Etail – UtilitesDB

Virtual Worlds, Real Opportunities

They hang out for hours on end, actively seeking out new people and things to experience. These “residents” of online worlds – who also aren’t afraid to buy online – match the definition of a desirable audience. With millions of registered users and thousands of dollars changing hands every minute these virtual worlds provide ample opportunity to enhance e-commerce and bolster your brand.

However, marketing to virtual-world participants is very different than in the real world. It requires carefully assimilating into the community of pixelated people and tactics that are more about nuance than numbers. Those who buy not-so-real estate before understanding the culture could cause damage to their brands that carries over into the real world.

Virtual worlds enable people to escape the doldrums of school, work and home life by using altered egos (avatars) to navigate terrain where almost anything goes. Virtual worlds such as Second Life, World of Warcraft, There.com and Kaneva are among the fastest-growing (and most-hyped) destinations for online entertainment, and marketers have been quick to stake their claim.

Second Life has grown from 100,000 to more than 4.4 million registered users within a year, and often has more than 40,000 people online simultaneously. World of Warcraft, a massive multiplayer game, has more than 8 million subscribers.

Console makers are getting into the act as well, creating virtual- world extensions of their gaming platforms to retain their customers when they take a break from killing or competing with each other. The Sony Playstation Home world will launch later this year, while Nintendo has developed a virtual world for owners of the Wii console.

Buying In

Today most of the money to be made from virtual worlds comes from subscriptions and selling virtual real estate. According to analyst firm Screen Digest, online virtual worlds surpassed $1billion in revenue in 2006, but most of it (87 percent) stems from subscriptions paid to the worlds’ creators.

Marketers are spending on in-world events to increase their reach, and most importantly, to get access to a desirable demographic. If you imagine that these worlds are primarily a respite for socially awkward teens, think again. Because the sites require a faster-than-average computer and broadband Internet access, users tend to be somewhat computer-savvy and more educated, according to marketing consultant Sam Harrelson.

“They are not your typical audience,” says Harrelson, who counsels clients on marketing strategies for Second Life. Participants tend to also use many social networking sites such as Flickr and del.icio.us, and because they buy virtual goods such as clothing for their avatars, they are comfortable with spending online. Screen Digest projects that commerce (both business to consumer and consumer to consumer) transacted through these sites will top $1.5 billion annually by 2011.

There.com, a virtual world created by Makena Technologies, has more than 600,000 registered avatars, with participation equally split between males and females, according to Betsy Book, director of product management. The median age is 22, and 70 percent of members are between 13 and 26, she says. Shopping for items for avatars is one of the most popular activities, according to Book.

Learning the audience

Before deciding whether to establish a corporate presence, companies should create avatars and join the virtual world as individuals to learn how people communicate and what their tolerance is for marketing. Virtual-world residents have developed their own culture that must be understood before marketers establish a presence, according to Harrelson. Residents would prefer to learn about companies from their peers rather than be approached by advertisers or overwhelmed with graphic ads. “If you buy a building without a marketing plan you can be wasting a lot of money,” Harrelson says.

Opening a storefront and expecting avatars to cruise by and start shopping is an unreal expectation. Sporting goods and apparel company Reebok did just that and had their store defaced by Second Life activists who are rebelling against the commercialization of their escapist distraction, according to Harrelson. (Buildings can be reset in Second Life, so the damage was only temporary.) The company erred in not doing any community outreach before setting up shop, he says.

Companies must be sensitive to what are considered acceptable levels and aggressiveness of advertising in virtual worlds. “If brands go in and assume that you can have ‘in your face’ advertising, it could potentially be very damaging,” says Greg Verdino, who blogs about online marketing. Companies must “join the community and add value” or risk anti-brand backlash, he say. “A bad brand impression in Second Life can follow you into real life.”

A virtual presence must be interactive and offer some entertainment or incentive to be accepted by the community and to garner traffic, Harrelson says. Just as in the real world, free music, sporting events and item giveaways are the best methods for attracting a crowd.

“If you are not authentic and do not offer anything to the community, you are likely to be ignored, at best,” according to Catherine Smith, director of marketing for Linden Lab, which operates Second Life. “However, those firms who commit to a long-term, creative presence in Second Life have an opportunity to interact with their community in new and innovative ways.”

American Apparel, a Los Angeles-based casual clothing company, was the first retailer to establish a Second Life store, in June of 2006. The younger audience of people who “are into leading-edge stuff” was a good match for American Apparel’s customer base, according to Web director Raz Schionning.

American Apparel held several events to generate attention on Second Life, including a launch party that surpassed expectations. Avatars were lined up outside their store in a four-hour queue, according to Schionning.

He says the company thought a Second Life storefront would be a better investment than advertising in an online game. “I’m not sure that a billboard in a racing game would get us much notice” because of the speed of video games, he says. The virtual storefront is modeled after a Tokyo store and costs a few hundred dollars per month to maintain, Schionning says.

Revenue Slow to Grow

Virtual worlds sell real estate in the form of buildings and islands, which can cost tens of thousands of dollars to set up and maintain. IBM purchased 24 islands on Second Life and has committed to spending $10 million on virtual-world marketing.

MTV set up a virtual Laguna Beach island on There.com to promote its TV show of the same name. Reuters, Cisco, Dell, Wired Magazine and General Motors established virtual-world stores or offices, and Calvin Klein launched CK IN2U, a virtual perfume.

Land speculation is becoming big business in virtual worlds. Companies that don’t want to buy an island or take the time and resources to develop an attractive property themselves can buy or rent a building or office space from a virtual landowner. Second Life real estate developer Ailin Graef of Germany claims to have made $1 million developing and selling virtual properties.

So far the majority of the commerce transacted within virtual worlds is consumer to consumer. People are happy to spend a few dollars to buy a skateboard or outfit designed by a fellow resident. More than $1.6 million changed hands in a single day on Second Life in March, according to the company. Companies such as American Apparel are testing the waters of selling virtual goods to generate revenue, but more importantly, to get more exposure for their brands.

American Apparel sells items (virtual jeans or T-shirts) to avatars to wear while cruising Second Life. The clothes are all modeled on real items, and American Apparel offers coupons for 15 percent off real world items when someone purchases the virtual equivalent, Schionning says. The virtual coupons link to its online store, but the transition between the websites could be smoother. “The technology is a bit too clunky,” he says.

While the 12,000 purchases of American Apparel garb in Second Life currency (Linden dollars, which are purchased with real money) aren’t enough to boost the company’s bottom line, the attention from the media and access to Second Lifers has made it a worthwhile investment. “The value is in the exposure,” notes Schionning.

People tap into their inner consumer through their avatars without the restrictions of the real world. While you might not be able to own a tricked-out sports car or diamond necklace for financial or practical reasons, your avatar can, and marketers can use the boundless possibilities to broaden their branding opportunities.

Residents of There.com can buy or rent apartments and adorn their online homes with furniture or art designed by residents or sold by retailers that represents the life they would like to have, according to Makena Technologies’ Book. Shopping is the most popular activity on There.com, she says. “Your online self represents what you are, and where you live says who you aspire to be,” Book says.

The growth of virtual money-changing got the attention of a congressional committee, which is studying the possibility of taxing virtual purchases. Profits made from selling virtual goods are required to be reported as taxable income when converted into currency, and Congress could tax individual virtual transactions in the future.

Brand aid

While companies should not expect a virtual store to convert its visitors into millions of dollars in online commerce, participating in virtual worlds generates buzz and creates brand awareness that can justify the investment.

“Real-life businesses are generally not looking at Second Life as a revenue opportunity, but rather as a way of extending their brands,” Linden Lab’s Smith says.

Brands that create a positive impression in the virtual realm can transfer that interest to their real-world products, according to Book. For example, Nike sold virtual sneakers that enable avatars to run faster, she says, which reinforces the company’s message of its products’ enhancing performance.

Determining an accurate way to measure the value derived from a virtual store or event is a work in progress, according to Book. “We’re still trying to figure out what works in metrics,” she says. The company is developing methods for tracking avatars’ presence in commercial areas of the virtual world to provide demographic data to marketers.

While a company might be happy that the avatar of a young woman is flirting with others at their virtual party, they can’t be sure that it is not an older married man behind the avatar, making it difficult to be certain who is being exposed to your brand. “There is no way to be sure if the registration [information] is actually who they are,” says Book.

Virtual Cottage Industry

While anyone can join and do business in an online world, creating an experience and brand identity that is worthy of residents’ attention requires an insider’s insight. Hot on the heels of the virtual worlds craze are marketing consultants, ad agencies and graphic designers specializing in building and monetizing in the faux environments.

Companies such as Electric Sheep, Millions of Us and The SL Agency provide consulting services that enable companies to create a virtual presence that is consistent with the rules and culture of virtual worlds. Hiring a graphic artist who has experience building offices or islands in a virtual world will expedite the process for companies looking to build a virtual presence.

Joe Mastrocovi and his partners at Long Island- based Moderne Promotions thought their 25 years of event marketing experience would translate well to the virtual realm. After spending time learning the ins and outs of Second Life as residents, the company launched The SL Agency, a marketing company focused on developing events such as volleyball tournaments, concerts and parties in Second Life.

The same tricks of the trade to entice young audiences that work in malls and clubs (free music, free clothes) also work on Second Life, according to Mastrocovi. The SL Agency purchased an island named Activ8, which provides avatars with a place to ski, wager, dance or cruise the boardwalk.

The company sells virtual outdoor advertising such as billboards on Activ8, as well as sponsorships of events. Mastrocovi says virtual and real-world events can be held simultaneously to maximize the press potential and viral buzz.

Similarly, There.com holds events that match what is going on in the sports world, such as skiing events during the winter, and a virtual grand prix in March, according to Makena Technologies’ Book. Companies can purchase sponsorships to expose their brand to virtual world participants without having to commit the resources needed to establish a permanent presence, she says.

But companies expecting to host a DJ-ed virtual party for a song are mistaken. “The costs aren’t much cheaper than a real-world event if you want to hire talent,” Mastrocovi says. By combining in-world and real-world events, companies can create millions of impressions to websites as well as drive customers to brick-and-mortar stores, according to Mastrocovi.

Just as event companies hire beautiful 20- somethings to hand out merchandise in the real world, Mastrocovi recommends that marketers pay well-known avatars to walk around Second Life and promote a company’s brand. These “brand ambassadors” are people trusted in the virtual environment, and an endorsement for them holds weight with other residents, he says.

Participating in online worlds today provides access to an influential younger audience, but it is a challenge to quantify the return on the investment. In the future the companies that administer these sites will develop better ways of tracking the time that residents are exposed to a brand as well as offer more in-depth demographic data. Makena Technologies’ Book says the company would likely develop methods for sharing details about the people behind the avatars that are attending events and making purchases.

The popularity of virtual worlds is encouraging more companies to create alternatives, including kid-themed universes and even a world based on Shakespearean characters. However, blogger Verdino says consumers will have a limited appetite for virtual participation. “No one is going to join 57 different virtual worlds.”

The technology to make virtual worlds interesting and interactive places to while away the hours has arrived. By getting in early, companies can help to set the course for marketing in these burgeoning worlds.

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

B. Knoblach: The Fast Talker

If you asked 100 people on ABestWeb what kind of experiences they have had interacting with B. Knoblach, they probably wouldn’t have a clue as to who you are talking about. But if you say the name Billy Kay, you’re likely to get a huge reaction.

Billy Kay is not just a screen name on ABestWeb; it’s the business identity of a man who has a huge personality and huge heart.

And yes, his first name is really just the letter “B” and no, it’s not short for something else. He claims that his dad was named Walter and didn’t want a junior so he named him B. Although it seems like there might have been other choices for his father, in the tale Knoblach tells that’s how it goes. Period.

One thing about Knoblach is that it’s hard to know just when he’s kidding or saying things for effect. Most of his talk seems designed to provoke and titillate. The way he says things is a huge part of who he is. He’s a fast-talking native New Yorker, who still has a noticeable accent despite having left his home state more than 30 years ago.

Back in the ’70s he made his way out west to California. He served in the Air Force straight out of high school and then used his GI benefits to attend college at CW Post. Armed with a degree in music and $10,000 worth of musical equipment (including keyboards, drums and guitars) to his name, he headed to Los Angeles with a big dream to make it as a professional musician.

But he claims that a shipping problem changed the course of his life. The instruments he shipped to LA arrived and were signed for, just not by him or at the correct address. Back then the tracking and authentication methods of package shippers weren’t as sophisticated as they are now. So after months of arguing with UPS about not receiving his instruments and also trying to file a police report (which was declined because the police said the goods weren’t stolen since someone signed for them) he called it a wash and started hunting for a job to pay the bills.

An ad in the paper looking for ex-New Yorkers who were musicians caught his attention. It was for a telemarketing job. He jokes that New Yorkers are ideally suited for telemarketing because they have the natural gift of gab. He has that in spades and thrived in the business. In fact, he did so well that he stayed there for eight years. He was a standout and not surprisingly was noticed by the owner of the company. His boss was apparently infamous for questionable money-making tactics. Billy Kay won’t reveal much more about those early days except to say that his tax forms listed his occupation as “publishing.”

But it was clear to him that something was missing. He had good money coming in and a serious girlfriend but he really wanted to be a parent. He thought about being a big brother but that wasn’t permanent enough. He jokes that he already had season passes to the zoo and lived near Magic Mountain, he just needed the kid. Someone suggested to him that he might want to think about being a foster parent.

So nearly 13 years ago Billy Kay took the steps to become a foster parent to a six-month-old boy named Jesse. He says it was the best thing he ever did. But being a parent meant undergoing some serious life changes.

In his personal life, Knoblach’s longtime girlfriend wasn’t willing to change her pampered lifestyle to accommodate a child, so they eventually split. “It changed our whole lives. Jesse wasn’t a puppy that could take care of himself. He needed someone who wanted to be there for him and share a life with him. She cared about getting her nails done and rubbing shoulders with stars.”

