Tag: Lead-Gen

Poaching Prohibited

What’s in a name? According to Shakespeare’s Juliet, not much, but if the name is trademarked it has value worth protecting. Successful companies spend millions developing a brand name and promoting their Web domains online. Some publishers, however, treat others’ trademarks like their personal ATMs by generating commissions through misleading ads.

This practice has become alarmingly present during the past few years and is often referred to by a variety of names: trademark poaching, trademark bidding, domain name poaching and PPC domain name bidding. Kellie Stevens, president of Affiliate-FairPlay.com, says it’s a difficult issue to discuss because the terminology is still not clearly defined or even completely understood.

Some in the industry say it’s actually misleading to call it trademark poaching or trademark bidding. Instead they refer to it as PPC domain name poaching because it’s really a subset of a merchant’s trademark-type words, namely their domain name. Some industry watchers say that using the phrase “trademark poaching” or “trademark bidding” has connotations of it being a legal issue under existing trademark law, but it is really a violation of the terms of services contract between the merchant and the affiliate.

Regardless of the various terminology (which is often used interchangeably), in its most conservative definition, this practice involves a keyword search on a trademarked term or the merchant’s domain name that triggers a pay-per-click ad. The ads use a merchant’s trademark in the copy, and through clever coding, the display URL appears to consumers to be from the merchant.

The way it works is that consumers type an address in places other than the URL bar – such as the desktop Google bar or into their favorite search engine – and are taken to the merchant’s site or an affiliate site via an affiliate link, thus giving an affiliate a commission when none is deserved.

The basis that this commission is unwarranted is the idea that if a consumer types in a merchant’s URL or domain address, it is clear they were seeking that merchant and the affiliate provided no added value in getting the potential buyer to that destination. Therefore, the affiliate should not be compensated.

The origin of today’s trademark poaching problem dates back to 2004, when Google changed its AdWords policy to allow keyword bidding on trademarks and associated Web domains. Cunning individuals began joining affiliate programs and designing PPC ads to appear to come from a well-known merchant. When clicked on, the ad directs the consumer to the trademark owner’s site through a link that inserted the affiliate ID, therefore generating a commission for any resulting purchase. Voilà! No website is required – the ad creates a straight path to easy commissions.

WHY IT’S ATTRACTIVE

Trademark poaching is attractive because of the low barrier to entry. For just the price of a PPC ad, publishers can quickly generate handsome commissions without the usual affiliate administration overhead, and reducing the steps from click to purchase increases the likelihood of a purchase.

One PPC affiliate, who asked not to be named, says there is a “pack of about 30” PPC affiliates that closely monitor the list of new merchants at every network and “crank up campaigns on them all” in order to profit from this behavior.

The anonymous PPC affiliate says “it takes less than four minutes to create a new campaign for a new merchant,” and that this pack of rogue PPC affiliates “don’t read the terms of service” from the merchants and they “don’t care about size – they cover them all.” He says it’s like a competition among this “pack” and that they do this for hundreds of merchants.

“There’s a trickle of others trying it from time to time as well, but the way Google and most search engines work, historical performance and clickthrough rates determine who gets the spots. They’re all competing for the one spot that lands on the merchant’s domain,” the PPC affiliate explains.

He went on to note, “That’s a ton of commissions paid out for almost nothing. If a merchant can easily do this PPC themselves, why pay an affiliate a large percent commission for doing it? It’s the branded traffic the merchant has earned; giving it away to a lazy poaching affiliate is just ignorant.”

Scott Hazard, who runs the website Cooperative- Affiliates.com, says ads that mask their origin in this manner confuse the marketplace and take money away from the merchant and the affiliate channel.

“It’s more of a problem for big brands” with recognizable names, Hazard says, as the popularity of the name as a search term will generate the high volume of traffic needed to create sizable commissions.

However, another school of thought says that although big brand merchants are often targeted more – thus losing more money overall – it’s a problem for merchants of all sizes. In fact, many smaller merchants are less aware of the issue and how to police it, making them easy marks.

While determining exactly how widespread this practice has become is difficult since it’s hard to track throughout the entire industry, a PPC consultant, who asked to remain anonymous, says, that “in some smaller programs I have worked with, as a merchant consultant and/or as a PPC consultant, as much as 40 percent of their registered affiliate sales are coming from this poaching.”

The only penalties for being caught poaching is getting kicked out of an affiliate program and having your commission withheld. That’s a small price to pay compared with the upside of undetected revenue. (See the “Trademark Ads in Legal Limbo” sidebar on page 048″ for details on other potential penalties.) Trademark poaching challenges merchants because as quickly as affiliates are kicked off, others are ready to take their places, according to Hazard.

Hazard launched the website TrademarkPoachers.com in August of 2007 to provide advice and education about the practice. While his site has increased awareness of the problem, “It doesn’t seem to be happening any less,” he says. Some say that they have anecdotal evidence that nearly 50 percent of pay per click is based on trademark poaching.

Chuck Hamrick, an affiliate manager for AffiliateCrew.com, started noticing trademark poaching in mid-2006. He could see that it was impacting overall revenue for some merchants because after he removed the poachers, the affiliate channel earnings went down, while organic and paid search revenue increased by larger amounts. This showed that trademark poaching “was cannibalizing our other efforts,” he says.

In the last two years, Hamrick caught a number of well-known affiliates poaching. He gave them “two strikes and they were out” of the program. If they didn’t take down the offending ads, he would reverse their commissions. “If it happened again, it was not by accident,” he says.

TRACKING THE POACHERS

Still, merchants that do not protect their trademarks from poachers are like retailers that allow customers to walk out with the price tags still on the clothes – if you’re looking the other way, someone will inevitably take advantage of you. Although networks can help with detection, it is the affiliate manager’s responsibility to function as the security guard and prevent these losses.

Fortunately for merchants, tracking this nefarious activity is relatively simple. Reviewing commission reports is one effective method for identifying trademark poachers. High conversion rates or affiliates who rise too quickly in volume of referrals are signs of potential trademark poaching, according to Dave Osman, senior vice president of operations at Commission Junction. “[Trademark policing] is one of the biggest challenges that the affiliate channel has had,” Osman says.

Managers can bid on their trademarks through Google AdWords to see the affiliates that are also bidding as another method of identifying potential poachers. Checking data for the location and time of day where commissions are generated can also help to identify poachers. To head off potential poachers, merchants can specify with AdWords that bidding not be allowed on their trademark or the trademark as part of their domain name.

