Affiliate Networks – Page 2

Taxing Issues

“I love NY” may be the famous motto of the Big Apple, but as of late, it’s not the mantra of any New York-based affiliates.

That’s because in April New York Governor David Paterson (D-NY) signed into law the state’s 2008 – 2009 fiscal year budget that included a provision – initiated last fall by former NY governor Eliot Spitzer – requiring out-of-state Internet retailers to collect sales tax on deliveries made into New York, based solely on a link to a marketer’s website.Called the New York Internet Sales Tax, the law went into effect on June 1, 2008 and is expected to raise $50 million in revenue each year for the state of New York.

The new regulation is causing consternation among the community of online marketers and affiliates. Because the tax laws are complicated and it’s still unclear about the full implications of the New York State Internet Sales tax, many skittish merchants are opting to drop all their New York-based affiliates in an effort to avoid any hassles and taxes. Most U.S. states already require online retailers to collect sales tax if they have a physical presence in the state that the customer is from – it is called nexus. Therefore, if an online retailer has a physical store in New York, or even an office or warehouse, they must collect sales tax from a customer in New York.

However, this new law is broadening the scope of that to say that a business having any affiliate presence in the state of New York is akin to having “an agent or a representative,”thus establishing a physical presence or nexus in New York, which requires taxation.

Merchant Confusion

Prior to the law going into effect, Amazon immediately filed a lawsuit against the State of New York. The online retailer claims the new rules violate the equal protection clause of the constitution because it specifically targets Amazon. “It was carefully crafted to increase state tax revenues by forcing Amazon to collect sales and use taxes,” the complaint says, noting that “state officials have described the statute as the ‘Amazon Tax.'”

Other merchants simply deactivated their affiliates based in New York – many without notice or explanation. Melanie Seery, a New York affiliate, was so outraged by being dropped by merchants that in June she started a blog called NYAffiliateVoice.com to speak out about the taxation issue and its implications for affiliates.

Overstock, which has a large affiliate program that brings in over $100 million annually, was among the first wave of high-profile merchants to unceremoniously drop its NY-based affiliates.

“We had to drop the affiliates because of the risk of not collecting the affiliate tax and then someday having New York win,” Patrick Byrne, CEO, Overstock.com, says. “We would get dinged for that. So we had to drop the affiliates immediately.”

However, Overstock did a quick turnaround and less than a month after deactivating affiliates; they followed Amazon’s lead by filing a suit against New York State.

According Byrne, the Supreme Court has previously ruled – as it related to catalog retailers – that the burden of collecting taxes cannot be put on the out-of-state retailer. “Therefore, I think New York’s law is directly unconstitutional,” Byrne says. “We’re not suing the state for any money. We’re suing to enjoin them from ever acting upon this law, and we’re trying to get the Court to throw out the law.”

He says that decision to seek an injunction is the right, long-term thing to do and that Overstock is putting hundreds of thousands of dollars into this lawsuit. Byrne has suggested that affiliates write a letter to their state legislators claiming that such grassroots campaigns can really make a difference.

Affiliates Take a Stand

That’s what the large community of vocal affiliates on ABestWeb.com is aiming for. Many affiliates at ABW are getting together in New York to examine the issue. At the meeting, to be held on July 28 (after press time), they will discuss the tax issue and talk about obtaining legal services to help better understand the issue and the potential recourses for affiliates. Several ABW affiliates are also participating in a special panel session at the Affiliate Summit East in Boston in mid-August to discuss the issue.

And it’s not just affiliates in New York that are watching this closely. Both affiliates and merchants are concerned that large states seeking to generate additional revenue by collecting similar taxes may follow if New York is successful.

“We just think it’s a bad idea for New York. Additionally, other jurisdictions are going to watch us fight this in New York. Based on how it plays out in the Courts there, they’ll then decide whether or not to go ahead with it as well,” Byrne says.

Affiliate Scott Jangro, CEO of MechMedia, based in Massachusetts, recently gave $250 to a group of New York affiliates to help cover the costs of meeting and legal services.

“I’m not from NY, but these guys are taking it on the chin for the rest of us,” Jangro wrote on his blog. “There’s a lot of money in this industry and I hope that many of us will consider helping out.” You can donate at NYAffiliateVoice.com.

Currently, two Technical Service Bulletins (TSB) related to the law have been released. The latest was issued on the June 30, 2008. The TSB, titled” Additional Information on How Sellers May Rebut the New Presumption Applicable to the Definition of Sales Tax Vendor as Described in TSB-M 08(3)S,” imposes additional requirements that a remote seller must satisfy to rebut the presumption of “vendor” status.

It is no longer sufficient for merchants and networks simply changes the terminology of their contracts with affiliates to include explicate language barring them from activities other than direct linking to websites, according to the Direct Marketing Association’s (DMA) Tax Counsel George Isaacson.

The new TSB says that “each resident representative must submit to the seller, on an annual basis, a signed certification stating that the resident has not engaged in any prohibited solicitation activities in New York State, as described above, at any time during the previous year.”

These activities are listed in the TSB as “distributing flyers, coupons,newsletters, and other printed materials or electronic equivalents; verbal solicitation (e.g., in-personal referrals); initiating telephone calls and sending emails.”

The prior TSB noted that direct marketers could defeat the presumption of nexus if that marketer is not engaged in other solicitation activity on behalf of a company beyond a Web link. “A pure vanilla affiliate marketing arrangement” with only a referral link will be sufficient to defeat the presumption of nexus. Many suggested that networks and vendors simply changed their terms and conditions to reflect this.

Observers say that PPC marketing will not give rise to the presumption of nexus because it is a set fee based on the number of clicks, therefore, falling under the heading of advertising, which is not subject to taxation. Lead generation activities appear to be closer to the definition of advertising under the new law and would not be subject to nexus.

The Networks

Thus far, the networks have mostly been mum – issuing only basic information about the law and instead advising their merchants to seek legal counsel to sort things out. LinkShare held a conference call in conjunction with the DMA to have the DMA’s legal team interpret the regulations. Commission Junction issued a notice to its affiliates, “We are actively monitoring the law and will use reasonable efforts to protect ourselves and our publishers as we deem appropriate. The application of the law is dependent on particular business and factual circumstances, and Commission Junction is not in a position to provide legal and tax advice regarding this law. However, we encourage you to perform the appropriate due diligence as it relates to your business.”

However, ShareASale President and CEO Brian Littleton wrote a little more in depth in his blog, “our first response to this will be to provide this report which will allow merchants to know where they stand regarding the law. Our plan at this time is to treat any case where a merchant wishes to terminate NY affiliates with great care and caution. If a merchant requests to do this, there is little we can do to stop them – but ShareASale will be performing the task so that merchants aren’t accessing information which traditionally is considered private within the network.”

Littleton went on to say, “There is a chance that this plan will not work. My hope is that we can warn merchants that terminating NY is a bad plan – and one that needs rethinking. If our plan doesn’t work – and we end up needing to provide more information to merchants, we may end up having to do so. I say this as a heads up to affiliates because while we don’t like to give out info, we also don’t want to put merchants in a place that makes it difficult to adhere to the laws of their state or others.

We can’t offer legal advice to merchants and/or affiliates regarding these laws. But I can offer my extreme dissatisfaction with the State of NY for their short term thinking and complete disregard for their citizens. I am personally confident that this will all be reversed and I am hopeful that for those affiliates in NY – it comes sooner rather than later.”

Meanwhile, it’s a game of wait-and-see for affiliates and merchants as the legal wheels slowly turn. Many observers say it will be a while before we find out if this law is declared unconstitutional or is upheld and other states begin adopting similar regulations as a means of generating state revenue.

Eastern Promises

Japan’s had it hard. After nearly a decade of stock market doldrums and an economy on the brink of disaster – just as the rest of Asia struggled too – Japan bounced back. Growth happened. Its economy is still a tad slow, but there are many industries looking way up. Online marketing is one of them.

Of Japan’s 130 million people, about 88 million are online. That’s about 68 percent of the population, according to Internet World Stats (Asia), compared with 210 million of the U.S.’s 300 million and 137 million of China’s 1.4 billion residents. Japan’s may seem like small numbers, but the momentum of online marketing and the ever-growing popularity of affiliate marketing in Japan make it a region everyone’s talking about.

Blogging, for example, in Japan is a popular way of getting products in front of the masses. Technorati Japan says that more than 85 percent of Japan’s bloggers write about companies and their products – and that over half of these bloggers have been contacted by companies to extol their wares. Japan’s Ministry of Internal Affairs and Communications says that bloggers totaled about 8 million in that country, making for an in-blog ad market of about $60 million last year.

Expansion on the Way

In the 1990s, the Japanese did not use credit cards much for online purchases, as bank transfers and postal transfers made e-commerce slow and a waiting game. But by 1999, a tech-hungry culture emerged and online spending came with it. Pay-per-performance business models were not far behind.

A leader in this space is online retailer Rakuten and its affiliates – managed through LinkShare Japan, a U.S.-led affiliate company acquired by Rakuten in 2005. Rakuten is the leader in online shopping destinations in Japan, so their penetration made them a default major player. In fact, Rakuten plans to be in about 27 more markets by 2012, according to Atsushi Kunishige, a vice president at Rakuten. He says they will use LinkShare, for example, as a way to "expand our business into the international market. We want to open a full-fledged Internet mall [abroad]."

Rakuten’s 20,000-plus online stores and merchants did about $66 million in operating profit in the second quarter of 2007. With the company traded publicly on the Japanese stock market, that’s a market capitalization of more than $5 billion.

LinkShare Japan has about 68 percent of the top-selling merchants in Japan and is the leader in customer satisfaction, according to a survey by Japan’s Affiliate Marketing Association. Atsuko Umemura, director, corporate planning, of LinkShare Japan, says that their focus on per-sales kinds of merchants has helped make them a leader. "Affiliate marketing has proven to have the best ROI for us," she says.

Late Bloomers

While the U.S. affiliate industry can trace its beginnings to the mid-1990s, the first affiliate providers in Japan didn’t start up until 1999. The U.S. market has had a few years to evolve and grow, whereas the Japanese affiliate space is still considered a "juvenile." There are more than 80 affiliate networks in Japan that cover both Web and mobile platforms. Some of the more high-profile affiliate networks include Adways, Access Trade, LinkShare Japan, Fan Communications (A8), TrafficGate, ValueCommerce and Zanox Japan.

Anthony Torres, president of affiliate marketing program management company MetaFlo Marketing, which is based in Japan, points out that the key difference between the U.S. market and the Japanese market is that the "Japanese affiliate networks can service only Japanese sites. U.S. networks such as Commission Junction operate worldwide due to English being the most popular language for Web content. So, no matter how large the Japanese affiliate industry gets, it will never be as big as the English-speaking networks," Torres says.

He also notes that Japan is still behind the curve in tracking technology and commission sophistication. For example, U.S. advertisers have more choices in how they reward affiliates. Generally, U.S. affiliate networks allow merchants to pay affiliates based on subscription status of digital content and, of course, future sales even if buyer clicks go directly to a merchant store. The U.S. networks also have more payout choices. A small CPA, plus a larger percentage of future sales generated by the lead is a method that hasn’t made it to Japanese network platforms.

Torres notes that the cost of acquisition of a typical online customer is high in Japan. "When you add in customer service and all of the accumulated costs in the sale cycle, you are left with a lower margin per sale," he says. Merchants in Japan are just not used to paying high commissions or lifetime commissions on a customer, he adds. "As the industry matures here and the ability to attract online buyers becomes more challenging, we may see online merchants less reluctant to try more aggressive commission terms." Unique to the Japanese market seems to be the cross-investment of media sites and affiliate networks. In order to increase media coverage, many networks invest in or make their own in-house media sites.