On the work side of things, Knoblach needed more “respectable” employment. He claims that he “knew what I was doing was wrong,” and started to look for other things to do. It all started with a Web ring for personalized gifts. He began his online marketing career as a drop shipper, and then one day in 1999 a merchant asked to place a banner ad on Knoblach’s page. He was stunned, given that the business wanted to pay him $5,000 and could have just put the ad up on the ring for free. Knoblach took the deal and the next thing he knew that merchant’s direct competition called and wanted to place an ad. Suddenly there was a bidding war and Knoblach was the beneficiary.

Then “affiliate marketing was invented” Knoblach says, and the merchant asked if instead of incurring the shipping charges and the hassles associated with drop shipping if Knoblach wanted to be an affiliate.

Meanwhile, four years had passed and within the California foster care system, you had to relinquish care of a foster child or adopt them. There was no question in Knoblach’s mind that he could never give up Jesse.

So he began the complex process to legally adopt, but there were some huge hurdles. The first and foremost issue was that Jesse is African-American and Knoblach is Caucasian and California had very strict state laws governing interracial adoption. After years of legal battle, racial sensitivity training classes and a yearlong court-imposed order whereby the two had to move to New York for a year to be close to Knoblach’s Long Island family, the adoption was legally sanctioned.

When the year in New York was up, Jesse was five and they immediately planned to move back to LA but “stopped in Las Vegas on the way home and never left.”

Viva Las Vegas!

Living in Sin City isn’t for everyone, but Knoblach isn’t like everyone. For him that straight-laced life conjured up images of parents that spent little time with their kids. “I didn’t want to see Jesse just 10 minutes a day. I wanted to have work that would let me spend my life with him.”

The pair has been living in Las Vegas for nine years and Jesse, who is now 13 and in the seventh grade, spends lots of quality time with his dad. Bill Kay can thank his job as an affiliate marketer for that freedom.

“I thought, all I have to do is put up a link and not deal with customers; why not?” he says. “I lucked out when I found this.”

Suddenly he started expanding, going from his mail order collectible site (MailOrderShoppe.com), which is still his main moneymaker, to niche sites (ceramic baby shoes, business cards, golf gifts, etc.) and coupon sites.

Currently he runs about 20 sites and typically wakes up each day at 4:00 a.m. to begin his three hours of work to update all the sites. By the time he’s through with that process, it’s time for him to get Jesse off to school. Once Jesse is gone, Knoblach gets into what he calls the experimental stuff and then he claims he’s burnt out by 10:00 a.m. When Jesse gets out of school at 2:30, he and Knoblach often go to one of a handful of casinos.

Knoblach takes his laptop and often works from a casino, whether it is the lobby of the Mirage or in a poolside cabana at the Palms. In fact, taped to the bottom of his laptop is his business license so that his place of business is wherever he happens to be working on his laptop at the time.

It sounds like something out of the movie “Casino.” One day he’ll be working at the MGM; the next he’s at the Excalibur. He’s treated well because he’s got host contacts at all of these casinos. That means he can call up his host at whatever establishment and say, “Jesse and I would like to see a show, or, we’d like to come swimming on Friday,” and whatever the request (within reason), it will be arranged immediately.

He boasts that he once had the presidential cabana at the Palms and that they kicked out Vince Neil of Motley Crue in order to make room for him and Jesse.

To celebrate Thanksgiving last year, the Luxor flew the pair up to Reno in a private jet. And then put them up at a swanky hotel. Jesse is also probably one of the few teenagers that receive a personalized Christmas card from the Maloofs, the billionaire owners of the Palms. Often one of these hotels will send a car to Jesse’s school to pick him up, where the 13-year-old will be greeted by a limo driver holding a sign with his name on it.

The high-roller treatment occurs because Knoblach is a regular and loyal gambler. Video poker is his game of choice. He says you don’t have to be super rich to get perks. All it really takes is loyalty and showing up at the same casinos. His coin-in rate (which is the amount of money you put in and how much that added up to before you cashed out) at the Palms last year was $1.8 million. He allows himself to gamble for one hour each day. He doesn’t set a money-spending limit but instead just sticks to his set time limit. During that hour he gives Jesse $20 to go to the casino’s arcade and lets the boy play video games.

After that the two get together for regular stuff – like dinner and homework. They enjoy spectator events such as movies, shows, sporting events. Although lately Jesse has been trying to get his dad into more participatory things like playing baseball rather than just watching it.

Creating a Family

Knoblach is anything but a spectator on the message forum ABestWeb.com. He’s an active and vocal poster at ABW, which he likens to a family. That’s very important to him because he says he’s not particularly close to his own family.

He also gives back and treats his ABW “family” well – especially when he gets to play host in his “hometown.” At the Affiliate Summit conference, which was held in Vegas last January, four hotels gave Knoblach comp rooms. He ended up passing on that good fortune to several out-of-town affiliates attending the show to help them defer costs. He also generously offered a few of his colleagues some friendly gambling tips. And in one case his advice helped net a friend a $500 payout.

He credits others with helping him along the way – especially Haiko de Poel Jr., ABW’s founder [and Shawn Collins]. “If it weren’t for Haiko, Billy Kay wouldn’t exist,” he says. “They are both really good at what they do and I got so much from both of them.”

The rest he’s learned through much trial and error and lots of research. “You’ve got to do your research. It’s 90 percent of your job as an affiliate.”

He also says that he works backwards. When he was planning to create a site for license plate frames, he did a search to check on what search terms people are using for them. Then he made 48 pages using the 48 exact terms people searched for. No more; no less.

Research is important but so are common sense and good instincts. Because of his previous work, Knoblach claims that he can think much like the bad actors out there trying to steal commissions. This helps him put in place ways to thwart parasites and other bad folks. It also helps him when analyzing his numbers. He’s good at spotting inconsistencies and looking for the angles.

So, the obvious question is, why hasn’t someone who has an aptitude for fast talking and making money, perverted his online business (which is always ripe for scammers) into that kind of operation – especially since so many of these scammers do it because it’s very lucrative?

“I have a conscience. It would only take a second for me to do something bad, but I won’t. I spend half of my day trying to defeat the bad apples. It’s a pain. I truly believe that some congressman’s wife will get a bug about this and then there will be regulation regarding this behavior.”

Instead, he’s fallen in with a crowd that abhors that type of behavior and is not shy about making it public.

Meanwhile, Knoblach spends a lot of his work life looking into new things. “Copying and pasting links is drudge work. Thinking about new ideas is the fun part.” He’s getting into a partnership with some peers from the affiliate space, but he coyly declined to provide any details except to say that “it will be bigger than eBates.”

But Knoblach’s life as an affiliate is really just about having a job that allows him to focus on raising Jesse. His work gives them both freedom and a good life filled with fun and enjoyment. We’re not a regular family but “life is great. Who could ask for more?”

Online Is Sweet

Food has recently been called everything from the new theater to the new porn. Regardless of how you think about food, you certainly can’t avoid it.

Food has become America’s No. 1 obsession and food companies – from providers of high-end gourmet goodies to those feeding the fast-food nation – are battling to get on the dinner plates of today’s consumers.

And because everybody has to eat, the opportunities are enormous. Consider this: Americans spend 10 percent of their disposable income on food. The typical American household spent an average of $2,434 on food purchases away from home.

The channels for reaching this lucrative marketplace are just as vast. Recent buzz suggests that food companies are spending or planning to spend less of their advertising budget on traditional forms of media in favor of the Internet. But just how much of food companies’ advertising budget will be allocated to online initiatives and how quickly that will take place varies depending on the brand, the brand’s audience and who’s responding to the question.

Tom Vierhile, executive editor of Datamonitor’s Productscan Online, which covers the release of new merchandise, thinks that the CPG (consumer product goods) industry, which includes food, is getting away from traditional advertising because of rampant media fragmentation, something it considers to be a major problem.

Gene Dillard, president of FoodWise, a marketing communications agency that has worked with clients such as Borden Milk and Tyson Foods, agrees that traditional forms of advertising like print are declining because “there are too many different publications that have divided the market so much.” He says advertisers are using the Web because it is more targeted and cost efficient and says there is a trend of moving more ad dollars online. He recommends his clients should “spend 15 percent of their budget online at the minimum.”

Joseph Jaffe, creator of the popular new marketing blog, Jaffe Juice, and previous director of interactive media at TBWA/Chiat/Day, says that food companies are using the Internet more but not leveraging it to its full potential.

“Food companies and CPGs have always prided themselves on their analytical marketing mix modeling and want to be able to look to what has worked for them in the past and repeat it,” Jaffe says. “But this will not work anymore because the industry is changing so quickly and exponentially and there is much that is not predicable.”

New Recipe For Success

Although food companies lag a bit behind other industries, Jaffe says he believes they are increasing their online advertising spending based on two main reasons. One is that Internet display advertising rose 18.9 percent for the first half of 2006 over the first half of 2005 according to TNS Media Intelligence (this does not include paid search advertising.) Jaffe says he believes that spending by food companies accounts for part of this substantial increase.

Reason number two: Many food companies have increased their overall advertising budgets in the last year and Jaffe believes this includes online spending. October’s Advertising Age’s Top 200 Brands found that for the first half of 2006, Campbell’s advertising spending was up 63.8 percent, Kellogg’s increased by 17.8 percent and M&M’s spent 11 percent more than in 2005.

Lisa Phillips, an analyst who covers the CPG space for eMarketer, says food companies are spending more online recently but not at the same pace as other industries such as cosmetics or pharmaceuticals.

“When it comes to product launches for food, companies are still using television.” For example, according to Nielsen//NetRatings AdRelevance AdAcross, for the period of August 2005 to July 2006, Sara Lee spent 52.3 percent of its advertising budget on network and cable television (see chart below).

Nielsen//NetRatings AdRelevance found that large food companies spent relatively small percentages on Internet display advertising (in this case, image-based impressions, which include popups, banners that scroll by, etc., but do not include sponsored search link ads or other types of Internet marketing). Altria, the parent company of Kraft, allocated 1.1 percent; Sara Lee spent 1.5 percent; while Heinz’s ketchup allocated 2.2 percent and McDonald’s spent 22.7 percent.

It’s hard to get specific numbers as analysts don’t break out food advertising separately from CPG advertising. JupiterResearch defines CPGs as food, beverages, alcohol, household products, cosmetics and beauty aids, and personal care products. Analyst Emily Riley of JupiterResearch says “CPG spending makes up only 5 percent of total online spending. Currently about 90 percent of it is display advertising such as banners, sweepstakes and sponsorships.”

However, JupiterResearch predicts that CPG spending will increase substantially in the next three years and that compound annual growth will be at 10.5 percent between 2005 and 2010 for display advertising, from $385 million to $632 million.

Aside from display advertising, what else are food-related companies doing online? Phillips says, “Food companies are still figuring out how to use the Web ” and they are definitely spending a lot of money trying to do it.” Online initiatives that attract, engage and retain users such as coupon and recipe downloads, features that foster community and sites that position themselves as information resources are among the most popular.

These bells and whistles seem to be effective ways to drive traffic. According to comScore Media Metrix, approximately 38.2 million Web users visited food sites in September – up 15 percent from last year. Comparing July 2005 with July 2006, Food Network.com had a traffic increase of 21 percent; AllRecipes.com is up 51 percent; and About Food increased by 44 percent. Many of these websites are e-tailers and are leveraging the Web with good results.

One of them is Omaha Steaks, which has been online since 1990 with CompuServe, then with its own site since 1995. Omaha Steaks’ communication director, Beth Weiss, says the online part of their business is the fastest growing and credits their aggressive affiliate campaign, which is run by LinkShare and had 2,800 active affiliates for the month of August 2006.

Weiss explains that as a direct marketing company, 97 to 98 percent of its budget is spent on things that go directly to the consumer, like sending catalogs and emails to their 2.2 million active customers who buy regularly.

“We do very little newspaper or television – only a small amount to promote for the holidays and we do no radio because historically it has not worked for us,” Weiss says. “Our target demographics are differently structured depending on where the customer shops. If they mail order or use the 1-800 number, they tend to be older; younger customers tend to be online. The thing that crosses over all the marketing channels is that because our products are high end, we market to affluent people ” they travel and read, and most are in their late 40s and above.”

What the Big Kids Are Eating

It seems that affluent people in their late 40s or older are the sweet spot for many high-end online food purveyors.

Richard Gore, president of Culinary Entertainment Group (CEG), says “food entertainment space” is driven by boomers who go to three-hour restaurant meals as an evening’s entertainment. “Boomers don’t want to stay out late to go to a concert; they have the money to spend, and they are much more interested in food than earlier generations.”

CEG’s March 2007 introduction of Food University – high-end cooking events with an accompanying website – is targeted at boomers. To reach boomers with an estimated split of approximately 60 percent female and 40 percent male in regions such as Chicago, Jacksonville, and Houston, Gore says they are using a mix of print, local radio and local cable, with “events like celebrity chef tours, where the public can mix with their favorite chefs, and provide companies involved with a huge array of experiential marketing opportunities. People see a product and how it’s being used, sample it and they’re hooked,” he says.

Food University, through a partnership with Wyndham Resorts, will engage the American public in learning how to cook more adventurous fare by providing access to celebrity chefs like Martin Yan and Sara Moulton.

Benefiting from this exposure to celebrity chefs are many high-end food purveyors, including two e-tailers, Cooking.com and igourmet.com. Both have realized revenue increases in the past year; igourmet.com’s by 50 percent. Marketing manager of Cooking.com Kari Taylor explains that “the popularity of celebrity chefs and food television has driven awareness and increased demand of cooking products”; some of their more popular products include high-dollar items like Zojirushi bread machines, Calphalon cookware and Capresso coffee machines.

Tracy Chesman, vice president of sales at igourmet.com, a purveyor of 700 cheeses and hard-to-find specialty foods such as Douwe Egberts coffee, says there has been an increased interest in gourmet foods due to the accessibility that consumers have to cooking media such as cable television and the Internet.

“We got a lot of increased traffic when Emeril was on the Food Network and talked about Maytag cheese,” Chesman says.

