Affiliate Programs – UtilitesDB

Video Validation

All of the predictions that 2007 would be the year of online video came true in spades – it rapidly gained in popularity as a medium last year and its momentum continues today.

The long-lasting Hollywood writers’ strike possibly hastened the migration of people to pass their time visiting online video sites due to the lack of television programming. It’s not just old episodes of “Grey’s Anatomy” they are watching online, but all sorts of content.

A Horowitz study found that news segments and nonprofessional online videos are among the most viewed programming (see bar chart on page 036).

A December study conducted by BurstMedia, a provider of advertising representation, found that approximately seven out of 10 respondents (72.1 percent) have viewed online video content. Although young people represent the largest segment of video watchers, a majority of all age segments have watched it – including over half (58.6 percent) of respondents 65 years and older.

To capitalize on the opportunity, new video offerings are popping up all the time that provide innovative twists on everything from programming to platforms. In March, FastCompany.TV, an online video network that covers technology trends and products, launched. Renowned blogger Robert Scoble serves as managing director, and his popular daily video series, ScobleTV, is one of its several programs.

Seesmic, a platform that uploads more than 4,000 videos per day, has Flash-based social features aimed to enable conversations between users. Participants record short videos in which they ask a question or express their opinion. Other users then record and upload replies to the videos, facilitating a back-and-forth exchange.

Video Revolution

Online marketers were quick to join the video revolution – eager to try out the best ways to leverage its versatility to enhance their interactive efforts. These marketers are moving quickly with good reason – a February 2007 study by The Kelsey Group found that online video converts well. Of the 501 adults asked about whether they had viewed a video ad on the Internet, among the 59 percent who said yes, 43 percent checked out a website, 22 percent requested information, 18 percent went to a store and 15 percent made a purchase.

Jim Kukral, an online marketing consultant, explains that people watch online video because they want to absorb information in the least taxing format possible.

He believes that the easier things are for consumers, the better conversions will be, which is why he thinks online marketers should not just be taking advantage of video, “they should be leading the charge.” Kukral himself is so bullish on video that he has vowed to only create video or audio content as opposed to text posts for his blog in 2008.

Mark Wielgus, founder of the site 45n5, is another online marketer pleased with his foray into video. Beginning on January 1, 2008, he pledged to create a video every day for 365 days in a row – even weekends – with the intention of gaining a voice and being a personality on the Web. The videos, like his site, offer guidance and chronicle his own quest to make money online.

Wielgus has different theme days; for example, The Road to Affiliate Summit Sundays, and ShowYourAdHere Mondays. Of the approximately 100 videos he has up on YouTube, he gets about 300 to 400 views per day. One of the lessons he has learned is to include an overlay of 45n5.com at the bottom of each of his videos so that he doesn’t miss out on the branding opportunity when they get distributed.

Promoting Products

Buy.com was an early adopter of online video and has seen tremendous results from its video program, BuyTV. The half-hour on-demand weekly show launched in May 2006 on its site and through distribution partners like iTunes and YouTube, and is also available on broadcast television.

BuyTV showcases the latest in high tech gadgets and Buy.com’s most popular shopping categories. While viewers watch a segment, they are able to make a purchase by clicking a button next to the video.

Buy.com’s vice president of marketing, Jeff Wiscot, and Marketing Director Melissa Salas, who is one of BuyTV’s hosts, say video is effective for selling to people who are not particularly tech-savvy – because they can see an explanation of a product’s features and how the product works. Salas notes that it’s a good tool for electronics, which sometimes require longer purchasing decisions.

Although Buy.com can’t release specific metrics, the company says video has helped conversion rates drastically – in some cases up to a multiple of seven. As an example, Wiscot says that if the company were running an MP3 player promotion with a 2 percent conversion, it could go up to 14 percent on the high end if BuyTV put up a video about it.

Last fall, Affiliate Summit co-founders Shawn Collins and Missy Ward launched WeViews.tv, a video reviews site of products and services that range from the Garmin Street Pilot to iTunes.

