season are another indicator of a challenging gifting season. According to the National Retail Federation, spending on kids’ clothing and school supplies was down 7.7 percent from the previous year, which was also bad. Consumers seemed to have trouble letting go of their hardearned dollars. Less than half of families with students in K–12 or college completed their shopping by early September.

"Back to school happened late this year, and we expect to see the same with the holidays as we have the same short shopping season as we did last year once again," says Mark Kirschner, LinkShare’s CMO.

At the same time, coupon-clipping and bargain hunting intensified. Ebates, one of the top 2 percent of affiliates in terms of sales and merchant revenues, benefited from this. Spending at its back-to-school stores was up 133 percent. This example shows how affiliates who respond to the public’s deal-seeking mood can grow their market share.

"Shopping lost its fun last year. It used to be, ‘One for you, one for me.’ Last year, purchasing was more focused," says Kevin Johnson, CEO of Ebates.

According to LinkShare, the price-conscious mentality may not be a temporary response to a slip in the economy, but a lasting cultural shift. A study by the performance marketing network and gsi interactiveSM found a new kind of online shopper: the value hunter. Certainly, the ability to find the best price has always been a feature of e-commerce, but, according to the survey, price now beats brand – and it may even change what people buy.

Okay, kill the gloom. Most folks will still buy gifts, and slightly more of them will buy online than last year. Says eMarketer’s Grau, "There are consumers out there that are unhappy with traditional stores. They’re up for grabs."

Here are some tips that will help affiliates maximize the effects of holiday promotions — as well as their revenue.

Add Value

According to the LinkShare survey, 63 percent of value hunters will buy something online they normally wouldn’t have purchased because of a special offer. This is an opportunity for affiliates to step up and differentiate themselves through value-based products and promotions. While you can’t control product pricing or selection, think about what you can add to make a purchase feel worthwhile.

Today’s consumer can’t afford to make mistakes. "They’re looking for confirmation that they bought smart," Kirschner says.

Good content is a cost-effective way for an affiliate to add value, according to industry consultant Lisa Riolo, formerly of Commission Junction. One of the benefits of shopping online is that consumers have access to a broader selection of merchandise and better information about not only price, but customer service among merchants.

"One opportunity an affiliate has is to provide true comparisons that are relevant to the consumer. Instead of showing the alternatives, provide content, comparing and contrasting the different brands, styles and merchants they’re buying from," Riolo says. The more information you include to help fire the purchase decision, the better. For example, one merchant may price an item higher but offer free shipping.

Building a site that’s rich in media can be another powerful tool. "Rich media has been a tool that can drive results, as have video and interactive widgets, as long as they are designed to drive a sale, and not just to be interactive for the sake of being interactive," according to Kirschner.

Cozy Up to Merchants

One of the most important things you can do is to make sure you stand out to the affiliate managers, whether they’re at a large network or working for one of the brands you sell. Although they don’t like to talk about it, there are special deals available for super affiliates and rising stars.

The best way to stand out is to be proactive, says Matt Enders, founder of mgecom, a company that manages affiliate programs: "If you really want to capitalize on the fourth quarter, make sure not to wait for affiliate managers to contact you. Don’t be afraid to contact a manager and pitch them," Enders says. Instead of looking at yourself as an extension of the brand’s business, he advises, remember that you are running a business yourself.

You can see how this works for Vistaprint affiliates. This year, as always, the online printing shop will feature holiday cards and calendars for the new year, along with discounts and, as it gets closer to the final shopping countdown, free shipping offers.

The most successful Vistaprint affiliates add a truly personal touch to these offers, according to Donald Schamber, manager of affiliate marketing. Many build custom holiday pages, many of them specific to Vistaprint. They might also do some blogging, or send out emails and newsletters.

During the planning period for the holidays, Schamber does quite a bit of direct email communication with the company’s top-tier affiliates, letting them know about the top offers and making sure they understand new ones. Vistaprint will even adapt an offer to work better for a valuable affiliate.

It also offers holiday-themed, co-branded landing pages on the Vistaprint site. These pages, although hosted by Vistaprint, carry-through the look and feel of the affiliate site that referred the shopper. Schamber says testing has shown improvements in the conversion rate and an increase in the size of the average order when the affiliate’s brand carries through to the actual transaction.

"For some affiliates, this is 60 to 80 percent of their business. It’s such a short window of opportunity that we try to be really responsive to them during that time," Schamber says.

Tricia Meyer, founder of Sunshine Rewards, uses photos and videos to provide a personal touch that appeals to her members and to affiliate managers. For example, last year, she posted a video of her and her mother in front of a Christmas tree, bickering over a box of Ghirardelli chocolates. She also featured her daughter singing, "All I Want for Christmas Is My Two Front Teeth." Says Meyer, "The program managers we work with treat us really well. Even if we don’t send a ton of traffic to them, they know we’ll go the extra mile."

Watch for Trends

It’s great to be offering some of the hottest holiday gifts. It’s stupendous to be among the first to have hopped onto a meteoric trend. Marketers who stand out from the year-end madness have well-developed campaigns ready and waiting when a product hits big. Trend-spotting, formerly the purview of large, rich research companies, has become accessible to everyone, thanks to the search companies.

Keeping an eye on Google Trends, Bing xRank, Yahoo Buzz Index (buzz.yahoo.com) and Alexa’s What’s Hot will show you the current most popular searches. You can also put in your keywords — or any term — and see a graph of its popularity over months. These services can help you find the moment when the popularity needle begins to quiver. To keep up with the blogosphere, monitor Technorati. For truly immediate insight into what we’re all talking about right now, Twitter provides a list of trending topics on its homepage.

As you look at trends, Riolo advises that you keep in mind how the economy may influence them. She says, "For example, entertainment products remain hot this holiday season, but consumers are interested in things they can enjoy at home with the family, instead of spending money going out."

Customer Evangelists

Word-of-mouth has never been more powerful or ubiquitous, thanks to Internet sites that let you rate everything from your toothpaste to strangers’ tuchuses. "Reviewing is the new advertising," says Reinier Evers, CEO of trendwatching.com. His consulting firm recommends offering customers the ability to post product reviews on your site. You should also make it easy for them to post reviews of your products and your site to third-party sites.

