Pedro Sostre: Follow Your Passion

Pedro Sostre is all about art and good design. And he’s not afraid to voice his opinions on either subject.

“Most websites suck in terms of design,” he says, though he also admits there are many design-oriented sites that are extremely well-done and that he’d be hard-pressed to single out just a handful of them.

When it comes to art, he’s fond of the impressionist style of painting. He loves art with bold colors. He leans more toward more modern work and loves Piet Mondrian and his counterparts, but he’s not very fond of pop artists like Andy Warhol.

A passion for art and design seems to permeate everything he does – especially his work.

Sostre, principal and creative director of Sostre & Associates, is a Miami-based affiliate who also does Web development and consulting.

He’s one of Commission Junction’s top performers – with a network earnings ratio of five bars. He’s been a publisher with Commission Junction since 2003 and runs a number of sites, from book clubs to cosmetics to equestrian vacations, including AudioBookDeals.com, BestCreditSolutions.com, EquestrianMag.com, iTravelMag.com, Look-Your-Best.com and Tax-Stuff.com.

Sostre started his professional design career in 1998 doing identity and brand consulting along with designing logos and business cards. Around 1999, when the Internet was gaining in popularity, Sostre started to get more involved in designing websites. “I really just wanted to see what it was all about,” he says. “Then I realized there was money to be made.”

Like most who wanted to ride the Internet gravy train, Sostre had no formal training with computers or the Web. He came from a graphics design and visual communications background at the Art Institute of Fort Lauderdale.

“In school we didn’t have very many computers. I think I took one programming class, but there was nothing related to the Internet,” he laughs.

However, after working on the design portion of several clients’ websites, Sostre would often see sales jump from $5,000 to $50,000 a month. Suddenly he wondered why he wasn’t doing this for himself. So in 1999 he started working on his first affiliate website and launched it in 2000. Not surprisingly, SiteDesignMagazine.com was aimed at site designers.

“I still have that site today, but now it’s like a stepchild that doesn’t get much attention,” he says.

Sostre concedes that at the time he launched his first site, he “had no idea what was going to work” and he just “put up a bunch of stuff.” The good news was that certain elements showed lots of promise.

“Affiliate marketing was not mature back then,” he notes. “I just kind of did it myself and kept trying new stuff.”

He didn’t have anyone to look to for advice or tips when he started. BeFree was the network Sostre signed up with when he first started out. “It’s not like Commission Junction is now, where they provide advice and help for publishers. It was like ‘Here are the merchants’ links, just grab them and go,’ ” he says.

And if he did come across someone willing to share online marketing war stories, they weren’t really making any money anyway.

“Most affiliates were in their own little sheltered environments,” he says. “The people that were doing well didn’t have the time to be out and talking. They were hard at work on their sites.”

Sostre took note of that. He kept his head down and mostly just figured things out for himself. He says he simply used basic principles of salesmanship and marketing. “I applied what I knew from traditional business.”

During college and high school he had a variety of sales jobs – Godiva and Structure (now Men’s Express) – that taught him a lot, and he says much of his early retail sales training came in handy. He’s also not afraid to take risks and make mistakes.

“I spent a lot of money that I didn’t need to spend, but every cent taught me something,” he says.

Currently Sostre has about 20 sites that are close to done and approximately seven that are completely up and running. He also owns another 100 domains and is trying to figure out how best to use them.

“I can be very fickle and get bored easily. That’s when I move on to different stuff,” he says. If I’m losing on one site and then realize that there’s another area where no one has done very well, then I might consider creating a site to fill that need.”

Typically, like with his equestrian site, EquestrianMag.com, Sostre identifies a market or industry, looks at the existing sites and evaluates them. If there are a lot of bad sites, but he still thinks there are enough people interested in the topic, he will buy a domain name and launch a new site.

The three sites Sostre considers to be his best-performing are FreeBookClubs.com, AudioBookDeals.com and iTravelMag.com.

He does pay per click on his own websites. He doesn’t do bulk email or PPC arbitrage. Because many of his sites are online magazines, he also has to refresh content frequently. He hires freelance writers and updates the site with new articles once a month and uses free press releases. However, he refuses to use keyword articles and search engine spam.

“I know there are people out there that capitalize on that to get the traffic,” he says. “I won’t do that.” But there are several things he has done that have helped him achieve success. “I’m doing something I love. I love designing websites and trying to find new ways to increase business using the Internet, and that’s what I get to do all day long. I’m constantly trying new things. You have to try everything and don’t be afraid to fail. And I’m always learning. Whether it’s a new programming language or a new sales principle, I try to be in a constant state of learning.”

And no matter how successful he becomes, he’s never afraid to seek help or learn from someone else. Recently he considered one of his sites nearly dead. It had only a couple of sales in the last year. But he resuscitated the site by working with an affiliate manager friend. Sostre takes extra care not to take any of the credit for his friend’s hard work and the improvement in performance.

“My affiliate manager friend took it over and improved the program. It was huge challenge, but she knew the program could be good,” he says. “She got the program to a good point where sales went from two per year to 100 sales per month. It showed me what a good affiliate manager can really do.”

In order for Sostre to consider one of his properties successful it has to meet specific criteria: it fills a specific need and he starts to get inquiries on how to advertise on it. “The money comes after that,” he adds.

Professional success has helped Sostre gain personal success as well, which he defines as being able to work from home and spend as much time as possible with his family. His wife is a stay-at-home mom, so she deals with the busy schedules of his four kids.

Sostre really likes to help out, but working from home means having strict boundaries. When he’s working, his office is off limits to the kids, “when they feel like listening,” he says. If Sostre is in the middle of big project or on a tight deadline, his wife is great about occupying the kids in the pool or taking them to visit grandma.

And like most affiliates that work from home, this self-described workaholic can set his own schedule. He says it changes every now and again. On rare occasions he wakes up at 6 a.m., but most of his workdays start around 9 or 10 a.m. – unless he gets “dragged out of bed earlier for a phone call.”

“I’m not an early person,” Sostre says. “I usually stay up until 2 or 3 a.m. or sometimes later. That’s when my brain is turned on.”

By working from home he also avoids a nasty commute to downtown Miami, which can take up to 90 minutes each way in heavy traffic, which is almost always, he claims.

The disadvantage of his job is that few people outside the affiliate community understand what Sostre does for a living.

“I don’t talk to enough people that even know what affiliate marketing is. My mom is convinced that I’m doing something illegal,” he jokes. “I’ve resorted to saying ‘Internet stuff’ when explaining what I do to friends and family.”

Commission Junction certainly knows what Sostre does. As one of CJ’s top performers, he’s often asked by the affiliate network to give tips to new publishers and advertisers on how to run strong programs. Although he’s eager to help others, he seems almost embarrassed to talk about his success. He seems hesitant to admit he’s got a big bag full of great tips and tricks.

It’s not that he’s concerned about someone borrowing his recipe for success. “I’ve talked very openly with a lot of people about how I did it, but everything is not easily duplicated, so it’s not like I’m worried that someone else is going to steal my business,” he says.

Mostly, it’s just that he’d rather not seem preachy or like a know-it-all. Instead, he prefers to talk about his personal experience and let people take what they want or need from his story.

Sostre says he likes to keep a low profile, but in the last year or so he’s been encouraged by a well-connected friend in the industry to be more visible in the affiliate community.

“My friend is remarkable. She’s trying to get me to talk to people. After asking me a couple hundred times, I gave in and let her introduce me to some people.”

That’s led to some interesting opportunities. Over the last several months, Sostre was on a panel at the Affiliate Summit 2005 in Las Vegas in June; he was a speaker at eComXpo, a virtual tradeshow for online marketers; and he’s done some writing for industry trade publications.

“I haven’t done a whole lot of publicly before now,” he says. “I’ve stayed out of the industry. I’m used to doing things on my own. I was not one that visited the newsletter sites and message boards – especially once the experts and gurus came out. I’m just not that keen on listening to them.”

Maybe that’s why he seems so reticent to give out advice. Ironically, about 25 percent of his business is consulting services related to advising others on website design.

One piece of advice he doesn’t hesitate to give out: “People who are innovators try new things. Now people are just trying to duplicate success. Free iPods are huge, and these are not from the original company that made it a success. I hate that. Experiment. Do something new.”