In addition to making videos for the site, Collins and Ward ask users to be “consumer reporters” and contribute their own video reviews, which Ward thinks enables affiliates to get their feet wet in video without the trouble of building and marketing their own site. If WeViews.tv accepts and publishes the video, the submitter receives $10, a model similar to Nuuvy.com’s.

WeViews.tv videos feature what Collins calls a “subliminal call to action” by including the URL for the product at the bottom of each video. For example, the video that reviews Sirius Stiletto portable satellite radio has the URL, www.weviews.tv/stiletto.

Collins says the overall typical conversion rate for products is about 10 percent. Ward has had good experience with shoes; noting that both the Chinese Laundry and Ugg Slippers videos have been the biggest – converting at nearly 16 percent in December, and the Oakley Thumps sunglasses converted at 12.5 percent the same month.

On the WeViews.tv site, transcriptions of the videos are posted with product specifi cations added to the text to provide more details. Collins explains the text is keyword-rich and therefore gets indexed in Google fairly high.

In the future, WeViews.tv might make the videos clickable, and Collins says he could use a vendor like WebVideoZone or Bubble- PLY to do that. Currently the videos are powered by Revver – a service Collins likes because of the quality and because it syncs in well with WordPress blogs.

Revver’s senior vice president of business development, Brian McCarthy, explains that Collins and Ward upload their reviews to Revver and then post them on the WeViews.tv site. Revver delivers ads within the player and shares that revenue with them. Any revenue WeViews.tv makes through ads on the browser page they keep for themselves. Because the WeViews videos are in the Revver library, they are syndicated out to the Revver network for additional distribution.

Video Is Versatile

A different type of product that Collins promotes through video is the conference he co-founded, The Affiliate Summit. Because conference registration isn’t an impulse purchase, Collins says he works on numerous touch points to sell people.

Users who want to watch sessions from the Affiliate Summit are required to double opt-in to the weekly Affiliate Summit newsletter, where content supplements the videos in an effort to sell the prospects.

Viewers can then watch full sessions from the conference at the Affiliate Summit site, which is hosted by Fliqz.com. Each video includes an Affiliate Summit logo in the bottom right that’s clickable to the registration page. But because there is no indication that the video is clickable, Collins does not have specific conversion information.

Kukral also makes promotional videos. In 2007, he made five simple videos to promote his online marketing consulting business and uploaded them to YouTube. Kukral now gets three to five calls a week from people who say they found the videos by searching for the terms “online marketing” on YouTube.

In January, Kukral launched The Daily Flip, a show about online entrepreneurism and marketing that features tips, tools and reviews of products. Kukral films each show using a Pure Digital Technologies Flip video camera, which he says proves the point that anyone can make good video with inexpensive equipment.

Pure Digital gave Kukral a Flip camera to create a promotion, which Kukral set up for the day of the Super Bowl. During half time, he posted a video on his blog with a phone number and the first person who called won the camera. The promotion’s goal was to drive people to his site and subscribe to his videos.

Kukral says there is a number of ways to monetize The Daily Flip, including sponsorships, partnerships with networks, commercials and pre- and post-roll ads in the videos. If the site gets enough traffic, he could become a YouTube Partner and YouTube would sell ads for the site that are contextual and give him a cut.

Like his consulting business, Kukral promotes the program through video-sharing sites. He recommends TubeMogul.com as a quick way to upload videos to several sites at one time. Although there are more than 100 video-sharing sites, Kukral pays the most attention to YouTube because of its 31 percent market share of all video sites on the Web.

Although entertaining videos have been among the most popular ones on the Internet, videos that solve problems are also sought after. For this reason, Kukral recommends VideoJug.com, which is an instructional site that teaches people how to do things such as how to use a Pilates balance ball. Many of the videos featured on VideoJug are professionally made and don’t credit the creators, but there are some user-generated areas on the site that give producers an opportunity to brand themselves.