There are a couple of advantages to enabling reviews on your site. First, Evers explains, it’s the best way to keep track of what customers are saying — and to quickly and visibly respond if a review is less than stellar.

"Engaging in conversations from an early stage on will often help defuse a potentially damaging, angry thread with others jumping in," he says.

To help your site visitors understand just who is doing the reviewing and why they should listen to them, Evers advises that you provide context for reviews by letting people set up profiles and then adding the profile information to their ratings.

"Consumers are not as accepting of advertising any more. They are more conscientious about researching products," says eMarketer’s Grau. "They’ll buy from the retailer with more information in the form of user ratings and reviews, and personalized recommendations."

With some additional work, there’s another potential bonus for installing reviews: awesome SEO. In May, Google introduced Rich Snippets, a search feature that Evers calls revolutionary, and here’s why: Rich Snippets could get your site reviews into the top organic search results.

First, you need to add some new markup to your review pages; the search giant provides information on how to do this in its Webmaster Central Blog. Then, if Google’s search algorithms deem your reviews to be relevant to someone’s search, a link to the review on your site will show up in the results. Your Rich Snippet link will include the overall product rating, review count, and a snippet of actual review text, making it eye-catching and highly attractive to searchers.

Conversion, Not Price

Once you get into the mindset of today’s consumer, you realize that it’s not all about getting the rock-bottom price. Riolo advises you try to segment both your advertising and your offers to appeal to veteran online shoppers and newbies, as well.

For example, if you normally merchandise "Gifts under $100," try "Gifts under $50" to appeal to bargain hunters. Appeal to time-starved, convenience-oriented shoppers by emphasizing quick shipping.

"Discounting is a vicious game. To lead with a discount can kill you," says Grau. "Instead, give them a reason to come to your site, and then sweeten the deal. To ensure they make a purchase on your site, you offer them an incentive."

A coupon offered at point of purchase is an excellent deal-sweetener. Riolo notes that many affiliates find consumers abandoning shopping carts to go in search of coupons. Then, they convert on the coupon site instead of where they made the purchase decision. Even if you don’t normally work with coupons, you should. She says, "If a coupon is available, every type of advertisers needs to do that, not just the coupon sites."

Avoid the Google Rush

Keyword prices skyrocket in the run-up to the holidays, as major marketers throw their weight into search marketing.

"They dominate the market and drive cost-per-click so high that affiliates can’t compete anymore, even for what you thought was an obscure keyword. They have teams of people looking for those same obscure keywords," says Shane Donnelly, an account manager for eZanga.com, a meta-search engine.

EZanga.com claims that keyword prices on its search service average half the price of the big four. Donnelly adds that, while eZanga.com’s network of second- and third tier search engines handle around 12 billion searches a month, compared to Google’s 70 to 80 billion, it offers plenty of scale for most affiliates.

"During the holidays, when you can’t afford the cost-per-click on Yahoo, Google or MSN, second-tier search engines are the place to go," Donnelly says.

The Tried and True

In 2007, holiday sales through Sunshine Rewards shot up, thanks to a Disney cruise contest. Members got an entry for every purchase they made through the cash-back and coupon site. Even if they didn’t win, people who booked the cruise on their own could earn Disney gift cards to use on the voyage.

In 2008, Sunshine Rewards founder Tricia Meyer wanted to make her holiday promotion even better. For starters, instead of one big contest, she hoped that a series of smaller ones might give her site a steady stream of publicity. It also seemed like a good idea to branch out from the Disney theme, in order to reach a new audience.

Both ideas backfired. Bloggers weren’t excited about the smaller contests, and Meyer found out just how many of her more than 13,000 members were Disney fans.

"Now, we realize those Disney fans are our bread and butter," Meyer says. "In this economy, we’re better off playing to our strengths."

In this economy, that goes for all of us.

You Need a Friend

As you may know by now, the Performance Marketing Alliance filed an "amicus" motion in September to help challenge New York’s nexus tax law as a friend of the court. Our intent is to support Amazon’s and Overstock’s lawsuits which seek to strike down a tax law passed last year that discriminates against affiliate marketers and has had a devastating effect on the livelihoods of thousands of Americans.

The issue at stake is a law that claims that affiliates establish physical presence for out-of-state merchants — what is called "nexus." Merchants with nexus in the state are required to collect sales taxes from their New York consumers. The unfortunate result is that over 200 merchants terminated their relationships with New York affiliates to avoid the costly burden of collecting sales tax.

Amazon’s claim is that this law — N.Y. Tax Law § 1101 — is unconstitutional under the Commerce Clause of the U.S. Constitution. The PMA filed its brief to provide arguments from the perspective of affiliate marketers. Our hope is that our perspective will provide additional evidence that this law is seriously flawed.

Our argument has four main positions:

Issue No. 1 — The law is unconstitutional.

We support Amazon’s contention that the law is unconstitutional because affiliates can’t fairly be classified as a "physical presence" in the state.

Affiliates provide a form of Internet-based advertising akin to traditional print ads distributed by catalog retailers. Posting an ad for a merchant does not qualify the affiliate’s locale as a physical presence for that merchant.

Affiliates sell no products, collect no payments from buyers and make no deliveries. They have no further involvement in the sales and marketing process beyond a posted advertisement.

Issue No. 2 — The law threatens the livelihood of business owners.

The statute has decimated the income of thousands of affiliates in New York as retailers such as Overstock.com have terminated all affiliate agreements to avoid imposition of use tax collection responsibilities. We believe over 200 merchants terminated their affiliate programs as well.

Issue No. 3 — The law could stifle interstate e-commerce.

Retailers often have thousands of affiliates spread across the country. The New York statute has the potential to strangle interstate e-commerce with complex and varied regulation. The reality is that the residence of the affiliate or the merchant has no relevance whatsoever to the consumer experience or the effectiveness of the advertising.

Issue No. 4 — The law has the potential to curb the availability of free information on the Internet.

Revenue generated from performance marketing has allowed thousands of small businesses and individuals to build and grow Web sites that facilitate the more rapid diffusion of free information to the public. Thousands of affiliate websites provide valuable content for thousands of visitors every day. Lacking performance marketing revenue, many will fail.

What’s next?