New technologies such as blogging and podcasting offer opportunities, says Sostre. While he’s long been interested in blogging but hasn’t had much time to spend on it, he notes that podcasting is likely not for him. But that doesn’t mean it won’t work well for others.

“People should be open to try new stuff. I thought online marketing was interesting. I tried it and it worked for me as well as a whole lot of other people, even though many marketing experts were sure that it was never going to go anywhere. The more you try the more you can succeed.”

He also can’t emphasize enough the importance of design.

“Most websites really need design improvement and help,” he says. “Mostly it’s someone just attempting to make a few bucks. You know, people want to make an extra $100 per month. Then they realize they can make $500 per month, then $1,000. These are not people that are going to spend time to learn design. I believe that’s why many fail.

“I would like to see the Internet mature in terms of design as other marketing media has. Why do you think Target and Apple do so well? Good design and marketing. Some marketers understand how design impacts them, so they’ll pay a professional,” he says.

According to Sostre, the next step for affiliates is to grow beyond affiliate marketing.

“I’d love to see the affiliate community do something good,” he says. “We need to seek to do something more than just making money.”

However, he explains that he means “do good” from a business standpoint.

“Well, I’m not Mother Teresa or a member of Greenpeace, so when I say do good I mean from a business sense. I would like to see more affiliate sites grow to become top resources in their respective industries. I see a lot of affiliate sites that are just directories or they have content that is not that useful. It’s just there to attract people to the site. I’d like to see affiliates creating real websites that serve as leading resources.”

As for Sostre’s future, he wants to continue to grow his business. Over the next two years he’d like to double his revenue and hire a couple more employees.

“I really love what I’m doing right now and I would hope to be doing the same thing in two years,” he says. “As the president of Sostre & Associates, I get to determine what industries we move into and what websites we develop. This keeps me from getting bored with a particular industry or website. As creative director I get to meet with our clients, learn about their businesses and discover ways to increase it, which is a challenge that I really enjoy.”

Analyze This

Affiliates are capitalizing on the predictable behavioral patterns of consumers by using Web analytics tools to decode customers’ habits and boost revenue.

So if you’re a publisher and want to know who exactly is visiting your site, how different types of visitors come back, what they are looking for when they arrive and what specifically makes them want to leave, you should be thinking about tools that help you sort, analyze and understand your customers.

Web analytics is an emerging category of software that purports to answer all those questions and many more that could help you identify the steps for your site to reach the top of its game.

“Affiliates have tremendous opportunity,” says Barbara Poole, a revenue improvement consultant at PoolResources.com, “because they already understand what it is to drill down to the specific customer relationships.”

And if you find the right software to help with that decoding you’ll already be ahead of the curve.

That’s what Miami-based affiliate Pedro Sostre did. Through a collection of analytics software that includes AWStats, ClickTracks Pro and WebSideStory’s HitBox, he has determined the success of ad campaigns, discovered new opportunities based on analyzing what keyword terms are being searched and routinely improved overall performance for his sites including FreeBookClub.com, iTravelMagazine.com, AudioBookDeals.com and Tax-Stuff.com.

“We use Web analytics every day,” Sostre says. “When we found that 88 percent of that search engine traffic wasn’t converting, we where able to save $2,000 per month at FreeBookClub on pay-perclick advertising alone.”

These tools don’t cost much: AWStats is free, HitBox is $30 per month and Click- Tracks’ basic level is a one-time license of a few hundred dollars.

“Eliminating pay-per-click listings at Aha and Kanoodle alone saved me the cost of the software,” Sostre says. “And then there is the value you get from seeing what people are looking for as far as clicks and what campaigns are working. I absolutely could not do what I do without being able to analyze the sets.”

New analytics tools actually create a snapshot of who your ideal customers are and what makes them tick. And it even can determine the different types of customers your site might draw. Once you can do that, “you get the ability to really use that information,” says Brent Hieggelke, vice president of software analytics company WebTrends.

Merchants and affiliates are catching on to this power. The Web analytics market grew 13 percent in 2004, marking what global market researcher International Data Corp. calls a “second coming.”

Analytics has officially grown up from its beginnings a decade ago, when eyeballs and unique page impressions were all that mattered, or at least all that were measured. “Who really cares if someone is sitting on a page for 20 minutes? People have realized how dirty those metrics are,” says SAS Web Analytics’ Richard Foley. “Basic metrics just aren’t cutting it.”

So what is? There are several Web analytics advances, some still in beta, that could be huge for affiliates. Segmentation, intuitive analysis and 360-degree views are among the latest advances that have affiliates applauding.

“We just started using [analytics], and we’re just blown away by the power of seeing day-to-day metrics,” says Joe Beruta, director of interactive marketing for Jenny Craig, which gets anywhere from 5 to 10 percent of its online registrations through affiliates. “We used to look at the month after the fact, with no real-time metrics. Now we’re looking at things like clients versus non-clients as they come to the site – and we haven’t even gotten into segmentation.”

Segmentation

Segmentation is the hottest way to analyze customers on the Web, and at as little as $35 per month it’s finally affordable for small publishers. The technology records and visually tracks a single visitor’s interactions at every touch point. Assigning each visitor a unique identifier, it compares its findings with its growing database of other users’ patterns. Similar users are grouped into one segment. The more a visitor interacts with your site, either by clicking links or making purchases or answering questions about interests, the more data the technology collects on what makes that segment tick.

“It’s a little bit like taking a helicopter and flying over a freeway to see where the bottlenecks are,” says Michael Chavez, vice president of analytics maker ClickFox. “It’s not about predicting a user’s behavior; you’re looking at what they actually did. And you now can link that to actual demographics.”

One of the first companies to make segmentation accessible is WebTrends, which rolled out version 7.0 of its program a year ago. The latest version includes actual breakdowns of how profitable each link is and all of its segmentation tools. There’s a free 14-day trial at WebTrends.com.

Today “this broad, comprehensive picture of the process is one of the absolute hot spots in the market,” says WebTrend’s Hieggelke.

This type of analytics can even help you find new merchants or improve the deal you have. “You get to know based on buying habits what someone wants from your company,” says Mark Bradley, vice president of product shopping at shopping comparison engine NexTag. “If you know people are heading off to buy another product from a third party, then you negotiate with that merchant to get a special deal to sell it yourself.”

Intuitive Analysis

With intuitive analytics, you also get recommendations specific to respective goals for sales, IT, marketing and Web design. Now, if a certain segment of customers are spending three times more time on your site, but buying half as often, the software automatically searches for commonalities like coupon codes, free shipping offers or site navigation and tells you what about your site or where the customer came from influences their buying behavior. It tells you what to keep doing to get more customers (including determining the best advertising avenues) and what to start doing to get them to shop more often.

“That’s what analytics is,” says Stephen Messer, CEO of LinkShare, which in May launched its Synergy Analytics application for its network of affiliates. “It says: ‘Let us do the analysis that you would otherwise do on your own.'”

With basic analytics, you may conclude you bought the wrong keywords if your search engine results are down – with nothing in your reporting to tell you exactly what you did wrong. Intuitive analytics will point out six, nine, maybe 10 different things that might be affecting why search engine returns were low. It may be that your landing pages were too slow or down, it might be the time of day, it might be that you actually do have some keywords that aren’t effective. Intuitive analytics does a report for each and more of these things, providing an immediate blueprint for what steps you could take to improve search engine conversions.

360-Degree View

The third big analysis development builds its reports not only on your site’s Web data, but also on all of your other campaigns. Email, direct mail, traditional advertising, search engine placements and keyword buys are all cataloged online using distinctive links, coupon codes, SKU numbers, even unique telephone extensions. It integrates offline and other marketing and sales data for a complete view of your business activities and a complete read on what works and what doesn’t. It is, however, the most expensive of the Web analytics tools: SAS, which released its 360-degree SAS Web Analytics product in mid-2004.

“A 360-degree view can really determine what people are doing on your site, by digging through and mining the Web data so you can see ‘these are my specific segments,'” says Evan Shelby, product manager for SPSS’s Web analytics products.

SPSS bought NetGenesis several years ago and has integrated it with another SPSS product – Web Mining for Clementine – to offer a 360-degree view. Its SPSS for Windows 13.0 is $1,499 for a business customer and $599 for a single academic user. SPSS server licenses start at $15,500.

“We look at things like affinities, segments, what activities might be associated for cross-selling and upselling – really digging into the data,” Shelby says.