In February, three ex-Googlers launched Howcast, a site that features both professionally shot and user-generated instructional videos. The video ads are in the form of clickable overlays that pop up in the bottom part of the screen. Each video is tagged by topic and each one has a visible script, which make them searchable. A cookware company could purchase spots in the how-to-fry-an-egg video, for instance, or buy paid links in the list of necessary equipment that is part of the video.

Adding Existing Video

Online marketers don’t need to create video to promote their products; they can add merchant videos to their sites to enhance their site’s content, give it a more professional appearance and potentially push it up in the search engine rankings.

James Nardell, an affiliate manager for AMWSO, an affiliate marketing and affiliate program management company, says that he has seen video help with conversion for programs such as Gaiam, an organic and green-living lifestyles company; and Panda Security SA, an antivirus software company, which has cartoon videos that explain how viruses work.

Nardell, Gaiam’s affiliate manager, says that Gaiam has affiliates who have added videos to their sites and the conversion rates have increased by a staggering 80 percent, according to tracking through LinkShare. Gaiam realized that the affiliate channel was a great way to utilize their extensive inventory of video content.

Dori Schwaiger is a Gaiam affiliate who, with her daughter, runs TopHealthSpot.com, a coupon site that focuses on wellness and health. When she built the site in late 2006, she began integrating video and, with the help of Nardell, designed a “health videos” tab at the top of her site, which she says people go to directly.

Schwaiger attributes the approximately 46 percent improvement in sales of health videos during 2007 to the “health videos” tab as well as to the Gaiam product name – users find her site because they optimize the site for those keywords.

In the “health videos” section, there are previews for each video so people know what they are buying, which Schwaiger believes is important for conversions. Nardell agrees that video works best when it is preselling content – it provides a brief example of why they should buy the product.

Schwaiger uses it as much as she can on her site, including video from Drugstore.com and Mochila. Even though it eats up her bandwidth, she says it’s a wonderful tool.

She says it is easy to add video to her site through the WebVideoZone system. It hosts videos and makes it simple to customize the video files by adding text links to the video player, graphics that get displayed on the video player and URLs that redirect when the video has finished playing.

With WebVideoZone, affiliates add their unique affiliate ID code via a form, and cut and paste the resulting HTML code into their website. Once the code is added, the video is available on demand on the site as a stand-alone video player, all of which is an affiliate link.

Gaiam’s Nardell says that once affiliate managers come up with video creative for their affiliates, they can change the video via the WebVideoZone control panel at any time and the video automatically updates on each affiliate site.

Video Widgets

Qoof, a video commerce platform that matches e-tailer videos with Web publishing channels, enables the affiliate community to leverage video widgets. Qoof offers a rich media video widget that is Flash-based and focuses on on-site sales. Product information is available through the widget, and embedded video shopping functions like price comparisons reduce the chance for a potential buyer to leave the site in search of more information.

Jonathan Stefansky, executive vice president of sales and marketing at Qoof, says that it’s easy for affiliate managers to create different widgets tailored for specific programs. They can make changes on the back end with the latest data, which auto-updates affiliates’ widgets so they can offer the newest promotions. Although he can’t share specific numbers of his clients, he generally sees five to 15x higher clickthrough rates than banners or text-based affiliate links.

Qoof has integrated its widget as a Flex Link in LinkShare, which makes it easier for affiliates to grab the widget code to embed in their websites or blogs the same way they would grab code for banners and text-based links.

Video-Sharing Sites

Another way that publishers can monetize video is to add videos from video-sharing sites like Adotube.com, Blinkx, Magnify.net and Revver to their own site.

For example, affiliates can post a video from Revver on their site or social network page, or promote it through email, sneakernet or peer-to-peer sharing.

Revver earns revenue from selling pre- and post-roll advertisements within videos.