Google will take down ads from affiliates or competitors that include domain names or URLs if the trademark holder complains, according to the policy stated on the AdWords website. However, Google will not block keyword bidding on trademarks and will not otherwise mediate disagreements over trademark poaching.

THE CASE FOR AND AGAINST

However, there are some merchants that will ask their PPC affiliates to do trademark bidding. AffiliateFairPlay’s Stevens says that there are pros and cons to this tack and merchants that allow it employ the rationale that they would prefer to see their affiliates ranking higher in the search engines than their rivals.

However, these merchants often fall into two categories – those that understand the issue and allow it to happen; and those merchants that are not aware of the implications.

When a merchant understands it and still allows domain name bidding, it’s usually because the affiliate manager can make themselves look good to superiors by showing lots of sales; or the merchant wants to inflate their EPC and sales volume to make their program’s metrics look attractive; or the merchant has made a deal with someone – such as a legitimate consultant – who in exchange for the sweet, low-hanging domain name fruit, obligates themselves to do something else, like pump those margins into deeper product and general keyword PPC on the merchant’s behalf, according to a PPC expert.

For those who don’t completely understand the issue, the reasons to allow it are slightly different: The merchant believes these posted sales are the result of “power” affiliates’ magic and doesn’t understand they’re allowing their brand, via their site name, to be leveraged by someone who does only that; or they have no idea what’s happening and believe these are actually their best affiliates; or someone such as a PPC agency or an outsourced program manager has them hoodwinked into believing this is a good practice.

However, there are instances when this type of bidding can be helpful, according to some PPC experts.

If a merchant has chosen to have coupons, then a search for “merchantname coupons” will be filled with SEO coupon affiliates ready to meet that need in the engine’s natural organic listings. The same principle works for reviews of merchants’ product or services. Most often, consumers seeking reviews don’t want to visit a merchant’s site. Instead, they want a supposedly unbiased view. Therefore, allowing an affiliate to bid on MerchantNameReview.com might be desirable to the merchant.

The Big Decision

One search expert, who asked not to be named, says there are two questions a merchant must ask before making the decision on domain name bidding.

No. 1: Do I allow my affiliates to bid on “MerchantName.com” where they send people directly to MY MERCHANT website and where they earn a commission?

No. 2: Do I allow my affiliates to bid on “MerchantName.com” where they send people directly to THEIR AFFILIATE website and where they earn a commission if someone clicks through to my merchant site from their affiliate site?

Most observers say the answer to the first question, should be – “No way, this is the merchant’s traffic and they earned it. It’s fat with ROI (often a 19x return) and it’s theirs.”

On the second question, the answer is not as clear. Allowing affiliates to do this might keep competitors from squatting on the name with their PPC ads. Search engines could see the merchant’s ads as more relevant because the domain name is the same word as the keyword, meaning that the merchant should be able to still occupy the top search spots with ease.

The Role of the Networks

Networks including Commission Junction offer trademark policing as a value-added service, and specialist companies such as Trademark Tracker and Name Protect can search out poaching ads as part of their broader trademark protection services.

While the industry is in agreement that trademark poaching is unacceptable, there is little consensus on related trademark use by affiliates in their advertising efforts. From keyword bidding on trademarks to the use of trademarks in ad copy, merchants, ad networks and affiliate networks each have their own rules and perspectives on what is permissible, and often those vary depending on individual contractual relationships.

“Ultimately, trademark poaching is in the eye of the beholder,” says CJ’s Osman. “The burden is on [affiliates] to learn each of their [merchants’] rules and to receive permission before incorporating trademarks into their ads.”

Buying a trademark as a keyword in conjunction with other words, such as “iPod and covers” is often allowed or encouraged because search engines do not want to exclude “broad match” terms. With the permission of the trademark owner, trademarks are also permitted as part of the affiliate’s display URL (e.g., www.affiliatesite.com/coupons or /reviews).

Through statistical data and the ability to observe dozens or hundreds of merchants at the same time, the networks have the power to stop this practice, but some think they don’t go far enough in their efforts.

“Good networks will show the referral URLs to the merchant, making it easy to find these poachers if they look, and reverse their orders [don’t pay them] and remove them from their affiliate program for violating the rules,” one PPC expert says.

According to one PPC consultant, who asked not to be named, the networks don’t ban this bogus practice for a variety of reasons – all related to money:

  • Merchants who want to shine their metrics (and show their bosses how well their programs are running) would go to another network.
  • Unscrupulous OPMs (outsourced program managers) would suggest alternative networks for new clients.
  • Unscrupulous OPMs would migrate programs to other networks, and when the reported sales went up, they’d be proven “right” about suggesting the migration.
  • Some merchants would not be able to make deals with their PPC consultants or agencies, and a new network that allowed this practice would be the only alternative.
  • Many less-than-savvy merchants would accuse the network of firing their “best” affiliates.

Because merchants have a right to run their own program, networks don’t and shouldn’t take an all-encompassing stance against it, the PPC consultant says.

Commission Junction’s policy is not to allow the use of trademarks in third-party ads without the express permission of a merchant, according to Osman. The rules that each merchant sets depend on their individual objectives, with some opting to be more flexible in allowing trademark use, he says. “All [merchants] do not view their [affiliates’] use of their trademarks in the same light: They have different marketing needs and therefore make allowances when necessary. For this reason Osman says, “I don’t think consistency [across the industry] is possible.”

Affiliates bidding on a domain name and sending the traffic to their own sites is seen by some but not all in the industry as trademark abuse. “One type of trademark poaching – typo squatting – is the intentional use of a misspelling of the trademarked URL, and is considered trademark infringement by most marketers,” says Osman. In recent years, companies Dell and Lands’ End successfully sued affiliates for generating commissions through typo squatting and direct linking.

Merchants can best protect their trademarks by spelling out what is allowable in their contracts with affiliates and by educating their network partners. Network ShareASale provides a dedicated area for posting banned keywords and text explaining the merchants’ choices, easily available referral URLs marked on every sale so the merchant can see the details, a feedback system for merchants to tag terms-of-service-violating affiliates to others, and other mechanisms making implementation of a merchant’s choices easier and more effective.

“Each merchant has different ideas when it comes to this issue, so our goal is to try to make as much information as possible available to both the affiliates and merchants on our network so that they can run their programs as they wish to run them,” says ShareASale President and CEO Brian Littleton. He encourages merchants to upload their individual agreements as well as a list of prohibited keywords so that all parties are clear on what is allowed.