She adds that igourmet.com saw an increase in sales of a specific type of walnut oil when a magazine article recommended it, which showed the company there was a direct reaction from communication in the media.

The Search For Food

Both companies – igourmet and Cooking.com – credit affiliate marketing and search marketing as key drivers of their business. Cooking.com has an affiliate program run by Commission Junction and their top affiliates include eBates and Upromise.

igourmet.com has outsourced its affiliate program to outsourced program management company Pepperjam.com since 2000 and says that since its launch, sales have increased every single year.

“A huge part of igourmet.com’s success is due to the affiliates – who are essential,” says Michael Jones, COO of Pepperjam. Through igourmet.com’s LinkShare program, they can see that the amount of producing affiliates is increasing. Pepperjam says igourmet.com’s top “affiliates are loyalty programs like Upromise, Ebates, MyPoints and American Airlines AAdvantage, as well as the niche gourmet site, BacchusSellers.”

Jones adds that igourmet.com has very active and aggressive campaigns on Google, Yahoo and MSN and that search generates a large part of their business. Jones claims igourmet.com is the No. 1 listing for “gourmet cheese” and they “maximize campaigns organically on the natural listing through search engine optimization as well as through pay per click.”

Women In the Kitchen and Online

Both igourmet.com and Cooking.com say women make up the majority of their customers. For Cooking.com, their target audience is 35-to-65-year-old women with an interest in cooking, or empty nesters or mothers with younger children. The bulk of igourmet.com’s customers are mostly middle to upper class and clustered in metropolitan areas on the East Coast with a higher percentage of females (55 percent).

The 55 percent figure is in step with findings from comScore Media Metrix. They found that in July 2006, affluent females were the most popular demographic segment among food site visitors, with a 54.4 percent share.

However, vice president of research for BIGresearch, Joe Pilotta, warns that food companies should not jump to conclusions about who uses the Internet to shop for food. He said that in August 2006, BIGresearch did a survey of 15,000 people about the media influences for purchasing food and found that “the normal kind of intuitive thinking is not correct.”

Pilotta says that people who have a lower income use the Web a lot to comparison shop online before they go shopping. For example, a budget-oriented mother of young children will go online to check the food prices for items such as chicken and crackers at Safeway versus Albertson’s while preparing her shopping list before she gets in the car.

Many food sites are targeting Gen-Xers including CNET’s Chow.com, which is aimed at 25-to-45-year-olds, whom they believe are passionate about food but possibly not very skilled at preparing it. Chow.com, which launched in September 2006, includes the popular discussion boards of Chowhound.com and video tutorials on subjects like how to dice an onion, as well as recipes, restaurant reviews, party tips and coverage of food marketing.

SlashFood, a blog that is part of Weblogs.com, is another food site whose audience is primarily 25-to-45-year-olds. Sarah Gim, editor of SlashFood, says the site has easily built up traffic month-over-month since it launched in August of 2005. She says that their team of paid bloggers covers a gamut of topics, from food news to restaurant reviews to food culture, and credits the site’s popularity to the fact that “food in general is more popular than 10 years ago and many readers are motivated by issues concerning health.”

The Food Network is the most exhaustive example of a television and Web channel that has experimented with targeting everyone from foodies to newbies. The Food Network reaches 90 million homes in the United States and the core audience is 25 to 54, more female than male.

However, male viewers increase and the average age of viewers falls in the evenings, which is why shows that are similar to competitive sports, such as “Throwdown with Bobby Flay,” succeed. “Iron Chef” is one of Food Network’s most popular, attracting many from outside its normal demographic – in particular, the core 18-to-49-year-old male demographic.

In October 2006, a 20-part series and accompanying website called “Gourmet’s Diary of a Foodie” kicked off on PBS. It introduces viewers to exotic ingredients and in-the-know chefs on an international level. According to an August 2006 Nielsen Media Research poll, 38.7 percent of PBS viewers make more than $60,000 per household and 30.8 percent have a four-year college education.

So how can food marketers reach such a wide swath of users online – who range in age, gender, education and geographic location? Because of the abundance of websites, Jupiter’s Riley says “food companies typically use interactive agencies to plan their media spending for them. The agencies will often partner with well-known content sites using demographic targeting information.” While many food companies want to drive potential customers to their websites, Riley says the ultimate goal is to provide an engaging brand experience. Food companies seek to do this through a variety of interactive components.

Interactive Is On the Front Burner

One effective component that Sara Lee used for its “Soft & Smooth Whole Grain Wheat Bread” campaign was word of mouth, which was created by AllRecipes.com to reach mothers of school-age children.

AllRecipes.com, which also provided the campaign’s recipe feature, created a custom consumer panel where qualified home cooks were invited to try their new product for free. AllRecipe.com’s vice president of marketing and partner affairs, Esmee Williams, explains that “an invitation was advertised in areas of the site where influencers were most likely to spend time.” Influencers (members who submit content and share opinions) were asked to fill out a short survey; those who fit the defined target profile were provided with online coupons good for 70 to 100 percent off a loaf of the bread.

More than 15,000 people participated, most of them in the target market. Seventy percent of the audience downloaded the coupon, and 40 percent redeemed it.

“Those who agreed to participate in the ‘taste test’ panel were also provided exclusive access to a co-branded microsite where they could share their feedback, submit recipes utilizing the product as an ingredient or forward product recommendations accompanied by a product coupon to friends,” Williams says.

Many food companies have microsites, which create environments that foster a relationship between a specific brand and audience. Among the most successful is KraftFoods.com, which frequently has been the No. 1 branded food domain during the past five years. According to Jupiter’s Riley, it has become a full-fledged destination site with recipes that incorporate Kraft products to appeal to busy moms as well as community message boards where users can swap ideas, and which Kraft can respond to and monitor.

Paula Sneed, Kraft’s executive vice president of global marketing resources, said in her keynote speech at the DMA conference in October that interaction with customers is imperative.

“We need to talk to consumers to find out their underlying motivations ” to succeed, it’s all about customer insights,” Sneed says.

eMarketer’s Phillips says food companies read user-generated content in blogs and message boards “to see which way the wind is blowing before they launch a product – it is an online focus group that offers feedback.”

In October 2006, Kraft partnered with MSN to launch Chef to the Rescue segments, which are four-to-five-minute videos that can be downloaded on demand, so users watch them at their convenience. They feature celebrity chef Cat Cora creating meals based on recipes from KraftFoods.com and are a way that Kraft serves its target audience of time-crunched mothers. Sneed explains that this is “the type of next-generation advertising that adds value to its core customer.”

Kraft Foods, along with Masterfoods USA and Sheraton Hotels & Resorts are among the initial sponsors of Yahoo Food, a section that Yahoo launched in November that offers visitors recipes, food-related articles, blog posts, celebrity interviews and video.

Intended for sophisticates as well as casual cooks, Yahoo Food offers original and syndicated content including articles from the magazine Every Day with Rachel Ray, recipes from Epicurious, original posts from 13 food bloggers like The New York Times writer Ed Levine and video from Martha Stewart Living Omnimedia. The site also will include a Yahoo video show, “Cheap and Easy,” with clips advising users how to make dishes for not more than $5 in less than five minutes.

Diners Eat Up Video

Videos and webisodes are now de rigueur components of many food-related websites with the hopes that these elements will become viral. eMarketer’s Phillips explains that the goal is to have users find it authentic and pass it to each other, and says that today it is easy for companies “to post something on YouTube and see if it goes viral.” She says a great example that was sent to her is Smirnoff’s Tea Partay video, which is a send-up of a gangster rap song, set in Greenwich, Conn.

Another viral marketing campaign, “Long John Silver’s Shrimp Buddy,” is about a guy going on a road trip with a man in a shrimp suit. It has received good and bad critiques from online users, which exemplifies the dangers of viral marketing campaigns that lack credibility. One blogger wrote, “It’s the weakest viral campaign I have seen” and another criticized that “It’s about as genuine as Coke’s summer road trip commercials with a bunch of teenagers encountering spontaneous poetry reads and magic shows.”

Perhaps the most well-known viral campaign for a food company is Burger King’s Subservient Chicken site, which had a million hits within a day after being released, and received 20 million hits within a week. Users could control the movement of a man dressed up like a chicken by typing commands such as “do jumping jacks,” “dance” or “watch TV.” Joseph Jaffe explains that this type of engaging interaction with customers is incredibly valuable because it is more of an opt-in media versus TV, which is mass media that everybody sees. Jaffe says the average user of the Subservient Chicken site spent 7.5 voluntary minutes there. “That’s 15 30-second spots and I bet that’s worth 50 30-second spots because the viewer is engaged the whole time, he says.”

A Web campaign that includes a podcast or user-generated content requires the person to register and therefore guarantees interactivity. And by engaging with users, companies are building awareness and keeping their brand top of mind. Food companies like Burger King and Campbell’s Soup are not trying to sell Whoppers or cans of tomato soup over the Internet – they are trying to build online relationships with users with the hope that the brand experience will follow them off-line and make them brand loyalists. eMarketer’s Phillips says companies will use every interactive angle possible to engage with customers – from word-of-mouth campaigns, to ringtones, to sweepstakes, to advergames.

eMarketer’s James Belcher predicts that advergames and in-game advertising are “small but growing and important” and points to Microsoft’s 2006 purchase of Massive, a maker of in-game advertising, as proof of the momentum.

In-game advertising places targeted ads inside video games – such as on billboards as a player skateboards down a street – and serves different billboards to different users depending on their geography and age. The technology is now attracting deep-pocketed corporate sponsors who see video games as a great way to reach desirable audiences such as young males.

Sara Lee, department store Kohl’s and chip maker AMD are experimenting with in-game advertising with the sponsorship of a series of online games called “The Flushed Away Underground Adventure” that launched on AOL in October. The game called on players of all ages to solve a series of challenges that feature characters from the movie “Flushed Away.” Sponsors have an online presence in the games as well as plug their products in customized pre-roll video ads and banners.

Marketers will be interested to know that according to October’s comScore Media Metrix’s Game Metrix, a study that analyzes gamers’ cross-platform behaviors, 37 percent of heavy gamers agreed that featuring actual products or companies in games makes them feel more realistic, and half of heavy gamers believe that it is inevitable and will be in all or most games in the future. The study also found that video games appeal to not just teenage males or children – on average, gamers are 41 and have an annual income of $55,000; females account for 52 percent of the gaming audience.

A July 2006 report by the Kaiser Family Foundation, based on analysis of 77 branded food websites that are targeted at kids, found that 73 percent of the sites contained advergames, ranging from one to more than 60 games per site. McDonald’s Ronald.com has pages for kids to color, and Capncrunch.com, which promotes the Quaker Oats cereal, offers screen savers.

M&M’s has launched advergames designed for all ages. In October, they introduced the advergame “50 Dark Movies Hidden in a Painting,” which features a Brueghel-style painting with a series of visual riddles where players move around the screen and find the 50 movie titles represented by the characters in the painting.

Another advergame, the M&M’s Trivia Game, asks questions like, “Who drives the NASCAR M&M race car?” which for most users require them to search for the answers. Kevin Ryan, CEO of multichannel advertising agency Kinetic Results, explains that CPG companies like M&M’s are incentivizing users to search on their brand for the answers. “It is all about building an experience,” Ryan says. “It is not likely people are going to buy M&M’s online – they just want people to interact with the brand. It is a prototypical experience.”

The Search For Sustenance

Ryan believes, “There is a tremendous amount of opportunity in using search as a brand conduit ” it is the foundation for growth in the next couple of years,” he says. “There is a big value for search beyond direct response.”

Search is a very effective way of valuing and measuring the impact of investments in other types of media; for example, marketers can use search as a way of monitoring the effectiveness of a TV campaign, as they will see spikes in search activity immediately after the campaign launches.

Cam Balzer, vice president of strategy planning for Performics, agrees that search is helpful for branding efforts. He says that initially some food marketers and CPGs did not see the value in buying keywords if they did not convert, but marketers are starting to understand that consumers are not always looking for immediate gratification. “Marketers are realizing there is value in buying a keyword like ‘turkey’ because although a user might not be ready to buy a turkey at that moment, they might be searching on the word while they think about the kind of turkey to prepare for the holidays.”

Of course, some keyword buys do convert well. “Some of our clients are in the food-gifting business so they buy terms like ‘holiday pears’ and ‘holiday popcorn basket.’ Those words get costly but they convert very well and the high costs pay off. It is the direct market companies that leverage those,” Balzer says.

For the most part, it seems that food companies are just starting to realize the potential of search to engage their audiences. Balzer says, “A lot of food companies are strictly promoting their brand online and they need to reach beyond people who know about them to engage new consumers. For example, there are not many players for search terms like ‘healthy snacks’ or ‘healthy meats.’ Those words are not used by the household brand names like you would think and that is where the opportunity lies.”

Performics has worked with a meat-related food company and says that contextual targeting has performed well for building awareness of its product. Balzer says, “We have seen success with what they call ‘flavor conquesting,’ which means that one brand buys another brand’s keywords. For one client – if we were buying for a turkey product, we would buy ham in the content-targeting network so if someone is reading an article about ham sandwiches, the turkey ad pops up. We know the reader is interested in a similar food product [in this case a deli meat sandwich].”

Jupiter’s Riley says over the next few years, CPG spending on search “will grow a lot,” from $40 million in 2005 to $128 million in 2010, a compound annual growth rate of 26 percent. Search is by far the most lucrative area, accounting for 40 percent of the total online ad spending in the U.S., according to JupiterResearch.

For food companies to take advantage of search, they need to have good search engine marketing programs that are concerned with both paid and organic listings. Gary Angel, CEO of SEMphonic, a search engine marketing analytics consultancy, says, “Organic listings are an incredible value since they are essentially uncharged exposure. In addition, more clicks come from organic listings than paid; so organic listings are the No. 1 potential traffic source.”

Angel claims that paid listings provide coverage across a breadth of terms that can’t possibly be highly rated organically, scale programs to drive traffic beyond organic levels as well as allow companies to control the landing page and message given to consumers.