For sharing videos, Revver affiliates earn 20 percent of the advertising revenue – the remaining revenue for each video is split 50/50 between the video creator and Revver. It is made possible by a RevTag, a video file that is promoted by an affiliate that contains information about the video being played and about the affiliate.

In addition to the commission-earning possibilities, adding video from a video-sharing site can help publishers add relevant information to their site. If a publisher has a home improvement site, they could choose video from the Ask- Builder.com channel on YouTube where Tim Carter, a You- Tube partner, offers his videos.

With Google AdSense Video units, affiliates can add video from YouTube Partners to their sites and earn revenue on the ads. The ads are paid on either a CPC or CPM impressions basis. Publishers can choose the type of ads in video units – they can be contextually targeted or they can choose from a list of categories like music or technology, or choose to serve content from a specific YouTube partner.

Affiliates install an AdSense player in their site and customize its size, theme and layout. They can choose to have Google/You- Tube determine the best type of videos to show on their site by analyzing the content, or affiliates can choose individual content providers or select categories of content.

Video’s Future

While 2007 is being called the year of online video, industry watchers say it’s just the tip of the iceberg. Revver’s McCarthy lists some of the reasons he thinks it’s just getting started: bandwidth is coming down in cost, more content is coming online and being indexed well, and video quality and advertising continue to improve.

There’s more than one way to cash in on the video revolution. Online marketers are creating their own video as well as leveraging existing video to enhance their programs and improve conversions. And like all uncharted territory, there is much trial and error. Still, it’s clear that video is not going away and marketers that incorporate the medium are benefiting.

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.”

Sex Education

You may or may not approve of what they are marketing, but nearly everyone can learn something from the strategies that the adult industry uses to capture consumers online. The thriving adult industry has a history of pioneering many online marketing techniques and continues to provide useful lessons in how to attract and convert an audience.

From the creation of the affiliate model to monetizing user-generated content, where sex sites go, mainstream marketers often follow. The selling of sex products and content has grown to become a more than $2.5 billion annual business, according to publisher AVN Online, as each year 72 million people visit the more than 4.2 million adult content websites.

Spoil Your Partners

While search marketing and display advertising provides most of the traffic in many industries, affiliates drive most of the visitors to sex sites. Adult affiliates are treated more like partners, and publishers are unafraid to show their gratitude. Keeping affiliates happy is paramount in the hyper-competitive adult world, says Clark Chambers, general manager of adult affiliate network NicheBucks.

Like many consumers, affiliates don’t have much brand loyalty and will work the partners that offer the better returns if they aren’t satisfied. Chambers, who got into the business because a friend needed someone to oversee his exploding affiliate program, rewards his best affiliates with gifts on top of their generous commissions. He has given jewelry, video games and digital music players to his best affiliates, including one teenager in Russia who makes more than $7,000 a month.

Affiliates do the primary search engine marketing and optimization, which reduces the risk for publishers and eliminates competing with them for the same keywords. Chambers makes sure that his affiliates have access to current conversion statistics and a variety of marketing tools, including a steady stream of images through RSS feeds to attract new customers. Adult sites will even host the affiliate websites for free, according to Chambers, who has been managing adult affiliates for eight years.

Adult sites will pay more than the first month’s subscription fees in commissions to keep the traffic coming, according to an adult industry consultant who asked that his name be withheld (he says his family doesn’t know where he works). The payouts are very generous to prompt affiliate webmasters to work harder for the program, and because they can easily find other content sites to promote, the consultant says. Publishers also emphasize the personal touch by being readily available to their affiliates and quickly responding to their phone calls, and by meeting in person at industry events.

Promoting Competitors

The adult industry has not only nearly perfected the art of affiliate relations, but also grows stronger through publishers earning extra revenue by also acting as affiliates themselves. “Co-opetition” is the practice of promoting competitors’ websites when visitors try to exit a website without buying something, according to Jim Lillig, president of marketing consultancy Synergy Intermedia. “It’s a last resort after exhausting all the other ways to monetize” visitors, he says.

