Community Commerce

Until now online shopping has been a lonely endeavor. Think Sandra Bullock in “The Net,” the 1995 film where she works from home, orders everything online and has few friends outside of cyberspace. Even 10 years later most people still shop online alone, sneaking it in during work hours or squeezing it in after everyone’s in bed.

“If you look at the first 10 years of e-commerce, it was solitary, not social,” says Rob Solomon, vice president of the Yahoo Shopping Group. “Yet, if you look at the pre-e-commerce world, that’s all shopping was; e-commerce changed that. E-commerce isn’t going to be a solitary thing that much longer.”

That’s because social networking is having its third rebirth online, and this time experts think it will stick.

“E-commerce will be much more than 5 percent [of retail revenue] three years from now,” Solomon says, “because this will change the landscape of it.”

As such, affiliate sites are building loyal fan bases and gaining steady clickthroughs by encouraging buyers to bring their offline friends along for the shopping experience.

“Consumers looking for the best of the best, the first of the first, the most relevant of the relevant increasingly don’t connect to ‘just any other consumer’ anymore,” according to, a report focused on spotting new trends. “They are hooking up with (and listening to) their taste ‘twins’; fellow consumers somewhere in the world who think, react, enjoy and consume the way they do.”

To tap this trend, the best-selling affiliates are adding social networking elements outside the norm. They’re offering ways for buddies to view each other’s potential purchases, give and get advice in any form they want, pay each other’s bills and even get cash for recommending something their buddy ultimately buys.

Influencing Others’ Potential Purchases

Forrester Research found that consumers who buy fashion online are more likely to interact socially by sending product links to friends. With more than 40 million – mostly young, higher-income females – having purchased clothing online to date, this market is ripe for affiliate-site options that seamlessly allow second opinions.

Take, run by Tango dress designer Joanne Stoner, who uses Yahoo’s storefront to offer her dresses alongside more than 1,000 others from New York designers. The site conference calls in mothers and daughters with its personal shoppers to look at online dress options together and reach an agreement.

“It’s just the right forum because the daughter is around to shop, the mother is around to pay for it and the personal shopper will be the one who decides whether the outfit is appropriate or not,” Stoner says. The result? gets about 6 million unique visitors per month and has been No. 1 in most natural search rankings for “cocktail dresses” and “evening dresses” for three years running.

While online buddy shoppers can’t actually see the other person’s outfit on, they now have options like My Virtual Model, an animated model sized to a customer’s exact measurements and customized with faces, hairstyles and builds. Merchants like,,, and (20 percent commission) all offer the virtual model for “trying on” clothing as part of their affiliate offerings. The saved model can be used at all participating merchants, with final outfits “imailed” to buddies for feedback. Shoppers using My Virtual Model reportedly spend more, buy more and return fewer items.

Buddy emails and conference calls are just two of the many new ways shoppers will soon be able to provide pre-purchase feedback through shopping sites. “There is so much more you can do with IP communications if you tailor it for the e-commerce experience,” says Rob Seaver, CEO of website-embedded IP communications provider “What if you could talk to people who recently purchased the same item? What if you could see into other people’s shopping carts? What if you’re considering a purchase of the ‘Desperate Housewives’ DVD collection, and while you’re looking at that there’s an ad that says, Join five people in a small affinity group talking about ‘Desperate Housewives’? By bringing the social networking aspect and e-commerce together, you can increase interaction on a site and, consequently, increase sales.”

For example, in conjunction with allowing users to post affiliate links, it now offers Net’s free computer-to-computer calling with a banner ad on its log-in page. Buddies only need a USB headset and microphone to bring the offline experience online.

Give Advice, Get Advice is a leader in product reviews with more than 6 million entered by its users. And in November, Amazon patented how its reviews are conducted.

According to Amazon’s lead engineers, “The click through and conversion rates of recommendations based on collaborative filtering vastly exceed those of untargeted content such as banner advertisements and top-seller lists.”

Still most others claim it’s a non-issue. “All the major sites have product and user reviews,” says Martin Levy at, which posts reviews alongside merchant, auction and coupon results for product searches on one page.

The Pew Internet & American Life Project found that 33 million American Internet users have reviewed or rated someone or something online. And Forrester Research found that, in Europe, more than 50 percent of online consumer electronics buyers check product reviews from other customers, 30 percent purchased something online based on someone else’s online rating and 15 percent wrote a review themselves. cataloged these results in its late-2005 “twinsumer” report.

“The twinsumer phenomenon is turning millions of reviews, ratings and recommendations into truly valuable results fitting one person’s very particular preferences or even lifestyle – whether it’s a one-off twinsumer union or an ongoing relationship. Twinsumer therefore isn’t about access to reviews or ratings or even trust in general (those are fast becoming hygiene), but about relevance.”

The name of online mall says it all. It’s “buy” written backward. The company, launched in February 2005 and snapped up by, is all about consumers recommending products to other consumers. Offering nearly 5 million affiliate-fed products, provides a place where people sign up to meet (and give Yub valuable consumer data), hang out and get merchant-negotiated cash-back rates of up to 25 percent for free members and up to 34 percent for “premium” members, paying $24.95 per year. Users also get 1 percent when their buddies buy something endorsed in their profile.

“The voice of our members is an incredible resource for both merchants and online shoppers,” said Jared Morgenstern, president of, in a launch release. “Merchants receive the benefit of satisfied customers who become product evangelists, and online shoppers learn the latest in trends from the most reliable source – their friends. It’s a win-win situation for everyone involved.”

Insiders are finding that the best way to help “product evangelists” refer other shoppers is by giving them the communication tools they’re most apt to use. They may want chat, email, instant message, text messages, on-demand cell phone or land-based phone calls, calls to other computers with headsets, photo or video uploads or live webcam communication.

“One of the things people don’t like doing online is not having any sort of interaction when they’re picking out, say, a dress,” says Karen Hoskins, Logitech’s webcam PR specialist. The addition of webcam communication “is a more personal element to shopping online.” Sellers on eBay now can even upload pre-shot Webcam footage for 99 cents per video listing (first upload free).

“But to make it more like real life,”’s Seaver says, “the next step will be to have the real-time interaction among users.” Vivox has a managed IP service that integrates all of the various real-time IP-based communication methods. It costs a few hundred to several thousand dollars per month, so sites usually roll costs into membership fees charged to users.

For sites wanting to add their own social network, Vivox already powers WorldFriends Networks’ (WFN) new WorldFriends Phone service. Buddies can view personal hot lists, identify members online and escalate interpersonal interactions from IM – regardless of the branded IM service they may currently use – to voice to video with one click. All of these services can be private-labeled: WFN customizes and operates the personals service, combining profiles from more than 150 sites in 18 countries viewable in up to five languages.

“There is no up-front cost to join our network and avail of our service,” says Dominic Penaloza, in sales partner for, WorldFriends Network’s parent company. “However, we do have a modest set up fee that is payable from the user-fee revenue share.” Partners get a “generous” share of all user fees, which run $24.99 per month or one year for $99.99 ($8.33 per month).

And don’t forget the forums for tapping into buddy-type recommendations.

“There is an amazing amount of discussion on everything – from digital cameras to professional chef knives – on all of the specialized user forums out there,” says Michael Tchong, founder of Trend and “That’s shopping engineering at its best.”