In the end, most site publishers use a combination of tools like Urchin and ClickTracks, says Chris Winfield, president of 10e20, which concurrently manages hundreds of search engine marketing campaigns for clients like Virgin and Coldwell Banker. Other than high-end analytics like SAS, “there isn’t one package yet that we’ve found to truly meet the need to really be able to track all of these things at once,” Winfield says.

Analytics in Action

“It’s a very unusual combination of sophisticated technology and sophisticated math and analytics, when integrated together with merchandising and marketing communicating,” says Matt Moog, president and CEO of CoolSavings, an online direct marketing and media company.

Using analytics software from SAS, SPSS and Coremetrics, CoolSavings was one of the first to give online retailers a holistic view of customers that includes strategies for acquiring consumers, lowering churn and retaining consumers.

“It all starts in knowing what data to collect about the consumer, and storing that data – whether self-reported, behavioral or transactional data – in such a way that it can be used for those purposes,” Moog says.

It’s something Erick Barney, marketing manager for Medford, Ore.-based MotorcycleSuperstore.com, knows well. He added WebTrends 7.0 one year ago. “It’s amazing to see what kind of product you get from a company where that’s what they do,” Barney says. “It’s just leagues beyond what we had. We had all the basics. We knew where we stood, but we didn’t have the nitty-gritty. We didn’t know all the screws to tighten, all the design elements to tweak or all the things to do better – bidding on keywords or writing sales copy. Now, we dream up our metric and [our analytics provider] help[s] us put together the reports to analyze it.”

Using WebTrend’s overlay feature, which shows click-through and revenue numbers above the actual links on a screen capture of each page, Barney has been able to analyze everything from the placement of tables to clickthroughs on email communication links and automatically sees a red flag on those pages with frequent cart dropouts. Since adding WebTrends, MotorcyleSuperstore.com’s revenues have jumped nearly 50 percent.

“I’ve had access to most of the analytics from one source or another, but I had to log in to Overture, extract the numbers and build my own report to compare programs and make decisions,” Barney recalls. “This puts it all in front of you. I go ‘Campaign Drill Down’ and it’s all right there, and it’s really cool.”

On the other side of the coin are the affiliate sales that can be made on a product like this.

“Many of our partners use our technology to not only optimize their marketing efforts, but also complement their service offerings,” says Dan Shapero at NetApplications.com, which integrated Alexa Data Services into its Hitslink analytics tool in late-2003. Hitslink includes pay-per-click conversion tracking, click fraud analysis, referrers, search engine keywords and page navigation paths. It can track an Overture listing, for instance, all the way to orders and revenue, plus it sends out email traffic alerts when your traffic spikes. (There’s a free 30-day trial, good for up to 20,000 hits, at Hitslink.com/trial.)

Already taking statistics for a reported 40,000 publishers, most of Net Application’s customers come through its affiliate and private-label partner programs, Shapero says. “A big part of our vision is if we can enable these partners to use our technologies to market our products, they become our biggest evangelists.” Most of its 3,000 affiliates not only get 40 to 50 percent of every $9.95- to-start monthly hosting fee their users pay, but also get up to 50 percent off the price of using the software for themselves. (Hitslink now has $20 sign-up incentive.)

Meanwhile, Sostre is helping other sites master the analytics tactics he has learned as an in-the-trench affiliate. Using intuitive analytics reports, he helped one site change small things like the color of the button, where the sign-up is and what copy they put next to it. The results, reports a company spokesperson’s blog, were a 60 percent jump in EPC.

“These days,” reminds website strategy consultant Philippa Gamse, “you have to get into the behavior patterns – what you want to do better and what you want to stop doing – to be successful.” These new innovations in Web analytics, at a price range affordable to smaller sites, may be just what ROI ordered.

“The money there is real,” WebTrends’ Hieggelke says. “It’s the kind of thing that shows running your business by the numbers can absolutely have a fast payoff.”

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

Stand By Me

The last of the big independent affiliate and performance marketing networks was finally swallowed up by another large international conglomerate.

In early September, Japanese e-commerce portal Rakuten took its first step into the U.S. market by agreeing to acquire privately held New York-based performance marketing network LinkShare for approximately $425 million in cash.

Speculation was swirling around the online marketing community for several months that LinkShare, which has investors including Mitsui & Co. Ltd., Mitsui & Co. (U.S.A); Internet Capital Group, and Comcast Interactive Capital, an affiliate of Comcast Corp., was looking for a buyer.

Enter Rakuten. The public company, with a market capitalization of $9.7 billion (as of September 5) was looking to break into the U.S. market and wanted to establish an immediate presence. Founded in 1997, Rakuten has several divisions and is involved in e-commerce, media, travel and financial services and owns a professional baseball team in Japan (the Tohoku Rakuten Golden Eagles).

“LinkShare’s performance-based marketing expertise across affiliate, search and email capabilities provides Rakuten with an excellent first step to launch our U.S. operations and continue our international expansion,” said Hiroshi Mikitani, chairman and CEO of Rakuten. “We can leverage LinkShare’s client relationships and technology advantages worldwide, so that LinkShare will be able to achieve significant growth in the future.”

For many big players in online marketing, pairing up with larger, more diversified companies that provide additional financial resources is nothing new.

LinkShare rival Commission Junction was bought for $58 million in cash and stock by ValueClick in October 2003; ValueClick previously purchased affiliate network BeFree in March 2002 for $128 million in stock; Performics was acquired by DoubleClick in a cash deal estimated at $58 million (plus an earn-out of up to $7 million) in May 2004; DoubleClick was acquired in July 2005 by Click Holding Corp. in a deal valued at $1.1 billion.

There are conflicting views on why LinkShare sold for so much more than its competitors.

One poster on affiliate marketing forum AbestWeb.com called the sale price “An insane amount of money!!” while another wrote, “I was actually surprised they got it for as little as $425 million. Especially considering MySpace was purchased for around $580 million and Shopzilla.com went for around $560 million. I guess the going price for big sites like these is between $400 million and $600 million I can’t believe ValueClick paid so little for CJ; they certainly got a deal there.”

Other industry watchers claim that the high selling price is a combination of a better economic climate and the growing popularity and desirability of performance marketing.

“The price – especially compared to their competitors – is startling,” says Shawn Collins, a consultant. “But the economy is in better shape than a year ago. Affiliate marketing is more respected and on firmer ground. It’s a real testament that affiliate marketing is going well.”

Haiko de Poel Jr., president of online affiliate community AbestWeb.com, says that affiliate marketing is only a little hotter than when CJ was purchased two years ago.

“Even though the climate is better and affiliate marketing is a little hotter, it’s not enough to justify $425 million. There is no way you can tell me that LinkShare is worth twice what was paid for CJ and BeFree combined. There’s just something wrong with that. In fact, there are just too many things wrong with this whole deal.”

LinkShare, which was established in 1996, has a network of more than 500 merchants including J.C. Penney, 1-800-Flowers .com, American Express, Avon Products and Dell. It has more than 10,000 affiliates in its network and claims that for 2004, approximately 2 percent of U.S. retail e-commerce, or $1.4 billion, passed through the LinkShare network.

LinkShare’s chairman and CEO, Steve Messer, says, “By partnering with a successful portal with global aspirations, LinkShare has positioned itself to take advantage of the increasingly universal nature of the Internet and e-commerce.”

Messer goes on to say, “Our merchants and our affiliates will benefit because taking the network worldwide can only increase volume, which means growth for everyone.” Messer, along with the rest of LinkShare’s senior management team, including President and COO Heidi Messer, will remain with the company.

Affiliate Alan Townsend, marketing manager for PersonalizationMall.com, says the sale of LinkShare is bittersweet.

“I can tell you that Steve Messer is passionate about affiliate marketing and LinkShare. I don’t think this deal is just about money. I think if anyone wants LinkShare to succeed, it’s him. I’m confident that he’ll help make decisions for LinkShare that will allow them to grow well into the future,” Townsend says. “With that being said, I think it’s always bittersweet to see a great company that you love get sold. It’s much easier to buy a company than it is to build one.”

In the short term, affiliates are questioning everything. When will they be paid? How will they be paid? Who will pay them? What changes are going to be made? What improvements are going to be made? How will current issues be resolved?

Townsend notes that continued communication with affiliates will be key for LinkShare’s future success.