While many publishers may not be willing to promote competitors by acting as an affiliate, Lillig says publishers may be able to earn more revenue from those who don’t buy from them than those who do. Lillig, who helped to build Mr. Skin, a subscription website focusing on celebrity nude scenes, into a successful franchise says, “98 percent of customers leave most websites without buying something.” Admitting that you may not have a product that suits every taste is a difficult but significant realization for publishers looking to maximize their revenue.

Ed Kunkel, the chief operating officer of SexSearch.com, agrees that pitching competitors’ products helps to grow sales across the industry. “[Competitors] have the audience you need and vice versa,” Kunkel says. “It’s a huge world you have access to; there is plenty (of demand) for everyone to make enough money. … Since there is no way of completely dominating a market, you might as well share the wealth amongst each other.”

Analyst Greg Sterling of Sterling Market Intelligence says that publishers who link to their competitor’s sites can benefit. “Intercepting a person before they leave a site in an unobtrusive way would be successful in capturing some number of sales,” according to Sterling. He says applications developers such as customer relations management software company LivePerson are experimenting with displaying competing products as a last resort.

By acting as an affiliate for niche adult publishers (such as sites focusing on older women or those of a specific ethnicity), publishers can also track the conversion rates of different types of content and then develop their own competing sites, according to Lillig. He recommends creating multiple niche sites to highlight areas of content as well as to learn more about consumer habits. Also, publishers who present information about competing products gain credibility with their audience, he says.

Analyst Sterling says companies can increase their reach by parsing their content and creating niche websites, such as search technology vendor Marchex’s development of local search sites from a single database. “The creation of niche sites is a good idea if it can be done skillfully and it’s not just spam,” Sterling says.

The adult industry is a tight-knit group who know each another and “form a big circle,” referring traffic to each other in the belief that it’s better if consumers buy from a competitor than if they don’t buy at all. Adult publishers who trade links with competitors can increase their traffic without having to purchase advertising, Lillig says.

However, that circle often traps customers by generating pop-up windows when customers try to exit, an annoying practice that continues to get some adult publishers in legal trouble. Lillig says that while the pop-ups may be frustrating, adult sites studied the practice and identified the exact number of pop-up windows to maximize revenue. Though pop-ups are still in use, many adult companies now ban affiliates who create pop-ups that trap users with unending windows.

Leading the Technical Charge

Lillig says Mr. Skin was one of the first companies to watermark an image and allow it to be spread around the Internet as viral marketing to enhance branding. Mr. Skin reached millions of potential customers by putting its logo on images and by embedding pre-roll ads into celebrity videos that were circulated via email and through peer-to-peer networks. “They became moving ads,” he says.

The adult industry also popularized giving free sample content in exchange for customers providing valid email addresses and co-registration, which gives customers the option of simultaneously signing up for newsletters from competing adult sites, according to Lillig. He says adult marketers took an early lead in tracking email performance, including who opened emails and where they clicked.

Adult sites have also been adept at identifying seemingly unrelated trends in entertainment and integrating them into their product. For example, one of the fastest-growing segments is “reality porn,” an imitation of reality TV programs that has prompted adult publishers to launch dozens of niche sites.

Another cultural phenomenon being integrated into adult sites is gambling (see article on page 66). Playboy.com will open its first Internet casino by the end of 2006, and 121 Gaming Inc. this summer launched GrandNevada.com, which features naked card dealers.

Publishers need to study the latest trends and find complementary ways to expand their reach, says 121Gaming president and CEO Howard Mann. “We saw an opportunity to go in a different direction with something that added entertainment value,” says Mann, of his combining gaming with nudity.

Adult content publishers are frequently the earliest adopters of technologies such as streaming video and webcams that later are adopted by other industries. “The VCR became popular because people wanted porn, and VHS won out because that was the format that porn adopted,” Mann says. Media companies who are currently evaluating which of the new high-capacity DVD formats (Blu-ray or HD-DVD) to sell should watch to see which technology the porn industry favors.