Pay Each Other’s Bills is just one example of sites using social networking to have one person find an item and another person pay for it. Gift card revenues have exploded to $55 billion dollars, according to Tchong. “That inherently includes the social element – because you buy a gift card to give to someone else.”’s new shopping cart software builds on its social features (blog-like back-and-forth reviews and posts of a reviewer’s other recommended reads) by including pop-up reminders to “send an online gift certificate” now.

Getting Paid for Social Networking

“When consumers rally around a specific topic, recommendations are instantly relevant, as long as they don’t stray too far from the topic at hand,” TrendWatching .com reports. “No wonder virtual communities are fertile breeding grounds for meeting one’s twinsumer.”

Perhaps the most affiliate-friendly virtual community to date is, launched in early December by Internet marketing guru Seth Godin, author of New York Times best-sellers Permission Marketing and Purple Cow.

Users create profiles and build a topic-specific reference Web page known as a lens. Fifty percent of net revenue from a lens, whether from automated Google AdSense ads or affiliate sales for Squidoo’s 500 merchant partners, go back to the lensmaster.

“Squidoo lets online entrepreneurs sell thousands of products without signing up for different affiliate programs or building and hosting a website,” Godin says. “In just a few minutes, they can present a thoughtful collection of items – and then spend their time promoting the site.”

The bonus for adding yourself to social commerce sites like this can be immense. Relevant content garners higher Google PageRanks and can highlight your best blog posts, point to the products and services you write about, autofeed with RSS news when you’re out of town, track your site’s name mention on other blogs and promote upcoming podcasts and offline events. is another social commerce site now in beta testing. All of its members are bloggers, an area ripe for commercialization. Bloggers, some of whom simply repost blog entries or newsletter content from their own site, are paid out of revenue generated from’s in-house ad network, where affiliate ads are welcome. Ads appear based on interests specified in a user’s profile.

“Because we’ve got just a few dozen advertisers since [our Nov. 15] launch, they’re getting prices that are much better than what they’re getting at Google or Overture,” says founder and CEO Tom Gerace, the brains behind BeFree’s affiliate network (it sold for more than $100 million to ValueClick in 2003). “Plus they’re able to target an audience – membership is 5,500 and growing – that’s already loyal to coming back to our site.”

Then there’s Yahoo’s Shoposphere beta, which launched Nov. 14. It aggregates and sorts Pick Lists created by Yahoo Shopping’s community, allowing users to “search, view, read about and purchase specific products recommended by people they know and trust, experts they’ve never met, and everyone in between.” Affiliates can use Yahoo’s Open Web Service APIs, which include shopping search, price compare, reviews and product specifications.

“This creates a whole new value chain that allows those people who were only consumers in the past to become sellers,” says Yahoo’s Solomon. “Not too many other people can execute on this like we can. is positioned, but without the social networking all ready they’re really at a disadvantage.” Yahoo won’t roll out revenue sharing with Shopospherekeepers, however, until later in 2006.

All in all, tapping into this social networking trend boils down to making your online shopper’s experience more like one they’d have on land.

“One of the affiliate managers I work with said he was so tired of seeing stores that looked alike, and wanted to see different things in online shopping like capturing the social experience,” says John Gilhooly, publisher of, which launched in October 2005. “Malls have always been a great social experience for people, so we get a little more of that online to make it seem like they’re actually engaged in offline shopping, online.” He’s made the experience so authentic, he says, that “two people actually called recently and asked for directions to the mall.”

Sources like are predicting this is just the beginning.

“The twinsumer trend is part of an all-encompassing trend changing who and what consumers rely on when making purchase decisions, both need- and impulse-driven,” the report states.

But will the business model work, or will content-based sites crash like revenue-share did in 2001? The tagline for the 1995 movie “Mallrats” hints at the perils of crossing your fingers for commerce in a social environment: “They’re not there to shop. They’re not there to work. They’re just there.”

But industry insiders say that, thanks to the buddy factor, consumers are ready to come online and actually buy this time. “Instead of getting the lowest price and leaving, shoppers are staying on the site and getting some value for that,”’s Levy says. “Then they’re there when a merchant comes out with a special offer and they can take advantage of that. That’s what eDeals is doing ” something very similar to Yahoo. And if Yahoo is doing this, then you can see that this is where the market is heading.”

JENNIFER D. MEACHAM is a freelance writer who has worked for The Seattle Times, The Columbian, Vancouver Business Journal and Emerging Business magazine. She lives and writes in Portland, Ore.

Data Double Duty

Website publishers are up in arms about the potential threat posed by employees at companies, who have access to their crucial data that could be used to compete with them.

Insiders have nicknamed the situation “Triple Jangro,” after the catchy title of a blog post on by David Lewis, CEO of 77Blue. The title refers to ex-BeFree/Commission Junction product manager Scott Jangro, who left the affiliate network several months ago to become a full-time affiliate.

The crux of the recent situation revolves around the threat of perceived or potential conflict of interest. Observers claim many employees of search engine companies and affiliate networks are infringing on the data privacy rights of their clients by using data from affiliates and merchants to enhance their own affiliate sites, or to go to networks and buy traffic based on inside information these employees receive from clients.

While many say they have suspected this practice for years, news of the situation came to a head at the LinkShare Partnership Summit 2006 in January. A few former Commission Junction employees attended the event as affiliates and revealed that three CJ staffers resigned after the company recently put a policy in place prohibiting employees from also being publishers.

“In the early days of affiliate marketing and affiliate networks – especially CJ – there were a lot of entrants into the space who came to us being program managers or some were publishers and gravitated toward this space,” Jeff Pullen, COO of ValueClick, says. “Over the years they have operated websites of their own on weekends and evenings and in the past we have not discouraged that. It was a good way for people to know the business. We always had a code of conduct and we are aware of the proprietary nature of the information we handle. Because we consider ourselves a leader in networking quality, we wanted to eliminate any potential appearance of a conflict of interest.”

To that end, an email was sent to everyone at ValueClick and its subsidiaries, clarifying that publicly-held ValueClick would no longer allow any employees to be publishers and violators of that policy would be subject to disciplinary action, up to and including termination/dismissal, according to Pullen. He says the change was spelled out and included in an updated restatement of another policy related to the issue of confidentiality.

“It really is easier, from an operational stand point, rather than to have to try and implement policies to monitor the issue, to just eliminate the practice altogether and not be concerned,” says Pullen, who noted that the new policy was not prompted by any wrongdoing nor was there any evidence of any improprieties.

Still, the new policy resulted in the departure of three employees – Chad Darling, an account representative for many of search affiliates; Andy Powell, who didn’t work with publishers but was part of the search management team; and Don Batsford, a CJ employee, who joined the company when it acquired BeFree.

“The people that left took a look at two different business opportunities. These are entrepreneurially focused publishers that chose to pursue that route. We hope they continue to do well. But they can not do both things.”

It’s unclear if these ex-CJ employees were running affiliate sites or doing arbitrage. Commission Junction officials declined to provide any details.

Regardless, the situation has angered many affiliates, who claim network staffers are supposed to be helping affiliate partners, not helping themselves. Despite their outrage, many affiliates, network representatives and industry watchers say the overall issue is so politically charged, they declined to have statements attributed to them and spoke only on the condition of anonymity.

The issue also sparked a lot of heated discussion on the affiliate forums and generated plenty of fodder for bloggers, many of whom admitted to posting comments on a variety of industry blogs under pseudonyms.