One observer says that merchants need to ask the networks different questions instead of just asking for advice on whether or not they should allow domain name bidding in their programs. Rather, the merchants should be posing questions to the networks such as: What will the networks do for me? What tools will they give me to support and facilitate my choices on these issues? How will they help me police a decision to disallow it and what repercussions/tools will they give me to stop people who do it and won’t stop?

Domain name poaching is not going away anytime soon, but search experts promoting best practices say that savvy merchants and affiliate managers that educate themselves on the complex issues will realize the practice is a shortsighted path to profits, and ultimately bad for the entire industry.

Hooking Search Talent

“As search marketers, we are the insiders. We are supposed to know and understand search in all of its dimensions. We are moving into uncharted territory. It is not territory that I am excited to explore, but I will go there nonetheless,” writes Amanda Watlington of SearchForProfit.com.

Despite her status as an expert on blogs, RSS and search marketing, Watlington is still trying to put a finger on what may be coming down the pike for search this year. Her pondering may sound a bit gloomy – because in many ways, things have never been better for search.

According to GroupM, search will make up about 65 to 70 percent of the measured online advertising in 2008. That’s up from 50 percent in 2005. Also consider that search budgets within brands have become bigger; search marketing professionals now easily have three to five years’ experience handling search initiatives; and most excursions on the Web start at a search engine.

Yet there are really no guidelines on what search-related skills a search team must have in order to propel a company forward – not written down in the company manual anyway. “Knowing” search and running a search team for your company are entirely two different things. Knowing how to budget for search and staying abreast of search innovations is something few teach.

A recent survey by the Search Engine Marketing Professional Organization (SEMPO) stated that in-house search managers are now handling budgets on average of $200,000. However, up to 40 percent of those managers are shepherding that money with three years or less of professional search experience. About 26 percent have five years of experience or more.

Keeping Up With Search

The uncharted territory is the constantly changing nature of the search game. Many search veterans will say that learning search is an ever-changing discipline, fraught with a learning curve that never straightens out. They say that to hire a search manager or search team means upper management must look beyond the experience they have on paper and judge a pro by their passion and innate intelligence.

It’s paying off for some. SEMPO says that about 49 percent of SEM professionals earn $50,000 or less. About 43 percent earn between $50,000 and $100,000 per year. Only about 4 percent of those with five to seven years of experience make more than $200,000 per year. “It’s a respectable career path. I know I wasn’t making 70 or 100 thousand dollars a year when I was three years out of college,” Rob Crigler, co-chair of SEMPO’s in-house committee told SearchEngineWatch.com.

“I equate it to sports – the people who don’t sleep and work really hard get ahead. As a numbers-based job, they attract the hard workers,” says Wil Reynolds of Philadelphia- based SEER Interactive, a search engine optimization company. He says that the tools – software and Web-based analytics and helpers in choosing keywords – are all pretty good now. The ones who rise to the top are the ones with a kind of “street smarts.”

There are some recent attempts to educate the search-interested. Google recently launched a program called Google Online Marketing Challenge, which partners with marketing college professors to teach Google’s popular Ad- Words. Students take a $200 budget and apply it to a PPC campaign for a client. Students then manage the AdWords campaigns including coming up with a pre-campaign plan, manage the ongoing campaign and evaluate post-campaign numbers. The students select keywords, write ads and keep tabs on their clicks. Google then judges the work on up to 30 different criteria and offers an actual prize – a week at Google’s headquarters.

SEMPO also offers distance learning courses in search marketing. Students are introduced to the “foundations” of search marketing; advanced how-tos on SEO; and PPC training. The courses are offered online and can include interaction with “SEM professionals” and grading by SEMPO volunteers. SEER also offers some SEO online video tutorials on its site covering keywords, competitive tools, link building and best practices.

SEM expert Todd Malicoat at stuntdubl.com helps organize an SEO class and an online marketing training class using online courses, podcasts and some PowerPoint. However, he points out that there is really no regulation within the industry and that anyone can build a website and say, “I do search,” and have it be technically true. He notes that the search community has an active base, and learning from these people would be different from the trial-and-error training someone may get when they do it alone.

Reynolds says this kind of education is out there for people to use, “so tenure isn’t important.” What people should really have, he says, is marketing acumen. “If you want to be second place, you go to search training,” he says. “The same materials are available anywhere. But the people who rise are the people that take the basic info and go to the top.”

Matt Spiegel, CEO and founder of Resolution Media, an SEO and PPC consulting firm, says that those with higher educations in marketing have received “little exposure to this new marketing world. The vast majority of recent graduates in advertising and marketing have had little course work specific to online advertising – much less search.” He says to not assume institutions of higher learning will adapt quickly. “Instead, we need to look within the industry for help.”

Rand Fishkin, CEO of Seattle-based SEOmoz, a search marketing consulting company, says that three years’ experience is “quite a bit and is good given the industry.” He says that if he were to interview a search pro for a job, he’d simply ask the candidate to explain how Google works. “How does Google do its rankings and what makes a difference; and how did you pick up these things?” The analogy he draws is with medicine: A doctor should be able to tell you how the nervous system works off the top of her head.

Spiegel says there is a talent shortage. He says to work for his company you do not need a shopping list of skills. “You have to invest in people in this business,” he says. If you are new to the industry, he adds, and learning from the ground up – you get about 18 months to learn nuts and bolts. “When we hire, if they come from another agency, I expect that within 90 days they will be up and running – that you will know enough about search to manage a client list but you may have to learn keyword placement, etc.” He says he has hired one-person shop owners. He looks for attitude as well as skills and a need to “thrive on uncertainty and realize they are at the beginning of an industry.”

Evolving Search Skills

Among the skills that SEER Interactive’s Reynolds looks for is the ability to problem-solve. “Do you like to solve puzzles; things that stimulate and test the mind?” he says. “I would follow that skill with a lack of fear. There are tools are out there to do short-term tests. But are you not afraid to fail? I continue to see more come into the space, but that doesn’t mean they are all going to be good. Anyone with a Net connection and phone can be a search firm tomorrow. That glut can lead to substandard talent.”

Since search seems to be one of those areas that is changing and improving all the time, a search pro needs to stay locked in step with the new. Mike Grehan, CEO of Searchvisible, experts at organic and paid search headquartered in the U.K., has said that it’s getting harder to keep good organic search results on the first page. “What used to work in the good old SEO days won’t cut it in the future.” He notes that while search engines themselves are innovating all the time, search engine optimization is not – meta tags, alt tags, some social media and header tags are still the rage but are seeing their results wear thin.