“I think LinkShare has to keep the affiliate community informed throughout this entire process. Affiliates deserve to know how this is going to impact their livelihoods,” Townsend says. “In the long term, affiliates are going to benefit. The new owners will want to see growth. LinkShare will be trying to expand into new markets quickly. Eventually LinkShare will have a global presence that will attract more affiliates and more merchants. As a result, LinkShare services, such as check processing, affiliate support, etc., will have to improve to meet the growing needs of these affiliates and merchants.”

Danger: Clicking Ahead

Sometimes a click isn’t really a click. Sometimes the person knocking on a website’s door is really a wolf in shopper’s clothing, perpetrating a fraud that wastes marketers’ advertising dollars or steals commissions.

Skip Pratt says his Web hosting company BAPort.com was being defrauded on 20 percent of its clicks. He was so frustrated by the problem that he developed a click fraud analysis application and started PPC Trax, an analytics company.

While most agree click fraud is a growing concern, there is no consensus on just how widespread or costly it has become. Depending on whom you ask, the amount of advertising dollars lost to fraudulent clicks ranges from negligible to as high as 40 percent.

The Interactive Advertising Bureau estimates that from 20 to 35 percent of ad clicks are fraudulent. When asked about click fraud, 25 percent of online marketers say it is not a problem, 45 percent say they are concerned about it and 6 percent view it as a serious problem, according to a 2004 Search Engine Marketing Professional Organization (SEMPO) study.

The study also indicates that the majority of the click fraud is thought to occur on publisher and affiliate sites, not on search engines websites.

Chris Henger, vice president of marketing at Performics, says click fraud is not occurring on a large enough scale to have a material impact on the return on investment of advertisers that are Performics partners. He says click fraud is analogous to shoplifting in the retail world: companies have to watch out for it, but it won’t ruin the industry.

“I recognize that it is an issue, but it has gotten blown out of proportion,” Henger says.

He says that if click fraud really constituted 20 percent of advertising, it would show up in advertisers’ ROI and would cause search-marketing prices to fall.

But some think click fraud is a much bigger deal. ClickRisk president and CEO Adam Sculthorpe says the click fraud he has observed for his clients ranges from 15 to 70 percent of the total traffic. Sculthorpe has detected click fraud occurring on more than 1,200 websites and says his random sampling of log files indicates that “potentially there has been several hundred million dollars of total click fraud since 2003.”

Regardless of the actual numbers, there has been more media coverage of click fraud over the last several months. That media attention fuels the perception that click fraud is on the rise, and that is creating a real problem for search engines and threatening the pay-per-click model.

“After The Wall Street Journal published its article (in April), there was panic in the streets,” says SEMPO president Dana Todd.

Todd says that while the majority of smaller companies have heard about click fraud, many feel they do not have the resources to compare their performance with the reports they get from their search engines.

“Thousands of businesses that spend less than $1,000 a month are not going to spend the time to go through extensive reports,” she says.

Unfortunately for online marketers, there is no surefire technology solution to prevent click fraud from occurring, and it is becoming increasingly difficult to detect. “Despite what anyone tells you, it is technically impossible to stop,” says Steve Messer, CEO of LinkShare.

Messer says click fraud first became rampant in 1998 and 1999, causing LinkShare to shut down its pay-per-click TrafficShare network. “We had Ph.D.s working around the clock on click fraud defense technologies,” Messer says. But like many other cost-per-click networks at the time, LinkShare could not maintain a profitable business.

Commission Junction similarly ceased its pay-per-click advertising in 2001 because of click fraud, according to Elizabeth Cholawsky, the company’s vice president of marketing and product development.

Fraudian Slip

Companies that generate revenue for themselves by clicking on their ads use websites both created expressly to defraud as well as legitimate destinations, according to Ben Edelman, a Harvard law student who tracks online activities. Edelman says legitimate websites that artificially raise their revenue by a small percentage are very difficult for search engines to detect. “The system is set up so companies should be a little dishonest,” Edelman says.

While there are many not-so-bright fraudsters who do not mask their IP addresses and are easily identified, other more nefarious types are developing sophisticated software applications to commit click fraud.

LinkShare’s Messer says software that covertly requests advertisements or other Web pages is freely available on hacker message boards. Clever click fraudsters embed that code within other software – such as chat applications – so that each time a user sends a message, a “click” is also made.

Such click fraud software can be distributed through viruses that exploit software vulnerabilities and permanently reside on users’ machines, creating a network of unknowing accomplices with IP addresses that look genuine, according to Messer.

While ISPs can somewhat protect against spam by blacklisting known spammers and blocking messages with phony IP addresses, there is no automated mechanism for identifying click fraud in real time, says Messer. He says the only way to protect advertising dollars is to identify what appear to be fraudulent clicks after the fact by sorting through server logs.

Also, because advertisers and search engines are unwilling to share information about who is committing click fraud, there is almost no industry coordination in fighting it. Industry groups are talking about it more openly, though, including the Dallas/Fort Worth Search Engine Marketing Association, which has made click fraud the subject of several recent monthly meetings.

Defensive Measures

Along with Pratt’s PPC Trax, several other startups including ClickDefense, WhosClickingWho and VeriClix now offer fraud protection services that separate the wheat from the chaff in Web traffic data. These companies place snippets of code within ad pages that capture and analyze data from the computer requesting the page to look for signs of click fraud.

Pratt says PPC Trax’s software algorithm compares 22 to 24 characteristics of a click, including IP addresses as well as other factors that he considers proprietary information. However, sorting legitimate clicks from fraudulent ones is an imperfect science at best. “It’s virtually impossible to prove click fraud,” according to Pratt, who says he has more than 35 clients.

VeriClix offers a free pay-per-click auditing service that monitors ad programs from Google, Kanoodle, Overture and others. VeriClix founder Jeff Martin says he was working for an advertising agency when he saw an “obvious need” for a service that scrutinizes clickthrough rates. VeriClix is able to provide the service for free because it receives funding from search engine optimization firms Zunch and Search Engine Optimization Advantage.

VeriClix determines suspicious activity based on an algorithm that tracks the frequency of clicks, originating IP address and other identifying information. Advertisers can adjust the number of repeated clicks that are observed before a warning of suspicious activity is generated, according to Martin.

Foxes Guarding the Henhouse

At the heart of the issue for many Web publishers is the role the search engines play in click fraud. Internet advertisers spent $9.6 billion in 2004, and because the lion’s share of advertising dollars are spent through search engine marketing (over $4 billion in North America in 2004 according to SEMPO), the heat is on Google, Yahoo and others to act to limit click fraud.

Search engines have an obligation to monitor clicks as part of the service that they provide to advertisers, Martin says. However, he notes that the search engines have an inherent conflict of interest, since actually identifying click fraud reduces their revenue. Instead Martin suggests that combating click fraud requires an unbiased third-party auditor.

“Yahoo and Google have created a new business model that has grown beyond the proportions of what they ethically should be handling themselves,” Martin says.

But search engines have been slow to address click fraud, according to Greg Sterling, managing editor with analyst firm The Kelsey Group. “Click fraud threatens to erode confidence in the pay-per-click model,” he says. “Search engines haven’t done a lot to counteract the negative publicity.”

LinkShare’s Messer says that, for now, Google is growing faster than click fraud so it is not as noticeable, but advertisers’ return on investment may depreciate over time. Messer tells his customers not to bid on Google’s keyword program. “We won’t work with AdWords,” he says.

Performics’ Henger says that Google and Yahoo have always paid attention to customer concerns and are doing what they can to fight click fraud. “Google would not be so foolish as to turn a (blind) eye to click fraud just to make a few extra million dollars today and jeopardize its long-term business,” he says. Henger notes that Google and Yahoo have the proper financial incentives to control click fraud.

Google’s Role

Google CFO George Reyes shook up the search world when he told audience members at an investor news conference that click fraud poses the single biggest threat to the company’s business model.

Google business product manager Shuman Ghosemajumder wouldn’t say how much click fraud the search engine sees on its website, but contends that the amount is not increasing. “Overall losses due to click fraud are very small,” he says.

Google employs Web analysis software that automatically filters out any traffic that the company considers fraudulent before the company sends reports to its advertisers, according to Ghosemajumder. “We can’t prevent it from happening, because the action comes from an external source, but we can prevent the action from having an effect on advertisers,” he says.