The state of New York required oral arguments to be heard before the end of October. The PMA hopes these appeals, along with our amicus brief and its logical arguments, will provide a reasonable case to the court to determine this law is indeed unconstitutional and should be reversed.

For more information on this complex issue, as well as other states that are considering similar legislation, visit PerformanceMarketingAlliance.com.

Pushing For Luxury

Judging by the way our economy has plummeted in the last year, it seems the 2009 holiday season does not bode well for retailers — online or off.

Tens of thousands of people are still getting laid off every week, the job market simply won’t do us the kindness of opening up, and consumers are squeezing pennies so hard that Lincoln feels their pain.

Given this collective reluctance to spend money on anything but essentials, where does that leave online luxury retailers? Better yet, where does that leave their affiliates?

I recently launched my own affiliate management agency to help such online retailers increase their affiliate sales. I have gained valuable knowledge and experience in the industry over the years, notably during the time I spent managing the affiliate program for two online fine jewelry retailers: Ice.com and Diamond.com.

Deals and Steals

While I was at Commission Junctions’ CJU conference in Santa Barbara recently, I spoke to several publishers who were all singing the same song: there is a clear decline in sales for luxury goods.

But the fact of the matter is, even in this economy, no consumer wants to give up their plush lifestyle; they just want to pay less for it. To put it simply: today’s consumer is out for a deal like a shark is out for blood — and the holiday season will be no exception.

Luxury retailers have every reason to push discounts and special sales in these precarious circumstances. So make the best of this environment to mold your affiliate promotions into something from which you can benefit.

Think Outside the Box

My rule of thumb: you never know until you ask. Contact your affiliate managers and seek out ways of adjusting the rules of the game. For instance, propose to reduce your commission on a given product in exchange for an increase on the item’s discount.

During key seasons at Ice.com like Christmas, Valentine’s Day and Mother’s Day, I would bring down certain publishers’ commissions from 15 percent to 5 percent on select jewelry items and then grant them a reduction in the item’s sale price, making sure it still had a reasonable margin. This gave advertisers an exclusive discount on select products, allowing them to shine in the face of their competitors.

And while their commissions weren’t as strong, the higher discounts generated more sales than if the items had been at their regular price.

Keep in mind that this may be a hard sell for your affiliate managers, who will most likely have to cater to your request by creating a new commission term for that one item, customizing a link for it and producing a unique coupon to accommodate the special offer.

You must convince them that they will gain from this out-of-the-box thinking (and added complications). My suggestion would be to introduce a "Deal of the Day" kind of offer on your homepage that will create a recurring sense of urgency for potential customers visiting the site, and consequently drive more sales.

Again, for every item that appears as a deal of the day, you take a hit on your commission in return for the lowest possible price. Remember: more sales at a lower profit are better than no sales at all.

Read ’em and Reap

Affiliate newsletters are excellent tools that you have at your disposal, so use them. I realize certain affiliate network providers like LinkShare have designated pages where retailers can inform publishers about the goings-on of their company; but not all of them do.

So it’s imperative that you read what affiliate managers have to say about their upcoming promotions in the newsletters they fire your way: they give you the guidance you need on what’s hot and what is bound to sell despite the state of the economy. Trust them.

In the newsletters I sent out, in addition to the discounts we were proposing for the season, I would point out that I had a list of our top-selling items for anyone who was interested. While this was a valuable opportunity that many could have grabbed a hold of, only a small few would reply.

I did my best to subsequently communicate these offers to partners personally, but not all affiliate managers have time to contact their hundreds of publishers to inform them of their hottest deals. So pay attention or you’ll miss out!

So if you’re wondering how best to promote luxury goods in light of this unforgiving economy, always keep in mind that consumers are hungrier than ever for good deals. Open the lines of communication with your affiliate managers and propose new ways of promoting their products, even if it means a lower commission. And use the tools that are available to you — like affiliate newsletters — to stay on top of things.

You’ll generate sales, reap the benefits, keep your customers coming back and establish long-term relationships with your affiliate managers. It’s a win-win situation, regardless of how badly the economy is behaving.

Feat of Clay

Everybody’s favorite media professor says we’re getting bored with new media. And that’s a good thing, especially if you want consumers to click on your ad.

It’s been about 15 years since the browser Mosaic unlocked the World Wide Web for millions of people. But most of them – most of us – still stumble around cyberspace wide-eyed, knowing we’re in the middle of something very cool, but not quite sure what it is or how to make the most of it.

This has happened before with new media, ever since the Chinese invented mass media in the 13th century. It took about a quarter century for “the wireless” to work its way into everyday life. TV was invented in 1926, but didn’t reach its “golden age” until the ’50s. The telephone took more than a generation to grow commonplace. In the 1980s, the first cell phones were bulky status symbols; now, almost every kid has got one.

But this time, there’s something different: interactivity. We thought we understood the Web in 1999. Then we really understood it in 2002. But seven years later, we’re still tripping over killer apps that “change everything.” In fact, there’ve been so many game-changing developments, that they’re starting to melt into the MyFaceTwitter continuum, with the next big things arriving faster, and – as media whiz Clay Shirky likes to say – getting “boring” faster, too.

And that’s the good news. The sooner the Web grows mundane, the sooner we’ll settle down into some predictable patterns that will lead to sustainable business models, and interactive advertising figures to be a big part of that. As Shirky points out in his aptly named book Here Comes Everybody, that day is drawing nigh.

Since 1993, Shirky has worked as a producer, programmer, professor, designer and consultant. He currently teaches at NYU’s graduate school. But he’s perhaps best known as a real-time chronicler of the Net’s evolution, helping to put today into perspective by looking at what it says about tomorrow.

Let’s start by talking about how new media is different from traditional media. In my book, Web Rules, I described the Web as the first mass medium controlled by the end user. You come at it a slightly different way, right?

What I’m saying is it’s the first medium that supports group communications natively. It’s also the first medium that fuses the patterns of the printing press and the phone. The printing press because you can reach large groups; the phone because you can have two-way conversations. Those two things taken together – the fact that you have a medium that natively addresses groups and, as you said, every participant has full access to the infrastructure – create a very different shape for the media landscape than what we’ve just come out of.