In addition to technology and cultural trends, adult marketers are also quick to turn the latest publishing trends into tools for deriving additional income. Affiliates are authoring blogs about the adult industry to increase their natural search result rankings, and publishers are creating MySpace profiles for their rising acting stars to differentiate their brands, according to NicheBucks’ Chambers.

The Upper Hand

Of course adult sites have a distinct advantage over their general audience counterparts – sex sells, and the demand for content is almost limitless. “If there is one thing that is universal, it’s that men love to look at naked women,” says 121Gaming’s Mann. Even without any marketing, millions of people will search for adult content. “I know adult networks that get similar traffic to Yahoo,” he says.

Conversion raters are higher on adult versus PG personals searches, according to Mark Brooks, the editor of Online Personals Watch. The “conversions are best when people are looking for sexual connections,” he says. Brooks, who previously worked for AdultFriendFinder, says adult publishers can make back the commissions paid to affiliates to acquire a customer within one month, while it may take three months or more for mainstream personals.

However, because of the generous payouts on adult personals sites, publishers have to spend additional time managing their affiliate relationships. “You have to look after [the affiliates], allow them to call you on the phone and take their requests seriously,” Brooks says. Publishers also have to be steadfast in making sure their affiliates do not damage their brand by being overly aggressive. While he was at the company, AdultFriendFinder stopped allowing affiliates to do email marketing because there was too much abuse.

Lessons Not Learned

The adult industry has mastered how to tempt consumers with just enough content to prompt them to purchase without compromising sales, something that most retail sites have been reticent to experiment with thus far. Adult publishers successfully convert traffic by providing affiliates with free samples of their content, a strategy that publishers should adopt, says Shawn Collins, co-founder of the Affiliate Summit conference.

In the adult world, the profits are in the video content, and affiliates lure and hook customers by showing image galleries (often thumbnails) of naked people, and then directing them to the publishers who sell unlimited access accounts. Collins says video, audio or print media companies could greatly expand their conversions by using affiliates to distribute free samples of their content.

For example, the television networks or movie sellers could distribute clips from their sitcoms or films to affiliates to pique consumer interest, which enables customers to realize the value of the content, according to Collins. Media companies have yet to exploit the power of distributing content through affiliates, Collins says, and were slow to team up with video search engines such as YouTube.com to increase their exposure.

This strategy of partnering with large search engines and requiring users to register is the opposite of the niche marketing that has been critical to the adult industry’s success. Video search engine sites have too much content to successfully promote niches (such as British comedy or period-piece dramas) that would convert well as independent affiliate sites.

“Showing teaser videos and allowing them to be distributed virally” could boost the sales of online video, Collins says. Online music stores should allow affiliates to host and play select songs for free, and Amazon should share its technology for previewing a few pages of a book with affiliates. Reuter’s news is one of the video services that allow affiliates to display its content, but the company keeps all of the revenue from its pre-roll ads, which takes away the incentive from affiliates.

As the adult industry has shown, whetting consumers’ appetites by letting them peek at the goods goes a long way in prompting conversions. Adult publishers prove that by working closely with affiliates, innovating by embracing technology and treating competitors as assets, publishers can create new products and increase their revenue.

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

Targeting Affiliates

Name: John Hobson
Job: Manager, Online Advertising, Target.com
Date of Hire: September 2002
Previous Job: Manager, Online Advertising, Fingerhut

Target’s program is powered by LinkShare and earns affiliates 5 to 7 percent on purchases based on volume. The program currently has a 10 percent commission offer for October 1 to December 31.

DIANE ANDERSON: How did you come into the world of affiliate marketing?

JOHN HOBSON: Fingerhut was an early adopter of affiliate marketing. Commission Junction was started in Minneapolis, and Fingerhut was part of the early days. When I joined Fingerhut the program was in place, so our team expanded the CJ program and then added Dynamic Logic (Performics) to the mix.