Google has scientists and artificial intelligence experts on staff to fight click fraud, but Ghosemajumder declined to say how many employees are involved in the effort.

Google provides free conversion tracking software so that its customers can look for suspicious fluctuations in clickthrough ratios, and the company has a department dedicated to resolving customer disputes over click fraud. Detecting click fraud “is all about finding patterns,” and Google is spending a lot of money researching how to identify those patterns, Ghosemajumder says.

Ghosemajumder says that fraud (such as inflating circulation numbers) occurs in print media as well. “We provide one of the most accountable forms of advertising available,” he says.

Click fraud perpetrators may be unafraid of their actions because thus far there have been no criminal prosecutions. Ghosemajumder thinks that may change someday, noting that people have been successfully prosecuted for writing viruses or denial of service attacks, which are similar activities aimed at interfering with the operation of a business.

The Price of Isolation

Finding broad patterns of click fraud across the advertising universe has been a challenge because companies consider Web analysis data proprietary information. Unlike group efforts to combat spam and track computer viruses, search engines, advertisers and click fraud analysis companies have not shared information about when and how fraudsters are acting.

PPC Trax’s Pratt says his company does not compile click fraud statistics because the data is the property of his clients. VeriClix’s Martin says that search engines should provide more data to give advertisers a better view of their clicks.

“Google is holding information [about click fraud] close to the vest,” says Martin. He believes that search engines should make public all information about click rates that are not trade secrets.

Martin says that search engines should provide an application programming interface that would allow click data to be automatically extracted and compiled by third parties.

The data would not identify the advertiser and makes it possible to identify patterns of click fraud across the Internet. Impartial clearinghouse companies could mediate between advertisers and search engines and give advertisers greater confidence in the pay-per-click model since search engines have an inherent conflict of interest in tracking fraud (each click identified as spurious reduces their revenue).

Requiring search engines to turn over click data to third parties would be a reasonable request, according to Henger of Performics. Akin to the debate over global warming, some parties will continue to say that click fraud is an imminent threat of apocalyptic scale, while others say it is merely a mild irritant. However, search engines wanting their industry to continue its incredible growth will have to persuade the court of public opinion that click fraud is not a significant problem, and that they are doing all they can to fight it.

“Search engines have a responsibility – it’s a trust issue,” says SEMPO’s Todd. She says search industry participants should work together to “create a massive anonymous data pool” that would enable click fraud to be more easily tracked. “We don’t want to go back to the insanity of the ’90s where ad dollars are taken for granted.”

Regardless of where you rank click fraud on your scale of big cyber offenses, most agree that some level of action needs to be taken to help stop it and to move online marketing forward.

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.

Defend Yourself Against Click Fraud

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

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

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

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

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

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

Tools From the Search Engines

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

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

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

Tools You Can Purchase

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

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

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

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

Monitor Your Campaigns

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

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

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

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

The Myths of Affiliate Marketing

There are many myths regarding affiliate marketing that ought to be tucked away where you keep the collected works of the Brothers Grimm, Aesop and Mother Goose. They may be fun to read, but they are disastrous to any affiliate marketing campaign. There are hundreds of these myths circulating, but I’ll deal with the top 10 of them here:

  1. MYTH: It’s good to have a lot of white space in advertisements, brochures and other printed material, and especially on websites.
    TRUTH: Your prospects and customers care a whole lot more about information than blank space. They want to know what your offering can do for them, not that you can afford to run a lot of white space. Usually white space substitutes for powerful ideas, a list of benefits and a fertile imagination. Attention should be drawn by substance, not emptiness. White space is aesthetically pleasing, but profits are even more delightful. Good affiliates are not bamboozled by gorgeous design at the expense of solid ideas.
  2. MYTH: Use short copy because people just won’t read long copy.
    TRUTH: People read long books, long articles and long letters. They read whatever interests them, and the more they’re interested, the more they’ll read. If you give people more data than they need, they’ll either buy from you or they won’t. If you give them less, they won’t buy, period. Studies show that readership of marketing materials falls off dramatically after the first 50 words, but stays high from 50 words to 500 words. That means your non-prospects will turn the page or click it off in a hurry, but your prospects will hang on to every word, trying to learn as much as they can. Many of them will actually wish you had told them even more.
  3. MYTH: It is costly to purchase television time.
    TRUTH: This myth was once the truth, but cable and satellite TV have obliterated it. The cost to run a prime-time commercial in any major U.S. market is now $20 or less, often as low as $5. Better still, cable TV allows you to cherry-pick where your commercials will run so that they air only in communities where your prospects live. You can advertise on CNN, MTV, ESPN, A&E, the Discovery Channel – any satellite-delivered programming. And cable companies will produce your spot for a cost near $1,000, a far cry from the $207,000 average spent on production in 2004. How does TV work for affiliates? Just ask any affiliate who has tried it. TV works wonders for anyone who is reaching the right audience with the right offer. I hope that describes you.
  4. MYTH: Sell the sizzle, not the steak.
    TRUTH: The idea is to sell the solution, not the sizzle. The easiest way to sell anything is to position it as the solution to a particular problem. If you look for the sizzle and not the problem, you’re looking in the wrong direction. Your prospects might appreciate the sizzle, but they’ll write a check for the solution. The job of the canny affiliate is to spot the problem, then offer your product or service as the solution. If you think solutions, you’ll market solutions.
  5. MYTH: Truly great marketing works instantly.
    TRUTH: First-rate sales work instantly. Great limited-time offers work instantly. But great marketing is not made up of sales and limited-time offers alone. These will attract customers, but they won’t be loyal and they’ll be won by whoever offers the lowest price. Great affiliate marketing is made up of creating a desire for your offering in the minds of qualified prospects, then peppering your offers with sales and limited-time offers. But a program of fast-buck marketing usually leads to oblivion. The best marketing in America took a long time to establish itself. Just ask the Jolly Green Giant or that lonely Maytag repairman. And then there’s Amazon.com and Microsoft and Google. None of that marketing worked instantly, but it worked for decades and still does.
  6. MYTH: Affiliate marketing should entertain and amuse.
    TRUTH: Show business should entertain and amuse. But affiliate marketing should sell your offering. This widespread myth is based upon studies that show people like marketing that entertains. They like it, but they sure don’t respond to it. Alas, the marketing community nurtures this myth by presenting awards based upon glitz and glitter, humor and originality, special effects and killer jingles. Those awards should be given for profit increases and nothing else. The only thing that should glitter should be your bottom line.
  7. MYTH: Marketing should be changed regularly to keep it fresh and new.
    TRUTH: The longer that solid marketing promotes a product or service, the better. Guerrilla affiliates create marketing plans that can guide their efforts for five or 10 years, even longer. How long have people been in good hands with Allstate? How long have Rice Krispies snapped, crackled and popped? How long has Intel been inside? Do you think these marketers would be more successful if they kept changing the marketing to keep it fresh? I think not.
  8. MYTH: Affiliate marketing is successful if it is memorable.
    TRUTH: Affiliate marketing is successful if it moves your product or service at a profit. Studies continue to prove that there is no relationship between people remembering your marketing and buying your offering. All that matters is if people are motivated to make a purchase. So don’t aim for being memorable as much as being desirable, because that leads to profitability.
  9. MYTH: Bad publicity is better than no publicity at all.
    TRUTH: Bad publicity is bad for your business. No publicity is a lot healthier for you. People love to gossip, especially about businesses that have allegedly done something so awful that it has been exposed by the media. Guerrillas love publicity but avoid bad publicity because they know it spreads faster than wildfire.
  10. MYTH: All that really counts is earning an honest profit.
    TRUTH: Good taste and sensitivity also count. Marketing, as part of mass communications, is part of the evolutionary process. Affiliate marketing educates, informs, announces, enlightens and influences human behavior. Because it does this, affiliate marketing has an obligation to offend nobody, to present its material with taste and decency, to be honest and to benefit customers. If it does that and earns profits too, it is true guerrilla affiliate marketing.

JAY CONRAD LEVINSON is the author of the 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.

Crossing the Line

Years before the Nasdaq tanked and banner advertising died, e-commerce pioneers like Amazon.com and CDNow began partnering with topic-centric websites to drive revenues, paying a commission for each sale referred. The practice spread quickly and became known as “affiliate marketing.” By early 1999, Forrester Research proclaimed “affiliate programs” as the Web’s most effective traffic-driving technique – almost twice as effective as banner advertising.