One of the things I’ve noticed is, it takes about 25 years for any new medium to work its way into society so that people can discover that they like it, and how they can use it. That happened with the telephone and telegraph and TV. Is that happening with the Internet?

Sure, sure. The interesting thing about the Internet is that because the core technology – the basic infrastructure of moving bits from point A to point B – is media agnostic, the Internet is really a medium for creating media. So you’ve got email, then you’ve got the Web, then you’ve got Web blogs, then you’ve got Twitter and Facebook and Flickr and yada, yada. The basics of email were baked in by the late ’90s. People were even getting bored with it, which in my view is the critical feature needed for social change. People are actually so familiar with the technology that they find it boring.

Google made the Web useable, so by 2002 or 2003, people started to take the Web for granted. Social networking is starting to be taken for granted. It happens at different places with different media, but it does seem to me to be happening faster, in part because people have gotten used to this idea that the Internet’s generative capability for new kinds of media is part of what the Internet is good at.

So, where it took email from the mid-1970s to the mid-1990s to move into any kind of public consciousness, it happened for Twitter in the space of two and a half years. We still don’t know what Twitter will look like as a mature medium. It may peak and then trough, it may get folded into something else, who knows? It still takes people time to get use to the media, but I think people’s willingness to try new stuff seems to be increasing because they’ve had enough positive experiences in the past. That seems to be new.

Rather than it being “the telephone” and then a long time later “the radio” and then a long time later “television,” now we’re in a landscape where there are new things for us to try every week if we’re early adopters, and new things get out into the public consciousness about every 24 months, which is an incredible rate for new capabilities to be offered to a media-participating public.

You’ve talked about technologies like email getting “boring.” I suspect that’s an intentional slight overstatement on your part. It’s not actually boring, but it’s so fundamental that it’s an everyday part of our lives, right?

Of course. I say boring to make a point. In part, I’m talking to myself. I spent most of my time in the ’90s, writing about “the technology,” and it took me a while to realize that technology is an enabler, but the motivations of the users are really the characteristics that make it important. So, instead of “boring,” I think really what you’d want to say is it becomes invisible in the way the telephone is invisible. We just take it for granted.

I think of it being fully integrated into our daily lives.

Right. It’s really that moment – not the original use of the tool, but the full integration – when the social change really gets weird.

Let me shift to the area of marketing and advertisement. Advertising has supported mainstream media for a really long time. With the fragmentation of media, it’s getting much harder for a lot of these sites to get along. But I think we’re starting to see some inroads in performance marketing and interactive ads. How long do you think it will take interactive advertising to become fully integrated into the consciousness of the public?

That’s an interesting question. I think it’s going to be at different rates for different media. There was an interesting example that happened in Google’s email, where Gmail was going to run ads alongside your mail. First, people freaked out about the privacy intrusion and the general skeeviness of ‘look how much they know about me.’ Then they got sort of comfortable with the algorithmic function. And then people started to find it useful. And so, in a way, the great predictor of it entering the public consciousness is either when they find it entertaining enough that they care about it as media, or when they find it useful enough to be glad to know about the opportunity.

There is some class of advertising that will simply never enter the public consciousness in a normal or happy way because the public will never like the ads. And then there’s other stuff, like Google Adwords or like Valve, a game software company that puts up these trailers on YouTube, with each trailer devoted to one character in the game. It is plainly and nakedly an advertisement for Valve software and Team Fortress, too, and at the same time, it’s quite entertaining content.

The idea of a blanket advertising environment in the interactive world that matches the blanket advertisement we had with TV ads or newspaper ads, I don’t think that’s going to happen. It’s really about figuring out which ads will be welcomed by the public.

You’ve used the example of Johnson & Johnson as a company that put up a website that wouldn’t accept comments on their products or the company, as opposed to Coca-Cola which has 3 million fans on Facebook. What do you think Coca-Cola is getting right in that equation?

The thing Coca-Cola is getting right is the thing that they’ve always gotten right since the 1970s. Whenever it became apparent that the goodwill of the Coca-Cola brand was the primary asset, they’ve understood the engagement of their customers was not something to be handled at arms-length, but something to be embraced within the core of the company. I think what Coke is getting right is, “If people like us, we have to walk into this new medium inviting those people to engage with us in ways that are more than just sending them a series of press releases.”

You talk about motivation as an important concept in terms of designing a site, or thinking about a site, or thinking about what you’re putting on the Web. That’s an interesting element when you get into advertising. What motivates a person to click on an ad?

What motivates a person to click on an ad is really not a separate question from what motivates a person to click on anything, which is they think they’ll be happier after the click than before. A link is an option, and every page that offers links essentially offers a collection of options.

You have to cross three thresholds. You have to be better than what’s currently on the page – although tab browsing makes that a little easier. You have to be better than the other alternatives on that page. And you have to be better than turning off the computer and going to do something else.

So if I’m searching for a new computer and I have a list of reviews, and I see an ad next to it for a computer that sounds like it’s going to be better or at least comparable to the ones I’m looking at – because the price is better or the features are better – that might be something that will attract my attention.

Right. The general case is that clicking the link is a better way to pursue what I’m doing, a better option for my time, than the other link I have sitting there side-by-side. But there’s a really interesting study – I think that Josh Porter up at Bokardo’s great social media blog pointed me to this – that says the single best use of social media for online retail isn’t Facebook or Twitter or MySpace or Friendfeeder or any of the rest of them, it’s having user reviews on your own site.

So I was just shopping for a netbook. I got one from HP. And one of the things I got from HP was that one of the highest-ranking search results was people discussing the pros and cons of the HP. Now, for the marketing people, there are no cons. There are no cons to any product from HP. But in fact, there are, of course, cons. What you say to yourself is, I’m not going to buy a netbook unless I know the cons and I know that they’re an acceptable tradeoff. When I saw the users’ own discussion of the HP mini was that highly rated, I bought it from HP. In that model, you’re telling me what I need to know and you’re trusting people who don’t work for your company to produce the information about that thing. That’s, I think, a big change.

We just met a woman from Brazil who works for a media company that, she said, was having a hard time understanding interactivity on the Web. And I think that’s true for a lot of mainstream media companies. I’m seeing a lot of alliances now between old media and new companies like Facebook – CNN just did a big collaboration with Facebook (see "Facing Up to Facebook", Revenue Performance, summer issue). Is that a good way for mainstream media to learn and adapt? I’m reminded of the merger of Time Warner and AOL, in a way.