Considered the real pioneer in Japanese affiliate marketing is ValueCommerce (Yahoo Japan took a sizable stake in the company in 2005), started by a New Zealander named Tim Williams. ValueCommerce has more than 50,000 websites and blogs in its network, with about 2,000 advertisers. The company has about $43 million in annual revenue and trades on the Tokyo Stock Exchange. Goldman Sachs veteran Brian Nelson is now CEO, having come on in 2000 as COO. Nelson says that "we focused on our strengths, continued to hire great people, and launched new products and services that kept new customers, especially large brand name customers, coming in to work with us."

Consolidation is Coming

Nelson says that a large product database for shopping and their Web 2.0 applications have kept them in the No. 1 spot. It also doesn’t hurt that there is some consolidation going on in the Japan online marketing space now. "I have been telling people in the market for a long time that consolidation is coming " and it is in full swing now," Nelson says. LinkShare’s Umemura says, "It is a very saturated market right now. There is not enough room for everyone to survive."

Online marketing observers in Japan note that there are just too many networks trying to service the same advertisers. With about 1.3 million affiliates registered with the major networks and the majority of transactions driven by a group of search affiliates and "incentive media sites," there are not enough "quality" affiliates to take on all the offers out there. This means the networks are starting to look at new channels for ads.

One of those new channels is mobile, a platform that has performed very well for Japan. Because the Japanese adopted 3G standards fairly early, more than three-quarters of all cell phones in Japan have smooth Internet access. This means delivery of interactive content and ads to about 86 million cell phones (compared with 31 million in the U.S.). There are more than 48 mobile affiliate networks in Japan, with names such as Moba8, Pocket Affiliate and Smart-C. In 2005, the Japanese spent more than $3.8 billion on purchases over cell phones – 57 percent over the previous year. In addition, the CPA-based mobile affiliate provider model does much better in Japan than in the U.S., where CPC or CPM models prevail. It’s been said the culture in Japan plays a role in this since there are so many more commuters in Japan – leaving more travel time for the Japanese to experiment with their cell phones.

And with greater mobile traffic comes the opportunity to serve more Internet phone search advertising. Local search engines like Goo, Nifty and BigGlobe get a share of those eyeballs, but the leaders are Yahoo Japan (with about 63 percent of searches), Google Japan at 23 percent and about 14 percent left to split between MSN and the regional engines. Yahoo Japan is also the biggest local player in Internet auctions, Web email, mobile content and broadband.

Search Challenges

Japanese online marketing agency and search specialist Sozon sees challenges in the search marketing arena. One area in SEO that is unique to Japan culturally speaking, says Andy Radovic, VP of strategy and planning at Sozon, "is its variety in language used. Essentially, there are four methods of writing – kanji, the character system borrowed from China; hiragana, a more simplified form of kanji; katakana, the Japanese expression for foreign words; and romaji, which is the alphabet," he says. "Depending on what you intend to communicate, you may use just one or a combination of these. This greatly impacts the keyword planning stage of your SEO program. Another major difference is Japan’s reliance on Yahoo as the search engine of choice."

Radovic notes that Japanese-run companies are the leaders in services and customized solutions. "There are very few successful, market-leading international companies in the online space," he says. The international companies that operate in Japan tend to do so with a local partner. The exceptions, he says, are technology- dependent products, where some U.S. companies are in the lead, such as in search (Google) and bid management and Web analytics tools (like Omniture). "Some of the Japanese homegrown companies in the mobile, travel and insurance space are getting more sophisticated in their online marketing programs and are tracking to off-line sales," he says.

Scott Neville, COO of Sozon, says that, creatively speaking, ad messages need to really know their audience. "International ad concepts simply will not work most of the time," he says. "Text is definitely king here. More information is better and creative is often very busy with multiple propositions." He says you will need to provide as much detail as possible in your campaigns – that Japanese users will definitely read your privacy policy. He says that text email is the standard and somewhat limiting in terms of email marketing campaigns that may rely on HTML. Flash and graphic-centric sites tend not to work that well at either an advertising or a site-campaign level. He says that Flash campaigns "are not really supported by major portals for media buying and tend to be not that well received." Also, comparison campaigns are not generally used in Japan and "culturally not respectable to run."

While online ad agencies in the U.S. are slowly starting to synergize their off-line traditional ways and the brave new web of interactive display advertising, the Japanese banner ad companies are not doing too well. Two online ad agency leaders, Cyber Communications and D.A. Consortium, actually had negative growth in recent years.

The Network View

Aside from the few U.S. companies acquired or now run by Japanese companies, there are few pure U.S. players in this market and there are not likely to be more anytime soon. Observers note that U.S. networks just don’t have the Japanese-language support. While LinkShare and ValueCommerce have a bilingual platform interface, they are the only two out of dozens. One of the U.S. networks to gain a measurable foothold in Japan is DTI. They host affiliate programs for Japanese adult sites, but since most networks in Japan won’t handle porn ads, DTI has found its niche in this area. Some experts point out that one opportunity for U.S. companies would be to acquire small- to medium-sized networks and re-brand. LinkShare’s Umemura says that in Japan, U.S. companies could have come in at an earlier stage, but that "starting now from scratch would be pretty difficult whether you are a U.S. or European company. There are some smaller U.S. networks that do quite well here."

In terms of what hasn’t been popular in Japan’s affiliate programs are third-party management vendors. Currently, only a handful of the affiliate networks have management services, mainly because they are pushing their own media. However, experts say, tool and service vendors could eventually find a market in Japan. Keywords tools such as Wordtracker, recruiting tools such as Syntryx Executive Solutions and competitive keyword research tools such as the makers of KeyCompete could enter the market fairly easily.

Perhaps the best indicator that the online marketing landscape in Japan is maturing is the formation in May of 2006 of the Japan Affiliate Service Kyokai, an association that started to draw up guidelines, educate the public and monitor ethical behavior in online marketing. The six major networks in Japan founded the association when they felt that "shady affiliates" were starting to encroach on the growth of the business.

A learning curve, however, still applies. Sozon’s Radovic says that "everyone is struggling with how to market in a Web 2.0 environment. The Japanese blog and peer consumer trust are major drivers of consumer purchase. So this is an ongoing challenge." And solutions to the challenge will certainly add up to a better marketing landscape.

Kristopher B. Jones: The Small-Town Big Man

His speech is peppered with “awesome” and “ready to rock and roll,” as if he were fresh out of high school. He’s only 32 but he feels luck has a lot to do with his good fortune. He took what was basically an idea to sell jam and turned it into a successful online marketing company.

But we’re jumping ahead. Jones is a small-town fellow. He grew up around the quiet northeastern Scranton, Pa., region – in towns with quaint names like Forty Fort and Wilkes-Barre. He still lives in basically the same area where he was raised and headquarters his business not far from those same stomping grounds.

He knew early on that he wanted to be in public service – drawn to the tantalizing returns of politics. After graduating high school in 1994, he got a full scholarship to Villanova University to study experimental psychology in 1998 after graduating from Penn State, but questioned whether he really wanted to be a clinical psychologist.

During that period, his brother Rick called and asked, “What do you think about selling grandma’s Mississippi mud over the Internet?” Jones says while he was the resident computer guru in school and was sitting on a lot of school and credit card debt, he was pretty committed to going to law school. He decided he would finish out his law degree and start this gourmet food business.

Grandma’s Mississippi mud was actually a kind of jelly he had eaten as a kid. He calls it a kind of gourmet dip. He typed the ingredients into the Web and out came the popular Northeast dip called pepper jelly. But Jones didn’t want to sell just another pepper jelly. In the end – and after consulting a friend in the food business – they decided on “Grandma Jones’ Originals Pepper Jam.”

It Started With the Jam

That, Jones says, was when his entrepreneurial spirit came out. He could point to other adventures in his business past – the lawn business he had in school and the 1-900 psychic service he started, even day trading – but they never really made any money.

The pepper jam, on the other hand, had legs. Through contacts in the gourmet food business, it started to get some traction. The business was started in 1999. “My brother was the creative side and he had all these flavors he wanted to do,” Jones says. “It all happened pretty quickly. I was going to do all the marketing. I drove the branding and launched the website called pepperjam.com. We personalized it with pictures and stories.”

Soon they realized in order to get traffic and sales, they needed to rank higher in the search engines. The most obvious way at the time was to cycle in fresh content. So, they then came up with the idea to interview famous chefs and put those up on the site. In the end, they posted interviews with the likes of Paul Prudhomme, Emeril Lagasse and Jorge Bruce, to name just a few.

Bruce sampled the product and loved it. At the time Bruce was looking to hire a consultant to get his brand and other chefs online, Jones said. “I will try to cook with this product,” he told Jones. “He may have thought we had offices when we were really operating out of a kitchen,” said Jones. Bruce suggested QVC. “I went into shock,” says Jones, “and had to put the phone on the bed and take a breath a minute. At the time, he was the highest-grossing chef on QVC.”

The chef interviews were getting a lot of traffic now and the question of how to monetize it all became important. That’s when Jones joined LinkShare and started adding affiliate links (his first check from ValueClick was for something like $37). He was just about to leave for law school and was trying to make money through affiliate marketing when in early 2000, he says he began his marketing journey in earnest. “I still own 50 percent of the gourmet food business,” he said. His brother told him to take the marketing business and he’d handle the product. “I knew that the Net marketing side of this requires work. I just started to build out websites – build out content based on a theme. My first was cookware.”

Also in 2000, he adds, Google came out with AdWords. “I was generating close to $100,000 per month in affiliate profits,” he said. He was doing this while doing his consulting work and serving as law school class president two years in a row.

“Once I had money, I wanted to do something with it,” he says. He put all the cash he had been earning while in school into this single idea – to turn his super-affiliate status into a new kind of marketing business – pepperjam.com. “We got an office. I hired my best friend as COO. We knew we could hire smart, young professionals and could help these businesses that were coming online and had no clue what affiliate marketing was,” Jones says.

Getting Into the Affiliate Game

2003 was the breakout year. Jones didn’t realize the impact his company was having until he went to his first LinkShare symposium (they got invited through Overstock.com). “We went to this event not knowing anybody and thought no one knew who we were,” he says. “My attitude was, ‘I’m a super-affiliate, let me manage your affiliate program.’ We were blown away.” When a merchant rep found out who he was, she hugged him. “You’ve been making us so much money,” she told him and introduced him to a whole bunch of merchants. “We were very well received,” he says.

With that boost in his pocket, Jones parlayed that excitement into a new small office and started to hire employees. From 2003 to 2005 he built his client list. From 2005 on, he says, it took on a life of its own. In 2006, the company was about 28 employees. Then pepperjam made Inc. magazine’s list of the 500 fastest-growing companies in the U.S. It was the only affiliate marketing company on the list. “As a search engine marketing agency, we were one of three with iCrossing and MoreVisibility.” All he could say was, “It was just a big party. We’re pepperjam, we’re in the black and we’re an Inc. 500 company.”

While still nurturing a desire to serve in a public way, he was invited to speak at a conference for the first time in 2004. He’s been hooked ever since and speaks quite often all over the country. It kind of feels like he’s class president all over again.

Somewhere amid all this work, he did manage to get married – to someone who works for the company. He said while his wife, Robyn, and he did attend the same high school, they weren’t pals. One night when home from school for a spell, his COO and he went out for a drink and spied her. They remembered her from high school. Jones sat back and watched his COO walk over and try to flirt with her. Finally, Jones joined them and he said they hit it off right away.