“The networks have been very quiet on this issue and are reluctant to make any public comments. This lack of communication is causing an increasing concern of potential wrongdoing at the networks. When the networks have to talk to their lawyers before commenting, nobody feels comfortable,” says Adam Viener, president of IM Wave, a Virginia-based search affiliate. Darling was Viener’s account manager.

Here is a typical post. “Let me get this straight, top affiliates shared their secrets with account managers at a network only to find out those account managers were their competition and using those hard-earned secrets – I’d be fuming. So much for a trusted third party.”

One angry – and anonymous – affiliate tried to put a positive spin on things. “If they quit their day jobs at the network, they were obviously making more money as an affiliate and that certainly bodes well for the state of affiliate marketing as a very lucrative career.”

Cause for Concern

Viener says he alerted Commission junction to the potentially problematic issue.

“I had a conversation with Todd Crawford [Commission Junction’s vice president of sales] about this issue at Affiliate Summit [2006], after talking with some top search affiliates who were concerned that CJ employees were looking at HTTP referrer data to determine exactly which keywords they were bidding on were converting to sales. They seemed to have some internal evidence that showed that when they identified new keyword niches with no competition, that almost immediately after there was a conversion on those terms, new affiliates popped up advertising on those terms,” Viener says.

Both Crawford and other CJ executives insist that calls to that specific database are tracked and protected. In some case only two to three people at the network have access to that sensitive information.

“To be an effective account manager we certainly have access to operational data. We have to do that job in a good and helpful way and that means seeing a variety of data,” Pullen says. “There is no scrutiny that we can’t withstand, and we encourage and hope others can say the same.”

One CJ super affiliate, who asked not be identified, says that on more than one occasion, within days of launching a new campaign, he would also see competition. “No one knows we are running the keywords, so in theory, no one should pick it up. That led to some speculation how it got started and I went away thinking that I should speak to the network about my concerns regarding who has information about keywords and referring URLs. I’m concerned about who has access to keyword data as well as what is converting and what is not converting.”

Vinny Lingham, founder of IncuBeta, poses a possible scenario:

“CJ has about 2,000 merchants, and it takes a lot of time and effort to evaluate, negotiate, research and run test campaigns. Say that one in every 10 campaigns we test out becomes a full-blown campaign, which is both scalable and profitable. We don’t focus on small campaigns, so typically we’re looking for merchants who can do a lot of volume and has great conversion rates.

“An average test campaign costs us anywhere from $5,000 to $25,000 before we even see a daily profit. Can you imagine our frustration when we take a program on CJ with a network earnings of 2 or 3 and turn it into a 5 overnight, only see other affiliates jumping onto the bandwagon – almost as if they had inside information.

“If I worked at CJ or any other network and I knew who the top affiliates were, I would just wait for them to test out all the merchants for conversion rates, etc, and then run only the successful campaigns – why bother running test campaigns myself? Even worse, imagine after all our testing, the network employee gains access to the keywords we’re bidding on and the conversion rates?”

Steve Denton, recently appointed president of LinkShare, says that as employers you can have policies in place but that “ultimately you’re not going to control what people don’t do at work.”

As for LinkShare, the company encourages its employees, especially those in customer-facing jobs, to set up to affiliate accounts as part of their training, according to Denton. “We see it as a value-add. It allows our employees to know what is going on in the space from the point of view of the affiliates as well as the merchants,” he says.

However, LinkShare has a variety of controls in place to ensure the security, confidentiality and privacy of the data related to merchants and affiliates. All LinkShare employees are required to sign a confidentiality agreement and a non-compete agreement.

“Those agreements are reflective of the fact that we deal with a lot of sensitive data and they make all employees contractually aware of what they can do with any of that data,” Denton says.

LinkShare also controls the access to data by limiting certain pieces of information only to specific jobs titles as well as by workers’ roles and responsibilities, he says.

In addition, through the company’s Athena registration and affiliate validation system, LinkShare monitors which employees have affiliate accounts and what they are earnings via their social security number, Denton says.

Like CJ, affiliate network Performics has a policy in place prohibiting employees from being affiliates.

Still, observers suggest it’s not about having a policy, but more about enforcement and direct communication to affiliates about who has access to what specific data.

Lack of Communication

Some chided Commission Junction for not addressing the “Triple Jangro” issue directly with affiliates, most of whom found out about the situation only by reading online reports with sketchy details, inflamed blog comments from other publishers or after being informed via email that their own account representative had left Commission Junction. Many complained there was no official comment from CJ on the details or any attempt to reassure or placate affiliates.

“CJ did a poor job of communicating this problem to the affiliate community,” Viener says. “By not disclosing what was happening, even if there is no evidence of wrongdoing, it makes me feel uneasy. That’s wrong. I don’t feel like I have the facts; I’m not comforted because there has been no communication from the company. I need to hear what happened. There needs to be more communication,” says Viener.

“The networks should take a hard look at these e-affiliates and communicate with the top affiliates they had contact with about what programs they are running, what sites they have, and give top affiliates a chance to determine if their business practices have been compromised,” says Steve Shubitz, who operates

“I don’t know if that step was necessary. There was no evidence of wrongdoing, so it was not an issue,” Pullen says. “If an individual publisher was concerned and wanted to ask any question of their account manager, that would be fine. I don’t see these as us needing to be proactive. We manage account relationships all the time and information is held in strict confidence,” Pullen says. “It was not identified as an issue in the past five or six years. The existence of the relationship has always been positive with no controversy or issues. There were no improprieties so that would be explaining a negative. Why would we explain something that is not an issue?”

Others think Commission Junction acted appropriately in dealing with the situation.

“The issue of staffers being publishers at CJ has been simmering for a long time and it’s great to see CJ take a leadership role and be protective,” Beth Kirsch, group manager, affiliate programs at, says. “This challenges other networks with even stickier ethical issues to address the same concern. The affiliate marketing industry is maturing and focusing on these issues is part of that process. Personally, I think this is a great step.”

Putting up Your Guard

Meanwhile, the situation has left many affiliates skittish about revealing information – even to their own account managers.

“I’ve got to be a bodyguard in the future,” Viener says. “I can’t say or have conversations in the future about my business. It’s a catch-22. Because if you are secretive, people assume you are cheating.”

Some caution against disclosing many crucial data points with account managers at the networks.

“I would tell my account manager my payout terms with merchants, what keywords are converting, referring URLs or most anything else. I have the right to privacy, confidentiality and transparency with the networks, but since I’m not 100 percent sure that’s happening, I’ll opt to just keep my mouth shut,” says one affiliate, who asked not to be named.

Shubitz offers this advice: “Webmasters and publishers should assume that every single network engaged in the CPA/CPL does in fact have current employees who are stealing their data and using it to make money.”

He encourages affiliates to “Wash/obfuscate your HTTP referral code and never disclose any details about your marketing procedures, media buys, other sites you own or your site’s demographics to your network.” He goes on to note, “Immediately complain to senior management in writing if you suspect that your procedures have been compromised and in fact are being used by current network employees to make money. Continue to be a friendly ‘partner’ but don’t disclose any data that a network employee could use to steal money from you.”

Nature of the Beast

Many claim the entrepreneurial nature of online marketing breeds this type of behavior.