I don’t think we’ll ever see anything as catastrophic as that again. That was as much market folly as learning new things about the Internet. What I will say about the CNN-Facebook kinds of linkups is that the logic has changed quite dramatically, and it’s changed because of MySpace and later Facebook, and it’s changed just in the last four or five years. In the ’90s, we all built sites and then we said, “Oh my God, how do I get traffic to come to my site?” Now the logic has shifted to “How do I go to where the people already are?”

And I think the CNN-Facebook kind of match-ups don’t have the stink of death on them the way the AOL-Time Warner deal did – in part because it’s just a business relationship, not an acquisition – but it’s a deal for the respective strengths of each of the partners if they do it right. Because going where the audience already is is now the low-cost way of getting an audience. That is such a head shift for mainstream media. The fact that they’re doing it at all suggests they have a better idea of what the landscape’s like than they did even a couple of years ago.

Most of the mainstream media isn’t doing that. They’re trying to do it themselves. The New York Times is, I think, a good example of that. And they’re doing it pretty well for a mainstream medium, but I don’t see them reaching out to leading interactive companies for a lot of help.

They’ve always been worried about that. Their model has been to buy those companies, as they did in buying About.com, because they’re not comfortable not owning what they think of as strategic assets. But in a way, once you own it, it becomes single source, and it actually drains some of the value from taking About.com as a full member of the ecosystem to saying “This is a New York Times property.” Ironically, the integration of that into corporate culture can actually damage some of what you thought you were paying for when you bought the company.

Looking down the road, we’ve seen things come and go. There was a time we thought Yahoo was unassailable, and then Google overtook it. What about Twitter? How long do you think Twitter will be in the limelight? How long will it be before it gets boring?

Twitter will not be in the limelight much longer because people have integrated it very, very fast. I remember turning on a TV in a hotel room the other day, flipping through the channels, and there was Michelle Wie, the golfer, and they were talking to her about Twitter. I thought, all right, this is the moment of ubiquity. The far side of this, people will talk about Twitter and tweets in articles, but it won’t go in the headline any more. So I think that’s probably 2010. But that, in a way, is good news for Twitter. It’s a little like when AOL had all the busy signals. People said that was terrible for AOL, but it was a sign of demand. It will be good news for Twitter, I think, because it will go into people taking it for granted.

Then they have three strategic options. They can go for enough revenue to be a stand-alone company. They can go for enough revenue to raise their acquisition price. Or they can go for enough revenue to offset their hardware costs. Those last two options are basically waiting for acquisition. The pattern of Twitter is that it works well enough that it could just stay part of the environment for a long time. But I would not be surprised to see them be acquired next year simply because they’re of such critical importance right now. It offers an alternative to the walled garden model of Facebook that is going to be attractive for companies.

First Class eMail

As performance marketers, our lives and livelihoods are based on information – the latest and greatest. I’ve been in a few different businesses, but this is the first one where even close friends will often tell you nothing that will give you an edge.

As it was told to me by one of my mentors, “Telling somebody these things is the same as giving away money.” True enough. So, to get that money, I had to learn the hard way. Lots of money spent on learning.

One of the most important things I learned was the importance of doing email marketing correctly from the start. People actually go to jail for sending emails the wrong way – illegal spam that is. So here’s a little free advice.

To do email marketing well, and legally, you need an email service provider (ESP). Using a script or program from your own computer or server to send emails is not recommended by any experienced affiliate marketer. The reasons you want to go with an ESP are many, but some of the most important are deliverability, tracking and scalability.

According to Alexa, some of the most widely used ESPs are Aweber, I-Contact, Constant Contact, Lyris, Get Response and Net Atlantic.

Each of these ESPs offer a very different level of cost, service and tracking. The highest-end companies, like Lyris and Net Atlantic offer granular email Web analytics, activity-based segmentation, geo-targeting, broadcast-split-testing and more.

The more basic services in the group – I-Contact, Get Response and Constant Contact – offer fundamental services that allow you to upload and send email messages to your prospects and clients quickly and easily. Which one you go with depends on where you are in your email marketing experience.

“I started out using Constant Contact which was fine for a while,” said Liam Bowers, an affiliate marketer in New York. “But when my list got up over 200,000 names I switched to Net Atlantic. They have a lot of features, and a lot of power, but they’re definitely not for beginners,” he said.

The purpose of email in the aggregate is to build relationships. To build relationships with your prospects until they become customers, and then grow those customers into lifetime clients.

Aweber is by far the top choice of many large performance marketers. Aweber works as a complete solution for anyone wishing to increase his or her email marketing efforts. Aweber has a simple, powerful interface that allows you to get up and running quickly, and offers lots of tracking features that allow you to measure and test which emails are getting opened, and which links are getting clicked on once an email is in front of your prospect.

The reason emails sent by an ESP gets past the spam filters is because they have relationships with different Internet service providers. The ESPs work to make sure that your message gets through, but in return they have policies about what you have to do to get an email sent by them.

Most providers have what is known as a “double opt-in” system. This means that after someone submits an email to your site, the user must then log into his or her email account and verify that they have actually requested to be on your email list.

This protects the ESP and all of the other of the ESP’s customers as well as you, because it helps keep spammers at bay and makes sure you are in compliance with the strict CAN-SPAM act that makes sending unsolicited email a crime.

Lyris, for example, claims a 99.34 percent delivery rate. That means that practically all of your emails will get into your intended recipients’ inbox. Whether or not they open them or click on them is up to you and your creative talents.

Most services offer scheduling and sequencing that make it easy to organize and launch strategically timed campaigns. You can send a message on a specific day, or send one out after a specified number of days, weeks or months. Again, this is a function of the service; the more functionality you get, the more you have to pay for it.

The average price for using an ESP to send emails to a list of 10,000 to 25,000 names is about $150 per month. Some services allow an unlimited number of emails to your list during the month and others charge by the amount of bandwidth you use. If you are going to be sending lots of graphic files in your emails be sure to choose a provider that does not charge by bandwidth.

Many ESPs offer a free trial. I suggest trying out a couple and see which one works best for you.