DA: What is the best thing about Target’s program?

JH: The Target program continues to evolve and change with our business. These changes allow us to continually update our program to better serve our affiliates.

DA: How many people work on it?

JH: There is one full-time person committed to the program and two supporting team members that dedicate a portion of their time to the program.

DA: Why should affiliates work with you?

JH: The power of the Target brand coupled with strong site promotions and an aggressive commission structure should result in increased revenue for the affiliates. Also, we are listening to what our affiliate partners are suggesting and want to create lasting partnerships. This is evident by the updates we have made over the past year. Keep the suggestions coming!

DA: How many active affiliates do you have?

JH: Can’t disclose.

DA: How often do you update creative?

JH: We have great promotions on our site that update as frequently as weekly. We update our creative to reflect these site promotions. We also have a standard, more general set of creative that is updated every two to three months.

DA: What sorts of promotions do you run?

JH: Target.com has a very robust promotional calendar that includes free shipping and percentage off offers. The affiliate program supplements this with activation campaigns, stretch-goal campaigns and category-specific campaigns for increased commissions.

DA: What sorts of sites should think about affiliating with you?

JH: Being a general retailer with such a selection of products allows us to appeal to a wide variety of affiliates. I think coupon and deal sites do really well with us because of our aggressive pricing. Target.com carries products that appeal to a wide spectrum of customers on affiliate sites. The key is for us to work closely with the affiliate site to get the right messaging and creative in front of their customers.

DA: What do you do to help boost conversion rates?

JH: Supporting our strong site-promotion schedule with appropriate banners and text links for affiliates as well as providing affiliates with information on best sellers in each category help boost conversion rates.

DA: What accomplishment at Target are you most proud of?

JH: Within two months of starting, we launched Target’s first affiliate program in time for Q4.

DA: What trends do you see in the industry for 2005?

JH: Continued growth. I see more and more great affiliates popping up each year with new and unique business models that keep pushing the affiliate space. For as much controversy as some of the business models cause, I appreciate the innovativeness.

DA: What will be the hottest products in 2005 that your affiliates should think of promoting?

JH: We have some fantastic new products in our Home category. The merchants have a great eye for new furnishing items. We are also expanding our Gift category to include some very unique, global items that will be exclusive to Target.com. And as always, our Electronics department will be carrying the latest in cool gadgets.

DA: What advice do you give your affiliates?

JH: The two biggest tips that I can give our affiliates are: Read our weekly news- letters to make sure you are up to date with the latest site promotions, hottest selling items and any changes to our program; and continue to give us feedback. We want to hear from you and hear your suggestions. One of the toughest problems we are currently having is how to best communicate with affiliates. Email newsletters are a great way to share a large amount of information with everyone, but affiliates receive emails from each of their merchants making it difficult to cut through the email clutter. I can’t imagine being an affiliate and reading every single merchant newsletter. In the next year we will be testing a number of new communication tools, but I would enjoy hearing from more affiliates regarding this issue and their suggestions.

DA: What’s getting heavy rotation on your iPod?

JH: Sting and John Mayer are staples. Current heavy rotation includes Franz Ferdinand, The Killers, Spymob and Switchfoot.

DA: Where do you live?

JH: Minneapolis, Minn.

DA: Who do you live with?

JH: I live by myself.

DA: What is your most treasured possession?

JH: I don’t really have a most treasured possession, but if I had to pick I would most likely say a collection of items that were left to me by my grandparents (books, mementos, etc.).

DA: Which person currently living do you most admire?

JH: My sister.

DA: Which person currently living do you most despise?

JH: Really depends on the day. Most days it is that really slow driver in the left lane holding up traffic.

DA: How would you like to die?

JH: Peacefully after a long and fulfilling life.

DIANE ANDERSON is an editor at Brandweek. She was the managing editor of Revenue Magazine for Issue 4 and she previously worked for the Industry Standard, HotWired and Wired News.