“People tend to be entrepreneurial and opportunistic, and you cannot fault anyone for that – it’s human nature.” Lingham says. “The difference between this and other businesses is that traditionally you just couldn’t start a business that easily, but online marketing efforts can be started with virtually zero cost,” 77Blue’s Lewis says.

Jeff Molander, president of Molander & Associates, an affiliate marketing consultancy, is surprised that it took this long for the issue to be raised. And while Molander agrees that most employers need to have policies in place to ensure the privacy of affiliate data, he says “insights and knowledge” are gained simply by virtue of job duties, daily work experiences and continually expanding knowledge of the market space. He also claims that much of what affiliates do is plainly seen in search engines.

While other industries have laws governing use and disclosure of sensitive information (lawyer/client privilege, doctor/ patient confidentiality); there is nothing like that for performance marketing, which has sparked talk of legal intervention.

“A class-action suit would damage the industry’s reputation and create unnecessary long-term distractions in our core businesses of building a sustainable and long-term industry,” Lingham says. “We need self-regulation. The government takes too long to get things done. It should be the stakeholders making these decisions.”

Instead, Lingham suggests that super affiliates and representatives from both the networks and search engines, should have a round-table meeting to discuss the issues about enforcing both data privacy and non-competes with their staff with respect to all their clients.

Most say it’s in the best interest of the networks to nip this in the bud and take a leadership role.

“The networks are in a precarious position here. Their business model only works because of the trust established with the merchants and the affiliates. If the networks aren’t open, ethical and forthcoming about these types of issues, then their role in this industry will be diminished,” says Shubitz.

Linkshare Shuffle

In early February, just six months after LinkShare agreed to be acquired by Japan-based e-commerce portal giant Rakuten for $425 million, the founders of the affiliate network have decided to step aside.

The resignations of Chairman and CEO Stephen Messer and President and COO Heidi Messer, who founded LinkShare in 1996, were not surprising according to industry watchers, but definitely signaled changing times in the performance marketing and affiliate marketing space.

Beth Kirsch, a long-time affiliate manager, who is now group manager of affiliate programs at, called it “the end of an era.”

LinkShare was one of the last big affiliate and performance marketing networks to finally be swallowed up by a big conglomerate. 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. The new era of performance marketing will feature Steve Denton, most recently LinkShare’s senior vice president of client development and distribution services, who has been tapped to head LinkShare. As president, Denton, a six-year LinkShare veteran, will lead all day-to-day operations. As part of those duties he will continue to oversee all sales efforts, as well as affiliate services and support. His new duties will include responsibility for account services, the search team, marketing and technical sales consultants.

Denton will report to John J-H Kim, CEO of Rakuten USA and executive vice president of international business headquarters, who will handle LinkShare’s legal, technical and finance functions.

“It’s very much like how Heidi and Steve split up their duties within the organization,” Denton says.

With the departure of the company’s founders, LinkShare faces some new challenges. The biggest, according to Denton, is to “move from an organization that was a privately-held New York-based affiliate network into a global role that it was intended to play, while still being the leader in affiliate and performance marketing.”

Rakuten, a public company with a market capitalization of $10 billion, bought LinkShare because it 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 baseball team in Japan (the Tohoku Rakuten Golden Eagles).

“Heidi and I have taken LinkShare to a great place, but now it needs to become a Rakuten company. This is the best timing – the fourth quarter is over; Valentine’s is almost over and now LinkShare has all summer to beat Google and Yahoo,” Steve Messer says.

Timing is everything. Denton says that by putting all the pieces in place during the spring time frame gives LinkShare “a runway to get on track with new initiatives, new leadership teams and the company’s continued global expansion efforts, in time for the critical back-toschool period and the hectic fourth quarter” – a time when LinkShare historically generates a hefty chunk of its revenue.

LinkShare is on track, according to Denton, to expand into the U.K. and China sometime in 2006. However, he declined to disclose specifics.

LinkShare and Rakuten also have an integration team of executives, including Denton and Kim, to deal with the merger of the two companies, which includes establishing best practices, as well as streamlining financial reporting and human resource services such as employee benefits.

Denton is vehement that integration is not a euphemism for “consolidation,” which is then often translated to “elimination” as in downsizing when a smaller company is acquired by a huge conglomerate. “Rakuten bought LinkShare for its leadership in technology and the affiliate marketing space, not to rip the company apart,” Denton says.

But there is plenty of change happening. Steve Messer says that he and Heidi needed to move on in order to facilitate that growth. Consultant Shawn Collins says the transition should be smooth.

“It might affect the culture. Denton has a different personality, but it’s not like bringing in a stranger. Everyone is familiar and comfortable with him. And people are really excited.” Messer called his departure a continuation of the global expansion plan that he and Heidi had envisioned when they sold the company to Rakuten.

Messer says that during his tenure, he increasingly saw LinkShare’s main competitors less as the other affiliate networks (Commission Junction and Performics) and more like the major search and portal players such as Google and Yahoo.

“We think that Rakuten is doing a whole lot more to be competitive in the U.S. and we can help them go head-to-head with Google and Yahoo, while the partnership with Rakuten is going to help LinkShare’s presence in markets outside the U.S,” Messer says. “Rakuten has a huge appetite going forward. I think in a few years people will be talking about how they own the whole market. The strategy we put in place will prove itself out.”

Still, Messer says leaving is not easy. “I imagine it’s like the bittersweet feeling a parent has when their children go to college. You’re proud you’ve given them the skills to survive and do well, but you’re sort of sad that they no longer need you to get along.”

He claims his first taste of this occurred when he and Heidi spent most of 2005 in Japan negotiating a deal with Rakuten and he realized that “we had built such a great company and we were gone for nearly a year and the company did phenomenally well. They really didn’t need us.”

As for what’s next for Messer, he says that after 10 years in the bustling performance marketing space, he’s looking forward to a little “breather” and anticipates being “back in the game in the summer.” He declined to disclose any specific plans, noting he’s “still thinking about what I want to do.”

However, during his time off, he says he plans to more fully formulate some new business ideas – all while sitting at the beach and doing some kite boarding. And of course, any new venture will include LinkShare co-founder Heidi Messer. “We are a team,” he says.

Sources close to LinkShare claim it’s no surprise that Steve and Heidi are leaving the company after each received a hefty payout from the September 2005 all-cash sale to Rakuten. Although LinkShare had investors at the time of the sale (including Mitsui & Co, Ltd., Mitsui & Co. (U.S.A); Internet Capital Group; and Comcast Interactive Capital, an affiliate of Comcast Corp.), Steve Messer reportedly owned 20 percent of LinkShare, while Heidi owned 11 percent. Steve’s proceeds from the sale were said to be approximately $100 million, while Heidi got over $51 million, according to sources close to the company.

“I think it’s obviously a good transaction for Heidi and I and the team,” Messer says.

“Steve and Heidi should be proud of the wonderful company they built, the leadership position they established and the vision they had,” Denton says. “All of us feel fortunate to have worked with them and we look forward to all the new challenges.”

Kimathi Marangu: The Team Player

It’s not easy to combine all those passions but Marangu has managed to strike a good balance.

Marangu is the co-founder of Mall Networks, an affiliate that builds shopping portals tailor-made for affinity organizations such as school districts, charities, sports teams and consumer associations.