Ryan Pamplin of Ryactive, a super affiliate based in San Francisco, likes Aweber the best, “Most all of the email companies work well,” he told me. “The difference is in deliverability. Aweber has all kinds of white lists that they are on and they’re the best at getting mail to the inbox, from my experience. Email is a big part of my business. If the mail doesn’t get through, what good is it? It’s all about deliverability.”

“I’d never donated to a political campaign in my life,” Pamplin told me. “But the Obama campaign emails kept getting past my spam filters and into my in box. I thought if this guy is this good, then I’ll send him some money, and I did. I think it was because of Obama’s great email service that he actually won the election.”

It turns out Blue State Digital based in Washington, D.C., handled the Obama presidential email campaign. So there you have it, get a great email service provider and you too may soon become President of the United States.

Just remember that there are a lot of options to choose from when doing email marketing. The important thing is to just do it. Make sure to include email as a part of your overall Internet marketing strategy from the beginning. Start out small and simple, find what works and ramp it up, that is the performance marketer’s mantra.

Switch to larger and more powerful email service providers as your business grows. Doing this will always keep your email in the inbox – and keep you out of jail.

Affiliate Program Multiplicity

On various stages of their involvement with the affiliate marketing channel, merchants look in the direction of launching affiliate programs for the same products on multiple networks. The most common reasoning for this being that by so doing they will expand their affiliate reach, significantly improving chances of recruiting powerful affiliates across different networks.

Such an approach is fueled by two main misconceptions. First, they believe affiliate networks play a significant role in affiliate recruitment. Second, they think there are different superaffiliates on different networks.

As a rule, affiliate networks don’t provide merchants with affiliate recruitment services – at least, not by default. While many networks do offer their advertisers opportunities and tools to recruit the network-based affiliates, they don’t handle the recruitment campaigns for merchants.

Therefore, in the majority of cases, joining an affiliate network doesn’t equate to tapping into the network’s resources for affiliate recruitment.

And it’s important to underscore that serious affiliates would normally have active accounts with several major affiliate networks. When they don’t, it’s not problematic for any affiliate to join a new network. If and when the merchant’s proposition is truly attractive and fits into an individual affiliate’s sphere of interests, the latter will likely consider joining a new affiliate network.

Finally, I must warn merchants from presupposing that once they have started a program on an affiliate network, loaded their TOS, email templates, creatives and product feed, they can just sit back, relax and watch the program self-develop.

There is no such thing as auto-piloted marketing. In fact, by running an affiliate program in such a manner, merchants open the program up to affiliates that can hurt the development of the program, hindering the sign-up of new affiliates by their very presence in the program. I call this a phenomenon of merchant naïveté.

Ecological naïveté is a tendency of animal species living on isolated islands to lose both wariness of potential predators, and defensive behaviors to stand against the threats they may impose. By analogy, I use the term merchant naïveté to characterize advertisers that start/run their affiliate programs first, without any clearly outlined terms of service (naïvely entrusting the promotion of their brand to whomever decides to join their program) and second, without any affiliate program manager to actually manage the program (naïvely presupposing that it is the affiliate network’s responsibility to manage it).

Both of these facts can (and often do) lead to disaster. The affiliate program then becomes vulnerable to an array of affiliates who specifically hunt for such merchants, and I will illustrate this in a bit more detail in the following.

Bad Affiliates
Now that we have discussed the question of affiliate recruitment/management and the affiliate networks’ (minimal) role in it, it’s important to look into something that I believe to be the single most problematic thing about running an affiliate program on multiple networks.

While the potential conflicts in the mechanisms of tracking and reporting are resolvable, there’s another factor that can only be dealt with if an affiliate program is being run by a dedicated and knowledgeable affiliate program manager. I am referring back to the problem of unethical affiliate behavior.

The more widely spread forms of it are: affiliate parasitism through adware, toolbars, and other similar downloadable software; forced clicks / cookie stuffing; stealing coupons exclusive to individual affiliates; and violating the merchant’s paid search restrictions (or when the merchant has not listed any, bidding exclusively on the merchant’s trademarks, domain name(s), and every possible misspelling and variation of them).

Let’s look at an example. When a merchant runs a program on affiliate networks A and B, and Network B allows for any type of unethical affiliate behavior, both Network A and Network B affiliates suffer. The reason for this is the “last cookie wins” rule, which is still the prevailing method of attributing affiliate commissions. In dual network scenarios this essentially means that affiliates are competing with each other not only within one network, but across all networks on which the merchant has chosen to run their affiliate program. If, on either of the two networks, there are affiliates who are employing unethical methods, they negatively affect affiliates on both networks.

Rotten Apple
Additionally, regardless of Network A’s ethical stance, there is practically nothing that the network can do to prevent the unethical affiliate behavior of a Network B affiliate, which affects the revenue of Network A’s affiliates as well. Unless the merchant/affiliate program manager of the program that is run on both networks is ethical, collaborative and willing to police and weed out the unethical affiliates from Network B, the problematic affiliate will hurt all.

The sad reality is that in many instances both affiliate program managers and affiliate networks – being financially stimulated by the quick results that some of the unethical affiliate practices can yield – choose to keep the unethical affiliates in the program, thereby hurting the overall development of the larger affiliate campaign.

The bottom line is that there is nothing inherently wrong in running an affiliate campaign on two or more affiliate networks. It is, nevertheless, imperative for the advertisers to clearly understand the risks and threats potentially involved in running such campaigns.

In the majority of cases I advocate a single affiliate platform approach. If, however, a merchant decides to explore the opportunities beyond one network, it’s important to be cognizant of the threats and practice a proactive and preventive affiliate program management.

Designing in a Recession

Whether the worst is behind us or yet to come, we know for a fact that people’s spending habits have changed and won’t be changing back for some time. Everyone is watching their wallet and pinching pennies – making every dollar count. So what does that mean for us as marketers?

We still have products and services that people want and need, we just need to make sure our website visitors understand why they still want what we’re offering – tight pockets or not.

This is where effective website design becomes essential. A successful design will highlight the relevant benefits of your products in a way that creates an immediate (and sometimes subconscious) understanding that this product is something you need.

I was presented with the following question this week: “What qualities should I look for in a designer?”