Constant adaptation is a valuable watchword held by Danielle Leitch, executive vice president of client strategy at MoreVisibility, a search, design and interactive marketing company. She has said that she sees “adaptation of the industry as a whole shifting from just acronyms – SEO, CPC, SEM – to ‘interactive marketing.’ As a result, I believe agencies will become more full service than they had been – which could lead to mergers or partnerships in that area too.”

As the changing landscape continues to shift, SEOmoz’s Fishkin actually sees a constant in search professionals’ qualifications. “To me, the most desirable are those people who started a site in 1998 and have learned from doing. I am always impressed with those guys. They are rare guys.” The other breed of search marketers are those who may have a background working at another agency doing search or with a portfolio of sites they have launched. They may have been a junior marketer on this or that team and they did a search campaign and now they say, “I’m lost.” Now, companies have to spend six to 12 months training this person. He adds that MBAs may spend too much time projecting and doing nothing. “In search, we have to do.” In the end, you can only lose revenue for a few weeks and still correct it and change, he says.

Spiegel says too many companies may hire one person to head up search and leave it at that. “If I were running a company and had to hire one person, I wouldn’t want to put all my eggs in one person. I would hire an agency,” he says.

Searching for Education

Fishkin has put together a primer for those looking for search pros. He states that recruiting might be the hardest part of the work. While portals on the Web offer loads of candidates, the passionate ones are usually found in the Web places where the “young, Web-savvy and tech-obsessed” hang out. In addition to their skill set, you and your company will want to ask how long you will need this pro for; what are the primary priorities for them; and do you want this person or team to grow with the company?

When building the team or fitting the search person into the structure of your company, you need to measure the scale of your search efforts – is your company large enough that you will need more than one person or team? Measure what kind of ROI you want for each segment if you choose to break up the search division into many platforms. And as you carve up search areas and responsibilities, you will still need a person to oversee the divisions.

For training, he recommends letting team members build their own BlogSpot or Yahoo360 sites and experiment with trying to rank them. He likes to give them two to four weeks to “read, learn and get involved.”

SEER’s Reynolds uses himself as an example of the kind of search pro he’d admire. “I loved the game,” he says, “so that’s why I know it well. In the beginning, I loved computers and marketing but also had the cajones to knock on doors.” He says when he got started in search it was a constantly changing and highly competitive field with no rules written. Still is. “Three-year tenure is about all you need – now I have eight.”

MoreVisibility’s Leitch has stated that in the coming year the focus should be on colleges and universities injecting “real world” classes into their business classes. “Those that we will hire in the future need to have solid fundamentals in interactive marketing and search ” regardless of your role in a company or field of interest.”

Winning With Authority

It’s all good – from online advertising being up 25 percent, according to the IAB; to online commerce on the rise 23 percent, according to comScore; to Google search queries that are up 41 percent, per Nielsen//NetRatings. It’s clear that online marketing grew strongly through the first three quarters of 2007.

However, as industries grow, so does the attention paid by state and federal legislators, regulatory bodies and enforcement agencies. From the Federal Trade Commission (FTC), to Congress, to state attorneys general, to the courts, those empowered to oversee online marketing took a more active role in 2007. While the focus was more on enforcing existing laws to protect privacy and eliminate fraud than expanding authority, the active deliberations over the government’s role in guiding online marketing indicate that more rules could be on the way. Here is a rundown of the key governmental activities and what they mean to your future.

Targeting the Targeters

Behavioral targeting, which delivers relevant ads based on consumer interests as determined by prior online activities, is growing in popularity with online marketers, but privacy advocates are calling for government intervention. Marketers’ ability to more closely track – and share – information about likes and purchases will likely lead to a showdown in the courts or the halls of Congress.

Privacy groups prompted the FTC – for the first time in seven years – to hold a “town hall meeting” to discuss behavioral targeting and consumer protection. More than a dozen privacy groups either spoke at the November event or issued statements calling for greater FTC oversight of behavioral targeting.

Pam Dixon, executive director of the World Privacy Forum (WPF), says more government intervention is needed because the industry has been unwilling to self-regulate, and because it must be made simpler for individuals to prevent their online activities from being tracked. “The oversight has not been there,” Dixon says.

Opting out of cookie tracking through a Web browser doesn’t guard against other technologies used in tracking, Dixon notes. The current system for allowing consumers to opt out of being tracked isn’t working. Her organization issued a report criticizing the National Advertising Initiative (NAI) – a group that was formed after the last FTC meeting on targeting – as ineffectual because technology has far surpassed its requirements.

NAI has been criticized because of a lack of publicity and public awareness, and because many marketing organizations have not joined the voluntary effort. Advertising.com, DoubleClick.com, Revenue Science.com and Yahoo are current NAI members, and Microsoft and Google submitted applications to join late in 2007.

Dixon says technologies such as Flash and Microsoft’s Silverlight have grown well beyond the narrow definition of tracking by cookies as originally set up by the NAI. Deleting cookies and configuring a browser to protect against tracking are too cumbersome for most consumers, she says. According to the WPF report ” … the opt-out is counterintuitive, difficult to accomplish, easily deleted by consumers, and easily circumvented.”

The WPF and eight other organizations are calling for the FTC to set up a national “Do Not Track” list, where consumers could opt out of being tracked. The proposed system would require marketers to comply regardless of the technology being used. “It has to be a one-stop shop for consumers … they should not have to opt out individually to different types of ads,” according to Dixon.

Alissa Cooper, policy analyst at the nonprofit Center for Democracy and Technology, which joined in the request for a Do Not Track list, says legislative action might also be necessary to create and enforce the list. To make consumers more aware of how they are being tracked, Cooper suggests making the privacy controls in Web browsers more accessible to consumers, and to code information into the ads themselves about the tracking techniques. For example, right-clicking on an ad could provide details about the tracking mechanism and how to opt out, she says.

Cooper says marketers have a “tremendous amount of interest in behavioral targeting,” but “it remains to be seen if the cost of building behavioral programs is worth it in the end.”

Just days after the FTC meeting took place, the Center for Digital Democracy and the U.S. Public Interest Research Group filed a complaint with the FTC asking for more involvement in regulating behavioral marketing activities. New marketing technologies “have sharpened the precision with which Internet users are tracked and targeted,” including “schemes on the part of both Facebook and MySpace, that make clear the advertising industry’s intentions to move full-speed ahead without regard to ensuring consumers are protected,” according to a letter from the groups to the FTC.

Mike Zaneis, the vice president of public policy for the Interactive Advertising Bureau, says a Do Not Track list is unnecessary and would be overly complicated to administer. Zaneis says the online marketing industry is “in near unanimity in opposition,” to the government overseeing a Do Not Track website.