The company, which was formed in 2005, already has a handful of private-label online malls. One of the most recent ones includes a fundraising mall to support Epilepsy research at ( But Mall Networks isn’t just about dealing with nonprofit organizations; it provides professional services as an affiliate to for-profit business including NASCAR and The Los Angeles Dodgers. For NASCAR, built the NASCAR Racepoints’ Online Mall (

“A lot of our clients are strong brands with large customer bases. The bread and butter of our business is going to come from partners like NASCAR or MLB – including the Dodgers. Loyalty is important and enhances those kinds of efforts.”

Maybe that’s why Marangu, always the team player, notes that his two favorite sports or teams are NASCAR and the LA Dodgers.

Marangu helped start Mall Networks in mid-2005 several months after being introduced by a mutual friend to David Andre, the company’s president and CEO. Andre, a performance marketing veteran, was formerly the founding chief technology officer of Upromise, one of the largest consumer loyalty programs. Prior to developing and implementing the business model for Upromise Online Shopping, he was vice president of engineering at Lycos and Direct Hit (acquired by Ask Jeeves).

The two bonded over a shared love of performance marketing, online shopping malls and the ability to provide services to organizations that didn’t have the resources.

“Working in the performance marketing arena is something that I’m very comfortable with. I like working on projects that deliver measurable results.”

At the time, Marangu was running his own consulting business, called Seaspray, so he had the freedom to go out and start something new when the opportunity arose. Andre’s idea for Mall Networks was already in advanced discussion regarding funding by the time Marangu joined the company.

Once on board, part of the challenge for Marangu was getting buy in from merchants. “It was a little chicken and egg problem. Affiliates don’t get approved by merchants without a website to point people to. Yet it was impossible to put up an online mall with merchants. It was an infinite loop we had to break through.”

But Marangu’s past experience and relationships he had previously established in the performance marketing and affiliate marketing space paid off. He was able to get a core group of merchants to sign on, which then led to other merchants coming on board. The company also works with the big affiliate network players including LinkShare, Performics and Commission Junction.

As of early February, Mall Networks had grown to eight employees. Marangu lives just a few miles from his Burlingame, Calif. office. But he is the sole Mall Networks’ worker in the office suite. Still, he shows up every day dressed in business attire ready to tackle his workload. He could work from home, but likes the idea of going into an office.

When he isn’t traveling to the company’s Lexington, Mass. headquarters or other locales for business, he’s up by 7 a.m. and off to the office to “track down an East Coast client.” He keeps in constant communication with his team using Skype and email. He also travels to the East Coast at least once a month. Marangu thinks that being so far apart “is a crucial reason to show up physically every month” in the main office.


Marangu started off his professional career with a Stanford M.B.A. in hand as an investment banker at Morgan Stanley and J.P. Morgan in New York and Australia.

“I’d taken entrepreneurship in business school. I was very interested in being an entrepreneur. I thought that investment banking provided a solid basis of understanding how businesses and business models are developed. It was great for a broad range of understanding the fundamentals.”

Back in 1998, Marangu attended a reunion of business school alumni (he is the current president of the Stanford Business School Alumni Association) in Palo Alto, Calif. At that event he had an opportunity to catch up with a lot of his classmates who had joined or started Internet companies. “That time was ripe to join a venture. Many people I knew had taken the plunge,” Marangu says.

Not long after that gathering he relocated from New York City to the San Francisco Bay Area and joined as Director of Business Development. is an online resource that allows shoppers to research local specials and sale items at stores close to home. Just by typing in their ZIP code, shoppers can search by product category, store or brand name. The venture is now part of ShopLocal, which is the result of a partnership by newspaper giants The Tribune Co., Knight-Ridder and Gannett Inc.

Marangu then moved on to be the General Manager of, a school fundraising company that connects schools and merchants together in a loyalty program. He was brought into the company by a former colleague who ran SchoolPop’s business development and merchant relationships for the online mall.

Not unlike many online ventures of that era, the website and the business were well under way; but Marangu says, the “revenue model needed a closer look.”

What he found was some good news and some bad news.

“On the good side, there was a strong metric among the consumers, high conversion rates and high order rates,” Marangu says. “The bad news was that SchoolPop was not getting full credit with the merchants for delivering the shoppers. We were getting paid a basic affiliate rate and in 2001 that was, relatively speaking, a pittance. The online marketing money was still going to the big portal deals. Affiliates were the last at the table to get budget allocated to them. The commission rates were quite low and not very substantial.”

Still, during his tenure, Marangu developed and deployed SchoolPop’s business model, which delivered over $250 million in trackable multichannel sales to merchants, and as a result raised millions to support public and private schools in every U.S. state.

After three years, in 2003, Marangu left to form his own consulting business with clients including Apple Computer’s online store, where he ran the affiliate program and helped grow it to become one of the largest in the industry. He also designed, negotiated and implemented search and comparison shopping partnerships with Google, Yahoo Shopping, BizRate/Shopzilla, Overture, and PriceGrabber.

Outside Interests

But before going out on his own, Marangu took a much-deserved vacation to Africa. Although he was born in the Midwest, he had attended high school in Kenya, before returning to the United States to go to college at Vassar in Poughkeepsie, New York. His parents still live in Kenya and although he hasn’t been back there since he took his family for that trip in 2003, it’s one of his favorite places in the world.

Years before that trip back, he had deferred his admission to business school to spend a year serving a special assistant to renowned paleoanthropologist and environmentalist Dr. Richard Leakey at the Kenya Wildlife Service, who, at the time, was leading the war on poaching.

For Marangu, who is a wildlife conservationist, it was “a once in a lifetime experience” to work with a figure often described as one of the most controversial, influential and inspirational figures in African politics and world conservation.

Marangu’s job with Leakey came at a crucial time as the conservationist successfully campaigned for a worldwide ban on trading ivory. This huge achievement was symbolized memorably when Kenya’s President Moi set a mountain of ivory tusks on fire.

“I got the opportunity to work on a number of projects that were constructive in nature [such as] being able to prepare proposals and budgets for World Bank projects,” Marangu says. “We were able to help fund water, school and nursing facilities for communities near the national parks.”

He was also involved in negotiating lease agreements for lodges in Kenya’s national park, which were paying outdated rates, which were not in line with the hefty prices they were charging Western tourists. “They were not paying for the benefits they were getting for security and other services.”

He was also responsible for changing antiquated ticket pricing for the national park.

“If you compare how much one would spend to go to the zoo and what was being charged for two whole days inside a wildlife national reserve in Kenya, it was a pittance by comparison,” says Marangu, who notes that under his plan the entrance fee for locals was not raised. ‘I wanted to encourage the local population to enjoy the reserve.” Aside from the lure of working with Dr. Leakey, there were many things that attracted Marangu to that position.

“I had been away from Kenya for several years and I really want to try and contribute to the well being of the country and help the environment and saving wildlife,” he says.

However, these days his interaction with wildlife is limited to weekend trips to the San Francisco zoo with his wife and three children (aged 5 and under), where they are members. While he prefers to see animals in their natural habitat, Marangu enjoys spending the time with his family.

Marangu says, the lessons he learned early on working in Kenya and in his previous jobs are all very applicable to affiliate marketing. “The most important things are integrity, responsibility, transparency and accountability.”

Optimized for the Future: Q & A with Noah Elkin

Noah Elkin is the director of industry relations at iCrossing, which was recently named Best Search Agency of 2005 by industry trade publication OMMA. iCrossing, started more than nine years ago in Scottsdale, Ariz., is jumping into new arenas, such as the mobile search market, and expanding client services to include content creation and website design.