“She kind of asked me out after 60 seconds,” he says, “and here she was talking to my friend for the last 15 minutes; but we’ve pretty much been together ever since.” She wasn’t happy at her other job and Jones asked her to work for Pepperjam.

“I know you don’t want to work for your boyfriend, but I’ll have you work from home and write an employee manual or something. We can have you write out some client case studies,” he remembers telling her. After about a month, she began to come into the office and has been with the company for two years.

Growth Spurt

Jones says there has been a lot of interest to be acquired and from venture capital money. Last year, with about 50 employees “we had to think about crossroads – and decided to focus on our own technology,” he says. The company decided communication in this industry was the problem. “It is difficult to get in touch with your affiliates to admonish or to praise them,” he says. There was a lack of affiliate transparency. “We said, ‘We will tell you who are the key affiliates and can protect your brand.'”

This led to the notion of launching a Pepperjam network. Jones worked and consulted with hundreds of affiliates and merchants to preview the network – robust players such as Affiliate Classroom’s Anik Singal, and super-affiliates Lee Dodd and Jeremy Schoemaker, to name a few.

In January 2008, he launched pepperjamNETWORK. This essentially turns Pepperjam.com into a technology company with exclusive merchants such as luxury brand Judith Leiber, clothier Ben Sherman and Jelly Belly. Jones sees this as a super-transparent network that can be an alternative to the big three – LinkShare, Commission Junction and Performics – as well as an alternative to ShareASale. “We are not going up against the big three networks,” he added. “They are much better financed than us and bigger. There is still only one investor in pepperjam and that is me.”

Jones proudly says pepperjam.com now has about 105 employees in a 13,000 square foot floor of a building in Wilkes-Barre. He has five executives and 15 senior-management-level people. He has divisions now – online media planning and buying, search engine marketing, pepperjamNETWORK and full-time salespeople – their first. In the next 18 months, he predicts 300 employees. But he thinks of everyone as family. His wife is director of affiliate marketing; his bulldog is in the office every day. He doesn’t want it to be a corporate environment – there’s Free-Pizza Fridays, ping pong and “Guitar Hero” on the floor. In early 2007, they launched a corporate blog where a randomly chosen employee is given less than 30 seconds’ advance notice to come up with a presentation to be videoed and then posted to the site (some can be found on YouTube; some featuring Roxy the bulldog).

Amid all this success, Jones was approached in the early summer of 2007 by publisher Wiley to write a book on SEO and search marketing. “Search Engine Optimization: Your Visual Blueprintâ„¢ to Effective Internet Marketing” will be published this spring. “In fact,” he said, “I had always dreamed of writing a book in college. I always thought, how can you make a difference? I can join the clergy, be a great father or write a book.”

If that isn’t enough on his plate, Jones and his wife are expecting their first child in August. That’s not going to slow him down. “We are very focused on building out what we are creating,” he says. “We have a bunch of families now; we’re not just a small family anymore. I’ve always been the kind of person that believes that my time hasn’t come yet. I want to focus on being a great father, and from a business standpoint we want to become a great affiliate network. I want to see where we take it.”

While the future seems like a busy one, Jones notes that “pepperjam has just started.”

Looking for a Few Good Affiliates

Linda Woods, CEO of PartnerCentric, an outsourced affiliate program management group, says that affiliate recruitment is the hardest thing affiliate managers have to do.

“There is no software that spits the names of affiliates out,” she says, adding that there is no easy way around the arduous process of finding, meeting and building a relationship with the appropriate affiliates.

The process is time-consuming and multifaceted, and the AffStat 2007 Report confirms that recruiting is definitely an issue for affiliate managers. Nearly one-third of respondents said their biggest challenge is recruiting new affiliates. And even when affiliate managers do find the right affiliates, it does not mean they will join or implement the program actively.

When researching affiliates for their programs, managers should apply common sense regarding the products’ audience and industry. For example, Woods says that an affiliate manager for a high-fashion merchant should not look for coupon or discount affiliates (because they can cheapen the brand). Instead she suggests they look to loyalty/incentive sites, such as MyPoints or UPromise, which do well with big brands.

However, loyalty affiliates are a hotly debated topic in the industry. While some affiliate managers find them useful in helping with repeat customers, others question some of their practices. Many claim they often override or subvert other affiliates’ IDs, which results in affiliates not being credited for sales, commissions and leads.

The conventional wisdom behind recruiting affiliates has been that merchants should focus on the top-performing affiliates that fall within three concentrated categories: incentive/loyalty shopping, coupon/deal sites and search. For this reason, there are top-heavy programs, with a small group of affiliates representing a huge majority of traffic.

Unconventional Wisdom

But David Delisle, principal of The Partner Maker, a contact management and recruitment system developed specifically for the online marketing community, believes the “focus on the top affiliates” approach has done more harm than good for affiliate marketing. That’s because top producers are continuing to break away from being compensated as CPA affiliates (on pure revenue share). These affiliates are compensated for access to their audience, which consists mostly of repeat customers.

The result is that affiliates like eBates, Upromise and MyPoints look and act more like media companies than affiliates, Delisle explains. If merchants are interested in new-customer acquisition, they should be weary of these types of affiliates.

Delisle points out that when merchants focus only on the top-producing affiliates, they are ignoring the rest of the Web, and recommends marketers shift gears and pursue smaller affiliates in order to tap into the long tail.

The amount of smaller affiliates is positioned to grow, because today virtually anyone who uses the Web has a means to become an affiliate, with tools like PopShops – a product catalog “research tool” where affiliates can find relevant products to their niche. It allows an element of discovery based more on relevant inventory to an affiliate’s niche and less on criteria such as commission structure.

Angel Djambazov, marketing and business development manager of PopShops, says that an affiliate manager can use their PopShops product catalog as a recruitment tool to gain new niche affiliates by seeing the activity within the tool set among certain products.

The emergence of social networks offers another way for affiliate managers to recruit affiliates who are ambassadors of their brand. CEO of Molander & Associates Jeff Molander says This- Next and Stylehive are social networks that focus on the discovery and sharing of new items and offer marketers an upside that is “tremendous and untapped.”

Molander says marketers need to understand some products work better than others for social media strategies because they are natural fits for the “word of mouth” or “wisdom of crowds” models. For example, Wine.com’s community site works well because people buy wine using recommendations, and Patagonia’s community site is effective for its “highly conscious” consumers. But for a retailer like Gap, a social networking model could be less compelling, Molander explains.

Networks as Necessity

Another way to find affiliates for a program is through networks such as Commission Junction, LinkShare and ShareASale, because the networks can offer exposure to lots of affiliates and provide a wide reach.

But PartnerCentric’s Woods points out that “reach” is a misleading word – “what they have is a pool of affiliates, which is better than nothing.” Woods says most inexperienced managers rely on networks to find affiliates, but there are problems with this strategy. For one, some networks only promote new programs in front of affiliates one time, such as in a newsletter mention. The rest of the time the program is simply listed as a text link within a category.

Another problem is that networks list programs by performance – so a new program is ranked at the bottom because there is no performance data, such as the earnings per click (EPC), until the data shows up, which can take up to three months. If an affiliate is choosing a new program from a category, they will select the one that offers the most potential.

Linda Buquet, president of 5 Star Affiliates, an affiliate marketing consultancy, says another consideration is the 95/5 rule, which means that only 5 percent of the affiliates pulled from a network will be productive and active. And once these affiliates are recruited, to a large degree, they still require hands-on personal contact.

Affiliate managers cannot be dependent on networks, and Molander warns that affiliate managers cannot recruit affiliates by plugging into a network and walking away, because that strategy leaves money (affiliates) on the table.

Although networks are not in Roger Snow’s top three ways to go about finding affiliates, the director of marketing at Snow Consulting, says there are advantages. Networks are beneficial because they allow managers to use keywords to target specific affiliates as well as for starting programs because they announce the program to all affiliates.

Once affiliate managers launch their programs, they have the challenge of proactively building and retaining their publisher base. Networks can help affiliate managers who do not possess the business development and affiliate marketing skills necessary with these early recruitment tasks.

Depending on their vertical and brand, merchants must understand the overall online marketing landscape and whether or not a performance-based relationship will result in sales/leads. Kerri Pollard, general manager of Commission Junction, explains that Commission Junction has built a successful publisher sales team and sales engine that helps with this time-consuming work.

Another reason to work with networks is they can provide an affiliate manager with background regarding the ranking and quality assessment of a publisher. Pollard explains that Commission Junction designates qualified top performers as CJ Performers – noting that such insight isn’t available when managing an in-house program.

Most of the networks hold events with the core objective of getting merchants and affiliates together so productive networking can occur. LinkShare has its Partnership Summit and Symposium; ShareASale’s annual meeting is ThinkTank; DoubleClick Performics has its annual Client Summit; and Commission Junction puts on its annual Commission Junction University (CJU).

Research and Relationships

For finding affiliates, there is also good old-fashioned search engine research. A good way to find potential affiliates is to type the keywords pertaining to a product into Google and check out the results on the first few pages of natural search results. Snow says one of the ways he finds affiliates for his client, DiscountWatch- Store, is to Google terms like “watch review sites” to fi nd highly ranked and highly trafficked sites regarding watches.

Snow also looks for affiliates who use PPC as means to drive targeted traffic to their site because it shows they are actively marketing their site.

Woods agrees managers need to look for sites that come up in a search for particular keywords – “if they are advertising your competitors, reach out with your affiliate plan.” Woods also recommends finding affiliates through software tools such as Syntryx, which show sites that are linked to your competition.

But the easiest way for managers to recruit affiliates is to tap into the relationships that they already have established. Woods explains it’s important to have an experienced full-time manager who knows people in the industry because affiliates enjoy working with people they know. To foster the relationship, managers need to recognize affiliates who do well by giving them kudos, like financial rewards or tickets to a sporting event.

According to Snow, one of the ways affiliate managers can get to know affiliates is to join communities where the best players are – and recommends that managers become vocal participants in a large online marketing forum such as ABestWeb.com, where lots of savvy affiliates participate in discussions.

Affi liates are more eager to join programs they trust, according to Haiko de Poel, Jr., president of online affiliate marketing forum ABestWeb.com, which has more than 39,000 members.

de Poel says ABestWeb is an excellent recruiting medium because it is in almost real time and there are no spam filters. He also says that trust is a big issue in recruiting and ABestWeb works hard to overcome that challenge. According to de Poel, a couple of years ago some affiliate managers did not give out their real names on ABestWeb and the community reacted negatively. Now affiliate managers post on ABestWeb with their real first and last names. de Poel says that sometimes affiliate managers will come into a forum to ask a question and the community won’t talk to them until they state their real name.

There is an accountability factor when an affiliate manager reveals their name and the company they represent. “There is a trust that is built and affiliates feel like they are partners and not just affiliates,” he says.

Once a user gets involved and posts regularly, others see where that person stands on issues. He says this translates well to the real world because once they meet in person, there is instant credibility and a symbiotic relationship.

Many use forums and blogs to recruit affiliates. Buquet, who was an outsource affiliate manager but now specializes in recruitment and promotion, explains that word of mouth is instrumental to her success for finding affiliates – she recruits through her blog, her forum, her main site and through affiliate and online marketing forums.

By only representing tried-and-proven affiliate programs that have been tested, Buquet says she has earned a loyal following of affiliates and a good reputation. She says she turns down 99 percent of merchants that want her help recruiting affiliates because she’s looking for programs that have high payouts, long cookies, good conversions and high-integrity marketing practices.

There are outsource affiliate program management companies that can offer marketers access to top affiliates – companies like PartnerCentric, GTO Management, NETexponent and AMWSO.