Government-imposed protections could “block large swathes of the Internet,” Zaneis says. Sites that personalize e-commerce options or that customize content might be blacklisted under such a system.

What Consumers Want

Unlike the Do Not Call list, which was set up by the government because of frustrations with telemarketers, Zaneis says there is “not the same outcry from consumers.” Research conducted by the IAB indicates that consumers would be willing to pay to receive more relevant ads, according to Zaneis.

One member of the U.S. House of Representatives believes more oversight is needed. Representative Edward J. Markey, a democrat from Massachusetts, urged the Federal Trade Commission to look into targeting practices. “The Federal Trade Commission should promptly investigate the privacy impacts of Internet tracking and targeting techniques to ensure that loss of privacy is not the price consumers must pay to realize the benefits of online commerce,” according to a statement by Markey.

IAB’s Zaneis believes that Congress should not draft new privacy laws, as the FTC currently has sufficient authority to enforce existing laws. “The FTC has enough precedent … in defining the rules of the road.”

Within days of the FTC meeting, social networks Facebook and MySpace unveiled plans for intertwining data about individuals and their purchases with online advertising that could prompt congressional action or litigation.

Facebook’s “Beacon” program was altered in December after an outcry from users. The program originally alerted all of a member’s online friends when a purchase, such as books, CDs or tickets, were made on a partner site. This feature was changed to an opt-in. Similarly, Facebook’s Social Ads puts ads for related products near member’s activities, such as when they rate or purchase music.

Some Facebook members have complained that delivering information to friends about purchases has interfered with gift giving, as significant others prematurely found out about holiday and birthday gifts.

Political action group MoveOn.org is using the social networking tools of Facebook to protest the behavioral program. MoveOn.org, which has successfully organized members to communicate en masse with their congressional representatives, has formed a Facebook group to petition the behavioral programs for what the group sees as an invasion of privacy.

Competing social network MySpace expanded its behavioral targeting program to search member pages for words indicating interest in specific categories (such as music or travel) and enables marketers to target the audience that will see its ads.

The European Union is also investigating behavioral targeting practices, and new rules there could ripple across to practices in the U.S. The Article 29 Working Party is considering whether culling data about buying habits and Web-surfing history violates consumer privacy. While U.S.-based sites may not be directly affected, changes in targeting policies could be enacted globally to provide consistent experience to consumers.

Government Becoming Adware-Aware

The FTC also clamped down on propagators of adware for failing to disclose the less-than-noble intentions of their software. In March, the FTC settled a case against software company DirectRevenue for using unfair and deceptive methods to get consumers to download adware and for obstructing its removal. As part of the agreement, DirectRevenue forfeited $1.5 million in “ill-gotten gains” from adware distribution and agreed to cease and desist from distributing same.

As part of the government’s increasing prosecution of adware peddlers, the FBI and the Department of Justice cracked down on a major distributor who was hijacking computers to generate spurious ad revenue. John Schiefer, a former security consultant, pleaded guilty in November to masterminding the installation of adware on 137,000 computers.

Schiefer installed the software onto a network of unwitting individuals’ PCs to create a botnet that generated ad revenue and also stole PayPal and bank account information. According to the U.S. Attorney’s office of central California, this was the first prosecution for using a botnet in violation of federal wiretapping laws. The software generated more than $19,000 in revenue from a Dutch advertising company, which had to be refunded as part of Schiefer’s plea bargain agreement.

Adware proponents were on the losing end of a significant court battle. In September, software distributor Zango (which the previous year settled an adware case with the FTC) was unsuccessful in arguments before a district court in Washington to prevent software tools company Kaspersky Lab from classifying Zango’s software as posing a potential risk to a person’s computer.

“Zango lost big,” says Ben Edelman, a spyware expert and assistant professor at Harvard Business School. Based on the ruling, Edelman says software tool vendors are “inherently protected” from liability in their efforts to protect consumers from adware, spyware and other malicious software.

Despite these prosecutions for distributing adware, deceptive advertising software is still abundant, according to Edelman. A suit filed in California in 2006 against Yahoo alleges that the search company distributed popups that were bundled with spyware software, generating allegedly bogus ads, says Edelman, who is co-counsel in the case. The ads were also placed on “parked” domains – websites created by scripts that did meet the criteria of quality content that Yahoo promised its advertisers. A trial date has not been set.

Congress Eyes Spyware Legislation

While legislators on Capitol Hill did not take action on many of the online marketing and privacy issues that were investigated by governmental agencies or decided in the courts in 2007, two competing anti-spyware bills passed the House of Representatives.

In May, the House passed the Internet Spyware Prevention Act of 2007, which focuses on providing funding to the Department of Justice for enforcing laws against spyware and the practice of phishing (fooling consumers into revealing personal data). Less than a month later, the Securely Protect Yourself Against Cyber Trespass Act (SPY ACT) was passed, which gives greater authority to the FTC to seek larger fines, and more broadly defines acts that surreptitiously collect personal information.

The IAB’s Zaneis says his organization supports the SPY ACT because it emphasizes greater enforcement of existing laws. The IAB testified in Congress against passage of the SPY ACT because it overemphasizes the requirement for consumer consent and could stifle innovation, according to Zaneis. He says that the Senate has not moved toward developing similar legislation to either House bill, and is unlikely to do so anytime soon.

Affiliate marketing expert and blogger Shawn Collins is wary of any spyware legislation that Congress would craft. “My fear is about some comprehensive anti-spyware law that includes harmless cookies,” Collins says. He is concerned about elected officials’ lack of knowledge of online marketing, worrying about laws “written by bureaucrats who never touch a computer.”

Spammers Put in the Can

No legislation or regulatory action in 2007 addressed the continuing problem of spam, but the existing laws are being enforced more vigorously. The CAN SPAM Act of 2003 was used in the prosecution of “Spam King” Robert Soloway, who was arrested in May for sending billions of spam emails. Also getting busted for spamming were Jeffrey Kilbride of Venice, Calif., and James Schaffer of Paradise Valley, Ariz., who will each spend more than five years in prison. The pair was sentenced in October for spamming AOL customers and others and was asked to return more than $1.1 million.

IAB’s Zaneis says he doesn’t expect any legislation in the near future regarding spam because the existing laws are sufficient. “The industry must keep doing what they are doing … now it’s an enforcement issue,” he says. The industry has “stepped up,” and an FTC spam summit meeting in July provided the necessary feedback about what was working and the latest authentication tools that could block spam, according to Zaneis.