He says many companies have shifted significant resources into organic optimization in the last year – since this was an area that was significantly underutilized. He says that paid advertising really skyrocketed two years ago and has remained very strong – but many companies have essentially reached a plateau.

Online Offers Steak and Sizzle

Search is one of the channels through which Niman Ranch, a premium brand of meat, is acquiring new customers on a pay-for-performance basis. Niman Ranch pays its online marketing agency, LSF Interactive, only when new Web visitors buy – not for visitors that browse but don’t buy (leads) and not for existing customers that purchase again (repeat customers).

The comprehensive campaign includes search, email, banner advertising and comparison shopping engines such as Shopzilla and Yahoo’s shopping comparison tool.

Daniel Laury, CEO of LSF Interactive, explains that because they are compensated on a pay-for-performance basis, their job is to get the best conversion rates, which they do by tweaking the ad copy and landing pages and by fine-tuning their targeting. He says that recruitment through email and banners enables them to target users better.

According to Kinetic Results’ Ryan, companies have to foray into advertising on multichannels in order to reach audiences who are increasingly not only online but multitasking while they are online. Today people are on their computers instant messaging, while emailing and playing a video game. They have the television on in the background while they talk on their mobile phones. While they flip through the newspaper on the bus, they are listening to the radio or to their iPods. To reach these multitaskers, food companies have to develop campaigns that integrate several components.

An example of this is “Sara Lee’s Joy of Eating” campaign, which is being promoted on Sirius Satellite Radio’s Martha Stewart Living Radio channel and with an interactive presence on the Sirius website. The campaign also includes television ads, a Sara Lee microsite, online advertising, point-of-sale and visuals on packaging and bakery delivery trucks.

Some think that the Internet will never be a main channel for major food brands to reach customers. Datamonitor’s Productscan Online’s Vierhile believes that “There is no real compelling reason for consumers to visit food company sites except for recipes, which are really a one-off.” He believes that if anything has changed over the last 20 years, it is that food companies “have to get the products on the shelf.” To accomplish this, Vierhile thinks that food companies are focusing more on product packaging and in-store promotion.

In-store promotion includes free samples, shelf-edge talkers, in-store coupons, advertisements on conveyor belts, messages on the floor as well as in-store media on TV monitors. According to an August 2006 BIGresearch Simultaneous Media Survey of over 15,000 people, the top media influences for purchasers include in-store promotion – with the most significant influencer being coupons (see chart below).

A Mobile Feast

BIGResearch’s Pilotta says that “Coupons are still very effective even though approximately 1 percent are redeemed.” According to a Prospectiv October 2005 study, approximately 10.5 percent of consumers get their coupons from online sources, about 30 percent of consumers said they would like to receive coupons through online channels and more than half would like to receive coupons online if they were tailored to their interests.

A growing alternative to sending coupons inserted in newspapers is to send them in email newsletters. Email Data Source says that supermarkets that send email newsletters are successful in driving traffic to their Web properties. Supermarkets’ weekly newsletters offer specific targeting, can be personalized and include recipes, online specials and links to weekly ads.

Another innovative way for food merchants to deliver coupons and offers is through mobile marketing platforms including ipsh, VeriSign’s m-Qube, Motricity’s GoldPocket Wireless and MobileLime’s Mobile Rewards.

“Mobile advertising is better than online advertising – it is much more targeted,” says Bob Wesley, president and CEO of MobileLime. “The merchant can communicate with their customers before, during and after each purchase transaction, directly influencing buying behaviors at the point of sale. It is the ultimate in one-to-one communication because a person’s cell phone is a unique ID that is portable.”

For example, Chevy Chase Supermarket is using MobileLime’s Mobile Rewards platform to offer its patrons information-based alerts and instant savings on items store-wide through their mobile phones. Chevy Chase Supermarket was able to tell its customers that they were having a limited- time offer on Edie’s ice cream. This drove a large crowd of customers to stop by the store for the ice cream and also helped to increase loyalty sales on other items for which Chevy Chase sent alerts while shoppers were in the store.

In September 2006, Go-Tan, an Asian food brand, ran a marketing experiment in a supermarket in the Netherlands. Customers shopping in the supermarket (and anyone walking within a 100-meter distance) who had an open Bluetooth connection were reached by a contact request from the Go-Tan device about discounted Go-Tan products available in the store. More than 25 percent of Dutch mobile users leave their Bluetooth with an open connection, which means that Bluetooth could prove to be an appealing channel to establish direct and immediate communication with end users.

Food seems to be a natural match for the Internet. People love to talk about food and share food with others – and foodrelated sites are capitalizing on this social nature by offering various social media tools. It is predicted that food-related sites will continue to grow as interest continues – Yahoo indicated that they launched Yahoo Food because they saw it as a big opportunity and anticipate that CPG companies as well as health and diet companies will buy inventory in the section.

While the Internet is not the No. 1 channel for reaching consumers, most everyone agrees that it is vital for food companies to have an online presence. The KraftFoods.com URL is featured along with the 1-800 number on Kraft’s brand packaging, in their advertising and in Kraft’s Food and Family magazine. If food companies want to reach consumers with a multichannel campaign, Kraft Foods’ Sneed points out that all of the disciplines have to be integrated to maximize the potential for effectiveness.

For example, in 2006, Kraft Foods employed many marketing channels when they wanted to target Easy Mac macaroni and cheese cups to college kids instead of mothers. Kraft Foods used print ads, television spots and built a youthful and innovative website called Scam Some Mac, which includes short videos, an advergame and a viral element that lets you ask others to send you some mac & cheese.

Consumers can expect to see more pioneering online campaigns as food companies increase their spending on Internet initiatives in hopes of engaging users. With the growing amount of traffic to food-related sites, food companies will throw money at their online efforts although some will wonder if online exposure leads to off-line conversion.

Jaffe points out that people can tune out a television commercial with a remote control and ignore a magazine ad by turning the page, but to watch a video or participate in a sweepstakes online, users are required to register. Jaffe says that, “People are always trying to measure the value of an online campaign but maybe people should be trying to validate the value of an off-line campaign.”

In the end, it is finding an optimal mix of media, including Internet initiatives, which will move a company forward. Kraft Foods’ Sneed says, “Companies should not be afraid of trying new and innovation online campaigns – they need to be leaders, not followers.”

Big Brands Believe

TV commercials and print ads aren’t dead yet. Major brands still believe in traditional media. After all, a blockbuster commercial with a catchy jingle can positively boost brand equity. No one cares to dispute the power of a well-placed Madison Avenue ad. But nowadays, marketing teams are increasingly feeling pressure to account for the dollars they spend; they need to show the hard results for money in a real way.

No wonder many marketers are starting to expand their ideas about what constitutes the best-spend blend. While dollars spent on old-fashioned media can positively impact brand image, many major marketers are frustrated by the paucity of accountability in that arena.

Enter the Internet. A decade ago, it was a way to blast banners and burn through a huge amount of cash. Now with access to high-speed connections the norm, and rich-media taken for granted, marketers believe more and more that the low cost, high measurement and constant tweakability make the Internet a magic formula for marketing.

The growth of online ads isn’t showing signs of slowing down and traditional commercial markets are feeling the loss. For example, the up-front market, the time period during which TV networks show their fall lineups and try to sell ad space, is losing its luster. This year the Walt Disney Co. network did well during the up-front, selling $2.3 billion in airtime, a $200 million increase over last year. But the final network TV up-front haul came out to only $9.05 billion, compared with $9.1 billion last year.

“This year the interesting thing is it isn’t just about TV anymore; there are a lot of other places to be worked into these TV buying deals,” says Stacey Shepatin, senior vice president and director of national broadcast at agency Hill Holiday in Boston.

She points out that CBS put the NCAA games on the Web and drew a huge audience. “Content is on the Web, on iTunes and on cell phones. Clients want to be able to reach consumers wherever they are getting their content and for some clients, mobile phone and the Internet make more sense than network TV.” Shepatin says the networks will be aware of this shift and work out up-front packages to please marketers.

AD SPEND UP

Beyond anecdotal evidence of the trend, data backs up the new reality. While many industry observers like to speculate, few have actually pinned down hard numbers. But Universal McCann’s forecaster, Bob Coen, recently revised his estimates for overall U.S. ad spend downward. However, he’s bullish on Internet ad spending and has revised those particular estimates upward. Coen now forecasts that Internet ad spend (excluding search) will amount to $9.705 billion this year, which is a 25 percent increase over 2005.

In December, Coen predicted that online advertising spending would total $8.7 billion in 2006, or an increase of 10 percent over 2004. But in the first quarter of this year online advertising spend increased more than 19 percent from the first quarter of 2005, according to Coen. To give you an idea of the contrast, he now predicts that overall ad spending will increase to $286.4 billion in 2006, a 5.6 percent increase from 2005. In December, he had forecast 5.8 percent growth. The Internet numbers are enough to leave even skeptics believing that this online ad thing has real momentum.

Other numbers also prove the point. The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers announced that Internet advertising revenues reached a new record of $3.9 billion for the first quarter of 2006. The 2006 first quarter revenues represent a 38 percent increase over the first quarter 2005 at $2.8 billion and a 6 percent increase over the fourth quarter of 2005 total at $3.6 billion.

Some types of companies are quicker to catch on than others. Not surprisingly, high tech companies are among the first to get hip to trending their ad spends toward the online universe. Yahoo’s chief marketing officer Cammie Dunaway agrees that a commitment to “performance- based marketing,” like the Internet, is more effective than just doing branding on network TV alone. Yahoo has also ventured into getting its brand seen in off-line environments, with a Sheraton hotel deal in which Yahoo sponsors the wi-fi lobby Internet connections. Yahoo plans to continue its much-lauded street marketing stunts but will also continue to refine its online and search efforts.

“I really believe in interactive. Soho Square [New York] is our overall agency that pulls in WPP partners,” Dunaway says. Yahoo did a lot of promotion for its music product and in addition to buying TV spots on the broadcast of the Grammy’s and throwing parties in Miami, it did a lot of online work.

“We had great online creative as well; you could throw Green Day’s equipment with your cursor – we had a fun, engaging online element. OgilvyOne [also in New York] handles online, and ours is very extensive. We do so many online campaigns! Great branding makes your search work harder. In 2006, our marketing will be a blend. We’re do search engine marketing as well as branding – ad campaigns, buzz marketing and partnerships like Sheraton,” Dunaway adds.

Those looking to reach a youth demographic, including large brand advertisers, are spending billions online. Sprite was an early blog advertiser and trailblazed IM ads featuring a hip-hop cartoon personality known as Miles Thirst.

John Vail, director of the interactive marketing group for Pepsi-Cola North America, says the company isn’t as much about clickthroughs. To gauge effectiveness, the soda giant is participating in an experiment run by Yahoo and market research company ACNielsen that tracks the online behavior and offline purchases of about 36,000 U.S. families. PepsiCo Inc. doubled its online display advertising spend in 2005, allocating just 2 percent of its total U.S. spending. But Americans spend close to 20 percent of their time online, so there is a gap.

Advertisers aren’t really taking advantage of the fact that a fifth of our time is spent online. So there’s a great opportunity for even more expansion.

PRINT IS NO LONGER THE KEY

But at least one advertiser has woken up to the reality of the way consumers are currently choosing to view media. Absolut vodka, known for its iconic print ads, is at the cutting edge. It has radically altered its marketing strategy away from print to the Internet. The company says it changed directions because consumers’ tastes were changing and many competitors were entering the marketing.

“Online plays a more important role than print. Print is not the key media anymore,” according to Patric Blixt, communications manager for new media at Absolut in Stockholm. “Our consumer is more focused on the Internet and mobile communication so we’re shifting also. We’re evolving the iconic advertising, making it more inclusive and modern with the same wit and creativity we used in our off-line advertising.”

While Absolut won’t abandon print, outdoor and TV advertising, those media will take a back seat to the Web. “Even if the print media budgets remain larger, the print is now much more seen as the first window into the Absolut world, driving interested users to the whole brand experience online,” Blixt says.

Absolut will increase its online spend to about 20 percent of its media budget. This would account for about an $8 million outlay in the U.S. as the brand spends upwards of $40 million annually.

And Absolut is probably smart to target consumers online. But marketers of electronics would be wise to follow suit. More than 50 percent of Americans were ready to upgrade their home electronics this summer, according to research from Pioneer and Roper. Before they hit the stores, however, 90.2 percent of them went online for product research.

A survey from the Pew Internet & American Life Project finds that 45 percent of American Internet users have turned to the Web for help with a purchase in the past two years and that 57 percent considered the Internet “the most important source of information,” so many marketers know the Internet is a smart place to be.

Automakers are another group that is riding the wave of the sea change. Ford Motor also dropped its magazine ad allotment from 23.5 percent to 21 percent last year but increased its spending on the Internet to 3.5 percent from 3 percent, according to AdAge.com. The company’s overall ad budget remains flat. General Motors also plans to spend 20 percent of its marketing budgets online this year. Automakers, like Audi and Lexus for example, have been quick to champion emerging media and buy advertising on blogs and podcasts.

TECH TALK

You’d think that technology companies would be at the forefront of parlaying their expertise into taking advantage of the way media is developing. While guerrilla marketing and sponsorships are becoming more popular with tech companies, Internet ad buys are also a big part of their focus. Microsoft is also keen to take advantage of online ads. This year it will spend a hefty $500 million to promote its new “People-Ready” message. However, the long-awaited release of its new operating system (“Longhorn” which was later renamed “Vista”) isn’t slated until 2007, and a new version of Office might not see corporate offices for some time. The company hasn’t announced when it will air ads for either product. But vice president Mich Matthews says Microsoft will spend a nice chunk of its “People-Ready” budget across more ROIeffective media, namely the Internet.

Google has begun selling advertiser image ads, which are displayed on its publisher partner sites. And according to Sheryl Sandberg, vice president of global online sales and operations for Google, the search giant recently introduced a “click to play” advertising service that lets brand advertisers pay fees when visitors click to play video ads, which are often construed as brand ads.