Elkin is responsible for iCrossing’s public messaging and interfacing with high-profile analyst firms, along with sitting on industry committees, such as the Interactive Advertising Bureau, the Direct Marketing Association and the Search Engine Marketing Professional Organization, which puts him in a unique position to observe the online advertising industry from a variety of angles. Elkin, who previously worked as a senior analyst at research firm eMarketer for five years, has a Ph.D. from Rutgers University and received a B.A. with honors from Columbia University. He recently spoke withRevenue senior editor Maria Sample about winning industry accolades, providing services for the little guys and where search marketing is headed.

Maria Sample: Your company calls search marketing “reverse direct marketing.” How would you describe it?

Noah Elkin: It’s something of a philosophical shift in how customers and businesses interact. Customers are now actively searching for brands and products and services, for information. It’s a seismic shift from a typical push-advertising model where you get an email message or a TV spot or a regular print advertisement. It reflects the degree to which the customer is in control. With reverse direct marketing, a customer has already given an indication of what he or she is interested in. Search, as we like to say, is like a giant focus group.

MS: What’s the main difference between iCrossing now versus 1998?

NE: Our recent restructuring of the organization into three main service lines – marketing services, marketing technologies and marketing properties – is a major shift. Another difference is the building of expertise in these separate business units. And the addition of certain services like creative is one of the biggest changes, not only for us, but also for our space as well.

MS: What has remained the same at iCrossing since 1998?

NE: Certainly the talent of our people has been the constant, and the expertise across the board has been a constant since the start, and it’s something we’re very proud of. It will drive us forward as we expand. And as we continue to receive accolades from the industry, it will enable us to attract the top talent that we’ve become known for.

MS: What has changed since iCrossing won the OMMA award?

NE: We’ve been building really powerful partnerships with the world’s leading brands for more than seven years now, and along the way, really changing the ad agency landscape by helping clients connect with their customers anytime, anywhere, however they want, wherever they want, whenever they want. We feel the OMMA award is a great honor. We’re really proud to have worked so diligently to build these kinds of partnerships that we have with Fortune 500 companies. That’s a tremendous validation of the work that we’ve done, and it sends a message about the potential that search and commercial brand marketing have for helping businesses interact at a much higher level than ever with their customers.

MS: How is iCrossing different from its competitors?

NE: As our founder Jeff Herzog likes to say, iCrossing has been an innovator in search advertising since before Google was Google. What we have that’s unique is our full-service approach. We’re not just a search engine optimization vendor; we’re a fullservice marketing connection. I think that’s a major differentiator between iCrossing and other companies. We’ve really been growing the company with the evolution of search as a medium. I think it’s that kind of vision that puts us on the leading edge, helping to drive the future of advertising – with our in-house expertise on the services side and also on the technology side. We’re the largest independent agency out there, and we back up our tremendous talent with our market research, our strategic alliances, planning and client services with our proprietary technology. That’s a one-two punch that most other places can’t really boast of.

What makes us different is that we have this expertise in market research that provides clients with the deep-dive analytics about their company and industry. We give them the knowledge and tools to help succeed by planning how to accomplish short-term goals and long-term opportunities, using a full array of tools and services organized around search.

Another exciting differentiator for us is the creative service we offer. It’s one side of the business that we’ve really been building in the past year, and it’s really going to grow quite a lot in 2006. It’s everything from copy to actual website design, all organized around improving and maximizing both user experience and optimization of search. We see ourselves as a one-stop shop when it comes to advertising online as well as through emerging technologies, mobile included. We are launching a major mobile innovation called mCrossing, expanding our expertise from natural search optimization on the Web to global devices.

MS: What’s the most important service your company offers?

NE: The most important service is the fact that we offer all of the services, but our strength is expertise in natural search optimization. It’s been able to help prepare us to expand to mobile devices. Bear in mind that natural search results are clicked on 80 to 85 percent of the time, far more than paid search. It’s very important to have that grounding in natural search; it’s the bedrock of what we do. It’s important to have strong expertise, and we’ve been able to complement that with strengths across the board as well as market research and our agency services.

MS: What kind of search are you going to be capitalizing on in the next year?

NE: Mobile search is a very exciting opportunity in the year ahead. Global is one initiative, and certainly local search and classified search – yellow pages. We’ll have a product geared toward the small- and medium-sized business market organized for local search that will be going out toward the end of the quarter.

MS: I’ve heard a little criticism that some of the smaller businesses can’t afford the products you offer.

NE: That’s why we built this technology in-house – that’s a real differentiator as well, that we build all our technology platforms inhouse. Technology is the largest department in our Scottsdale office. Expanding on that, we looked at the small- to midsized business market as well and discovered people that don’t necessarily have either the need or the budget, but they probably want some of the benefits of visibility on the Web. If you’re a plumber in Illinois, you don’t really care if someone in New York finds you on a search for a plumber, because chances are that person is not going to use your services. What we’ve done is to build a selfservice platform that integrates our optimization and tracking software in a way that will make it more accessible for the smalland medium-sized business. Our approach is, whether you’re local, national or international, we help your brand make the connection and quantify the results. What we do best is help companies reach their consumer at their point of interest.

MS: How are online retailers missing the boat in search?

NE: There’s a growing need of the importance of integrating search engine optimization into the workflow process and ensuring that this takes place before the product is launched and before the copy for it is written. Companies and clients need to understand that products must be optimized well before they’re launched, and make sure that search is a priority and not an afterthought. You’re going to get the majority of traffic from natural search, so we strongly encourage clients to plan for that well in advance.

Another way companies are missing the boat is not implementing recommendations in a timely fashion. Clients who receive recommendations from the search agency and then sit on them really run the risk of not getting the online visibility for their products that they would otherwise get from implementing optimization recommendations. This can be particularly crucial at specific times of the year, such as prior to the holiday shopping season, which is obviously the most important time of the year for online retailers.

MS: Give me an example of a client that implemented recommendations in a timely fashion.

NE: One of our best examples is Fairmont Hotels & Resorts. They’ve been a client with us for a very long time. It’s really a great success story of crowding out the competition, like critical search engine traffic drivers such as Orbitz, to really control the user experience and the message that consumers are getting. That’s one that we’re extremely proud of because, as a brand, you want to make sure you control the experience and not the search engine. So it’s been a great partnership for both Fairmont and iCrossing.

At the beginning of our engagement with Fairmont, in terms of keyword visibility, we saw the number of keywords appearing on the first three pages of search results increase to 2,579; a total jump of 1,156 percent, from a baseline of 223 keywords. In terms of baseline search traffic, which was established at 29 percent, within a month of implementing optimized coding elements, the search traffic increased by 41 percent and booking reservations increased by 150 percent over the baseline.

MS: Do you have any studies planned for 2006 that you’re particularly excited about?

NE: We have a relationship with Harris Interactive – they do studies for us and we have three or four planned for 2006. But we’re really excited about a couple of themes that we’re going to work on from both a horizontal basis as well as some of the vertical industries that we’re targeting. One is branding search – why major companies are becoming more comfortable with this concept and how we can augment individual marketing and help branding efforts.