Chris Sanderson, director of AMWSO, uses The Partner Maker, a contact management and recruitment system. He says the system allows him to build his own affiliate base so that when he launches a new program, he can review the affiliates in the system and contact those partners that would be a good fit. And because he can store multiple sites and marketing profiles for each partner, it also means he can contact the correct partner and not send a generic email.

Cold Contacting

The most popular methods for cold-contacting affiliates are email and the telephone.

Snow says he thinks most affiliates don’t want phone calls, and suggests sending emails that won’t be perceived as spam. “Don’t send them 4,000 words – just point out the benefits of the package [like commission, cookie duration, product data feed]. You only have one or two seconds – it’s just like selling door-to-door.”

The AffStat report showed that 30 percent of respondents believe email is the most effective method for recruiting affiliates, and 18 percent believe it is through the phone.

Affiliate Summit co-founder and affiliate program manager Shawn Collins says if sites don’t include an email on their contact page, affiliate managers can get the email addresses by looking up the WHOIS record for the domain.

Top affiliate Scott Hazard says that as a high-profile affiliate, he receives multiple emails per day from affiliate managers who want to recruit him – about half are personalized emails and about half are bulk emails. Hazard says some ask him what it would take to get them into the program – they try to find his pain point.

Make an Impression

To stand out, affiliate manager Collins has found fun items to send affiliates. In the past, he’s mailed postcards and has had good results with “Send a Ball,” which is an alternative to a greeting card. The ball is delivered via the USPS with the address, postage and personalized message right on the ball.

PartnerCentric’s Woods says face-to-face contact is essential for meeting new affiliates. She suggests affiliate managers get out to events and conferences like the two-yearly Affiliate Summit and Webmaster World. “If you sell lawn chairs, you need to go and meet the top home and garden sites,” she says.

When attempting to attract affiliates to a program, most experts agree money is a big motivator, although Woods claims it is not always the most important factor. The commission has to be at least as good as what the competition is offering, but affiliates look for programs that offer a variety of elements.

For one, a program needs to be well-managed because it’s important that affiliates are serviced and have their commissions paid. “The bane of affiliates’ existence is to have to chase down their commissions,” Woods says.

Often affiliates join programs because they trust the manager and they know the program won’t become “stale” – meaning that applications will be approved, new links will be put up and there will be email communication back and forth as needed, according to Snow.

Based on feedback received at ShareASale’s ThinkTank conference in October 2006, shoe retailer Chinese Laundry made changes to its affiliate program, including better ways to link, promotional banners and affiliate specific coupons. Chinese Laundry’s CIO, David Wright, says they starting seeing improvements right away and their conversion rate went up 600 percent – “from a couple of affiliate sales a month to 15 in one day.”

The conversion rate has to be good because many top affiliates are constantly evaluating the real estate on their site. Snow explains “it’s all about conversion,” and top affiliates do a lot of research because it is their livelihood.

Affiliate Hazard is a firm believer in doing extensive research before joining a program. For programs in the ShareASale network, he can look up the EPC and the average commission and then figure out the conversion rates. He also notes that it’s important for affiliates to try out the buying process before they start promoting a program. If the merchants make the buyer enter personal information before they state the shipping charge, if the production descriptions are poor or if things are hard to navigate, the chance of sales abandonment increases, which can ruin affiliates’ commissions and reputation.

To help merchants understand problems with their site from an affiliate perspective, Hazard recently began offering a site evaluation service to merchants. He looks for hiccups in the checkout process and analyzes the commission structure to see if a competitor pays more. When joining a new program, Hazard’s most important criterion is a very unique product line – something not readily available at other sites. He also looks for programs that fit into his themed websites.

With new offerings for connecting affiliates and merchants, and new tools that make it easier for publishers to become affiliates, in some ways affiliate recruitment is becoming easier.

Collins thinks recruitment is easier today than when he started 10 years ago. At that time, every person he approached had to be sold on the overall concept of affiliate marketing. He says, “it’s just a matter of breaking through the clutter and selling the reasons why the affiliate program is best.”

Still, Collins says it’s the activation and retention of affiliates – not the recruitment – that is the hardest part of being an affiliate manager. He says he believes that because most affiliates don’t focus on activation and retention, they “think” recruiting is the hardest task. But according to Collins, once you’ve got the affiliate, you have to know how to keep them and ensure they are productive.

They Can Hear Us Now: Q & A with Laura Marriott

The president of the Mobile Marketing Association says that ads on mobile devices will only get better, more widespread and easier to create and measure.

Laura Marriott is president of the Mobile Marketing Association (MMA) and spearheads efforts to get mobile marketing adopted worldwide. The MMA is a global nonprofit trade association with more than 500 members in 42 countries. It works toward removing obstacles to market development; establishing standards and best practices to sustain growth in mobile marketing; and being an evangelist for the mobile channel. Marriott was previously director of marketing for Intrado, and the director of business development at Cyneta Networks and Cell-Loc Inc./Times- Three Inc. Senior Editor Eric Reyes asked her some pertinent questions about where mobile marketing is going.

ERIC REYES: What is the history of the MMA? When and why was it formed?

LAURA MARIOT: The Mobile Marketing Association was initially formed in 2000 as the Wireless Advertising Association (WAA), a New York-based nonprofit trade association. In 2003, the WAA and the Wireless Marketing Association (WMA), based in Europe, joined to form the Mobile Marketing Association. At that time, the MMA had only 10 member companies, which included companies like m-Qube, Mobliss, The Weather Channel, Carat Fusion and Vindigo. The chairman in Europe at that time was Cyriac Roeding, who is our current global chairman, and in the United States, Jim Manis. The MMA remained around 10 to 20 member companies until 2005. At the same time, mobile marketing, in the United States, began to take off – we had interoperability among the carriers, a short code system for ease of consumer experience and a supportable revenue model. The MMA also established four national chapters in Europe in 2003 to 2005 – Austria, Spain, the U.K. and France.

The key differentiator for the MMA is that we have representation from across the mobile ecosystem – working in a collaborative, trusted manner to educate the marketplace and build guidelines and best practices for the mobile marketing industry. Members include handset manufacturers, wireless operators, technology enablers, aggregators, media companies, brands, agencies, market research companies as well as any organization focused on marketing via the mobile channel.

ER: Last year was supposed to be the year mobile marketing hit critical mass. This year, mobile marketing still seems to be finding its way. What are some of the indicators that mobile marketing is continuing to gain traction?

LM: Absolutely right! The number of campaigns that we see launching has grown into the tens of thousands worldwide. Indicators in the United States include: short codes listed on traditional and digital media as an integrated element of the overall campaign. For example, on billboards, magazines, television, etc.; membership in the MMA doubling year-over-year since 2005; the number of award submissions in the MMA award program growing from just over 100 last year to more than 260 in the 2007 program; brands and agencies establishing mobile divisions and hiring mobile specialists within their organizations; mobile has become a line item in the advertising budgets of many very large brands; mobile is being integrated into not only the verticals that want to be in front of the consumer all of the time, i.e., financial services, travel, entertainment, CPG, QSR and automotive, but we are now seeing mobile move even into durable goods and other segments; the growth of text messaging in the United States, increasing from 7 billion a month in 2005 to over 30 billion a month in June 2007; and an increase in number of short codes – the 5- to 6-digit number which helps to facilitate ease of interaction between brand and consumer – issued on behalf of the CSCA has climbed to over 2,600 in 2007.

ER: What has mobile marketing enabled marketers to do better?

LM: Mobile marketing has enabled the brands to develop a conversation of engagement with their consumer – a dialogue about their products and services and a means to effectively measure and evaluate this dialogue. Mobile also enables brands to target their consumers, anytime and anywhere, through their most personal device: their mobile phone. Consumers are in the driver’s seat on encouraging and defining the interactions with their brand – wherever and whenever.

ER: Some say the real gold mine in mobile is m-commerce (to make purchases directly from your mobile device). What is the MMA doing to enable this ability?

LM: The MMA has established a mobile commerce committee that is working on guidelines for digital and physical goods transactions, mobile couponing/ticketing as well as other issues having an impact on the ecosystem. The goal is to always ensure a positive and consistent experience for the consumer.

ER: What do you do to help brands enter into and perfect their mobile marketing initiatives and campaigns?

LM: Education. The key so far has been helping to educate the brands on the role of mobile in their marketing initiatives – and how to integrate a mobile call to action into the overall integrated marketing campaign. The MMA publishes a broad set of mobile case studies, white papers, glossaries and so on, to help to educate on how to use the channel most effectively and to learn from the experiences of other brands that have tried before them. The MMA also runs Mobile Marketing Forums at www.mobilemarketingforum.com, which is our key event series to educate and evangelize on the mobile channel. These are held in every region around the world, four or five times a year and have become the premier event for mobile marketing.

ER: What do you do to help mobile marketers establish better customer metrics in their mobile efforts?

LM: The MMA has launched a measurement initiative, in June 2007, to define the metrics in a consistent manner for the industry. Measurement will be one of the key issues facing our industry in 2008. The MMA and the GSM Association are working together to ensure consistent measurement and metrics solutions for the industry.

ER: Does the MMA help establish best practices for mobile marketers? What are some of those practices initiated by the MMA?

LM: Yes; this is the foundation for the MMA – and we have been leading in the development of cross-carrier mobile content guidelines and best practices as well as mobile advertising guidelines since 2005. Current best practices/guidelines include: consumer best practices for cross-carrier mobile content services; mobile advertising for mobile Web; and mobile advertising for downloadables. The MMA has also published a number of best practices documents which include mobile couponing, mobile search, mobile promotions and sweepstakes, and so on.

ER: What does the MMA do to help streamline mobile search? Do you suggest standards?

LM: To date, the MMA has not suggested standards for mobile search; however, we have published two thought leadership pieces which include an introduction to mobile search and mobile search use cases, which outline the best practices and options for offering and evaluating a mobile search solution. These are published through the MMA mobile search committee and include the participation of leaders across the mobile ecosystem and our membership.

ER: Do you track innovations in mobile marketing strategies and mobile technology? How is that knowledge integrated into the mission of the MMA?

LM: Yes; the MMA is at the forefront of defining and participating in the initiatives which are helping to shape our industry – and works with our members to ensure we continue to self-regulate industry developments and stay in front of the trends. The MMA is an action-oriented association designed to clear obstacles to market development, to establish standards and best practices for sustainable growth, and to evangelize the mobile channel for use by brands and third-party content providers. The MMA has helped to guide the development of a sustainable ecosystem to ensure consumer privacy and protection is assured.

ER: What does the MMA do to fight mobile spam?

LM: Unsolicited messages, overall, are prohibited according to the MMA guidelines. The MMA guidelines ensure that mobile is always an opt-in experience for the consumer. This means no push-based campaigns – all consumer pull. The MMA also defines rules which prohibit the selling of third-party lists, so that the mobile channel does not experience the issues that we have seen in other digital media types. Our consumer best practices have become the base set of rules for messaging, mobile Web and IVR transactions in the United States, and have been integrated into wireless carrier contractual agreements so that all vendors in the ecosystem adhere to these guidelines. The industry has also launched a monitoring initiative which tests each short code campaign to ensure compliance against the consumer best practices guidelines.

ER: Is it difficult to convince brands of mobile marketing’s viability?

LM: Historically, there has been a belief that mobile is complicated. We encourage brands to first define their strategic objectives for their campaign and then determine which mobile solution will work best to achieve their goals. Once a brand starts their first initiative and sees the results, they generally continue to deepen their experiences with the mobile channel. Success rates in mobile have often been more significant than those you see in other media. The numbers speak for themselves.

ER: Are interactive agencies prepared to scale for mobile campaigns? If not, what do they need to do?