Ad options in the online universe will continue to grow. The variety of newfangled online ads is proliferating. Blog spending increased in 2005, with over $16 million reportedly spent. Podcast advertising earned more than $3 million last year and is forecast to grow, with a projected 2010 revenue of more than $300 million, per research from PQ Media in Stamford, Conn. Companies such as EarthLink, for one, are experimenting with ads on Internet video blogs. And mainstream household names like Whirlpool are testing the waters of podcastlandia.

Meanwhile, traditional media is far from dead. Instead, it is adapting. TV is beginning to mimic the Internet. Not only is it becoming a more on-demand media format (along with TiVO), but it’s also shaping up to be more measurable, too. Several media buyers, such as Zenith and Starcom, have signed on to receive Nielsen’s minute-by-minute ratings data, which will show exactly what viewers are watching. They’ll be able to find out which commercial breaks viewers actually watch. Some agencies are expected to also negotiate prices based on where a commercial falls within a program, or within a commercial break.

eMarketer data shows that large projected increases amount to 24.4 percent in online ad spend, compared with much smaller growth (4.2 percent) for all media.

Things have changed since the late ’90s as advertisers have become more comfortable with the Internet as an advertising medium. It was very easy for them to pull dollars from the Web or ignore it completely, but you just can’t do that today.

During the previous boom, “traditional advertisers hadn’t yet embraced the medium, so growth slowed,” says Denise Garcia, an analyst at WR Hambrecht + Co. “That’s not going to happen again because Procter & Gamble, large auto manufacturers and other companies have said they are decreasing spending on traditional media, like television, in favor of online media.”

Despite frequent reports of its demise, TV advertising is far from dead. JWT, in fact, has bought up all the front-page ads on the news blog site HuffingtonPost.com for one week, inviting users to view, comment on and share some of the agency’s best TV ads. The ads invite users to view JWT commercials for clients such as Ford, HSBC and JetBlue. After clicking, visitors are taken to a separate section where they can see nine different JWT spots, leave comments and forward the link to a friend. Jonah Peretti, a partner at HuffingtonPost.com, said the effort is a joint experiment to see if social media sites are fertile ground for TV ad messages to enjoy a viral effect: “If you make excellent advertising, good content and put it in an environment [where] it can be shared, you can learn a lot about how to improve what you’re doing.”

DIANE ANDERSON is a senior editor at Yoga Journal. She previously worked for the Industry Standard, Brandweek, HotWired and Wired News. She lives in San Francisco.

eBay: What’s in Store

Describing eBay as a commerce website is like saying Elvis was a singer. The 11-year-old company that began as a virtual flea market similarly has become an international phenomenon, spurring the creation of cottage industries and sustaining thousands of small businesses.

And despite being one of the Internet’s forebears, the company is in many aspects just getting started. As eBay grows, so will the myriad of obvious and less-apparent methods that marketers can use to profit in, around and through eBay.

By economic standards, eBay is a medium- sized country. In 2005, the value of the sales through its marketplace ($44 billion) and financial transactions through its PayPal service ($27.5 billion) together were slightly more than the gross domestic product of Belarus, an Eastern European nation of 10.2 million people.

The eBay network includes much more than online auctions, encompassing vertical marketplaces (Motors, Rent.com), fixed-costs sites (Express and Stores) shopping sites (Half.com, Shopping.com), as well as a telephony company (Skype) and PayPal.

The San Jose, California, company’s revenues continue to grow at an unusually high rate for a mature company, jumping by 35 percent during the first quarter of 2006. “eBay has its own weather pattern,” analyst Greg Sterling of Sterling Market Intelligence, says. In addition to the many people who make a living selling goods on eBay, Sterling says the rapidly growing eBay economy also impacts “off-line eBay enablers, including packaging and shipping companies.”

INSIDE INFORMATION

While the auction service is eBay’s signature sales venue, it is only a fraction of the revenue opportunities available to marketers, many of which do not require selling goods. Publishers are leveraging the site’s considerable traffic to complement or as a portal to their own websites.

The eBay audience of active purchasers grew to 75.4 million users in the first quarter of 2006, up 25 percent from the previous year. The same strategies used to attract consumers on the greater Web, including search marketing, optimization and email advertising, can be used to capture traffic within the eBay universe, according to eBay Power Seller Skip McGrath.

“A lot of people use [eBay] as a marketing gateway, to market to them later,” says McGrath, who is the author of seven books on the company including “Titanium eBay, A Tactical Guide to Becoming a Millionaire Powerseller.”

Even if consumers don’t make a purchase, publishers can still profit by linking to their sites from within eBay, according to McGrath. “A substantial amount of people make more money from the advertising on their own sites through traffic from eBay than from actual [auction] sales,” he says. “I get 2,000 to 3,000 visitors per month just from people clicking through from eBay,” he says.

Publishers must be careful in promoting external sites, as eBay will ban anyone who violates the company’s linking guidelines, according to McGrath. For example, only the “About Me” page of an eBay Store can contain external links, and those must be at the bottom of the page. But McGrath has commandeered substantial traffic by including the URL of his business in the image he created for his About Me page, which he says is okay by eBay rules.

Maintaining an eBay Store not only provides the possibility of selling items for fixed prices, it also enables sellers to advertise to eBay’s massive audience. The company has one of the largest inventories of advertising positions to sell, as it is ranked as the fifth-most-trafficked website, according to comScore Media Metrix. In May of 2006, 77 million people visited the site, or 60 percent more than Amazon.com

eBay sellers can promote their wares by purchasing keywords on the site, but the ads can only link to eBay Stores. eBay Stores are promoted through Google’s Froogle shopping engine, and eBay spends about $250 million per year advertising with Google’s AdSense program to increase traffic, according to analyst Sterling.

eBay offers an email marketing program for contacting registered users. Power Seller McGrath says he increased the traffic to his website by including links in a newsletter that has 35,000 subscribers. “It’s a great platform to reach international markets, as it is hard to promote a website overseas [through search marketing],” McGrath says.

Marketers looking to improve the performance of their products on eBay or to identify the valuable keywords to promote in search marketing can license data from the company, says Greg Isaacs, the manager of eBay’s developer program. Publishers “can determine fair market value of items that are for sale” by analyzing data about sales at a fixed price versus at auction, Isaacs says, but eBay does not license personal data about its registered users.

To capitalize on the potential of the wildly popular social networking phenomenon, eBay recently launched two of its own Web 2.0 services. During the eBay Live users conference in June, the company unveiled Member Blogs, which enables members to promote their products and stores. Bloggers can expand their social network through posts in which they are not restricted from promoting and linking to their websites. The company automatically creates RSS feeds of the blogs to facilitate syndication and continually update readers.

Also announced at eBay Live was the eBay Wiki, a user-created encyclopedia of insider marketing tips and best practices for participating in the eBay economy, which publishers can use to showcase their marketing savvy.

“The next level [for eBay promotions] will be social commerce,” says Robb Hecht, a business blogger who publishes the Media 2.0 site. He says getting the blogosphere to build a community around the company and its products will be an important factor in maintaining eBay’s growth.

In addition to promoting themselves within the eBay cloister, marketers have a plethora of opportunities to generate revenue by promoting eBay commerce throughout the Web. Through advertising, integrating eBay listings and affiliates, marketers are spreading the gospel according to eBay and earning commissions.

An advertising system under development by eBay will enable publishers to generate commissions by referring users. AdContext, which competes with Google’s AdSense, searches the content of a Web page and automatically generates links to relevant eBay categories.

“Contextual advertising allows us to leverage content on any website, and connect it with any transaction [on our site],” says Lily Shen, a senior manager who oversees eBay’s affiliate program. Or, publishers can manually match their content with eBay keywords using software available to eBay affiliates.

Affiliates interested in AdContext sign up through network partner Commission Junction, according to Shen, who says affiliates are prohibited from using AdContext to link to their own eBay Stores. Commission payouts are tiered based both on the volume of new eBay users referred and the dollar amount of the winning bids that referring consumers make, says Shen. While referrals to eBay Marketplaces (including eBay Motors and eBay Express) are aggregated toward reaching the tiered goals, affiliate referrals to other eBay companies (such as PayPal, Half.com or Shopping.com) are not, Shen says.

Affiliates who promote other eBay companies receive separate revenue and traffic reports and must sign up for each program individually as every eBay property has its own commission structure, according to Lisa Riolo, senior vice president of business development at Commission Junction. Riolo says the addition of AdContext could help eBay to reach new publishers, although “there aren’t too many publishers who aren’t aware of eBay.”

Would-be publishers looking to create their own Web identity can use an eBay commerce and content tool. ProStores.com is an eBay subsidiary that offers an email marketing system for sending permission-based newsletters and promotions.

BUY DON’T BUILD

While eBay provides an extensive list of application programming interfaces (APIs) that publishers can access to integrate content into their websites, a growing number of third-party programs provide the shortest route to assimilating with eBay. The roster of eBay’s developers doubled last year to 30,000, according to eBay’s Isaacs. Applications developed by independent programmers generated 25 percent of the listings on eBay, he says.

Specialty retailers can boost their inventory by incorporating eBay Marketplace listings into their stores. For example, by customizing an eBay API, ticket reseller FatLens.com displays eBay items alongside tickets from other vendors, says president Siva Kumar.

While Amazon.com has more mature software, eBay’s technology is straightforward to use, and Kumar is impressed with the quality of the listings. “eBay has many long tail items like Civil War uniforms, things you can’t find in a regular store,” he says.

Advertising company Scope Aware recently introduced SmartyAds, a program for companies that want to participate in search engine marketing with the leading engines but do not want to manage multiple programs. Scope Aware acts as an agent, managing the campaigns for marketing eBay Auctions, eBay Store, and eBay Express listings across MSN, Google, Yahoo and Ask.com, according to founder Ali Gungor.

Scope Aware’s software “automatically analyzes goods for sales and comes up with the keywords to buy,” says Gungor, who charges a setup fee and percentage of the value of the goods sold. SmartyAds creates the ad copy and suggests the language for landing pages, Gungor says. By acting as an agent and negotiating with the search engines, Scope Aware enables small advertisers to participate in paid search dominated by large companies, he says.

Even though eBay’s commerce business is more mature than search, the company and its partners continue to develop new services for marketing and selling products. But maintaining that growth in the face of competition from Google, which is just beginning to exploit commerce, and Amazon, which is adding content to its retail properties, will be a challenge according to analyst Sterling. “It’s unclear how broadly eBay can expand.”

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.

Special Order

News of the death of the catalog is greatly exaggerated. It’s no secret that the catalog retail universe is a big one. Brands that started as paper catalogs sent in the mail go back more than 100 years to the Sears & Roebuck catalog sent to families in rural parts of the country. In its pages people could order everything from bars of soap to do-it-yourself homes delivered right to the doorstep.

Catalogs in general have gone through a sea change of sorts and nowadays the best-known ones sell mostly apparel, kitchen and bath goods, electronics and other home and gift items. Many of the brand names are nearly ubiquitous: L.L.Bean, Eddie Bauer, Chadwick’s, Patagonia, Harry & David, Spiegel, The Sharper Image, Brookstone, Crate & Barrel, Hammacher Schlemmer, Pottery Barn, Williams-Sonoma, Land’s End, Lillian Vernon and Victoria’s Secret.

Some of these brands are, of course, multichannel marketers now – be it Web sales, catalog, physical store or telemarketing. The printed catalog may be how the brand is recognized, but it’s the various channels that keep sales humming.

In fact, multichannel marketers are very big participants in the $2 trillion U.S. retail market, according to the Direct Marketing Association (DMA). About 40 percent of retailers sell through three or more channels, 42 percent through two. That’s almost a quarter of all retail sales generated through direct marketing efforts and that direct mail (such as paper catalogs) accounts for half of that revenue, according to the DMA.

Smooth Transition

When e-commerce came along many predicted that the pick-up-the-phone-and-order-from-a-paper-catalog model would die out. It hasn’t and is in fact thriving, especially as affiliates for these catalog businesses do extremely well.

Like the overall affiliate cosmos, the top 20 percent of affiliates for catalog retailers bring in the heaviest sales. Contrary to their fears, catalogers, as they are known, have transferred the catalog model to the Web rather well.

Online catalog and call center revenues reached $9.87 billion last year, and online sales through retail chains brought in $27.75 billion in 2005, according to Internet Retailer. Eighty-two percent of multichannel retailers who have a catalog component run profitable Web operations, according to Internet Retailer/WebSurveyor. This is actually ahead of the virtual-only merchants – only 75 percent of them are profitable.

Contrary to what might be suspected, the Web presence does not take away from the overall catalog brand. All catalogers believe in e-commerce, says Chris Henger, vice president of affiliate marketing at Performics. He says the days of catalogs asking if they should invest in the Web are over. “There may not yet be best practices in what channels get the credit for sales, but they are learning. Sending a catalog is a tremendous vehicle and so what better time to be omnipresent with an interactive message,” says Henger.

Performics manages affiliate marketing programs for more than 300 advertisers, including more than 100 catalogers. Catalogers are kind of its specialty, he says. Some of its top catalog clients include Blair, Cabela’s, Eddie Bauer, Brylane, Chadwick’s, Patagonia, L.L.Bean, Harry & David, Spiegel, Newport News, Sears, and Sportsman’s Guide.

According to Henger, the message from consumers is loud and clear: The customer needs to touch the brand the way it wants to – whether that is on the Web, over the phone or walking into a store. The good news is that those channels all help each other.

“Customers are seeing growing sales on the Web – 30 to 60 percent of sales,” Henger says. “They have all come to the conclusion that [mailing] catalogs is not going to go away. It builds brand equity and there is a balance to the push and pull.”

Others agree.

“Going online in general has benefited us greatly,” Chris Park, affiliate and partnerships manager at Blair, the men’s and women’s apparel seller, says. “We may drop catalogs all the time and [customers] may look at a catalog a few times but they go to the website many times.”

Teamwork

He says there’s really no choice anymore: The print catalog and online have to work together. Many customers look through the catalog and then come online when it’s time to buy, Park says. Blair can then promote a $0.99 shipping offer once customers come to the website.