Consider that by September 1999, more than three years after Amazon launched, there were over 1,000 merchants offering affiliate programs. And by 2000, Amazon’s Associates Program had grown to over 500,000 affiliates. What Amazon founder and CEO Jeff Bezos started as a polite conversation had grown into an entirely new industry, bringing with it affiliate networks, directories, newsletters and a variety of consultants. Affiliate marketing is now an integral part of the Web’s composition. It’s also now widely heralded as the Web’s most cost-effective marketing vehicle.

Still, as affiliate marketing evolved, issues with the model have been exposed. The affiliate community needs to remember that affiliate marketing is not about generating “cheap” advertising, but developing profitable strategic relationships.

But there is a way for merchants to offer a win-win where both merchants and affiliates have a vested interest. Improving technologies now make it possible for the formerly CPS, CPA, CPL performance programs and the CPM, CPC and flat advertising models to unify, creating a hybrid I call the CPP (cost-plus-performance) model.

The CPP combines a paid campaign with a performance campaign and offers the best of both worlds. I see this as the future of affiliate marketing, a wide-open world of performance and payment where the CPP takes back inventory lost to Google’s AdSense and advertisers. The result is a whole new world of opportunities for merchants, affiliate managers and affiliates.

The hybrid CPP is converting former CPM and CPC advocates into affiliate marketing believers. For many top websites, affiliate marketing now represents a chance to loosen the grip of pay-per-click search engines and costly advertising. The most difficult obstacle in affiliate marketing is finding good affiliates with traffic. If a site sells traffic then they must have it, and if you negotiate a cost-plus-performance payout, valuable opportunities begin to open up.

Merchants are also realizing that affiliates need better tools. Technologies such as data feeds, site and shopping cart abandonment (exit traffic) promise to increase EPC and EPM numbers without compromising the visitor’s experience, thereby improving monetization. By offering additional products and services at or after the point of sale, merchants can add revenue without diluting the sales process.

It’s becoming clear to merchants, affiliate managers and affiliates that the line between performance and traditional advertising has been breached.

It started with Google’s entry into the market. Google’s AdSense captured valuable affiliate program inventory, which caused the flexible affiliate marketers to evolve again. The industry’s response was to tangle with the paid advertising side of the market. Google’s method is to pay out for ad space – the same ad space that was used by affiliate marketers. That limits available inventory and changes the Web publisher’s expectations.

Some affiliate marketers using AdSense end up cannibalizing their own market. Why? To get guaranteed income from traffic. If you pay for traffic, you’re guaranteed to get it. The merchants get guaranteed traffic and the affiliates get guaranteed revenue from traffic. This presents a problem, however. Traditional advertising places the risk on the merchants, while performance places the risk on the affiliate. In either case only one has a vested interest in the campaign.

It’s clear from a handful of studies and reports that marketers are frustrated with the current process.

A recent survey of 135 senior-level marketers found that while 60 percent of respondents said defining, measuring and taking action on ROI is important, only 20 percent are satisfied with their ability to do so. In addition, 73 percent reported a lack of confidence in their ability to understand the sales impact of a campaign.

The study, conducted by Marketing Management Analytics, the Association of National Advertisers and Forrester Research in April 2005, was presented in July at the ANA’s 2005 Marketing Accountability Forum.

A Media Life survey of media buyers quantified what most already suspected: media buyers think that only about half of media reps know what they’re doing (MediaBuyerPlanner.com). A significant minority of the buyers – about one in six – have such a low opinion of representatives that they said only 10 or 20 percent are useful.

Complaints centered, unsurprisingly, on time wasting, in the form of over-contacting and proving ill-prepared when conversations do take place. Another big complaint proved to be overly hard selling, with some reps believing that repetition or browbeating may succeed in getting a property on the buy where the numbers won’t.

Half of the buyers said they agree with the statement that the rep problem was “no big deal. Sure, they’re annoying sometimes, but I’m sure they find me equally so. It’s how the industry is set up.” About 45 percent agreed instead that reps are “a necessary evil. Most are okay, but there are a few really obnoxious ones I hate doing business with.”

Even with all the issues, the good news is that the affiliate community is still evolving. Organic search is becoming more competitive. CPM rates are going up. Paid search is becoming cost prohibitive and the need for cost-effective online inventory is becoming stronger, causing the affiliate space to grow at ever-increasing rates. As merchants, affiliate managers and affiliates become even more interwoven, the friction decreases and new forms of integration and aggregation are made possible.

I see it this way: the race is on! In the last year the number of merchants offering affiliate programs has more than quadrupled. Literally millions of websites now participate as affiliates – from personal homepages at GeoCities and Homestead to Fortune 500 companies. And now, more often than not, merchants with affiliate programs are also affiliates.

Whether termed affiliate marketing, collaborative commerce, revenue sharing or syndicated selling, the affiliate space leads the way in the ever-changing landscape of online marketing and has become the Web’s fastest, simplest and most cost-effective marketing vehicle.

As both merchants and affiliates continue to recognize the power of change, affiliate marketing’s best days are yet to come. In a few short years, affiliate marketing looks to become the tail that wags the dog – controlling the majority of the adverting and marketing dollars.

GREG SHEPARD is the CEO of NetTraction, a firm that specializes in deploying, managing and growing affiliate programs. He can be contacted by visiting www.NetTraction.com or by email at cmo@nettraction.com.

Managing Affiliates in a Rapidly Growing Market

Over the past two years, the online real estate traffic volume has increased exponentially. Part of this dramatic growth is driven by the low interest rate environment, but a bigger reason for the increase is the rapid shift in realtor marketing dollars away from offline media – such as print – toward online advertising venues.

Affiliates play a large role in the success of online real estate. While this rapid growth has led to new opportunities, it also brings significant challenges. Merchants who match consumers with professional service providers must maintain a consistent flow of only the highest-quality leads. Low-converting traffic will frustrate the service provider and may eventually result in unwanted churn. The observations following are true in particular for any merchant who matches consumers with professional service providers.

A good affiliate manager must connect the dots from consumer inquiry to affiliate sites prior to approving any potential affiliate. You should strive to determine the main sources of traffic that a potential affiliate brings to the table. Affiliates can generate traffic a number of ways. The most common methods are cost per click (CPC) campaigns, search engine optimization (SEO) and email marketing.

These are all generally accepted practices of online marketing and can be verified by the savvy affiliate manager. For example, if the affiliate is using CPC campaigns to generate traffic, you can verify this by typing in keywords and looking for the affiliate’s ads. If the affiliate is unable or unwilling to provide at least some examples of how the traffic is generated, then you should assume the worst. If you are unable to connect the dots, then it’s possible the affiliate is driving traffic using means such as spyware, incentivized clicks or link hijacking. Connecting the dots is important not only to prevent approving a fraudulent affiliate, but also to gauge the quality and potential volume they can deliver.

In addition to connecting the dots, a good affiliate manager should be able to make the best of a bad situation whenever possible. If a particular affiliate or campaign is under-performing, you need to investigate all possibilities to salvage some or all of the relationship. This can be done by adding, removing or modifying product offerings. You can change pricing. Perhaps most importantly, you can change creative and integration techniques.

For example: an affiliate promoting our brand at a national level wanted to drop the program due to poor results. We offered the affiliate a series of custom city-specific links better suited to his network of local sites and were able to improve the affiliate’s performance significantly.

In another case an affiliate was promoting one of our products but didn’t match the consumers with the appropriate buying service. To turn this around we encouraged this affiliate to start promoting a more appropriate home listings product. This change sent revenue climbing sharply.

In addition to understanding the affiliate- generated consumer traffic, good affiliate managers possess a keen awareness of all consumer traffic channels. To state the obvious: free traffic (SEO or brand recognition) is preferable to inexpensive traffic, which is preferable to expensive traffic.

If free traffic volume increases, the merchant providing professional services should focus more on optimization of existing affiliates and less on recruitment. Aside from ranking traffic by price, you also need to factor in quality. For instance, if SEO traffic is higher quality versus comparable channels, then you should recruit new affiliates that consistently show up well in the search engines for large-volume, relevant searches.