LM: Yes; 2007 saw a significant shift in how agencies are handling mobile. Many agencies have spun out digital divisions, i.e., AKQA Mobile, while others have ramped expertise internally by establishing mobile groups or mobile experts. In the early days, mobile was treated as a portion of the interactive business; for mobile to truly take off, it needs to be treated as its own business and own line item. Mobile is not the Internet. There are five very distinct media types within mobile, which include voice, downloadables, mobile Web, video/television and messaging. Mobile expertise is essential to ensure the media types are integrated effectively into a cross-media initiative. The other trend has been the development of a large number of mobile agencies in that companies are specializing in mobile creative and campaign development. These agencies are having a significant number of successes worldwide. A proof point of that success was Omnicom’s purchase of mobile agency, ipsh!, in 2006.

ER: Is there a difference in best practices standards between the U.S. and the rest of the world? Is there a push to get the whole world to practice the same standards?

LM: Yes; every market has its own regulatory and legal considerations which need to be considered. The goal of the MMA is to develop global guidelines, where possible, regional guidelines where necessary and local as required. A global brand is looking for ease of market entry when they are launching a program, and consistency is key. Many campaigns today already cross regional and local boundaries, so a consistent set of guidelines is ideal. Perhaps the best example is the mobile Web advertising guidelines which have been launched by the MMA. There is consistency in formats and creative across NA and EMEA – and the hope is to bring the APAC guidelines to the same formats by early 2008. The MMA has also published a global code of conduct which protects the consumer’s experience, privacy and protection being paramount.

ER: How is a successful mobile marketing campaign measured?

LM: Today success is generally measured by interactions, but these have varied according to operator and vendor. The MMA has a measurement committee working to define a consistent set of ad currencies, reporting criteria and cross-media effectiveness measurement in order to gain the best insight into mobile.

ER: How is the consumer being enticed to view mobile marketing?

LM: Mobile has become an integrated element of traditional and digital campaigns today. Mobile promotions and sweepstakes have been driving interactions with the consumer particularly through participation TV programs like “Deal or No Deal” or “American Idol.” Providing the consumer with exclusive information, coupons, opportunity to win, etc., have all helped to drive the interactions between brand and device. And, the consumer is receptive.

ER: Do marketers need new models to gain mobile marketing success? How does the MMA help to discover these new models?

LM: Initially, brands were repurposing content from other media for mobile, and while this does work, creative made for mobile content and solutions is key to long-term success. MMA research has shown that consumers are most interested in interactions that deliver information exclusively to them on their device, information that they cannot get through any other channel. The MMA helps brands by sharing case studies of what has worked successfully in markets around the world.

ER: What does the MMA do to help streamline the total mobile Web experience?

LM: Education is key. Reach is currently an issue with the mobile Web, so educating brands and consumers on how to use their mobile device will be critical to long-term success. Operators play a key role in encouraging mobile Web adoption by providing attractive data packages and compelling content to help encourage consumer adoption.

.mobi for All

Neil Michel bought .mobi top-level domains as soon as they were available without consulting his bosses. As eMedia Director of Prosper magazine in Sacramento, Calif., he saw it as his duty to claim ownership of the mobile domain names before anyone else could capitalize on the company’s brand name. He managed to snag ProsperMag.mobi and ProsperMagazine.mobi but not Prosper.mobi.

“At the time I registered them, no one knew .mobi existed,” Michel said. “I just did it and told [my bosses] we did.” The .mobi names went on sale on September 26, 2006, but only recently has awareness of the top-level domains become more pervasive. But even as the domains are being registered, there is still some doubt about their relevancy in an iPhone world where the full Web-browsing experience is finally coming to the cell phone.

The .mobi (also known as dotMobi) company is the informal name of the mTLD Top Level Domain firm appointed and approved by the Internet Corporation for Assigned Names and Numbers (ICANN) and is backed by mobile operators, Internet companies and device makers with investment by companies such as Ericsson, Google, GSM Association, Hutchison, Microsoft, Nokia, Orascom Telecom, Samsung, Syniverse, T-Mobile, Telefonica Moviles, TIM, Visa and Vodaphone.

While the idea for .mobi domains was a Nokia brainstorm that dates back to 2000, it wasn’t until March 2004 that 10 companies signed on to a .mobi consortium. In July 2005, ICANN approved the top-level domain and in May 2006, select big brand companies were invited to buy their domains before this was open to the general public.

A typical .mobi website is supposed to be formatted for easy display on a mobile phone. That means, in most cases, simple text, few if any graphics and content that is in an easy-to-read summary form. Ads can be placed in a .mobi environment – sometimes as a page before the content, sometimes placed between pages of content. More image-friendly banner ads for .mobi can be employed, as advertisers CNET, The Disney Channel, Zagat and the wildly popular “High School Musical” have done.

Michel says that buying the domains is “nothing – developing it is another story.” And that seems to be the hang-up right now with the .mobi explosion. While around 700,000 .mobi names have been registered so far, people like Michel are developing them for a very slow rollout. In the case of Prosper magazine, the publication in the last year redesigned its print magazine and its website and went through a hiring spurt before they could even think about their .mobi properties.

Finding Mobile Footing

Their .mobi dilemma is a case study in grappling with a .mobi strategy that fits in with a company’s overall business plan and vision of what they want to deliver to their customers versus what can be monetized over .mobi. “The game is changing under our feet,” Michel says, “because of the new more realistic browser experiences coming from the iPhone and others like it.” He wonders if the iPhone will allow them to do something in a more traditional Web browser environment, or if it would be better to cater to the 200 million handsets in America that may have limited browser capabilities.

Since Prosper is a regional magazine aimed at the Sacramento Valley area at large, Michel wonders what will be valuable to that audience in a mobile environment. It won’t be a 2,000-word article, he says. Plus, Prosper’s main website has a lot of video on it. “In a handheld, the video is a joke,” he says. “We can’t put our video into the .mobi domain.” In terms of mobile advertising, they are focusing on the mobile ad banner for now. “Until advertisers themselves have a .mobi strategy, we don’t have anything.”

Some mobile commerce networks are glad .mobi is around but don’t see a huge impact on their business yet. Dan Wright, CEO of mobile commerce portal mPoria, sees visibility gaining. “If the retailer sees value in .mobi and the customers do, then it does impact our business,” Wright says. He adds that “a good portion of our merchants are using .mobi. If they ask us if they should use it, we say it certainly is good to have. At least you can be found on mobile.”

Wright says that right now mPoria powers m-commerce sites on the mobile Web to help them sell their stuff. They provide the front end and the back end and the hosting for the sites. Medio is their mobile advertising partner. Wright says mPoria has seen 300 percent growth quarter-over-quarter using their current model, and that if .mobi helps their merchants’ marketing, “then that’s good for us.”

On the software side, some companies are still trying to decide what the mobile customer prefers. GoWare, makers of custom software for mobile publishers, perceives a disconnect. Jason Thibeault, CTO and co-founder of GoWare, says that “among mobile software providers that are dedicated to the mobile Web, there is a big disconnect. There are a lot of different Webs right now. The desktop user is very comfortable but the mobile Web user wants quick, efficient access [to content].”

He says that while .mobi is still in its infancy, GoWare is doing its best to integrate coupons and ads into a .mobi platform. “We are getting the targeted marketing messages to your mobile phone,” he notes. Yahoo, he says, is just serving banner ads. He wonders, who wants a banner ad in a .mobi environment? Thibeault believes .mobi is not visible enough right now. “The content sites are not sure they want to commit the research – not to the .mobi bandwagon right now.” He says he knows a lot of sites that are using their main top-level domain to serve up their mobile websites and not conforming to the simplicity of presentation the .mobi Web would seem to promise.

The folks at .mobi itself are proactive in their quest to put a spotlight on the possibilities of the domain. James Pearce, VP of technology at .mobi, thinks that as far as Web relevance, .mobi prevails even now. “A lot of people are not brave enough to type in an arbitrary dot-com Web address because the content will be irrelevant to them when they’re out and about with their phone.” He’s convinced .mobi will be automatically relevant and faster no matter what kind of browser your phone has. His current mission is to make .mobi part of the “consumer vernacular,” because he admits to a certain chicken-and-egg conundrum at the moment where content needs to be built out ahead of the platform but marketing it will be needed too.

Going Mobile

Mobile ad networks such as start-up AdMob are seeing tremendous growth without customizing for .mobi. They showed more than 1 billion mobile ads in just 28 days last summer. Companies such as AOL and Microsoft are acquiring mobile ad companies to add to their offerings. Microsoft is also expanding its mobile search efforts in a partnership with Sprint to allow easier Web searches on mobile phones.

And while developing for the .mobi experience on phones has been seen as a complex ordeal, executives at .mobi have also been proactive in quashing rumors about the new domain. Various blogs have dismissed .mobi as nothing more than a way for .mobi investors to get more money. The rebuttal: Investors are building out platforms and tools but it all takes time because huge companies such as Google don’t turn their product life cycles on a dime, and many initiatives inside these big companies are pretty confidential until launched. New tools are available at the dev.mobi site and they are pushing their mobile phone database and a content directory.

Others complain that .mobi is not releasing their premium brand and generic names to buyers yet so they can drive up the prices. In fact, the first load of premium names went on sale in September and the schedule was always to sell those names on the one-year anniversary of .mobi in bursts from September to January 2008. Some have said that waiting too long to auction those names has hurt the .mobi market, but executives at .mobi state that they always had the “long-term view” in mind, and essentially waited for the good content-making tools to be released. In fact, Google recently announced the launch of AdSense for Mobile, a campaign to encourage ad placement for sites designed specifically for mobile phones. Yahoo and AOL Time Warner have similar mobile- centric ad networks.

As far as the criticism that too many .mobi sites are still dark, it is true that parking pages are out there (the ProsperMag. mobi page is still unfilled), with about half of the .mobi registered names still not hooked up to DNS servers, but real sites are coming live every day. The .mobi people say they also provide free tools to help content get live as easily as possible. They say that there are about 5 million pages indexed on Google with .mobi addresses. They add that big brands such as ESPN, BMW, BusinessWeek, Amtrak, AAA and Fox News, to name just a few, all have .mobi presences.

.mobi’s Pearce indicates that with the high profile of the iPhone, the realities of surfing the Web on your phone look more attractive. But he cautions that it’s the diversity of handsets that is holding developers back. And while the iPhone’s browser is a full browser, the network is slow and won’t get any faster until sometime later in 2008 when the phone is likely to be 3G-ready. Yet the idea of a “cool” Web experience on your phone is largely due to Apple’s product. And while Apple sold 1 million iPhones in its first three months of selling, that’s still a far cry from the 200 million-plus handsets in use in the U.S.

Some detractors have also stated that the need for .mobi is completely unnecessary because sites can detect whether a Web page is being called by a phone (and in some cases what brand of phone), and serve up a more mobile-friendly dotcom landing page especially designed for handsets. The folks at .mobi argue that if dot-com domains fulfilled every surfer’s demands there wouldn’t be any need for .org, .it, .de, .fr or .biz.

For those in a quandary over whether to .mobi or not to .mobi, there is a .mobi Advisory Group that is independent of .mobi the company – financially and agenda-wise. The group gathers feedback and suggests initiatives to .mobi developers. Currently they are looking at such issues as mobile advertising, PPC, mobile commerce, browsing, mobile email and the mobile Net for developing countries.

Pearce says that since operators are beginning to flatten their tariffs and open out the access, the stage is set for the “culture, sites and services” over .mobi to explode. “We’ll look back on this as the time the mobile Web found its feet, like in 1997 when flat tariffs enticed a mass of content onto the fixed Web.”