Some catalogers take the time to look at the affiliates themselves and measure their value in a more granular way instead of just heaping together all affiliates into one category.

“Before we were just looking at the sale and now we are looking at the affiliates themselves and putting them in different buckets,” Park says.

Knowing so much of their sales are now attached to the Web and by extension, affiliates, some catalogers believe they need to go the extra yard for their earners. Brad Sockloff, vice president of e-commerce at Lillian Vernon, says he works personally with top affiliates every day.

“We do special promotions with the top 20 percent and we do monthly meetings with them,” he says. The top earners get to know when Lillian Vernon has overstocks prior to the holiday season. “Why sit on it for another year?” Sockloff says. The company also produces a newsletter exclusively for affiliates.

Lillian Vernon additionally has a link to find out about their affiliate program prominently displayed on their home page, as does Brookstone, The Sharper Image, Eddie Bauer, Hammacher Schlemmer, and Chadwick’s of Boston. None of that personalization is too surprising from Lillian Vernon, who markets gifts, housewares, gardening, seasonal and children’s products among other gift-related items – most of which can be personalized with a name or monogram.

As far as helping affiliates, you might not get any better than at Sierra Trading Post. They were named Innovative Merchant of the Year by LinkShare in 2005. The tools on the company’s site to help affiliates are plenty, more so than most of the other cataloger affiliate Web areas. Sierra has available on its site an extensive guide for affiliates, website templates in three different styles, a product data feed and tools for easier product showcasing on your site. In beta are two new tools: Synonymizer, for maintaining your search engine rankings even with a data feed; and Linkwrapper, an automated linking tool.

Justin Johnson, affiliate manager at Sierra Trading Post, says if he makes the affiliate’s job easier they will make more money. “Help them fill the hole,” he says. “Data feed sites give visitors a good idea what they are looking for and we automate some of that for those that don’t know. I try to figure out what affiliates are struggling with” and base a tool on that.

Sierra also posts sales contests for affiliates where they can compete for prizes. Johnson says while making the sale is great, he loves to learn something from the contests, such as finding out an elusive metric like numbers of new customers. He says Sierra’s recent Summer Camp contest will try to get the affiliates to communicate with each other and learn from each other. “I ask myself, what affiliates do not know,” Johnson says. “It benefits us all. Customers profit because they find what they are looking for and affiliates profit because they get high conversions.”

On A Shoestring

While catalogers restate their commitment to affiliates, there are still the somewhat- tight budgets driving an affiliate manager’s workload. Recent DMA statistics say about 9 percent of catalog/Internet marketing budgets go to affiliate marketing. That’s in line with about 8 percent of affiliate budgets for all retailers.

And JupiterResearch recently determined that search engine marketing managers also did five other jobs on average, including Web design, IT staffing, email marketing and e-commerce management. Or in the case of Andrew Dunn, online advertising manager for Vermont Teddy Bear Company, you manage stuffed bears, pajamas, flowers and mail-order gourmet foods. He agrees he could be doing more to reach out to affiliates. “We’re such a multichannel brand,” Dunn says. “The affiliate is a smaller channel for us, but we will broaden things as much as we can.” He says less than 5 percent of overall sales come from affiliates.

The Vermont Teddy Bear Company began selling personalized stuffed bears on the radio in 1981. The company’s other catalog brands include Pajama Gram, Calyx & Corolla, Gift Bag Boutique and Tasty Gram (which is online only). Dunn says he considers any business in the “gift” category to be his competition, so he admits he is often too busy to attend to all affiliates. Paying more attention to the big earners is just “physics,” he says.

While staying in contact with affiliates keeps him very busy, he finds ways to steer everyone somewhere. He says if an affiliate emails him with a simple html question, he may refer them to an online tutorial. He says he will refuse entry to affiliate applicants whose Web address is a provider name with a tilde denoting their personal site. A person who isn’t going to spend the money for a unique Web address is probably not going to be an earner, he says. Blair’s Park says that some affiliates never want extra emails or phone calls, preferring to be left alone. Some, he says, want all the details – “They IM me, call me and I know who they are. I’ve got to keep those people happy.”

Search Sells

In the performance marketing world, catalogers and other e-commerce sites – whether they sell through multi-channels or not – can’t deny the effectiveness of search engine marketing. While a DMA study stated that 58 percent of catalogers said they use affiliate marketing as an advertising strategy, 65 percent said they used search engine advertising or the buying of search keywords. Interestingly, both pay-per-performance and shopping aggregators have a decent presence among retailers with catalogs, at 41 percent and 24 percent respectively. And it is good to see that the annoyance of pop-ups and adware keep their numbers low, at 9 percent and 4 percent respectively. Up-and-coming strategies still in the beginnings of a groundswell are Flash ads and video ads, at 8 percent and 3 percent respectively.

Park agrees that catalogers will employ better conversion methods as they get more used to the possibilities. “Search is definitely the big thing,” he says. “Aggregators will also get big.” He says he would like to see more of an understanding of adware. He says he won’t work with anyone where software attaches to your computer. He publicly speaks out against adware when he can.

While some catalogers have put a ban on bidding of brand keywords, search may be the only thing catalogers have a certain control over. Some catalogers would rather not lose control over the brand. If you have, say, 50,000 affiliates, all with a different Web address, you don’t know what’s being done to your brand, says Sierra Trading Post’s Johnson.

A high-profile catalog such as Crate & Barrel chooses to have no affiliate program whatsoever. “We wouldn’t have anything like that here,” a spokesperson says.

The more affiliates contribute to your online sales, the more time and investment you’re going to give to an affiliate program, says Johnson.

“There’s lots of pressure more and more in the affiliate channel,” Vermont Teddy Bear’s Dunn says. “There is more competition for ad space, and from a search perspective, contextual ads-wise. I can pick and choose as a marketer but if I’m an affiliate marketer there is more work involved.” He says in his year and a half as online ad manager, “We are growing up with it and see what works and what doesn’t.”

Unlike Vermont and its relatively small 5 percent of online sales that come through affiliates, Lillian Vernon’s Sockloff says affiliates bring between 10 and 15 percent of their online sales. Not only is it a fairly large percentage as far as affiliate involvement in sales figures goes but for Lillian Vernon, half of their overall sales come in the fourth quarter since the holiday season is its busiest. Sockloff says the affiliates really begin to ramp up in early September for the holidays. While he says that increases the incremental customers they get – buyers who wouldn’t otherwise come to Lillian Vernon – those customers are used to looking for items on the Web and the self-serve aspect is a “perfect fit,” he says.

Dunn says that at the end of the day, he sees themselves as multichannel marketers and not just catalog retailers anymore. “If our transactions are online, we have to ask, Would we have gotten that order anyway? The multichannel challenge is what we have every day,” he says. Does it make him think the paper catalog is dying out? He points to the radio market – where Vermont got its start – as an example. With satellite radio now in the picture, he says, the market just evolves.

Henger at Performics is more than optimistic about catalogers’ longevity in the business. “[Catalogs] capitalize off e-commerce growth,” he says. “We [at Performics] see continued growth in the sector. They often need something like us – they don’t typically have a full ad marketing dept. Target [stores] has it and has a history of keeping it in-house. Most catalog retailers, however, are budget-challenged and need us.”

Budget-challenged or not, the benefits for consumers have only multiplied with the choice of sell channels and that means catalogers continue to grow with the rest of the affiliate world – one innovation, one sale, one page at a time.

Comparison Shopping Engines Drive Sales

Rev your sales by driving comparison shoppers your way.

Could comparison shopping be the gas fueling tomorrow’s affiliate sales? In 2005, three of the top comparison-shopping engines pulled in a whopping combined $351 million, thanks to merchant commissions. Yet insiders at the top shopping- comparison sites say the best days are still ahead.

“Comparison shopping really is vertical search and its day is just starting to dawn,” Mike Aufricht, chief marketing officer of mega-shopping-engine Shopping.com, says.

Already the number of comparison shoppers online is growing faster than the number of new Internet users. comScore reports that the Internet audience grew 5 percent over 2005. The number of comparison shoppers, meanwhile, grew nearly twice that much, according to comScore.

What started as a way to directly compare prices and features for technology at various online retailers is now expanding to all kinds of products and services sold by retailers online and off. Some comparison engines categories are already top of mind, such as travel, books and soft goods like apparel. Others are just gaining a foothold, such as education, financial services, automotive, healthcare and real estate.

The result? Thirty-seven percent of those who went online or used an Internet application in January 2006 used a shopping comparison site, according to Nielsen// NetRatings. That’s a whopping 57 million consumers in January alone. In the financial category, 15 percent of financial consumers based in the United Kingdom used a price-comparison engine in January before picking their purchase – up from 6 percent in 2003, according to Forrester Research. And here’s the kicker for affiliates: Forrester also found consumers who use comparison sites spend 25 to 30 percent more online than those who don’t.

Affiliates, Start Your Engines

So what new revenues are affiliates bringing in by adding comparison-shopping engine functionality? A whole lot, if you ask affiliate David Felts.

In 2002, Felts had one website with static affiliate links organized in directory format. Three months into running it he received his first affiliate check: $22. He now runs 40-plus niche price-comparison sites pulling from a database of over 1 million products from more than 50 stores. His main site, iShopHQ.com, receives an average of 400 visitors a day. In December 2005, gross revenue from his network exceeded $9,500.

Providing the ability for his customers to view in-stock products from multiple vendors in an aggregated, yet simple, format “definitely gives me an edge over single- vendor affiliates, and helps drive sales,” he says. Vendor data feeds are automatically

downloaded and unzipped; data import jobs pull the new feeds into the database, and more jobs reconcile the inventory and rebuild the search index. The whole process kicks off every day at 2 a.m., giving up-to-date inventory daily. He hosts all the sites from his own server at his house using a business-class broadband connection. “As a Web application developer by trade, I was able to do all the programming myself,” Felts says, “and my search engine marketing background enabled me to leverage PPC and SEO to complement my affiliate marketing efforts.”

With search results filtered by price, price range, feature set, brand or whatever users want, price-comparison engines are indeed changing the process of comparison shopping, both on and off the Web.

“Rather than flipping through catalogs, writing down sale items from newspaper ads or scouring the Yellow Pages and calling local retailers,” says NexTag vice president of product shopping Mark Bradley, “[shoppers] can now conduct product – and

many services – in a few seconds with a few mouse clicks.”

While comScore’s mid-2005 study of consumer electronics comparison shoppers found 75 percent were merely window shopping, 25

percent did buy within the next 90 days. Only 10 percent bought online, though. That’s a figure top comparison engines are working hard to increase. Some have added buy-now incentives. Some have built-in peer pressure in the form of real-time blogs and peer-to-peer reviews. Some offer special deals only found online.

“Consumers are just beginning to understand the power of the Internet when it comes to shopping: comparison,” Farhad Mohit, founder of the Shopzilla.com comparison engine, says. “In the offline shopping world, there hasn’t been a service like this that lets you have all the choices for all the stores.”

While the Sabre system in travel allows people to tap in to all the flights and seats that are available, there is no Sabre for shopping. “In a very real way, we are building the Sabre in our industry,” Mohit says of today’s top comparison engines. “All of us are attempting to do this.”

But for affiliates, paying to be included in comparison-shopping sites is not very thorough searches for just about any seen as a benefit, according to industry observers. That’s primarily because most merchants are already sending feeds to the big comparison engines and since most of those charge a cost per click, rather than a percent of the sales price, click costs also quickly add up. For instance, Shopzilla collects the equivalent of 10 to 15 percent commission in click costs for every product sold. Affiliates would profit only if their commissions were substantially higher.

A few enterprising publishers are launching their own comparison engines, simply adding search technology within their existing catalog of affiliated merchant products. Take Pepperjam.com, which since 1999 has amassed a loyal following of a reported 6.5 million unique visitors monthly to shop its QVC-advertised collection of grandmother’s-recipe pepper jams and a growing assortment of affiliated merchant products. With more than $100 million in affiliate sales through LinkShare, Commission Junction and Performics in 2005, this 25-employee super-affiliate in March launched the Pepperjam Comparison Shopping Blog, its house-made search and customer review forum.

“Over the past six years, as we’ve grown as a company, we’ve received calls from a merchant or affiliate manager saying, ‘How can we work more closely with Pepperjam to get more sales for us?’ Now it’s going to be easy,” says Kristopher Jones, Pepperjam’s co-founder and CEO. Featured search placement goes to merchants who increase their commission or open a Pepperjam online merchant account and bid their product to the top. “With 6.5 million visitors already coming to our site,” Jones says, “now, in order to get the premier real estate on Pepperjam, [merchants] are going to have to give us more.”

While Pepperjam has more than 1 million products in its catalog, the largest product selections are found on the existing biggies of comparison sites, which include up to 100 million products each. So, the secret for most affiliates to profiting on this trend is to get in as an affiliate of a comparison-shopping engine already offering categories their site visitors need. Shopping.com, PriceGrabber.com, NexTag.com, Shopzilla.com and many other engines have affiliate programs, either through co-branding, custom banners or text links.

“Consumers are just starting to realize that general search is very difficult for doing shopping,” Shopping.com’s Aufricht says. “Consumers talk about the chaos that’s created by using general search engines to do their shopping. They talk a lot about having to click from a search engine to a website, back to the search engine, taking notes along the way, opening multiple browser windows simultaneously. That’s very unwieldy and very time-consuming. Shopping comparison engines allow you to do all of this very quickly from one website. It’s a value proposition that’s very appealing to consumers.”

Not the NASCAR Crowd

The purchase prices for three of the top engines that were sold in 2005 seem toconfirm industry

watchers’ expectations for growth. Shopping.com went to eBay for $634 million, Shopzilla.com was sold to media conglomerate E.W. Scripps for $525 million and PriceGrabber was acquired by Experian for $485 million, plus expenses.

Companies buying these shopping engines are justifying the hefty price tags with the promise of a potentially lucrative and loyal shopping following. NexTag’s Bradley says the demographics for electronics is typically higher income/higher education, while there is a more broadbased appeal for apparel and sporting goods – those run the full gamut when it comes to education and income.