Florida Takes on Lead Generation

An investigation into ringtone sales in Florida could affect affiliates’ lead generation practices across the country. Florida Attorney General Bill McCollum’s office’s investigation of “unfair and deceptive trade practices regarding online ringtone” sales by AzoogleAds resulted in a $1 million settlement from the company and an agreement to change the wording of its advertisements.

Ringtones previously described as free, though they required a monthly subscription fee, will have to include language describing the applicable fees, according to the agreement with AzoogleAds. Collins says that due to the lack of self-regulation among affiliates, “it was a positive for Florida to get involved.” Ideally affiliates would set up their own rules regarding lead generation practices, but Collins says no one in the industry has volunteered to fill that role.

The FTC is also investigating lead generation practices, with network ValueClick in its crosshairs. John Ardis, vice president of corporate strategy at ValueClick, says the FTC began looking into lead generation in the spring, but only ValueClick’s name was made known because it was the sole public company being investigated.

“Lead generation has become big enough in the last year for the FTC to review it, as it should,” according to Ardis. He says that the investigation has “put a cloud over lead generation,” but he hopes that the resulting clear rules from the FTC that will improve consumer confidence and allow lead generation to become “bigger and better.”

Ringing IN and Hanging UP

In the old days, a telephone came in two designs and had one ring. With the rise in cell phones, the styles are endless and so are the types of rings you can make the phone chime. There are master tones, ringback tones, polytones, monotones and they all have a price. Users can download them over the Internet and program a ring to sound only when mom or that special someone calls. Users can also send a ring out to someone to let them know who is calling. But they aren’t cheap – as much as three times the cost of one hit single from iTunes. But that hasn’t stopped people from buying the tones in droves.

The music industry loves that users will pay a premium for the 30-second melodies and still come back for more. What the industry doesn’t like is the Florida Attorney General office, which has it in for certain ringtone sellers over the Internet. Whether or not Florida officials can make a civil case for deceptive practices, the damage is done. When sites such as Blinko.com, Jamster.com and DirtyHippo.com are accused of bait-and-switch tactics by offering supposedly free ringtones that are not free, every ringtone seller over the Internet takes notice, as do consumers.

Ringtone affiliates, sites that sell ringtones and networks with ringtone sellers in their lineup are all concerned about the black eye a few misbehavers are leaving on a growing sector of the digital music revolution.

“No reason for one very bad apple to ruin it for everyone,” Steve Richter, president and general counsel for Media Breakaway, says. Media Breakaway owns CPA Empire, a network that was at the center of a ringtone firestorm a few months ago when it was discovered that an affiliate’s website offered free ringtones when, in fact, they were not free (the free tones only came with a paid subscription). CPA Empire noted that within an hour of identifying the affiliate’s website, it was pulled down. “We had no idea that this was running,” says Richter. “We took a pretty severe action against this affiliate. Any of our affiliates that are discovered to violate our terms and conditions, we take action immediately.”

Tarnished Reputation?

Matter closed. Or so it would seem until another online network is targeted. The coverage this issue has received sheds light on the power a few individuals have on the whole reputation of a budding digital music phenomenon and how hard it will be to police the vast reaches of cyberspace.

“It’s a highly competitive market and a burgeoning industry,” says David Haverly, senior executive, Mobile Vertical, at MIVA. “It’s very hard to break through.” He says that, “technically there are no free ringtones. But websites must be clear that to get the free ringtones you must buy a few; say 10 or more.”

That is what caught the attention of the Florida authorities. The alleged bait-and-switch tactics – when a seller never intends to sell consumers the advertised thing so that it can sell them a more expensive other thing – are pretty much illegal in most states. In the case of Florida, its civil investigation means that the upshot will probably not lead to criminal charges for the companies under the microscope, but can lead to accusations of fraud, which means if someone wants to sue the companies, they could have a pretty good case.

“The content provider industry has guidelines to not blur what they are getting,” says Haverly. “Sometimes, in fine print you see that if you sign up, you get the free ones.

Our goal is to give a quality experience. We have to say when an affiliate is not clear.” With a ringtone affiliate reaping as much as $15 for every new customer, the incentive is there to cut corners.

If more investigations in other states are opened, the reputation of all of digital music sales over the Internet could take a beating at a time when the ringtone market is at an all-time-high. Revenues for ringtones have more than doubled year-over- year, says JupiterResearch. Ringtones brought in about $420 million in 2006 and JupiterResearch predicts the pot will grow to $724 million by 2009. In 2005, more than 24 million people downloaded ringtones to their cell phones; that’s about 13 percent of cell phone users, according to eMarketer. IDC predicts that more than 54 million people will download a ringtone by the end of this year.

An Alternative for Record Companies

For the record companies, this is good news in the wake of its falling sales of music CDs since 2000. When Nielsen’s SoundScan launched the tracking of mastertone sales in December of 2006 (mastertones are portions of the original recording, whereas polytones are just the melody played by usually a keyboard. SoundScan has tracked polytones since 2004.), the numbers surpassed the sales of single-track songs, and in many cases at three times the price. When the first polytones numbers arrived in 2004, Geoff Mayfield, director of charts at Billboard, has said he was “floored.” The ARC Group in London has predicted that global sales of ringtones will surpass $5.2 billion in 2008 – that’s more than 10 percent of all digital music sales. Internationally, the numbers are equally big. The Wireless World Forum estimates there will be 28 million Indians under the age of 24 with cell phones by the end of 2007, and nearly 15 million in the U.K. That spending on ringtones comes to $23 million by the end of this year.

Also, with artists and their labels pulling in less from pure CD sales, other means have to be explored – such as ringtones. David Bowie was one of the first to release unique music to subscribers over his Bowie.net network. Some artists are dipping their toes into ringtone-only releases. Snoop Dog releases ringtones on his website, to name just one artist. “[CD] sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream,” artist manager Jeff Rabhan recently told The Wall Street Journal.

Yet some vocal affiliates continue to be wary of the return ringtones offer. One forum poster stated that “I really don’t trust most of the merchants that offer ringtones; their websites have that spyware feel.” He also stated that he had “recently checked my stats and I had a measly amount, which was less than the meager $10 I made last year.” Other voices on the Internet second that sentiment. “Making money with ringtones has never worked for me,” a forum entry states.

“I’ve tried the high-paying offers; I tried the low-paying offers. I bought ads with PPC through AdWords and AdBrite and still lost money.”