In the meantime, Prosper magazine’s Michel has until December to ready a .mobi site to be part of an Apple demo, and appreciates the deadline pressure.

Double Down: Q & A with William Cooper

As the CEO of TradeDoubler – a Swedish performance network with a vast European presence – William Cooper has his eye on global expansion. TradeDoubler, with its local offices in 15 countries across Europe, is known as the biggest affiliate marketing network in the U.K. Cooper was appointed president and CEO in March of 2007, riding a wave of first-quarter revenue for 2007, up 30 percent. Previously, Cooper, a six-year veteran of TradeDoubler, was COO of the company for a year. Before that, he oversaw the company’s U.K. operations. Currently, TradeDoubler claims a network of more than 100,000 website publishers and has more than 1,000 advertisers across Europe, including a mix of local and international companies such as Apple Store, Dell, TeliaSonera, eBay and Kelkoo. Revenue Senior Editor Eric Reyes asked Cooper about affiliate marketing in Europe and the rise of globalization in an ever-shrinking business world.

ERIC REYES: Since the Sweden-based parent company seemed to launch its affiliate network almost simultaneously across Europe in 2000, was affiliate marketing considered a risky business back then?

WILLIAM COOPER: It was risky from the perspective that it was untried and untested across Europe; it was a concept that was almost completely unheard of. However, it had clearly gained some notable success in the U.S., and this gave us the confidence to succeed in Europe.

ER: Compare the opportunities and volume of affiliate marketing in the U.K. with its popularity in the U.S.

WC: I think it would be foolish of me to think that I knew enough about the market in the U.S. to make a direct comparison. However, with regard to the U.K. it is a very competitive market, and affiliate marketing is generally perceived as one of the most valuable digital marketing channels, and definitely the most cost efficient. It is held in high regard by the majority of e-commerce players.

ER: Do you run a network in Europe differently than you would in the U.S.?

WC: There are many more complexities to running an affiliate network in Europe compared to the U.S. In Europe we have to deal with different languages, cultures, tax regulations, currencies and constantly changing rates of Internet, e-commerce and broadband penetration. All this means that the need for local people in all the markets in which we operate is essential.

ER: Tell us a little about the growth of TradeDoubler UK. Have you been surprised by the interest in the affiliate space in the U.K.?

WC: No, we haven’t been surprised. We believe that we have been part of the process of raising the level of awareness and the importance in this channel. We have positioned it as “premium” channel and not a mere commodity. Affiliate marketing, if performed correctly, can be a dominant driver of e-commerce for any advertiser, so it is right that it is so well-respected.

ER: As affiliate networks become more international, are you seeing competition from U.S. firms such as Commission Junction or LinkShare, and what are you doing to keep your lead?

WC: Commission Junction has always been present in the U.K. market since we have been here. They are a very good competitor and we hold them in high regard. At present we don’t see the presence of Link- Share in our markets to any great degree but they are clearly a ver y knowledgeable and successful player outside of Europe, so it will be interesting to see how they try to gain market share in this already- competitive market.

ER: Is TradeDoubler planning to enter the U.S. market, and what would the challenges be?

WC: There are no plans at this stage.

ER: What are the regulatory and legal challenges of setting up networks in so many different European countries?

WC: There are numerous regulatory and legal challenges of setting up in all these markets. I will not make it easier for our competition by naming them!

ER: Would you consider TradeDoubler more publisher-focused than your U.S. counterparts? Why is that better?

WC: It is too difficult for us to sense that. I believe that we are more publisher-focused than most of our competitors and I believe that this is one reason for our success.

ER: Are there U.S. competitors entering your market that give you cause for concern, and why or why not?

WC: At the moment they do not give us concern, as it is a very competitive market. I just hope that players entering this market respect where we have tried to position the product since 2000. This is not just a technology play; there is much greater value that we can add as network operators to ensure an affiliate program fulfills its potential and reaches the expectations of the advertisers.

ER: What are the concerns of your U.K. merchants? Do they worry about the same things U.S. merchants fret about – trademark bidding, brand management, quality affiliates, etc.?

WC: I think they all worry about very similar types of issues. I would like to think that TradeDoubler is very proactive in trying to address these concerns, many of which can be easily managed.

ER: Are there plans to enter the Asian and Indian markets?

WC: There are no specific plans at this stage.

ER: Do your U.K. affiliates do business outside of Europe, such as with America or China? What percentage? Is it encouraged or are there stumbling blocks?

WC: Some of our U.K. affiliates work outside the U.K. and in our other European networks. We actively encourage it and there are some great revenue opportunities for them in these emerging markets. We help them address any legal issues that they might face, but in general it is an easy process for publishers wanting to work in multiple markets.

ER: Do you think specializing in certain vertical markets in the U.S. would benefit a European network?

WC: There are various ways to approach a mature market like the U.S., and becoming a vertical specialist is definitely one of them. However, the ultimate aim for any network should be to cover as many sectors as possible. This is driven by the fact that we all have interests covering many different sectors, and therefore a publisher that can deliver good results in consumer electronics can also deliver effectively across other sectors as well.

ER: Is there special technology TradeDoubler uses to track and monitor transactions and affiliates? Does technology play a role in serving geographically specific content?

WC: We developed our own proprietary technology back in 1999 and we constantly update and refine that technology. We have separate affiliate networks in all the 18 markets in which we operate; therefore, we don’t need to rely only on technology to target a specific region.

ER: What qualities make up a really good publisher?

WC: A strong publisher in the affiliate world must have a well-defined target audience, i.e., one that is interested in a particular market sector such as travel or financial services. This is why credit card comparison sites, for instance, work well. The audience is visiting with a specific aim in mind and the site is fulfilling their expectations. A loyal user base is also essential – publishers will earn more if they don’t have to buy all of their traffic. They must also have good content to allow them to feature highly in the natural search rankings. The site owner obviously has to be Web-savvy, knowing what links will work well in what place, what affiliate links work better in some places than others and they should complement rather than compete with other advertising that they’re running. The best publishers have open minds and strong ideas of what they’re looking to achieve.

ER: What qualities make up a really good merchant?

WC: A good merchant is prepared to invest time and resources into their affiliate program. As well as ensuring that their website is functioning well with a clear customer journey and reasonable conversion rate before launching a program, there are many factors which will help to ensure that their program does well. A good merchant is committed to building longterm relationships and trust with publishers. They communicate regularly with their publishers to keep them informed about all upcoming activity and will often communicate directly with top performers. They will set commission rates at the right level to ensure publishers are incentivized to promote their program while still ensuring they receive cost-effective returns. They regularly update creative and ensure that it is engaging and sales-focused. They respect their publishers and pay them on time!

ER: While online gambling is a big no-no in the U.S., gambling sites in the U.K. are OK. What types of sites do TradeDoubler frown on and why?

WC: TradeDoubler does not work with any sites featuring dubious content such as violence or pornography.

ER: Are there any new ways to monetize performance marketing?

WC: One example of how the model has adapted in response to advertiser and publisher demands is demonstrated through the pay-per-call concept. At TradeDoubler we have developed a pay-per-call product called td Talk, which enables companies to advertise more complex products online, which may require a telephone conversation to complete the sale (insurance products for example), and pay for the telephone calls that are generated. This model is also appealing to smaller companies that may not have a website of their own but want the opportunity to use the reach of the Internet to market their products or services. On the publisher side, they can ensure that they receive commissions for calls that were generated as a result of advertising on their site.

ER: AOL’s recent attempt to buy TradeDoubler’s Swedish parent failed. Is this good for TradeDoubler UK or bad?

WC: This does not impact on the performance of TradeDoubler UK in any way.

No Borders

In 1492, Christopher Columbus proved that the world was round. In 2006, Thomas Friedman reversed that thinking by writing in his book, The World Is Flat, that the Internet, technology and diminishing trade barriers have created a global marketplace. We can now work and trade with people all over the world with an ease that would have been unimaginable even one ago.

Performance marketers are taking advantage of this more open and leveled playing field to grow their business across borders and oceans by using the skills honed in their home countries. Publishers and networks no longer must confine their opportunities to the 50 states, but through partnerships can reach out to the world.

However, just as American networks and publishers envision growing profits by going abroad, marketers in other regions are now aiming to do battle in the United States. Everyone should prepare for heightened competition.

The United States may have had the early lead in Internet adoption and e-commerce, but the world is catching up quickly. The EU, which has a population two-thirds larger than the United States, now has approximately the same number of Internet users according to research firm eMarketer. China is expected to have the largest community of Internet users by the end of the decade, and Australia and Japan have a higher percentage of citizens with Internet access today than the U.S. As more people go online, global competitors sensing the opportunity are developing operations on par with the U.S.

Europe Grows Up

Just a few years ago Europe was between 18 to 24 months behind the U.S. in affiliate sophistication, but those days are over. During the past few years TradeDoubler, Zanox and Commission Junction have expanded their networks throughout much of Europe and rival the U.S. in their ability to establish relationships and attract an audience. Publishers are expected to help online commerce in Europe to grow from $94 billion in 2006 to more than $200 billion by 2009, according to Forrester Research.

From a network-services, marketing-savvy and technology standpoint, affiliate marketing in Europe is now equal to the United States, according to Carl White, vice president of ValueClick Europe. (ValueClick is the parent company of network Commission Junction.) For example, network software now automatically adjusts the content for nation-specific language, currency and taxes, says White, adding that ValueClick’s European and U.S. networks use the same software. With an understanding of local markets and a bit of training, publishers can get a passport to market internationally.

ValueClick Europe has offices in four countries and saw revenue grow by 30 percent in 2006, according to White. He says that while standardizing on the euro for currency has helped to unite the region, familiarity with the business practices and legal differences of each nation are critical for affiliates to succeed. For example, skill gaming is allowed in much of Europe, while in some regions software downloads as promotional vehicles are less tolerated, White says. “Each market has its own nuances.”

William Cooper, chief executive officer of TradeDoubler, says his company learned that hiring local personnel who live in the country and have an intrinsic understanding of the cultural values and language is critical to growing an affiliate program. TradeDoubler, which started in Sweden and now has offices in 15 of the 18 EU countries in which it operates, grew revenue last year by 61 percent to $256 million.

Rather than trying to conquer Europe simultaneously, the company added one or two countries per year, according to Cooper. “I wouldn’t say for a second that it has been easy,” he says. While most of Europe has adopted the euro (with the exception of the U.K., Poland and Sweden), the unique tax regulations and business laws require time-consuming research before a network can set up shop in a country.

Cooper says that European networks have a more handson style than their American counterparts. “It is more of a consultative approach as we work on a daily basis with our publishers,” Cooper says. Focusing on account management rather than technology enabled TradeDoubler to spread across Europe, he says.

TradeDoubler’s publishers have asked the company about expanding its network into the U.S. and Asia, but for now the focus remains on Europe, according to Cooper. Earlier this year AOL attempted to acquire TradeDoubler, but shareholders rejected the offer.

The European market may become even more crowded should Performics enter the fray. Chris Henger, vice president of affiliate marketing at Performics, says the company is still debating expanding outside of the United States. “We have other priorities than an international distribution effort.” However, Henger says 2007 will be a year for international “investment and investigation” for the company. “We can decide based on demand whether or not to go international,” He says. His rival Link- Share is already in France and the U.K.

Steve Denton, president of LinkShare, says the focus in the U.K. is not about the merchants, which often have two or three different affiliate programs, but with the publishers.

He notes that because interactive agencies have a much bigger influence on advertisers’ affiliate programs in the U.K., its harder to have exclusive merchant deals with networks. Instead, that means that networks must work hard to woo publishers who often have to decide between offers from the same merchant who may have programs on several networks at the same time.