In 2005, there was a lot of talk about paid search, and quite a bit of money spent on it, but we really see natural search as the biggest driver of traffic to websites. We want to focus on and evangelize why and how you can provide the best return on marketing spend and how to budget and manage for a successful marketing campaign.

Another area is about marketers themselves, about what kind of website, from a design and architecture perspective, is going to really reinforce the brand. One of our goals is to optimize the creative and maximize the value of the client’s investment in natural search results for years to come. We do this by optimizing Web pages, building specialized microsites and landing pages designed to drive specific consumer actions, and deploying paid media and mobile marketing campaigns. We partner with clients to break down the barriers between them and their customers.

MS: Is that one of the reasons you joined the Mobile Marketing Association?

NE: In part, yes. For us, that was an industry-leading move, and we’re certainly the first search marketing agency to do that. We want to make sure we’re positioned to take full advantage of opportunities in the mobile space and, in some ways, to branch out our contacts and gain potential opportunities to companies that might not think to come to us.

MS: What do you want most for your company in the future?

NE: Continued growth, continued profitability and continued engagement with the world’s leading brands. A deepening of relationships with both interesting and new clients. As online advertising continues to grow, the lion’s share of those dollars is moving to search. And to really be able to apply our expertise on the agency and technology side, to really be the one-stop shop when it comes to interactive marketing. We want to be top of mind when companies are looking to embrace interactive and emerging technologies.

MARIA SAMPLE is a senior editor at Revenue. In the past 15 years, she has worked for Ziff-Davis, CNET, Charles Schwab and Restoration Hardware. This is her first article for Revenue.

Retooling the Web

Microsoft was late in recognizing the profit potential of online search. Meanwhile, upstart Google surpassed older search sites such as AltaVista, America Online and Yahoo to become the clear leader in search and, therefore, online advertising revenue.

In late 2005, Microsoft chairman Bill Gates and chief technical officer Ray Ozzie wrote widely quoted memoranda acknowledging Google’s success and stating that Microsoft would refocus the company’s MSN division to address the “Internet services disruption.”

The Microsoft executives said the software giant would introduce advertising-supported services to the company’s vast portfolio of services and software, which would enable it to access a greater portion of the growing online revenue opportunities. Microsoft, which had become accustomed to defending a leadership position in desktop and server software, is now on the attack, trying to catch up to hyperactive Google, which has become an incessantly moving target.

Who Should Be Afraid

Although some online entrepreneurs may be fearful of becoming casualties in the escalating competition between Microsoft and Google, it’s traditional media companies that are much more likely to see their revenue streams reduced.

For the overwhelming majority of online sellers and service providers, the Microsoft-Google tussle will create more opportunities than it takes away, observers say. Neither MSN nor Google are primarily focused on the areas of selling products, search engine marketing, developing interactive advertising platforms or generating content. MSN may even provide a boost for the partner companies in its shopping and content portals, since MSN search does not exclude other sellers.

Google likewise opens search to anyone and everyone, and one of its main tenets is to remain inclusive. The company’s unofficial motto is “Don’t be evil,” a play on the nickname “Evil Empire” given to Microsoft by high-tech insiders. So far, most industry watchers claim that Google has remained true to its original precept of exposing the universe of digital information and supporting search through ads. The company does not directly sell products or services, and it continues to derive revenue from sharing in advertising dollars, which creates opportunities for both publishers and advertisers.

However, Google is showing an interest, albeit limited, in software development and distribution. Google now offers a desktop search application and Picasa, an image searching utility that could someday become supported through advertising. Google also reached an agreement with longtime Microsoft foe Sun Microsystems to cross-promote products and jointly market “Microsoft-alternative” applications such as OpenOffice.

Regarding the heightened Microsoft-Google competition, Rachel Lyubovitzky, vice president at search engine marketing company Searchfeed, says she doesn’t see any negatives for her customers. She says that by aggregating consumers who were previously a fragmented audience, the companies are “helping to organize Internet populations so that they will be more receptive to people’s messages.”

By convincing a majority of consumers to have either MSN Hotmail accounts or Google home pages, both companies are gathering information en masse, which advertisers love. However, even these users will continue to spend most of their time enjoying the diversity of content and search services available outside of Microsoft and Google, enabling plenty of room for creativity and innovation.

The online advertising market continues to grow rapidly, and Microsoft’s announcement that it would begin to support some of its multi-billion dollars in software and services through advertising is likely to further accelerate the growth. However, it may take several years for Microsoft to develop ad-supported services for the company’s recently announced Windows Live initiative, so don’t expect a major impact in the next 12 months.

Google’s new search services – which will streamline consumers’ ability to find video, music and text published in books – will likely also create a wealth of new advertising inventory options and contribute to market growth.

During the first nine months of 2005 advertisers spent $8.9 billion online, a nearly 29 percent increase over the previous year, according to Pete Petrusky, director of advisor services for accounting firm PricewaterhouseCoopers.

Petrusky expects the double-digit growth of online advertising to continue for the foreseeable future, at the expense of other media buys. Online advertising revenue topped $12 billion in 2005, equal to the amount spent in consumer magazines, and closing in on the $16 billion spent on cable, according to Petrusky.

Increasing inventory through new services led by Microsoft and Google could correct what Petrusky sees as an imbalance between the amount of time spent online and the advertising dollars generated. “The Internet captures about 15 percent of people’s media consumption time,” says Petrusky, “… but only 3 to 4 percent of total ad spend” that includes magazines, newspapers, television and radio.

Newspapers, which have been losing revenue to online classified ad services such as Craigslist and Yahoo, will likely have more trouble competing online when both Google and Microsoft enter the arena. Television broadcasters will see their advertising revenue decline further as Microsoft and Google make it easier for people to browse video and audio content online.

Although both companies are rolling out dozens of new services, they cannot keep up with the wide variety of services created by entrepreneurs – there are too many moles to whack for either company to be dominant in all areas. In the areas where Microsoft and Google do compete with smaller companies, having a powerful brand alone isn’t enough to convince consumers to switch, according to Greg Sterling, program director with analyst firm The Kelsey Group.

“New services can’t be marginally better; they have to be much better” to prompt changes in user loyalty, Sterling says. For example, MSN search and Google’s comparison-shopping engine Froogle and Gmail email have had trouble gaining traction. Therefore, there will always be enough room for innovators such as, or to innovate and carve out a niche (or be acquired by big players looking to expand).

Competition Is Good

The intensifying Microsoft-Google rivalry will create a better audience for advertisers and will spur innovation in the technologies that enable people to more quickly find what they are seeking. Microsoft’s interest in advertising- supported services will also provide a necessary counterbalance that prevents Google from becoming a dominant player.

“The more options, the better” for advertisers, says Michael Stalbaum, CEO of interactive marketing and advertising agency UnREAL Marketing. For several years Google has been expanding its reach as the largest player in the largest segment of online advertising dollars, so increasing competition from Microsoft could provide an important alternative solution.

According to Nielsen//NetRatings, the volume of Internet search queries grew 15 percent between June and October 2005 to more than 5.1 billion. Nearly 48 percent of those searches were performed on Google, a figure more than double the closest competitor, Yahoo, and more than four times MSN’s share of search.

If Microsoft were able to become a stronger competitor in search, “it would be a positive for advertisers,” Stalbaum says, because Google may have to revamp its pricing structure. “Prices may come down a little bit,” he says.