To gain large market share in times of rapid growth, you need to have a flexible affiliate program. One way to do this is to allow affiliates to participate on several different platforms. Affiliates who prefer the online reporting and payment structure of affiliate networks can join under either of those programs. For larger affiliates who want to partner directly, consider offering higher payouts and direct links. On the product side, flexibility could mean offering regularly updated data feeds, including XML feeds and co-branded forms as well as forms of different layout or length. On the payment side, you could let direct affiliates choose between cost per click, cost per lead or even revenue sharing arrangements. This flexibility in terms of platforms, products and pricing is paramount in helping your program expand.

With the recent explosion in Internet advertising, affiliates are bombarded with merchant offers from all angles. To rise above this noise, you need to be an extremely effective communicator. New value propositions such as better payment tiers, contests, fresh creative, case studies, new products and affiliate testimonials must be communicated regularly to existing and potential affiliates. Due to spam filters and overflowing inboxes, email newsletters are becoming a less effective communication method. Try to communicate one on one with larger affiliates whenever possible.

With so many new affiliate applicants each day, it is inevitable that a few bad apples make it through the approval process. To prevent affiliate fraud, you have to routinely deny affiliates that do not respond to initial contact. While the vast majority of existing affiliates play by the terms and conditions of the affiliate program, there are instances where you’ll need to take disciplinary action. In cases where affiliates purchase trademarked broker keywords or if an affiliate violates the CANSPAM Act, action must be taken quickly.

Other challenges include taking steps to monitor cost-per-click fraud. CPC management requires additional time for analysis and closer contact with the affiliates. Each month you need to look closely at the revenue generated per click for each affiliate. Unusual behavior is typically easy to spot and must be corrected quickly. New affiliates – especially those who start on the CPC program – can be given a monthly budget cap to your company’s exposure to any potential click or lead fraud. As trust builds with an affiliate, this cap can be raised or removed altogether.

Merchants offering CPC products should also have analytics tools with robot filtering mechanisms in place, as well as the ability to track click patterns funneled down the merchant’s site. For CPA products, you should monitor each affiliate’s lead-to-close rates and raw lead data on a monthly basis to ensure lead quality.

Implementing tight controls will ensure you have a good handle on your existing base of affiliates, which makes it easier to expand your program as your company grows.


MARIE NILSSON is the affiliate manager for HomeGain, a wholly owned subsidiary of Classified Ventures, based in Emeryville, Calif. She has a background in project management for the telecom and chemical industries and holds a Master of Science degree from Lund Institute of Technology in Sweden.

Don’t Give in to Click Fraud Fears

Click fraud is a potentially serious problem faced by any affiliate marketer who uses pay-per-click (PPC) search engine advertising to market their sites.

One study estimated that between 10 and 20 percent of a PPC advertiser’s budget is lost to fraud. That estimate increased to 50 percent for high-priced, highly competitive keywords.

Unfortunately, there is no guaranteed way to prevent unscrupulous competitors from going click-happy and rapidly depleting an advertiser’s PPC budget.

Solving the problem is tedious and time-consuming. Getting your account reimbursed requires proof of the fraudulent activity. However, detecting click fraud demands effort and resources that most marketers would rather devote to increasing their income – not ferreting out thieves.

No wonder the fear of click fraud has some affiliate marketers running scared. Understandably, dealing with the whole ugly scenario might leave an advertiser feeling frustrated and thoroughly disenchanted with pay-per-click advertising.

Indeed many new and aspiring affiliate marketers are using potential click fraud as an excuse not to try pay-per-click advertising, or to abandon their Internet marketing business plans altogether.

Giving up due to problems that may never arise? What sort of response is that? Any activity, business or otherwise, has its potential problems.

Take something as commonplace as fueling a vehicle, for example. Under certain conditions you may risk starting a spark-induced fire at the pump. Does such a horrible prospect persuade you to sell the car, ride the bus to work and add two more miserable hours to your daily commute? I should hope not. Rational people learn and apply safe fueling techniques to keep from being fried.

Likewise, dropping pay-per-click as an advertising option from your marketing arsenal because you’re afraid of click fraud, or want to avoid the cost of advertising, isn’t the smartest approach to Internet business.

Rather than use PPC, some affiliate marketers rely exclusively on using search engine optimization techniques, an option fraught with its own perils.

First of all, you may wait several months to get your site ranked high enough in the engines to attract visitors, only to discover that your copywriting or the product itself doesn’t convert to sales. So the process begins anew with copywriting, site submissions and another long wait to see the results.

Second, income derived from search engine traffic tends to be inconsistent from month to month, varying with a site’s rank. Imagine having your earnings plummet from $30,000 per month to a paltry $2,000 per month, simply because Google changed its algorithm or de-listed your sites.

I often consult with affiliates who’ve taken the SEO-only route but then need a way to rebuild their shattered businesses. So yes, such catastrophes do occur.

So what’s the answer? It’s simple: use pay-per-click advertising to market your sites. By the way, that’s the same solution many “you don’t have to pay for traffic” marketing gurus use to promote their own products and affiliate programs. Why? Because no other traffic- generation method is as easy to implement or immediately effective as PPC advertising.

I LOVE pay-per-click advertising, and yes, it loves me back. When Yahoo Search Marketing’s (Overture) predecessor, GoTo.com, launched its pay-for-performance search engine in June 1998, I recognized the service as a complete godsend to online marketers and have been using it to successfully market my affiliate sites ever since.

You simply write an ad, input your keywords, set your budget and within minutes a Google AdWords campaign can be sending highly targeted traffic to your site. Yes, minutes, not months!

Clickthrough and conversion rates can be rapidly assessed, most often within hours of starting a campaign. Is the impression- to-clickthrough ratio poor? Simply tweak the ad and test again. If conversion to sales is underwhelming, rework the product review and then resume the flow of traffic to your site with just a click of your mouse.

Don’t know whether you should promote Product A, Product B or both on your site? Pay-per-click advertising quickly helps you find the right answer. Simply create two listings to send traffic to their respective product review pages. Five hundred sets of eyeballs to each page will give you a good reading on which is the most lucrative choice.

You can test conversion rates for various products without having to write an endorsement. Scores of affiliate marketers who don’t have their own websites are making scads of money promoting products as affiliates using PPC. Instead of bringing visitors to a product endorsement page, they send traffic directly to the merchant from Google through their affiliate links.

Perhaps you shun PPC because of horror stories about campaigns run amok and credit cards drawn to the limit? Forget them. There’s absolutely no reason that should ever happen. Most pay-per-click search engines permit advertisers to set maximum daily or monthly budgets. Or you can deposit a set amount into your PPC account, and the campaign will automatically suspend itself when the funds have been depleted. Once you are confident that your campaign is producing satisfactory returns on a consistent basis, automatic funding options are available. Eventually you’ll get to a stage where you can set it, forget it and collect your commission checks – month after month and year after year. Some PPC users complain that increased competition in certain markets is driving them out of business as bid prices skyrocket.

Here’s a simple solution. Don’t raise your bids to compete on the most popular keywords in your niche. Instead, lower your bids or drop those keywords completely. Concentrate on building bigger lists of highly targeted keyword phrases on which your competitors are not bidding. This strategy lowers your average cost per click and increases your returns by driving laser-targeted traffic to your sites.

Targeted traffic is the lifeblood of your affiliate marketing business. Don’t let fear of click fraud or any other potential problem keep you from trying pay-per-click advertising, the easiest and fastest way to get traffic to your sites. Spend a buck and make two, three, four or more. Those benefits greatly exceed any associated risks.

ROSALIND GARDNER is 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.

Search for Tomorrow

It doesn’t take Edwin Hubble to recognize that the search universe is expanding. Instead of studying faraway galaxies to see the shifts in the cosmos, it only takes a glance at the home page of any major search engine to realize that search is moving at light speed.

The stars of search – America Online, Google, MSN and Yahoo – are attempting to extend their reach by launching a stream of search tools that provide custom filters of online information. The rate of change has sharply accelerated during the past year, and it seems that with every fortnight comes a new personalized, localized or visualized search method aimed at speeding up the delivery of relevant results.

A decade ago it was assumed that most users would find companies and information through portals that organize content into easy-to-navigate sections. However during the past few years search engines, led by Google, have become the primary resource for finding information.

According to an April 2005 Harris Interactive survey, Web surfers said they use a search engine during more than 90 percent of their online sessions.