As many of you know, I come from a graphic design background. I went to art school. I’ve designed websites for years. One could argue that the artistic ability of the designer would be the most important quality.

But I would say that in today’s difficult economic times, the designer’s understanding of marketing should outweigh his knowledge of traditional artistic elements. Especially on the web, and especially during this time, your site’s design must lead to conversions.

Whether you define a conversion as a sale, a lead, or simply getting the user to make a return visit, if you’re in business on the web, your website design must be focused on accomplishing your business goal. In order to be a good designer, you need to understand what it takes to get users to engage.

When designing in a recession, the big design questions should not be what colors to use or what layouts to select. Instead, designers need to ask what products to feature and what benefits to highlight.

Take Target, for example. Over the years they have created a reputation for having great design, both in their marketing and on their products. In a typical market, they promote their designer products with names like Michael Graves, Anna Sui, Alexander McQueen, and Rachel Ashwell. What did I see on the cover of this week’s circular? A crock pot, blender, and toaster oven for $15 each, none of them looking particularly chic. And no designer name dropping.

Why the change? People today aren’t spending the money on designer products. Even though Target strives to offer great designs that everyone can afford, there is still a perceived price premium with designer products, so shoppers tend to assume that they are not getting the best price. Their design had to change or their advertising would no longer be relevant to their shoppers.

Simple Steps
In this economy there are three factors that shoppers are asking themselves: Is the product or service a good value? Is it something I need or will use on a regular basis? Is it relevant to me? A good design will inherently answer all those questions. When considering your next design project, make sure you hit the following three points.

Focus on Value. Even if your prices aren’t the lowest, or if you only sell high-ticket items, focus on the value that customers get when purchasing from you. Value doesn’t mean inexpensive or cheap, but it does mean that the money they spend will be worth it. Maybe the product will save them money in other ways.

Take the new LED televisions. Because they are relatively new technology, you pay a premium on the price. To offset that, retailers are touting all the energy savings you will experience over the life of the television.

Is your product or service more reliable? Longer lasting? Does it have multiple uses? Find the reasons why a user will get every penny out of their purchase and push those reasons in your design.

Emphasize the Everyday. The average consumer today is trending away from “luxury items” but even expensive items can be positioned in a way that emphasizes how they can be valuable essentials. Even a $200 dress shirt can become an essential to someone who frequently attends high-end business meetings. Find the feature that makes your product a necessity.

If you sell lots of products, you may want to update the design of your site to feature those everyday products more prominently than you would in a strong market. While they don’t always have the highest mark-up, these essential items are more likely to be purchased in a slow economy, and you can work on upselling when users are at your cart.

Target to a Niche. Even for items that may not traditionally be niche products, finding a way to target them to a niche may help overcome objections within that demographic. When visitors feel like your product or service is made especially for them, they are more likely to purchase your product over another that doesn’t speak to them directly.

At the end of the day, your product marketing should dictate the design. This is the prime reason why pre-made template-based websites typically perform poorly when it comes to conversion rates. While these template-based sites may look nice, your product has to be pushed into a pre-created design.

In these times, the art of design is more about merchandising and messaging than colors and layouts. As long as your designs are built with that in mind, you’ll see strong conversions even in these tough economic times.

Design Makeover
Would you like your website to be the topic of a future edition of a By Design makeover? Send your name, company, contact information (phone, email, etc.), a brief description of your busines and its goals, and, of course, your URL to bydesign@sostreassoc.com. Please put “Revenue Performance’s By Design Makeover” in the subject line.

The Great Divide

Over the last five years, almost all of the topics I’ve written about focus on some aspect of performance-based advertising. My fascination with the subject stems from a desire to understand the role performance-based ads play in the broader ecosystem for advertisers, merchants and affiliates.

What I’ve come to believe is that the performance marketing world has two very different sides. I’m reminded of a well-loved song from the musical Avenue Q, “The Internet Is for Porn.” We could talk about the divide between mainstream advertising and adult ads, but it’s the divide taking place inside of mainstream advertising that has me thinking “the Internet is for fraud.”

From an advertiser’s perspective, the idea of paying only when an acquisition occurs almost sells itself, especially when that advertiser has a product or service to which they can attach a specific metric. If you are or have ever been an advertiser who has tried the performance-based marketing channel, you have probably run into one of the chief problems – getting sales. It is one thing to find a company or platform that will charge you only on a cost-per-acquisition model, but it is quite another to find one that can actually deliver traffic. And, this is what has lead to the divide in performance-based advertising.

I’ll give a silly but real example involving a company that produces a sugar-free gum without any artificial sweeteners. Selling gum online isn’t easy because you can’t make much money selling packs for $1.50. You can’t scale that business and you certainly can’t afford to advertise widely. Traditional gum makers can afford broadcast media because of their retail presence, but a mostly online seller can’t. So, what are their options, especially if they want to engage in a performance-based approach?

They can set up a percentage-of-sale program, and there will be some sites with appropriate traffic, but is that really going to drive volume in scale? They could do an eBay style approach, paying a flat fee for a new customer, but that approach requires an incredibly sophisticated understanding of a user’s lifetime value. And, it has taken eBay years to come up with their current system. That leaves us with one other model, and it is the Pandora’s box of performance-based online advertising – continuity.

Many associate continuity programs with things we don’t want, i.e., services we sign up for and forget to cancel. Yet continuity programs also may include any number of services we use actively, from offline entities such as gyms to online services like Netflix to GoToMyPC. Yes, there exists a multibillion-dollar ecosystem of continuity that threatens all of performance-based advertising, but the economics of continuity programs make it possible for companies that couldn’t scale otherwise to gain a large number of customers. Like search engine marketing, it contains fraud. However, the fraud here is much more nefarious and much more difficult to extinguish.

Two Types of Fraud
Online performance-based marketing fraud falls into two distinct types: marketing and consumer fraud. Marketing fraud involves an ad running in an unapproved and more importantly deceptive fashion. Consumer fraud involves people buying things they didn’t want.

To understand these types of fraud better, we must also understand how those with traffic make money online today. There are also two types of publishers: the smaller affiliate with a site they own who makes money by linking to merchants, and the larger affiliate who also makes a fair share of money by integrating performance-based ads. Combined, they include a large but not all-encompassing sample of performance- based marketers.