Technology at the Core

The primary front in the battle between Microsoft and Google is technology, which will force all participants to continually innovate or risk losing their audience. If Google or Microsoft enters an emerging service area, the existing companies have additional incentive to upgrade their existing products.

For example, in early 2005, Google and Microsoft announced separate projects for digitizing books and making the content searchable. In December, publisher HarperCollins responded by announcing it would do the same for its content.

Charlene Li, principal analyst as Forrester Research, says the increasing competition “gives better products, which leads to better spending options” for advertisers. Products tend to be not only better, but come out more quickly once the powerhouses are involved. “Microsoft and Google participating, and to a lesser extent AOL, accelerates the product development cycle,” says The Kelsey Group’s Sterling.

Google Labs produces a steady stream of new services that make information more accessible, and the company’s willingness to share unfinished ideas with developers is accelerating the rate of technological change. Not surprisingly, Microsoft has shown an increasing willingness to publicly preview technologies and similarly make available its application programming interfaces (APIs) for developers to tinker with and enhance.

Opening up the technologies has proved a boon for third-party development. Innovations from Microsoft and Google are giving momentum to the next generation of interactivity online, designated as “Web 2.0.” Google has included Web 2.0 technology AJAX (asynchronous Javascript and XML) to build interactive Web applications such as Google Maps and Google Reader, a program that aggregates RSS feeds.

Google is also testing new technologies for publishers to structure and describe their content to make it easier to search. Salar Kamangar, vice president of product management at Google, says Google Base (which he emphasizes is not a classified ad service) is an experiment in allowing publishers to tell Google how their data is structured so that the company can deliver better results to consumers.

Rather than requiring Google’s search algorithm to guess how to identify an online seller’s product inventory, Google Base enables publishers to disclose how they format information. Data entered into Google Base is then made available to any Google property, such as Froogle or Local listings. This “increases the amount of content that Google properties can draw from,” Kamangar says.

Similarly, publishers looking to optimize their presence in search results can use Google’s Sitemaps tool to reveal how their sites are organized. Sitemaps “enables us to crawl their sites more effectively,” says Kamangar, adding that spidering websites today relies on following trails of links, making it difficult to detect dynamically generated pages. These efforts give publishers more of a say in how technology is used to influence their search standing.

Microsoft’s next-generation browser, Internet Explorer 7, will automatically discover RSS feeds and include tools for managing feeds. Microsoft also built RSS support into the Vista operating system, which will greatly increase the ability of publishers to widely distribute content by opening up RSS to a mass audience. Microsoft is also developing extensions to RSS known as simple sharing extensions (SSE) that will enable feeds to be shared and synchronized. For example, SSE could give publishers and affiliates the ability to automatically share information about advertising inventories and campaign performance.

The efforts of Google and Microsoft to outdo each other with sophisticated publishing and search technologies increases the burden on marketers to keep up with the innovations or risk having their websites appear lifeless by comparison.

Some publishers are using the available APIs for these emerging technologies to create “mash-ups” that mix data from multiple providers to create new hybrid applications. For example, lets individuals map where their online friends are, while shows where crimes are committed by matching police data with Google Maps.

Targeting Targeted Ads

Advertisers and consumers will benefit from the increasing competition as Microsoft and Google implement technology that tailors the online experience for each person. Personalized searching and browsing will create audiences that are more receptive to marketing messages.

Through the MSN AdCenter platform, Microsoft began offering advertisers a method of targeting ads to a particular demographic by leveraging data collected from its millions of registered users. When a signed-in user comes to an MSN site, Microsoft anonymously matches the demographic information to the visit, enabling the company to know the gender, age and location of the people who frequent their properties.

By enabling advertisers to target users by demographic characteristics, Microsoft is introducing targeted marketing “in an innocuous way,” says David Berkowitz, director of marketing at online advertising agency Unicast. He says targeted advertising will become “arguably the most groundbreaking innovation for advertisers.”

Berkowitz says that rather than competing with Google based on audience reach (quantity), Microsoft is relying on superior information (quality) about its customers to sway prospective advertisers. “MSN’s plan is not really about better software, but about delivering demographics,” Berkowitz says. Having demographic information about a large audience of registered users gives Microsoft an advantage in targeted marketing. “Forty million Hotmail users is a huge asset.”

Senior director of advertising and marketing Eric Hadley says Microsoft will evolve MSN AdCenter to target ads to people who set up personalized home pages on its websites, including the recently launched Start and Windows Live destinations. MSN AdCenter was first launched to support advertisers on its websites, but then will be rolled out to third-party publishers, putting it as a direct competitor to Google’s dominant AdWords and AdSense products.

Hadley says a future version of the MSN AdCenter will integrate a consumer feedback mechanism. “If you hover over an ad [with your mouse], there will be a pop-up window to say ‘why am I getting this ad?'” Users would be able to request not to see the ad again if the product or service is not of interest to them. For example, married people might not want to receive ads for matchmaker services.

A not insignificant challenge for Microsoft to make MSN AdCenter a success will be to build the marketing relationships with national and regional online publishers and advertisers. Determining how to split the business model for its applications and online services between subscriptions and support through advertising places a learning curve on a company built on selling products.

Microsoft and Google are vying to create personalized experiences by customizing search results based on prior searches, tailoring information preloaded onto home pages, and delivering ads based on user actions.

For a user who has not signed in before visiting an MSN site, Microsoft will use behavioral marketing techniques to generate contextual ads based on the person’s experiences on its network of sites. For example, Hadley says if an unknown customer is browsing the MSN Music site and searches for artists Kanye West and 50 Cent, ads for other rap artists would appear.

Behavioral marketing is effective in generating high conversion rates for advertisers, says Unicast’s Berkowitz. However, because it tracks consumer actions in the background, “it is a bit creepy,” he says. Microsoft and Google need to respect privacy when building personalization services to maintain consumer confidence. “A consumer has to decide who is trustworthy and who is evil. That’s going to be a major wild card” in determining whether or not users will feel comfortable in visiting a website.

Berkowitz also says, however, that companies must be careful in their pursuit of personalization services to prevent consumers from having too narrow of an experience. Google is experimenting by personalizing search results based on prior searches, but this increases the “risk that exposure to other things that might be of interest” could occur.

“I wonder how far you want to go down that personalization road before you lose the communal experience entirely,” he says. For example, Berkowitz says that while he is primarily a New York Mets fan, he doesn’t want a search engine to stop recommending articles about the rest of the league.

Looking forward, Microsoft and Google will determine if and how to commercialize the myriad of beta services that are currently under development while keeping one eye on what the other is doing.

Microsoft will learn the ropes of the ad-supported model for services and software while trying to grow and leverage its audience of registered users. According to MSN’s Hadley, the biggest challenge for Microsoft will come after the AdCenter platform is opened to third-party publishers. “How do we absorb all this demand from [large companies like] American Express to mom-and-pop” marketing firms? “As soon as we open the gates, we have to bring people in quickly with high quality.”

Algorithm-obsessed Google will continue to refine its search technology to better match customer expectations. “We are very far from being where a person can ask a question that brings back a single answer” that matches what they were looking for, says Google’s Kamangar.

For the rest of the decade and likely beyond, Microsoft and Google will continue to play the leading roles in the unfolding drama of the growth of the Internet as a platform for commerce and entertainment. Their perpetual sparring will spur all of the players involved to perform their best to satisfy the audience.

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