“Google’s sneak attack was quality,” says Jon Cooper, vice president of interactive services at search marketing firm UnREAL Marketing. Instead of trying to direct users to content partners or handpicking links, Cooper says offering quality search results is the best model for satisfying surfers.

Google’s model of throwing open the doors through advertising-supported search has won out over trying to provide premium content. “As long as the content is pretty good and free, people will take the path of least resistance,” Cooper says. Google’s ad-supported search model has helped search engine marketing grow to a $4 billion industry in 2004, according to the Search Engine Marketing Professional Organization (SEMPO).

Tools of the Trade

Basic search tools provided by all of the big four include standard search, image search and news search, although the depth of the search results can vary widely among engines. For example, AOLSearch’s news tool generates results from news wire services only, while all of its competitors include links to articles from newspapers and online media outlets.

This year’s flurry of new search tools will generate additional volumes of Web traffic (and therefore advertising opportunities) by adding utility, increasing the level of competition and enhancing the significance of search in daily online activity.

Google and Yahoo have been the most active during a frenetic 2005 in rolling out new search tools, while AOL and MSN are also rapidly increasing the profile of search on their portals. Instead of taking away traffic from others, the new features will prompt more searches, and advertisers are expected to increase their search engine marketing spending by 41 percent in 2005, according to SEMPO. “The pie keeps getting bigger,” says David Berkowitz, director of marketing at search advertising agency icrossing.

Google and Yahoo have added personalization features that tailor results so that the most appropriate links for the individual are delivered at the top of the results page. Google’s Personalized Search enables users to scan their past searches to “re-find” information and uses the search history to refine the results. Yahoo’s personalization service, My Web 2.0, similarly uses past searches to refine results, as well as enabling friends to share pages that they have visited.

According to Nielsen NetRatings, nearly 70 percent of all search traffic flows through Google (48 percent) and Yahoo (21.2 percent). Personalized search could increase Google and Yahoo’s market leadership because it produces better results without asking users to change the way they search.

Most people use relatively simple one-or-two-word search terms that lack the context to filter out inappropriate results. For example, someone who searches on “Lincoln” will get results about the car, city, university and the president, but a personalized search relying on previous experiences would automatically narrow the results.

“Changing user behavior is a challenge,” says Gary Price, news editor of SearchEngineWatch.com and editor of ResourceShelf.com, because even after many years of searching, people still make the same mistakes. Since people won’t change, “search engines have to do things to make results more relevant,” he says. If what they are looking for is not delivered in the first 20 results, users will give up on a search, according to Price.

Getting Googled

Price says it’s much easier for the market leaders to get users to experiment with new search features than it is for their smaller competitors. When Google introduces a new vertical service, such as a search of academic papers or product catalogs, Web users and the press provide plenty of coverage.

“Google is a PR juggernaut,” says Price, adding that the word of mouth the company gets from enthusiastic supporters puts competitors at a disadvantage. Yahoo similarly generated considerable buzz when it launched tools for searching subscription content and comparison-shopping sites, even though similar services existed from lesser-known competitors.

The challenges for search engines not named Google or Yahoo in spreading the word will likely further the current trend toward consolidation in the search engine industry. Smaller companies that fail to distinguish themselves are likely to be acquired, according to Price.

Microsoft has become more serious about the importance of search on MSN, which previously served as more of a shopping and news portal and showcase for emerging Microsoft media technologies than a top-tier search engine. Microsoft decided in 2003 to replace the Yahoo search technology it had been using with its own search technology, which went online in February this year, according to MSN product manager Justin Osmer.

Osmer says MSN Search’s product development is focused on giving factual answers and not just links. When users type in a question, MSN searches Microsoft’s Encarta database as well as external resources for the answer, an approach similar to that of niche search engine AskJeeves.com. For example, typing in “Phillies score” will yield the score of the team’s latest game as the first result, while “population of Seattle” displays the latest statistics from the U.S. Census Bureau.

Google and Microsoft are further enhancing the importance of search in everyday computing by integrating Internet and desktop search. Both companies have launched free desktop search utilities, and Google’s Gmail email service replaces folders with a search model.

America Online is beta testing a new home page highlighting search tools that makes available to everyone a portion of the content that was previously restricted to subscribers. In addition to reference material and product search utilities, AOL now provides multimedia searches that enable users to tap into its considerable content partnerships.

AOL Search’s video search uses technology from fellow Time Warner subsidiary SingingFish and includes clips from television shows, movies and music videos, while the audio search displays radio program segments and music tracks.

Yahoo’s AltaVista also includes audio search technology, and Google is developing technology to search the text of audio, according to a report in the New York Post. Searching the spoken word currently requires developing faster and more accurate speech recognition technology, but eventually “will become just as important as the written word,” according to SearchEngineWatch’s Gary Price.

Steam Behind the Local Motion

According to Chris Henger, vice president of marketing and product development at Performics, the new tools will propel search marketing to become a $13 million industry within four years. Matching consumers with local sellers is expected to be one of the largest areas of search growth, according to Henger. “Local search is the biggest thing and opens up the door to a whole new set of advertisers,” he says. (See “Think Global, Search Local” on page 40.)

All four of the top search sites have launched local search services that look for nearby businesses selling services or items that match the search term. Henger says that working with smaller regional companies poses some challenges for search companies. Search engines will be interfacing with smaller companies that may be inexperienced in the business model, which may require search engines to augment their existing sales teams with a network of local sales representatives, according to Henger.

MSN’s beta local search service attempts to match the searcher with relevant local information by automatically scanning IP addresses, according to Microsoft’s Osmer. The location of the searching computer is used to call up nearby business listings, and the same technology is also used to identify the location of the results pages so that nearby websites are given priority.

The search engines will have to contend with established phone directory companies such as Verizon’s SuperPages.com, YellowPages.com, YellowBook.com and Amazon.com’s A9, which recently launched a visual search tool that provides images of the actual storefronts.

All of the search engines are experimenting with RSS (really simple syndication) search capabilities, which could further boost the amount of advertising opportunities. RSS is a method of formatting content used by many news sites and bloggers to share information with other publishers. Tracking feeds currently requires RSS reader applications, but search engines are likely to integrate RSS into search in the not-too-distant future.

Google rotates RSS feeds into its Gmail service, which could pave the way for broader RSS searching. MSN Search enables users to save any search query as an RSS feed, eliminating the need to repeat searches. Yahoo is integrating RSS into its news search, and AOLSearch includes video content formatted with Media RSS, which describes the content of the video.

Connecting search advertising with bloggers and news content through RSS would take advantage of some of the Web’s fastest growing segments. Google is currently posting some RSS advertisements on Gmail, and in July WashingtonPost.com became the first major news organization to include ads with its RSS feeds. Yahoo is testing RSS as a medium and looking into the viability of RSS advertising, according to senior manager of communications Gaude Paez.

Too Much of a Good Thing?

Keeping up with all of the search options and learning the benefits of each presents challenges to advertisers and users who must determine which variations will work best for them. The home pages of the top search engines now include a half dozen or more search options, and beta search technologies are often listed on their own pages.

When initiating a search, users have to keep mental notes as to which search tool will work best for each occasion. Users who would like to speed up searches through personalized search must remember yet another ID and password, and also have to remember to sign out before performing searches that they would rather not have saved on a search engine’s servers.

Marketers have to decide which of the multitude of search tools from a given search engine they want to participate in, and then figure out how to track their return on investment. For example, a search marketer might be getting good returns on standard search, but might not do as well on local search and generate no returns from news searches associated with their keyword or contextual ad.

Since each new tool increases the magnitude and complexity of search marketing, the need for interactive agencies will greatly increase, according to Chris Henger of Performics.

“Companies will need to go to specialists and third parties” to sort through the dozens of search marketing options, he says. Specialized agencies will track the new search tools for volume, user demographics and potential ROI.

Icrossing’s David Berkowitz says the rise in search tools “is phenomenal for interactive agencies because it makes it very difficult to keep track of everything that is going on.”

Search marketers also have to consider if they want to exclude having their ads show up on specific websites that include content that they consider objectionable. Berkowitz says large advertisers will call on agencies to protect their brands from unwanted associations, particularly with the rise in video and audio searches.

The search engines are committed to extracting the maximum value from the growing universe of content by producing personalized packets of information. New customized tools that anticipate the intent of users’ queries or automatically refine the scope of the search will further entrench search as the de facto first step in the quest for online information.

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.