“As a network you need to look at the needs of publishers,” says Denton. “It’s about how they choose and why.”

Consumers-Border Conscious

While most of the trade and technology barriers to market across borders in Europe are crumbling, publishers may find difficulty in converting visitors because of consumer resistance to shopping internationally. According to a 2006 European Commission survey, while 27 percent of citizens have purchased something online, only 6 percent had made an online cross-border purchase.

European consumers say the biggest concerns about buying internationally include the security of transactions, potential problems in resolving complaints, differences in national laws regulating consumer transactions and higher delivery costs, according to the survey. Partially because of these perceptions, just 29 percent of EU retailers offer their products outside of the country, which limits the number of merchants available to publishers.

ValueClick’s White says the software and practices used in affiliate marketing and e-commerce has evolved to the point where the physical location of the publisher or network no longer restricts entering a new market.

“A publisher’s life is border-free,” says White. With a little guidance and local connections, publishers who are successful in one country can achieve success elsewhere, he adds. “A good business in one country is a good business in another,” he notes. He says it is becoming commonplace for U.S. affiliates to come to the EU, and the company also has affiliates based in South Africa.

Zanox, the network based in Berlin and with a U.S. office in Chicago, sees Asia as a fertile ground for affiliates, and has been among the most aggressive European networks in the region. The company has relationships with approximately 250,000 publishers in Asia, according to Holger Kamin, Zanox’s U.S. regional manager. Kamin says China, “with only 9 percent [consumer] Internet [access] penetration … has by far the greatest potential.”

TradeDoubler’s Cooper says his company currently is not active in Asia, citing the challenges posed by cultural differences. “Europe has been the focus for us,” he says. Nicky Senyard, CEO of Ecom Access, attended the Ad:Tech conference in Sydney and says there is considerable interest in affiliate marketing in the East. “The take-up in China and Asia is amazing,” she says. She predicts that Asia will follow Europe as the next quickly maturing affiliate arena.

Because of its ties with parent company Rakuten, LinkShare has established a strong presence in Japan.

From Global to Local

Technology has made it much simpler for publishers to participate in international marketing, including targeting the audience on a local level. Geo-tracking and geo-targeting are becoming standard features of affiliate and advertising software. The software prevents ads from being seen outside of their intended geography and should increase conversion rates.

Zanox, which works with publishers from 30 countries and five continents, uses geotracking technology to customize how publishers display content to visitors from different countries. The technology identifies the visitor’s IP address, and when used in conjunction with a geo-targeted advertising system, displays geographically relevant content to maximize revenue, according to Kamin. Advertisers in industries such as finance and insurance that can only offer services to domestic consumers do not want to pay for external leads, so Zanox prevents their content from being shown.

U.S. publishers can monetize their international visitors by signing up with an international network and then displaying relevant content to visitors regardless of their country of residence.

American publishers who enter the United Kingdom can tap into an audience of English speakers that will include some traffic from their home country, according to Malcolm Cowley, director of strategic accounts at the Buy.At network. Up to 25 percent of visitors to some U.K. sites are from the U.S.

Cowley says Buy.At’s network currently has many U.S. publishers who market U.K. products to a U.K. audience. It also works in the other direction, as Cowley says U.S. affiliates can enhance revenue by signing up with a U.K. network and automatically deliver relevant content to those visitors from their home by tracking their IP addresses.

Ecom Access’ Senyard says geo-targeting is a “great function for affiliates” to enhance revenue by serving foreign visitors. The company developed the software in-house and uses it to deliver custom advertising to its European audience through its ShareResults network. The company, which has offices in Canada, the U.K. and Australia, also has affiliates in Italy, Sweden, Finland and Spain who use the software to identify people from other regions and customize content to suit them.

Sophisticated geo-targeting software can identify the city of the visitor (or at least the city of their Internet service provider), which can be used to customize content for people living in a nation with regional differences in culture or language. For example, Digital Envoy’s geo-targeting software, which is used by Performics, maps Web addresses at the city level and can also detect for connection speed. So sporting affiliates can display different merchandise to footballers (or as we say, soccer fans) in Birmingham and Sheffield, or similarly target different areas of the U.S.

Coming to America

But just as technology has made it seamless for U.S. publishers to participate internationally, it also creates a window for foreign networks and affiliates to participate in the domestic market. In March, Buy.At opened a U.S. network without a physical presence, although executive Cowley expects to do so at a later date.

Buy.At chose to expand into the U.S. before operating anywhere else in Europe because of the common language and because the network already had relationships with many American advertisers. “We were looking to make it a two-way street because of brands we have in the U.S.,” according to Cowley. He hired veteran affiliate manager Andy Rodriguez to develop the network because of his local expertise and ability to develop the affiliate relationships.

Zanox’s Kamin agrees that there is considerable interest from U.S. and European publishers to work with affiliates on the opposite side of the Atlantic. Despite the maturity of the U.S. market, Kamin sees opportunity in creating vertical networks that develop market-specialized material.

Affiliate marketer and blogger Fraser Edwards, who works with Commission Junction in the U.K., visited the U.S. recently to learn more about the networks here and to meet with potential partners. He was surprised at the number and variety of specialty cost-per-action networks.

Despite the intense competition, he sees opportunity for international networks to enter the U.S. Edwards, who is based in Edinburgh, Scotland, says that by focusing on the quality of service delivered to affiliates, they could take business away from U.S. networks.

Edwards says European publishers who apply for U.S. programs using current domains are often automatically rejected, but they get around that by signing up with an American Web-hosting company. Content would need to be modified to give a local perspective and the language used in campaigns would have to be checked to ensure that it is familiar to a U.S. audience, Edwards says.

During the next few years publishers are likely to have a much greater audience to market to as more consumers go online. By 2010 more than 360 million consumer households worldwide will have broadband access, with nearly 40 percent of all connections located in the Asia/Pacific area, according to research firm Gartner. This will result in new affiliates and networks with international aspirations.

As author Friedman says, “Globalization 3.0” enables individuals to collaborate and compete globally. With global networks and software that automatically adjust for local currency, language and taxes, international online marketing has indeed become flat.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the Editor of Matter-mag.com.

Legendary Outlook: Q & A with Todd Crawford

More than a year ago, Todd Crawford created quite a stir in the affiliate community when he departed Commission Junction, a company he helped found in 1998. He emerged at Digital River’s oneNetworkDirect as its vice president of sales and business development, where he oversees affiliate recruitment and development, has profit and loss responsibility, and develops the technology road map and overall strategic direction for the company.

Although Digital River is headquartered in Minnesota, Crawford lives and works just south of Santa Barbara in Ventura, California, where he can ride his motorcycles and drink the local wine in Southern California’s year-round sunshine.

During his tenure at CJ, he was the vice president of sales. His main responsibility was new advertiser acquisition, but he also handled other business initiatives including industry relations and CJ’s international expansion in Europe and Asia.

Revenue’s Senior Writer Alexandra Wharton asked Crawford about a variety of topics including why an affiliate program for the software industry makes sense, the constantly evolving affiliate industry and the making of industry legends.

Alexandra Wharton: oneNetworkDirect is part of Digital River. How do the two entities fit together?

Todd Crawford: oneNetworkDirect is Digital River’s online affiliate network – a network that specializes in providing Digital River software publishing clients with affiliate marketing services and technologies as well as access to a channel of more than 70,000 affiliates.

AW: What is the reason to start an affiliate network for only software products?

TC: Since 1994, Digital River has focused on e-commerce and the digital delivery of software products, so it was a logical progression to launch an affiliate network focusing on these types of products to help our clients drive more sales.

AW: Has this been a long-standing opportunity or is it the result of changes in the marketplace?

TC: With broadband penetration where it is today, more and more consumers are opting to download their software purchases, and I believe this trend is only going to continue to increase. Affiliates can benefit several ways from offering digital downloads: 1) When sold online, downloads have a lower cost of goods than physical products, which means there are more margins to pay affiliates higher commissions; 2) software is a natural fit for affiliates to promote since the computers consumers are using to shop online run on software; and 3) consumers can begin using the software as soon as the download is complete, so affiliates do not have to wait for physical products to ship before receiving their commissions.

AW: During the eight years that you’ve been in the industry, what are some of the most significant changes that happened in affiliate marketing?

TC: The first thing that comes to mind is how much the entire industry has matured. In 1998, affiliate marketing was a great idea but did not generate significant revenue because most companies did not take it seriously. From 1998 to 2002, it seemed like affiliate marketing was trying to earn its wings as a legitimate marketing channel. Fortunately, the dot-com bomb accelerated this shift as it forced companies to make smarter decisions on how to spend their marketing budgets and eventually moved affiliate marketing to the front of the line.

The next big change was the emergence of search arbitrage. I remember the day we were doing some networkwide analysis on recent unexplained growth trends and saw a lot of referring URLs coming from Google and Overture. We looked into it deeper and figured out what was going on. It seemed like such a simple idea that obviously was working very well. Today of course, search arbitrage is a huge part of affiliate marketing. I believe that the success and popularity of paid search today is due to the early innovators in affiliate marketing.

AW: Over the next year, what are some of the biggest challenges facing oneNetworkDirect?

TC: The greatest challenge is taking advantage of all the opportunities in front of us. We have been growing at a tremendous rate since we launched in November 2005. During the past six months, we have made great progress on the affiliate interface, reporting and tool set. Prior to Affiliate Summit in Las Vegas, we re-branded and launched a new home page at www.oneNetworkDirect. com. We have a road map of new features and functionality and have been doing regular releases. During the past year, we have created more affiliate mindshare, which is also attracting more attention and interest in oneNetworkDirect. Some of our affiliates have found great success as part of our network and we are hoping that their success stories will drive even more interest in the industry.

AW: How many merchants are in your network?

TC: Currently there are more than 50 programs in oneNetworkDirect, including programs from leading publishers of digital products and software applications. We typically add several new programs each month.

AW: How many affiliates are in your network?

TC: More than 70,000 affiliates have signed up to participate in oneNetworkDirect.

AW: Can you talk about how you will focus on recruiting and developing affiliate relationships?

TC: Affiliate recruitment and development is our primary focus at oneNetworkDirect. We have a dedicated affiliate development team. Half of the team is responsible for recruiting new affiliates, and the other half of the team is responsible for managing top-performing af- filiate relationships. I recognized years ago that world-class affiliate service is the key to growing a network. We are very active at trade shows where we attract new affiliates and further develop our relationships with existing affiliates. This year we will be exhibiting at the Af- filiate Summit conferences in Las Vegas, Miami and London; Ad:Tech in Paris, London, San Francisco, Chicago and New York; eComXpo; SES; and at Digital River-hosted client events around the world.

AW: Can you explain what oneNetworkDirect’s product, trialTracker, does?

TC: trialTracker is a new conversion-monitoring technology that allows affiliates to promote “try before you buy” versions of software titles by integrating the affiliate ID dynamically into the download. Because the affiliate ID is actually in the software trial, any subsequent upgrades to paid versions will be credited to the affiliate that initiated the trial download. It is a great product offering because many software titles offer free virus or security scans that require the consumer to pay for the product to resolve any identified issues. Affiliates can offer something valuable and free for their users to try out and benefit from the eventual paid upgrades. trialTracker is exclusive to oneNetworkDirect.

AW: What are some of the incentives oneNetworkDirect has in place to attract top affiliates?