The problems arise with those who don’t look towards performance-based advertisers as a way to monetize their site. They look towards performance-based ads as a means to monetize traffic that others own. This group, known as arbitrageurs, looks at traffic first and at ads as a means for buying traffic profitably. The classic example is one who buys traffic on a click basis but makes money on a per-action basis. The majority of this bunch (those making the money) don’t really care about the products they promote. Whereas an affiliate who owns their own property might worry whether a certain advertiser is not right for their audience, the arbitrageur only worries about converting the customer to cover the media costs.

The Wayward Path
Arbitrage online, like continuity, isn’t inherently bad. The pursuit of money, though, can and does lead people astray, as they put the desire for profit above any awareness of the advertiser or user. For anyone familiar with the lawsuits by Oprah, Dr. Oz, and the State of Illinois, nothing illustrates this better than the marketing fraud via fake blogs that triggered the suit. How fake blogs lead to conversions would be genius were it not so insidious.

The same goes for those perpetrating consumer fraud by profiting from cashback sites. This isn’t the rogue individual but highly technical and organized groups that have specialized in fleecing the second-tier sites that share the cost per acquisition with the user. The problem with both types of fraud is that they don’t garner the type of attention that click fraud does. Most advertisers don’t really understand the magnitude of the fraud problem – hundreds of millions of dollars per year with multiples more in potential brand damage. They also don’t know how to properly guard against it.

Unfortunately, the amount of fraud is only increasing, making it harder and harder for new entrants to succeed online. The divide in performance advertising will widen until we reach a point where new dollars from the outside dwindle. Operating in this world is more and more like swimming with the sharks. It’s possible, but it means having an understanding of the risks as opposed to just focusing on the upside. No one has your best interest in mind like you do.

A Survival Guide For Networks

Cost-per-action networks are all the rage today. But what will it take for a network to win with 400-plus competitors? And how does a network keep ahead of the curve (and the FTC) while building its publisher and advertiser base and fending off tracking and fraud issues?

These are the tough questions that CPA networks face.

It might just be me, but I’ve always felt that CPA performance marketing (or as the Madison Ave. types refer to it, the pay-for-performance model) is one of the best ways the Internet can connect and engage the target customer for less than other channels – a lot less. Further, it can convert them into buyers, or at the very least, generate some measureable brand awareness.

But this promise comes with a need for tracking solutions that allow advertisers to assess on a micro level the quality of the traffic sources on which their campaigns were placed.

I spoke with my old friend and industry veteran Todd Crawford recently, and he made the same observation: “The CPA space needs to legitimize itself in order to see larger advertisers and their larger budgets shift to the performance model.” For the last 12 years, I have watched the online advertising community mature, and have always been involved in affiliate marketing. But the current players in the CPA network distribution channel need to ask themselves where they see the industry in two, five or even 10 years.

There’s no doubt there will be a shakeup, or more aptly put, a shakeout, in the CPA sector of Internet marketing within two years. With 400-plus networks (thanks to DirectTrack and other platforms that have allowed almost anyone to start their own network) all competing for their fair share of online publishers, what will it take for networks to distinguish themselves and stay standing after the dust settles?

Here are a few guideposts on which nearly all the players seem to agree.

1. Address Fraud Issues
Fraudulent transactions constitute the No. 1 complaint among networks. While some platforms do an OK job of trying to identify fraud, it is ultimately the network that needs to be proactive in spotting trends early and monitoring their advertiser’s channel sales. There will soon be a suite of products and services that will begin to set new standards, and the networks that embrace them will experience greater loyalty from both publishers and advertisers.

Lead-generation fraud is another area that will seriously decrease the move to online performance marketing by bigger advertisers. Lead gen is the logical starting point for most big brands as they experiment with social media and other outlets where they can establish a one-to-one relationship with their brand-loyal consumer. But fraudulent leads gone unchecked will destroy the ROI or branding goals of the campaign. Networks offering lead-verification services will be better off with larger brand advertisers and their agencies.

Publisher application fraud is the final puzzle piece in fraud and also one of the most costly in terms of networks’ time. Most large CPA networks get hundreds of publisher applications daily. Screening out fraudulent applications is tedious and necessary. Because publishers themselves will more than likely never band together as a whole to screen themselves, additional network standards and negative databases (like those used for SPAM) applied across all networks would be at least a first step.

However, as with anything, most solutions that include blacklists or certifications can be gamed or hacked. The message here, if you are a publisher, clean up your act and make sure networks can verify your identity and your traffic. Network screening procedures will tighten up. Those networks that admit anyone and everyone will be the earliest to exit in the shakeout.

2. Exclusive Advertisers
Networks whose existence relies only on cross-published campaigns or “brokers” to bring them campaigns will find themselves being left behind. Agency-of-record advertisers for a network are their lifeline to healthier margins and increased budgets for campaigns.

CPA Networks have the potential to be the online advertising agency model for the future. The best networks add value to both their publishers and advertisers by understanding the space and how to best enable all parties to capitalize on unique capabilities and returns. In essence, that’s the same benefit most Madison Avenue. shops were supposed to follow with traditional media companies.

CPA networks are the new agencies for online advertising, because they have in many cases cut out the “media companies” and are better able to connect brands, products and services directly with the target audience through their publishers’ traffic. Networks that realize and capitalize on this opportunity also will be targets for acquisition.

As the bubble of CPA networks grows, here’s a plan to help publishers survive the inevitable shakeout.

3. Niche Yourself
Networks that niche themselves around a vertical have better loyalty than the everything-and-the-kitchensink networks. Networks that have established themselves in a vertical will tend to polarize the larger publishers in that niche. This in turn will attract advertisers that want to reach those visitors.

CPA network publishers are mercenaries by the nature of the game, but as this model matures and the fraud and tracking issues are sorted out, publishers will exhibit greater loyalty to those niched networks where they know they can get the highest payout because the network deals with the advertiser exclusively.

I am sure there are many other factors that will contribute to the survival of a CPA network in the coming years. This is a relatively young business model that is evolving constantly with new horizons such as mobile, social networks and online video.

The networks that continue to add value to both sides of the equation will win, because they will no longer be the middleman, but a vital and necessary part of the process of making money online.