In the short term, affiliates say, the term “free” always gets a higher place in a search engine result and that alone will make it hard to rid the ringtone universe of the “few bad apples.” One affiliate states that “this is actually good for some of the little ringtone affiliate players out there like myself. I always hated complying with the [terms of service] by removing the terms ‘free, no cost,’ etc., from an ad when my competition clearly wasn’t following suit. Makes it a little harder to compete and slims the margins up for a lot of markets.” Another says “all these guys are at the top of search results because their ads get much higher [clickthrough rates] than publishers that are doing the right thing and are staying away from using the word ‘free.'”

Leads from ringtones are also at an all-time high, offering no incentive to “fly by the rules.” Some affiliates in 2006 generated as many as 1 million clicks and 100,000 leads through ringtone keywords. The payout per lead has fluctuated anywhere between $5 and $15 per lead.

The Search Effect

The continued battle for high-ranking ringtone search results has had an impact. Antivirus maker McAfee rates the keywords “ringtone” and “free ringtone” in the top 10 of the most dangerous search terms to use, just after “free screensaver (per chart pg. 62)” and “Kazaa.” Clicking through to sites resulting from these searches is more likely to send the user to questionable sites or install adware or spyware, McAfee states. One of the most popular “scams” is a “free” tone site that checks a terms of service box for you when you enter your phone number. The terms of service state somewhere that you agree to a subscription price to receive the free tones. When users try to uncheck the box, they can’t.

Some ringtone affiliates have said that when they use Yahoo Search Marketing, the titles and descriptions in the ad are sometimes changed to what Yahoo Search Marketing perceives is still an accurate description. The affiliate may bid on the term “free realtone” but submit copy that leaves the “free” out. Then Yahoo Search Marketing will reinsert the “free” since that was in the keywords they bid on. The affiliate doesn’t see the change until it gets served up. In some of these cases, the affiliate will immediately cancel the campaign when they see the mistake. Sometimes, not.

Other questionable techniques include using a ringtone company’s images and logos to build a unique landing page that goes to a completely different destination when consumers go to sign up. Some advertise MP3 ringtones that are, in fact, lesser monotone files.

Ron Czerny, CEO of PlayPhone, has had experiences with bad ringtone affiliates on his network. “We are very active,” he says. “We are constantly monitoring our affiliates. We take action in 24 hours if we find bad apples and we will report them to the carriers.” The cell phone carrier may pull their short code, he says, which means that the connection between the affiliate’s ringtone servers and the customer will be cut off. “This kind of thing happens in all entertainment areas,” says Czerny.

Government Intervention

It happens with piracy in movies and music, he says, adding that the slowdown in ringtone sales in Europe in 2005 and 2006 was because of “bad customer experiences” with fraudulent ringtone sellers. What was done in a lot of European countries was the carriers imposed regulations that sellers were required to meet before they could sell ringtones. Czerny says the market over there has bounced back.

“[Regulation] is not going to happen in the U.S.,” he says, “because companies like ours are taking that right action,” adding that the bigger companies have a stake in making it work. He says that consolidation is playing a role in weeding out the troublemakers. “We will see consolidation in the top 10 businesses,” he says. “A lot of small ringtone companies are using the backbone of larger ringtone companies and are just simply giving up.” He says the larger market will be in China. Brazil and Mexico have proven they have many willing to pay for tones. Innovations, he says, will come in the way people share the ringtones and not in the tones themselves.

As with the online lead generation industry, the perception and the practice need to mirror each other. The top online lead generation firms formed an association last year to help monitor their industry and set guidelines. Currently, ringtone sellers want to keep the market unregulated. “You must have communication with the network,” says MIVA’s Haverly. “We schedule weekly calls with some of the affiliates,” so that the lines of communication are always open. He adds that if a drugstore runs a two-for-one ad for aspirin but you have to pay full price if you want Excedrin, is it a misleading ad? Does the fact that it might be perceived as fraud warrant the government or the cell phone carriers to step in? Who is going to make the judgment call?

PlayPhone’s Czerny says the government will not step in. “It will not come to that.” Richard Jesty, an analyst at ARC Group, states that ringtone sales will also see a slowdown in the U.S., but not because of fraud. “Over time, the novelty will wear off, but not yet.”

Question Then Convert

I talk to website owners all the time who are looking to design or redesign their websites. Most tell me what colors they like and what other websites appeal to them. Next they discuss features like animation or video. Some will go so far as to send long, prepared documents that include detailed color choices, font selections and so on. The concept of Web design is still largely looked at as a visual beautification of their website.

What I rarely find are website owners who have looked at their design in the context of Internet business. Once you’ve decided to redesign, there is a certain process you must go through to ensure your new website offers more than just a pretty face. You need the right information to provide a context for the redesign process.

This is why most of the website templates that are available for purchase do not help online businesses. They often look very nice, but force you to tailor your information to the design. Successful conversion design depends on a design that is specifically created for your information.

Please don’t confuse information with content. You don’t need to have every article and tagline written before starting the design process. However, you do need to have a very clear understanding of the message you want to convey to users and what goals you want to reach.

I encourage all website owners to answer the following questions before starting a redesign.

What type of website do you need?

Almost all websites can be grouped into a handful of categories: informational, lead generation, e-commerce and support. The type of website required for each is very different. To determine what type of website you need, you first just need to answer the question, how does your site make money?

If your business makes money by selling advertising or sponsorships it probably falls into the category of informational websites. Informational sites want to attract lots of visitors and get those users to come back regularly. The more pages users visit, the better it is for business. Examples of information websites include news portals, most blogs and many community-based sites.

If your site drives revenue by generating leads which are later converted to sales or sold to another organization – you need a lead generation site. Lead generation sites need to convert users to leads as effectively as possible. Lead generation sites can take many forms but some examples include service companies, mortgage comparison companies, etc.

E-commerce sites make their money by selling products. They need to establish trust because customers usually need to enter a credit card to complete the transaction.

Support sites help their owners by helping users find answers themselves, thereby reducing the need for support staff. These sites succeed when they make it very easy for users to find specific information.

Because the goals of these websites are very different, the design needs to be different. A one-size-fits-all approach will limit the success of the site.

What do you want to say to your users?

Every company has a voice. Is your business fun and quirky or staid and serious? Established off-line businesses often have a brand manager who helps to define this voice. The idea is to convey a consistent message to people exposed to the brand. Many website owners neglect this vital part of business. At the very least, your site needs to communicate the following points:

  • What makes your company different from the competition?
  • Why should users trust you?

Think of your website as an extended sales team. Great salespeople have to say the right words at the right time to help customers realize how great your products and services are. Your website needs to do the same thing.

Who are your users?