With the addition of such categories as education and healthcare, across-theboard comparison shoppers are “a very general audience now,” Bradley says. “We touch a lot of people simply shopping for anything online.” Meanwhile at Shopzilla, “women are our target demographic; 70 percent of women use Shopzilla.com,” Mohit says.

Though you may think of comparison shoppers as cheapskates, they’re not. At Shopping.com, Nielsen//NetRatings reports 42 percent of its shoppers have household incomes of more than $75,000 and 48 percent hold at least a bachelor’s degree. Shopping.com also reports 80- plus percent of its shoppers prefer to shop for brands they trust, with less than 10 percent considering lowest price to be the primary driver behind their buying decision. According to comScore Media Metrix, that translates to five times the revenue per lead of other leading portals and search engines.

PriceGrabber brings in all ages, from 18 to 54, with high incomes (users report an average yearly income of $71,000) and college educations (77 percent). The average order is $450. NexTag, meanwhile, seeks to “close that gap between the savers and the non-savers,” Bradley says. “Since comparison shopping is morphing from lowest pricing and grabbing to social shopping, we’re adding in content, recommended merchants, special deals and coupons that you can’t get anywhere else.”

For now, online comparison shopping is anyone’s race. “You put all those numbers together,” says comScore chairman Gian Fulgoni, “and what that says to me is: It’s having a pretty major impact on the way consumers spend their dollars.”

Fine-tuning Your Engine

As far as placing your comparison engine on your site, “every site’s different,” Bradley says about comparison search engine box placement. “Above the fold is the best, but it really depends on their navigation and how they have their advertising laid out currently. You can do very effective testing over a month’s period.”

Must-haves are things like images, product reviews and search technology that allow users to not only search by general search terms, like shirts, but also search for specifics like a camera make and model, and corresponding product reviews. At the least, says Peter Koning, a British Columbia-based M.B.A. and founder of Affiliate-Software- Review.com, “affiliates need to get to that next stage if they want to survive, as more technology is used in the shopping experience,” he says.

“It comes down to basic business principles: If you understand your audience and are listening to them and answering their

questions, then you need to go a little further and give them a little help so they can self-serve and educate themselves. Try to separate yourself from your bias as an affiliate, where you only get paid for a sale, with the real challenge of establishing your credibility so they are willing to trust you. At minimum, put up a one-page comparing products on your site. Show them you’re not biased and you’ll really provide value,” Koning says.

You’ll also want a defined marketing message. In January, Forrester researcher Benjamin Ensor found that price comparison sites aren’t top of mind even for previous users. “The more we can educate consumers when they first come to us through a search engine, the more likely they are to return,” Shopping.com’s Aufricht says. The message is simple, he says: “We need to generate awareness that comparison shopping exists and the advantages of consumer search engine sites. The biggest advantage is to be able to search across millions of products across thousands of merchants. As a result, you’re going to find the right product, at the best price, and probably most important, do it with the least amount of effort.”

For the 10 percent or more searching exclusively for price, University of Indiana Professor and new-economy researcher Michael Baye in 2005 uncovered some stats that make good promotional verbiage for site visitors: “Consumers save 18 to 20 percent, on average, by comparison shopping for products online versus visiting the nearest brick-and-mortar retail outlet.”

Here’s Shopzilla’s marketing strategy: “We have a higher conversion rate because we prepare our shoppers in advance to make a purchase once they click on a listing,” Mohit says. “By having all the information up front, they’re not going to click on a listing that doesn’t make sense to them.”

NextTag’s marketing advice comes from Bradley: “Reviews for merchants that don’t have brand-name recognition are very important. If a customer comes in and hasn’t heard of that merchant, reviews from satisfied clients definitely help them make a sale.”

The Finish Line

And there’s plenty more for comparison shopping down the line: Yahoo Shopping, with 100 million products in its database but no engine affiliate program as of yet, will be the first to bring out a comparison- shopping service for mobile phones. “So you’re at point of sale and simply type in the product model number and have access to comparison information,” says Rob Solomon, vice president of Yahoo! Shopping Group. “That is a game changer from a consumer perspective, because it gives a lot more power to consumers on price. In the future, they will be able to scan in a bar code or take a picture of the product. It’s just a phone call, and it isn’t an incremental cost at all (depending on your phone plan). You could also use a pay-per-call technique in the future; I can imagine a universe where that happens fairly soon. It’s nascent, but it’s coming and it’s very interesting.”

Whether turning to an existing comparison engine or launching your own, experts say you’ll do well to get in now. “The general question is whether online shopping is going to continue at its torrid pace, but it’s tough to see it slowing down anytime soon,” says comScore’s Fulgoni. Even better news: “On top of that, when users go to broadband, their spending rates just rocket, plus the broadband user is spending 35 percent more time online,” he says. “This just plays into the hands of anybody that’s offering a value-added service online. Comparison engines have got to be one of the beneficiaries.”

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

Community Commerce

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

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

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

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

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

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

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

Influencing Others’ Potential Purchases

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

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

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

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

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

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

Give Advice, Get Advice

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

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

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

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

TrendWatching.com cataloged these results in its late-2005 “twinsumer” report.

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

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

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

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

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

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

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

“There is no up-front cost to join our network and avail of our service,” says Dominic Penaloza, in sales partner for Meta4-Group.com, WorldFriends Network’s parent company. “However, we do have a modest set up fee that is payable from the user-fee revenue share.” Partners get a “generous” share of all user fees, which run $24.99 per month or one year for $99.99 ($8.33 per month).

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

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

Pay Each Other’s Bills

eDressMe.com is just one example of sites using social networking to have one person find an item and another person pay for it. Gift card revenues have exploded to $55 billion dollars, according to Tchong. “That inherently includes the social element – because you buy a gift card to give to someone else.”

BarnesandNoble.com’s new shopping cart software builds on its social features (blog-like back-and-forth reviews and posts of a reviewer’s other recommended reads) by including pop-up reminders to “send an online gift certificate” now.

Getting Paid for Social Networking

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

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

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

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

The bonus for adding yourself to social commerce sites like this can be immense. Relevant content garners higher Google PageRanks and can highlight your best blog posts, point to the products and services you write about, autofeed with RSS news when you’re out of town, track your site’s name mention on other blogs and promote upcoming podcasts and offline events.

Gather.com is another social commerce site now in beta testing. All of its members are bloggers, an area ripe for commercialization. Bloggers, some of whom simply repost blog entries or newsletter content from their own site, are paid out of revenue generated from Gather.com’s in-house ad network, where affiliate ads are welcome. Ads appear based on interests specified in a user’s profile.

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

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

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

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

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

Sources like TrendSpotting.com are predicting this is just the beginning.

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

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

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

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

Denied

On a cold Minnesota afternoon, affiliate marketer Connie Berg checks her email fearing the worst: a message from a dream merchant saying her affiliate application for either iShopDaily.com or FlamingoWorld.com has been denied.

You see, Berg’s sites post coupon information – a once-hot commodity now shadowed by merchant belt-tightening and recent incidences of customers getting expired or invalid affiliate-posted codes.

“No matter how much we try to convince them that 99 percent of the coupon sites are simply shopping sites that also post coupons, they don’t seem to want to give us a chance,” Berg says.

It’s certainly a frustration for Berg, still an ideal candidate with 90 percent of her traffic from direct bookmarks or type-ins and a “deal alert” newsletter going to thousands. But she’s been caught in a war between ideologies that surrounds many once-highly desired affiliate sites. Merchants are looking twice at any site that could potentially cut its profits, give the wrong idea about its brand or send an unapproved marketing message.

That’s why affiliate application turndowns extend even beyond coupon sites. Under fire are affiliate sites offering coupons, incentives, discounts, email marketing, heavy search buys, forums, downloads and even mass-market and cross-cultural appeal rather than the merchant’s defined niche.

“Five or six years ago, it was about who had the biggest affiliate program,” says Chris Kramer, media director of NETexponent. Kramer, who approves affiliate applications for The New York Times, Financial Times and others, says, “Now it’s more about ‘who is this affiliate, what are they doing and do I have to worry about what they are doing?'”

Performics, for instance, denies 20 to 40 percent of the applications it receives for programs including Bose, Eddie Bauer, Harry & David, HPshopping.com and Motorola. While AffStat 2005 found onequarter of its merchants still auto-approving applications, the buzz is that the remaining three-quarters of merchants are creating additional safeguards to determine who gets in, and who stays in.

“When we talk about this issue of merchants denying affiliates, it’s mostly due to brand sensitivity,” says Kraig Smith, co-founder of Chicago-based Media- Impressions.com. His clients include Apartments.com, Healthcare Media, HEE Corporation, LifeGem Memorials and Performics. “Many big-brand offline marketers are concerned about protecting their brand in affiliate marketing.”

After all, these days merchants can be more selective – mainly because there are plenty of affiliates to choose from.

“There’s a lot of filibustering going around about how many affiliates there are,” says Chris Henger, Performics’ vice president of marketing and product development. “There are legitimately probably 50,000 to 100,000 types of affiliates active at any point in time. While it used to be easy to stand out as an affiliate with a professional site, now you’re just one in the crowd.”

“The whole [affiliate] industry has gotten more sophisticated,” says Elizabeth Cholawsky, vice president of marketing for ValueClick, Commission Junction’s parent company. “These are real businesses with real employees working day to day to grow their revenues and customer base.”

Even Vinny Lingham, a Commission Junction super-affiliate and founder of Clicks2Customers.com, the affiliate search marketing technology provider that won CJ’s 2004 Horizon Award for Innovation, gets denied for about 10 percent of the programs he applies for.

“We’ve mainly been denied because of the fact that we’re search marketers,” he says. “From a search marketing perspective, 90 percent of the merchants realize they can’t market through search engines as well as the affiliates can.” The result, he says, is that some merchants pin search-oriented affiliates as the culprit if their own search campaigns don’t produce.

Perhaps, but Kerri Pollard, Commission Junction’s director of publisher development, says it’s more about being concerned with how an affiliate will fit into the merchant’s overall integrated marketing strategy.

“Paid search has become such a big component of all the affiliate programs,” Pollard says. “They want to make sure that whatever the publishers are doing doesn’t conflict with their own search campaign.”

Still, Lingham’s site takes top affiliate status in many programs, even globally, and Clicks2Customer’s parent company, incuBeta, is one of Business Day’s “Technology Top 100 Companies.” “In reality, if we or any other super-affiliates are not working for your company, we’re building your competitor’s business and market share instead.”

Why Deny?

Oklahoma affiliate Joel Comm has begun running DealofDay.com, a community of 125,000 bargain hunters, since he sold off ClassicGames.com to Yahoo in 1997. Three to 5 percent of his applications are denied, and the bulk of those come from financial-related merchants.

“Some merchants, like financial services, just don’t want to be part of coupon sites,” he says.

His response if denied? “I’ll just put someone else there instead,” Comm says. “There are some affiliate managers that just don’t get it, and others where the affiliate relationships are managed by the legal team – dotting their I’s and crossing their T’s. That ties their hands.”

That’s particularly apparent in the financial services arena.

“I don’t know if it’s as much price point as it is brand concern, but there is a correlation between higher price point products and brand concern; that’s not accidental,” says Peter Figueredo, CEO of NETexponent, the agency that manages the Financial Times’ affiliate programs.

NETexponent’s Kramer says one of the reasons is that financial service companies, ranging from American Express to mortgage companies, are governed by strict rules, codes and laws.

“They can’t have affiliates out there advertising ‘no-fee balance transfers’ when there really is a fee, because they can get fined,” Kramer says. “But when it comes to companies such as Financial Times, it’s more based on brand integrity. They’ve invested a lot of money in protecting and developing their brand,” and wouldn’t want “just anybody” representing that brand. Financial Times also “fits a tight demographic of highly educated, higher-income customers,” he says. “It doesn’t serve their needs to have their ads on sites where their ideal customers are not going to be.”

However, as a trend, “declines by merchants are on a case-by-case basis,” ValueClick’s Cholawsky says. “Some merchants are tiptoeing into affiliate marketing and are very restrictive. Others accept every application. We try to encourage merchants to be more inclusive, since we’ve seen that as one of the best practices. Otherwise, there is relatively little change” across the board.

Either way, the networks say tough requirements work both to the advantage of merchants and affiliates.

“Affiliates don’t want to be associated with a network that has a lot of fraud running rampant on that network,” says Danay Escanaverino, head of Global Resource Systems’ quickly growing affiliate network, Filinet.com. “If we allow fraudulent affiliates, generating bogus leads or clicks, that makes the program difficult to run for our other affiliates, and advertisers start losing faith in the program. It’s in everybody’s best interest for us to be a little bit more vigilant about who we allow in.”

Pay-per-click or pay-per-lead merchants, however, have higher rates of declines, attempting to weed out applications likely to send bogus clicks for quick cash. It’s an issue faced every day by Jonathan Miller, who approves applications for 27 affiliate programs managed by ForgeBusiness.com.

“We get inundated with affiliates trying to get into our programs,” says Miller, who since 2001 has received tens of thousands of applications, if not more. “We used to take just about anybody that signed up, but over the past year I’ve realized that things have become a lot more fraudulent and, in some programs we manage, as many as 90 percent of the applications in some periods are fraudulent.”

It’s usually only a temporary spike, made up by syndicates doing mass submissions from outside the United States, but Miller still usually denies 30 to 40 percent of the applications he receives, many of which are fraudulent.

Though common for pay-per-click or pay-per-lead sites, other merchants generally see fraud in no more than 5 percent of their applications, says a KowaBunga insider. (KowaBunga runs MyAffiliateProgram .com.) The rate of fraudulent applications often depends upon the type of merchant, the type of product, whether the merchant pays per lead or per click, and the dollar amount of commissions for average sales. “If you have lucrative offers,” Miller says, “it will be tested by forgers.”