TC: oneNetworkDirect has several incentives that are designed to both attract and retain affiliates. Like most affiliate networks, we encourage all of our merchants to offer coupons and promotions to affiliates, including exclusive coupons for select affiliates. These coupon links can be accessed when searching for creative by type through the af- filiate interface. We also list promotions and other program-specific opportunities on our blog, which can be accessed at our website. Affiliates also can find a list of current coupons from top programs on the oneNetworkDirect site. In addition, we offer networkwide promotions on a regular basis. Currently we are offering the oneNetworkDirect Rewards Program that pays up to an additional 2.5 percent when affiliates achieve certain goals or thresholds. For more details, affiliates should visit our site.

AW: Can you tell me about oneNetworkDirect’s Achievers’ program?

TC: The oneNetworkDirect Achievers Program is targeted to our topperforming and high-potential affiliates. Through the Achievers program, affiliates are offered dedicated account management resources to help them gain access to special creative, offers, promotions and custom landing pages as well as receive help obtaining approvals for certain promotional opportunities, such as email or paid search. The Achievers Program also provides affiliates with special perks and opportunities tailored for this exclusive group, including VIP passes to conferences, free software and dedicated marketing dollars for individual bonuses and promotions. Affiliates can learn more about how to become a member and benefit from all the perks of the oneNetworkDirect Achievers Program on our website.

AW: What are some of the long-term goals for the company?

TC: To further increase the value we provide our clients, two important areas of focus for Digital River will be the continued expansion of our global footprint and strategic marketing services. In the end, we are committed to driving pay-for-performance results for our clients.

AW: In three years, what will the performance marketing space look like?

TC: What makes affiliate marketing interesting is the constant innovation and change. Just like with paid search, affiliates are eager to explore and take advantage of new opportunities. Right now, Web 2.0 is the big trend. Three years from now it will be something else.

AW: At CJ you were sort of the face and voice of the company in the affiliate space. Do you feel you have the same level of influence over the community in your role at oneNetwork Direct?

TC: I continue to play a very active role in the industry. I have a network of people that I interact with on a regular basis and we all influence each other. At oneNetworkDirect, we have an active trade show schedule, we frequently participate on panels and speak at industry events, contribute to blogs like ReveNews and ABestWeb and regularly meet face-to-face with affiliates, technology providers and marketers in the affiliate community.

AW: At January’s Affiliate Summit, you won the 3rd Annual Wayne Porter Affiliate Marketing Legend award. Rumor has it that you won because you are always willing to share your knowledge. Why do you think that’s important in this industry?

TC: If you want a young industry to grow, you can’t keep a lot of secrets. I like to talk to people about things I feel passionate about – and affiliate marketing is something I feel very passionate about. I’ve found that some of the best ideas come from open dialogue and conversations with other people. It’s by working together that we can build and develop the best ideas and solutions.

AW: In your opinion who else is a legend in the affiliate space?

TC: That is a tough question because there are so many people who have contributed to this industry to get it where it is today. I know developers, program managers, affiliates and other network executives who have worked very hard while keeping their heads down and consequently have not been in the industry spotlight to get the recognition they deserve.

Network Supporters

Many merchants and affiliates develop very close relationships with their account representative at the networks. These network reps often take on many roles including problem solvers, helpers, mentors, sounding boards, cheerleaders, and sometimes they end up being cherished friends.

Many of these representatives are juggling multiple client relationships as well as their daily interaction with colleagues and peers. The account reps are usually big supporters of their clients and while the relationship between the network and its merchants is a partnership in many ways, it’s best not to forget that the account reps ultimately work for the network. And the goal of the networks is to make money.

And that’s where potential conflicts begin to arise. As a network you want to have efficiencies and leverage strengths. If one representative has experience dealing with the specific challenges and issues of a particular vertical segment (whether it’s those selling online mortgages, insurance, shoes or flowers) then having a single person deal with all those clients might be the most effective way to maximize your resources.

However, from a merchant’s point of view this might create a conflict of interest. If you are a merchant selling flowers online, you don’t want the same person handling your account having access to all your proprietary information and also managing the accounts of your competitors.

“I think it could be a benefit and liability for the merchant,” says Shawn Collins, co-founder of Affiliate Summit. “If all goes well and you have a rep with good insight, that’s great. But if you have someone that you suspect has a reason to help someone else over you, that’s not a good feeling.”

Collins says those uneasy feelings could easily be amplified since each of the networks offer different levels of service.

“I would probably have some concerns if the same rep was working on the same verticals – especially if the network was managing the account,” he says. “If you’ve got one company paying $1,000 a month to the network and another paying $10,000 and they are in the same vertical, I’d be worried that the one paying more was getting much better attention. I’d also be worried about shared intelligence even if it was innocent or inadvertent.”

ShareASale.com President and CEO Brian Littleton says his network is very aware of the situation and asks “each client who their competitors are, in their minds, so that we get a comprehensive list as well.” He says in “any area where a ShareASale representative is in front of sensitive data, we take as many steps as we can to make sure that it is not shared directly or indirectly with a competing merchant,” Littleton says.

LinkShare President Steve Denton says that his company helps quiet merchants’ fears by giving them direct access to their affiliates. That’s not the case with some other networks – most notably Commission Junction.

“It’s your channel; you should have that information,” Denton says, who admits that tact could be a liability if a merchant decides to leave. However, he says he thinks the upside of building a partnership outweighs that.

Denton says that for LinkShare it’s all about the service level the merchant has bought into. LinkShare offers two levels of service: one where the merchant purchases tools to help them run their own program; another whereby LinkShare runs your program for you.

“If you bought tools from us and I’m not running your program, then you can be put in a vertical category,” Denton says. “I don’t see a conflict there because it’s just a tool set and the playing field is level. But if I’m running your program – recruiting affiliates, extending private offers, etc. – then you can’t have the same reps working on accounts in the same vertical. I would not have direct competitors in the same portfolio. They may roll up to the same VP. We have Dell and Apple, Wal-Mart and Target, Macy’s and Bloomingdale’s. But the same reps don’t work on those accounts.”

Gary Marcoccia, marketing director at affiliate network AvantLink, says that in the company’s top two categories – Outdoor Gear/Recreation and Special Occasions – AvantLink has seen “that the more merchants from those respective categories that come in, the better all programs seem to do. This is because each program brings quality affiliates, adding even more specialized affiliates per category to draw from and attract.”

But what if a merchant is working with a CPA or ad network? Generally the merchants that do business with ad networks are looking to get leads and conversions. They are not paying them to deal with branding guidelines.

“In essence you bought shelf space in a store, you can’t expect much more. You didn’t buy an exclusive network. The attention goes to the guy that pays the most and has the best-selling product. Welcome to the world of distributed commerce,” Denton says.

Merchant Vann’s works with two different networks and according to Matt Ranta, affiliate manager at Vann’s, “Fiscally, it can be in a network’s short-term best interests to promote one competitor over another based on the analysis of commission and conversation rates,” he says. “But, ideally, if competing merchants both were working with a single network, they should be offered equal services and opportunities from separate representatives so as to assuage as much as possible a potential conflict of interest. Unfortunately, is seems that this is not always the case with some networks.”

A Taxing Experience

Some companies worry about conflicts when competitors simply join the same network. For TaxBrain, the problems started last November when Intuit and H&R Block also joined Commission Junction after leaving LinkShare. For four years leading up to the point, TaxBrain had enjoyed being the only tax preparation program with a big affiliate presence at CJ. Even though its rivals had much larger overall brand recognition with consumers, TaxBrain had more success using affiliates.

TaxBrain got wind of a competitor joining CJ when TaxBrain’s No. 1 affiliate called the company to say H&R Block’s account team at CJ was recruiting him. TaxBrain’s affiliate manager and vice president of business development, Todd Taylor, says he approached CJ about actively recruiting his top affiliates for the H&R Block program and was told these folks signed up as publishers looking to work with specific types of merchants, and the H&R Block profile was the same as TaxBrain’s.

Affiliate Colin McDougall says this kind of poaching is the norm. “This happens all the time. I will usually accept the rival offer; however, I will promote both companies on my site by offering reviews and pointing out the differences between the two companies for my visitors to make the best decision possible,” he says. “In most cases, each merchant has their own unique selling proposition and promoting rival companies benefits the merchant, consumer and the affiliate. The merchants get more traffic. The consumer gets to see a third-party perspective. The affiliate makes more money by having more brands to promote.”

That might be true, but Taylor says it’s still a hard pill to swallow when you’ve been at the network much longer. Taylor, who had suspected something was afoot when H&R Block showed up at CJU in September, was also miffed that the newcomer Intuit got high-profile treatment at the network. CJ recently put Intuit as a featured advertiser on its home page. TaxBrain has never been featured in that position.

“I felt like that was a slap in the face,” Taylor says, adding that TaxBrain has gone through four entire account teams in the last year at CJ, due to personnel changes and reshuffling at the Santa Barbara-based network.

This has all caused Taylor to be very cautious about communicating his affiliate strategy to CJ. He’s also worked hard to find out the names and other contact information for his top affiliates (CJ doesn’t actually share that information with its advertisers). He claims that now he only calls his top affiliates on the phone and deals with them personally. The rest of the affiliate program related to messaging and such is outsourced to a team at Partner Centric.

The impact has been felt on TaxBrain’s program. Taylor claims it has seen the conversion rate come down compared with last year, while the commissions paid out have gone up. He attributes some of that falling conversion rate to a variety of factors, including the state of the economy and that there is evidence that many people are holding off on filing their taxes. He directly cited the increased affiliate program competition for the rise in commission rates, saying that his company has had to pay out more to be competitive. He also claims that H&R Block recently began mimicking TaxBrain’s successful hybrid affiliate program that pays for both leads and sales.

After getting over the initial shock of H&R Block coming to CJ just in time for tax season, Tax Brain felt like it was dealt another blow when Intuit, which joined CJ in early January after running an independent program, had its lawyers begin sending a handful of cease and desist letters to TaxBrain. Most centered on advertising that TaxBrain was doing (some here in Revenue magazine) to recruit affiliates and promote its affiliate program.

“They are lawyering us to death to keep us from gaining market share,” Taylor says. “It’s cheaper for us to comply then spend the money on legal fees.”

Boon for Affiliates

While all of this competition can be a headache for merchants, it’s great news for affiliates. The more people affiliates have bidding for their attention the more they are in the driver’s seat in terms of getting better offers and higher commission rates.

Affiliates that want to create comparison sites in a particular category can also maximize their chances of getting commissions for sales or leads. “This is great one-stop shopping having all the players in one spot – search engines love that stuff,” Taylor acknowledges.

But some affiliates claim there is some loyalty involved. “I have been approached by rival merchants seeking to compete with a strong performer on our site. However, in these cases, loyalty plays a strong role,” says Mike Allen, president and chief executive shopper of Shopping-Bargains.com.

“It’s wise to ‘dance with the one who brung ya’ and I’m not willing to dismantle a strong relationship for a quick dance with a newcomer. Over the long term, though, since we have a diverse base of shoppers, I’m willing to build a complementary relationship with additional and even competitive merchants. Expand, yes. Replace, not likely.”

Allen adds there is also a lot of research that goes into joining a new program. “Once we have evaluated a program and determined we are interested in running it, we then look at the finer details of their program to determine how much we will promote it. This is especially important when there is a lot of competition in a particular vertical. Some of the finer details that impact placement and promotion on our site include the merchant’s conversion rate, their coupon policy, the availability of their affiliate manager, their policy regarding parasites and opportunities for additional earnings through bonuses, higher tiers, private offers or sometimes even slotting fees.”

McDougall says, “As an affiliate, having multiple merchants to choose from helps grow my business. More merchants to promote provides me with more brands to review for my site visitors, offering greater value to them. Plus more merchants in a vertical creates more competition amongst the advertisers to get prominence on my site, which of course leads to higher commissions. If there are too few merchants in a vertical, an affiliate doesn’t have much leverage for higher commissions.”