So Miller, like other affiliate managers, is adding extra safeguards. He now has all the network fraud protections and verifies Social Security numbers and compares application info against the Whois.com registration information for the domain. Even after an application is approved, he watches for any telltale activities, such as lots of immediate clicks or changes in banking information at the end of the first month. Then, before paying out checks that are often in the thousands of dollars, ForgeBusiness.com requests not only a W-99 form but also additional proof of the affiliate’s identity, such as a faxed copy of a driver’s license, Social Security card or business license.

“We are willing to share our identity with our affiliates,” Miller says, “and we’re now requesting that our affiliates share their identity with us.”

Still, Miller says, “There is always a worry that we will be denying legitimate affiliate applications, which is why we call every affiliate that applies that makes it through the fraud software on our networks. If the affiliates can’t be contacted, then we either wait and hope to hear from them or their application is rejected.”

So while merchants of pay-per-click and pay-per-lead programs must still watch out for fake applications, ValueClick’s Elizabeth Cholawsky says – though the company hasn’t made an official statement – that she’s not seeing any more or less overall affiliate fraud than there was years ago. If the website is legitimate, the email address gets a response, and if the tax ID number checks out, then “the initial barrier [into CJ’s program] is fairly easy for a new affiliate.”

Though acceptance is easy, Commission Junction doesn’t cut a check until it’s reviewed by a “network quality team.” In June 2005, it redoubled its efforts, bringing in Cyveillance’s phishing, identity theft and corporate-brand-abuse protection software, which includes affiliate channel compliance and control features.

With more eyes on applications, Commission Junction can now relax some of its other requirements, such as denials of applications from affiliates in certain geographical areas: “We used to exclude all of Asia, all of Russia, but now we just exclude a couple of pockets,” Cholawsky says.

Meanwhile, officials at both Commission Junction and Performics say the number of applications isn’t going up, and the number of active affiliates are about the same even with new entrants (as new ones enter, old ones drop off). At the same time, the number of merchants with affiliate programs is growing year after year.

“As affiliate programs become standard, we’re starting to see it as part of every online merchant’s sales efforts,” Cholawsky says. This seems to say that the issue of perceived growth in affiliate denials isn’t a result of increasing competition for a limited number of spots.

So what is the answer? Though requirements and the number of applications remain stable, what used to slide is now inexcusable. “Three years ago you would see the ‘under construction’ symbols, and maybe that’s what kicked you out; today I’d be shocked to even see ‘under construction’ signs,” Performics’ Henger says. “We probably have a more discerning eye today as to what is a quality site that we want to let into the network.”

Other affiliate sites are being turned down because they’re missing something that could be easily fixed (see sidebar page 51).

Once you’re in the network, remember to reread your affiliate agreement on a regular basis.

“We put a lot of work into post-screening as well, checking month to month on the top sites to make sure they’re consistent with the rules we set,” Kramer says. As such, he says, affiliates are increasingly concerned about guidelines, especially regarding search or email marketing, once they get into the program. “Years ago, nobody cared about search and it was definitely a free-for-all, where you could do whatever you want,” he says. Now it’s a much different model.

These days, affiliates like Berg have to push for acceptance into the programs they want. But they are doing it.

“I’ve had some merchants that I was able to get into by really pushing it with the networks,” Berg says. “American Eagle was really hard to get into; I had to basically promise away my life that I wouldn’t do this or that. They gave me a data feed so I can post real-time products, but they were really particular about what they would allow on the site – and I follow it to a tee.” That means no coupons for American Eagle’s site and no inclusion of the words “discount,” “sale” or “coupon.”

And affiliates like Berg are learning to cut their losses.

“Sometimes I’ve actually dropped some merchants because they didn’t even want their name mentioned in the title meta tags, even when they are the only store on that page.” She’ll either find other merchants who carry the same products or chalk it up as a lesson learned. “Sometimes,” Berg says, “you get into their program, but the restrictions are so tight that you just have to walk away.”

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

The Overstock Obsession

Every so often, there’s a company, a person or a philosophy that attracts such a rabid following it can be only be described as a phenomenon.

In music, the Beatles and Elvis come to mind. It’s hard to think of either without envisioning ecstatic throngs of screaming, teary-eyed fanatics who would do anything for a souvenir to link them forever to their idol.

In technology, Apple Computer has survived as much (or more) on the strength of its zealous customers as on more mundane considerations like operating efficiencies or distribution channels. A piece of advice: Never try to tell a Macintosh user there are any advantages to using a PC.

In dieting, the current rage is Atkins. Eat all the protein and fat you want, but lay off the bread and pasta. Want to know more? Just ask someone who’s on it. They’ll talk the pounds right off you.

Overstock is like that in the affiliate world. Although it’s a nascent company that is far from perfect by some business measures, its customers, affiliates and employees simply ooze adoration for the fast-growing e-tailer and its undeniably magnetic CEO, Patrick Byrne. It’s not just that they like the company. This is unbridled zeal. It’s the kind of blissful rapture one expects from saffron-robed monks selling flowers at the airport.

The numbers show the love. Gross merchandise sales jumped 88 percent to $96.6 million in the company’s second quarter from the year before. And more than 3 million consumers have now bought something from the site, thanks in large part to Overstock’s 35,000 evangelistic affiliates. To put that last number in perspective, Macys.com has only 2,000 affiliates, or less than one for every 16 that Overstock claims.

After only five years in business, Overstock has blossomed into the 18th largest e-tail site. It attracted 9.3 million unique visitors during July alone.

Much of that success can be attributed to Byrne, a sort of existential capitalist whose top-tier schooling (BA at Dartmouth, MA at Cambridge, PhD at Stanford) has left him with a penchant to quote philosophies ranging from the Bible to Sun Tzu to Obi-Wan Kenobi. He often speaks in adages colored by a metaphysical hue.

“If you treat people well and customers well, you’ll be rewarded,” he says describing the “virtuous circle” of the retail world. “You can’t cheat karma. The karma police will always get you.”

He’s first to admit his company’s shortcomings in a way that enhances his credibility. In the company’s last earnings report, for example, he expressed his disappointment with Overstock’s “Daily Deals” promotion. “I am not giving up,” he said, “but this has been a dud.” He also admits to worrying about “bottlenecks” and declared outright that “B2B has been a disappointment.”

“Cynics claim that my candor is but an attempt to pump my stock by drawing investors looking for someone who does not pump his stock,” Byrnes wrote in the company’s recent earnings report. “I am flattered to have attributed to me such Machiavellian subtlety!”

Byrne grew his company the hard way after “getting turned down by 55 VCs (venture capitalists)” in his quest for funding. Overstock went public in 2002, using the same Dutch auction process that Google adopted this year.

The Art Of Affiliates

He’s so dedicated to building his affiliate program that he’s given Affiliate Manager J.T. Stephens a force of 10 assistants to build it. Byrne required them all to read Sun Tzu’s The Art of War, which he views as the “textbook on Internet affiliate marketing.” And, although Overstock’s commissions are relatively low at 3 percent to 7 percent (many merchants pay 10 percent to 12 percent), affiliates love the company for its highly personalized support.

“It isn’t always the commission,” says Sandy Breckenridge of SlipCovers- Fabric.com. “Higher commission sites don’t come near Overstock when it comes to support and personal attention.”

Another devout affiliate, Asif Malik of Plaza101.com, strayed from the Overstock flock for a while until one of its managers came after him like a shepherd looking for a lost lamb. “For a while, I dumped them,” says Malik. “But I got a call from Adam Russo and that changed.” Now the two work closely on updates, sometimes talking several times a day to make sure Malik is doing all he can for Overstock.

“It makes a difference,” says Malik. “I email or call and they respond right away. I email or call other companies and sometimes never hear from them. Or I get a message back telling me they don’t provide tech support.” Malik scoffs. “I don’t need tech support. I have technical know-how. I am just trying to help generate revenue for them. They are fools and I drop them. If they are too busy to talk to an affiliate like me, they lose.” And Overstock wins.

“No other merchants are calling them,” says Stephens. “We call them. We’re like a free marketing consultant, and affiliates are all ears.We tell them our best sellers and suggest placement. We give them the resources and tools to make money.”

Industry Advocate

The company also won admiration from many affiliates for filing the first suit under Utah’s groundbreaking Spyware Control Act. The suit alleged rival SmartBargains created ads that popped up over the Overstock Web site. (SmartBargains had filed its S-1 for an IPO. At the time of publication, it was in a quiet period and could not comment.)

“I love them,” said affiliate Connie Berg of FlamingoWorld.com, who recently shared LinkShare’s award for “Most Vocal Advocate” with Overstock’s affiliate team. “If they can get some spyware stopped, it helps people in other programs, not just Overstock’s.”

Byrne sees his raft of affiliates as his not-so-secret army to do battle with larger rivals like Amazon.com. “It’s a war of the fleas against the elephant,” he says. “A few years ago, affiliates did $150,000 in sales a month. Now they do millions It’s not yet $10 million a month, but it will be by the end of this year.”

While many companies trim inactive affiliates from their ranks to concentrate on their top producers, others see them as a source of potential growth. LinkShare CEO Steve Messer, for example, believes that once an affiliate shows interest in a company, “there’s always a chance to reactivate them.” (See Issue 3, Share And Share A Link.)

Overstock never cuts affiliates, meaning many of those 35,000 soldiers are ghosts that occasionally come back to life. One “inactive” affiliate who hadn’t generated any sales for Overstock in more than three years recently turned in $10,000 in one month.

Overstock champions the little guys, small affiliates who generate between only $500 and $3,000 in sales per month. The superaffiliates may generate more sales per affiliate, but they also demand higher pricing, flat fees and enhanced commissions, which makes them more expensive and harder to work with.

“We like the medium and small affiliates. I’d rather have 10,000 of them anyway. We try to do well by our affiliates. At this point, we think of them as jedis and padawans,” says Byrne, referring to the fully trained warriors in Star Wars and their young apprentices. “They are a mercurial bunch and they react quickly to good treatment.”

Stephens, meanwhile, translates the focus on the smaller affiliates to hard cash. “When you work to get 50 affiliates to add even $1,000 to $2,000 each in sales each month, it ends up affecting the bottom line,” he says. “Everyone else is cutting down and we are building out. Other companies limit themselves. But their loss is our gain.”

And the company does try to treat them well. “You can never lose sight of the fact that affiliate marketing is a symbiotic relationship,” says Stephens. This focus on affiliate appreciation seems to be paying off for Overstock. Affiliates like knowing they are talking to someone who specializes in their category (see list).

“Overstock is one of the easiest ones to set up and start earning money with,” says Gabriel Lam, who runs GotApex.com. “They have a wide range of products and very good pricing.”

Less Than Perfect

Of course, just as Elvis had a weakness for fried peanut butter and banana sandwiches, Overstock has a few flaws, too. Its immense expansion had led to some growing pains, and the company has yet to achieve profitability.

Some affiliates report that Overstock’s coupons get posted but don’t work right away, which they say happens very infrequently with other merchants. And Overstock spends a lot on advertising: $5 million in 2003 and $2 million in January through July 2004. It acquired 744,000 customers during 2003, but the cost was high – $13.30 per customer.

Overstock handles all advertising internally, a risky venture for a company dependent on brand awareness and national media buys. (It had to back off its “Big O” campaign after Big O Tires complained.) And Wall Street analysts remain wary. Only two analysts follow the stock and both are from investment banks that do business with Overstock.

In a research report published in July, analyst Tom Underwood of Legg Mason Wood Walker rated the stock as a “hold,” roughly the equivalent of a grade of C in school. “Success is not only still unassured,” he said, “we can’t quantify potential financial results around the business with any accuracy.”

And then there’s the area of search engine ranking. Overstock does its own optimization and could use some improvement. In a recent Google search for “discount shopping,” Overstock didn’t even appear on the first page for sponsored or unsponsored links. (The sponsored links included Target and SmartBargains. Curiously, Connie Berg’s FlamingoWorld .com topped the unpaid list.) Because Overstock describes itself as selling “name-brands at clearance prices,” Revenue ran a search for “name-brands clearance prices.” Again, Overstock was a no-show, paid or unpaid.

‘Smitten’ Buyers

Some affiliate managers find that some of their best customers are their own affiliates. It makes sense given that affiliates want to support their merchants and earn a commission on their own purchases. But Overstock’s cultish shoppers have been known to turn that model around by becoming affiliates simply because they love shopping at Overstock.

That’s the case with an affiliate named Beverly C. Lucey, editor of the blog WomanOfACertainAgePage.com. She has affiliate links to Amazon because, as an educator she wants to encourage reading. She turns down other business ventures offered her – from manufacturers of Viagra, weight loss products and “anti-aging goop.” But she decided to provide a link on her site to Overstock.com. “They didn’t ask me to,” Lucey wrote in an e-mail interview. “I’ve been a happy customer for the last four years.”

Of course, she swoons, there was another factor: After hearing an NPR interview with Patrick Byrne, she became “smitten.”

Byrne seems to have that effect. “Everything he touches turns to gold,” gushes Stephens. And Marketing Vice President Kamille Twomey says, “He is an exciting and convincing man. ” I came in to talk to him and a few minutes later, I was working for him.”

Special Treatment

The company runs network-wide promotions with tiered bonuses, but it also brokers one-on-one deals with Web sites, letting affiliates sell, say, a Burberry scarf, for less than Overstock does. Many affiliates who Revenue interviewed said special deals were a great incentive.

“I call Overstock and Amazon the Masters of Promotion,” says Michael Conley of Amazing-Bargains.com, who has been working with Overstock since 2000. He also likes their dependable and cheap shipping, which is usually $2.95 whether users buy a book or a couch, and sometimes is free. The symbiosis should help around the holidays.

The holidays are critical to Overstock. “In 2003, half our sales were in the fourth quarter,” says Twomey. In the late summer, the company employed about 500 people. With seasonal help, that number will jump to 2,500, up almost 80 percent from the 1,400 working for Overstock last holiday season. Clearly, the company is preparing for sales of biblical proportions.

“We’ve been thinking about the holiday season since January,” says Byrne. “In past Novembers we finished the ark by wading in waist-deep water pounding nails in the rain. This year our ark will be complete before the first raindrop falls.”

Spoken like a true believer.

DIANE ANDERSON is managing editor of Revenue.