Defining a target market is business 101. One of your first steps should be to settle on the basics of who your customers are with metrics like age range, gender and income. Once the basics are defined, your next step is to identify any niche markets that would fit well with your service or product. Being able to cater parts of your website to specific niche markets can present huge opportunities for growth.

Another important step in understanding your audience is to determine how they are finding your site. Is your traffic coming from natural search engine listings, pay-per-click listings or word of mouth? Hopefully you’re attracting users from all three, in which case you need to think about what each type of user is looking to get from your site. Different traffic sources often indicate that users are at different stages in the buying cycle; for example, word-of-mouth traffic may only be interested in checking out the site, whereas pay-per-click visitors may already have their wallet out ready to make a purchase.

Having a thorough understanding of who visits your site and where they are coming from is the only way to create experiences that are appropriate for your audience.

So before you start shopping around for Web designers and writing content for your site, make sure you’ve given thought to the three major questions in this article. Design is more than just making your site look good – it’s about creating a website that accomplishes solid business goals that add to the bottom line.

Would you like your website to be the topic of a future edition of By Design Makeover? Send your name, company name, contact information (phone, email, etc.), a brief description of your business and its goals, and, of course, your URL to bydesign@sostreassoc.com. Please put “Revenue’s By Design Makeover” in the subject line.

PEDRO SOSTRE is pioneering Conversion Design and its ability to turn online shoppers into online buyers. He is the co-author of Web Analytics for Dummies and serves as CEO of Sostre & Associates, an Internet consulting, design and development firm, which also promotes affiliate programs on its network of websites. Visit www.sostreassoc.com to learn more.

Leading the Way

Online lead generation gets no respect. Online lead generation affiliates less so. While the sector is growing by leaps and bounds – 290 percent over 2005, according to the Internet Advertising Bureau – people like Peter Martin and Robert Jewell just seem to drag its reputation through the mud. These guys had the honor of being sued by New York State Attorney General Eliot Spitzer in March for selling the private details of up to 7 million customers to marketers when they said they wouldn’t. Spitzer called it the “largest deliberate breach of privacy in Internet history.”

“There are people that don’t do things on the up and up,” Dan Felter, chairman of the recently formed Online Lead Generation Association (OLGA), says. “Online lead generation, when done properly, can be done well,” says Felter, who is also CEO of Opt-Intelligence, a lead generation firm.

High-profile busts like Spitzer’s only give a black eye to an industry trying to police itself and keep undue regulation at the door. Last year the online lead generation machine brought in $753 million, according to the Internet Advertising Bureau (IAB), which predicts over $1 billion for the lead gen space in 2006.

Revenue for online lead gen made a healthy gain to reach 6 percent of all Internet advertising spending during the first half of 2005, according to the IAB. That’s $347 million. Go back to 2002 and it was only 2 percent of Internet advertising spending in the first half of that year, or $114 million. But that is a year-to-year increase of 204 percent, IAB figures show.

DEFINING THE SPACE

Just the phrase “lead generation” also means different things depending on who you’re talking to.

When an advertiser needs new potential customers to sell to, one method of getting names and ways to contact these people is to buy a list. This list of people is called the leads. Generally these people have already expressed an interest in the product – be it iPods, real estate, cars, mortgages or other retail goods – and have agreed to be contacted by the advertiser. This is also known as permission-based marketing and in some cases it is called co-registration.

The most popular online lead gen technique is the “opt in.” This is where a customer registers online to join a free newsletter or newspaper or social network and sees a page where he can request to receive additional newsletters or marketing from third-party companies. Generally, you check a box to say it’s okay. Interaction with that page is sometimes required to complete your registration.

Some companies also practice “double opt in,” where you check a box but also must follow a link in an email as a way to confirm your email address but also, in essence, asking you twice that you really meant to opt in. Popular opt-in trends include an effort not to ruin your surfing experience by serving you multiple pages of opt-in options and by allowing you to bypass offer pages.

Suspect practices that used to be commonplace but are now considered intolerable are “opt out,” where you are automatically signed up for other offers and you must uncheck the boxes to refuse; pages where offers outweigh content; offers of free products for forwarding the offer to others; free offers that still involve a fee; offers that require the downloading of adware or spyware; and, of course, offers that do not explicitly say they will not sell or give your private information to other advertisers.

Since there is a commission for every lead generated, it becomes attractive to enter a pay-per-lead or pay-per-sale contract with an advertiser. And with that model being very much like the affiliate marketing model, affiliates have flocked to lead gen. The flood of lead gen affiliates in the online world – like anything – breeds bad eggs and good.

POLICING LEAD GEN

Enter OLGA. Chairman Felter helped start the trade group when he realized what a stench surrounded the word co-registration, or co-reg. When describing what his company, Opt-Intelligence, does he tries to avoid the word co-reg. “If you could see the people’s faces at conferences when they finally got what I did,” he recalls.

OLGA currently has more than 25 lead gen companies as members and considers its mission to define best practices and champion transparency in the industry. Felter boasts that lead gen could become “almost as valuable as search.” However, he adds, “barriers to enter the market are pretty low.” Hence, the surge in online lead gen affiliates operating in a sometimes-ethical vacuum. “It’s the cutting corners that give lead gen affiliates a bad name.”

Felter says, early on, when opt-out was more common ,”advertisers all got burned by co-reg.”

The offers would end up on disreputable sites – such as porn – and the advertiser would essentially receive a “data dump”: raw lead information with no indication if the leads were from opt-in or opt-out and no way to measure the quality of the lead. That’s why Felter hates using the word co-reg, but also why the industry is poised to explode as burned advertisers come back to the well.

And as they return, now is the opportunity to prove that this time around advertisers, publishers and lead gen companies can all get along and share the wealth. “There is something called common sense,” Shai Pritz, CEO of Unique Leads, says. “If somebody is doing shortcuts, it will come back to bite them.”

Jim Vines, CEO of LeaderMarkets.com, agrees that it isn’t really very hard to figure out when someone on your network is doing wrong. “Having been an affiliate myself, I know the way traffic should look.” He claims to know when something doesn’t look right. Usually it is too many leads over a short period of time coming from a single affiliate. Vines says he goes the extra yard by talking to all their affiliates on the phone before sending any offers. “I have to personally see if they know what they are talking about before I send them anything.”

It might stand to reason that an industry that requires so much policing is inherently ineffective. “There is nothing wrong with the tool but how you use the tool,” Vines says. He adds that policing just comes with the territory. At least to Vines, the fun of it all is the personalization. “Leads are just the icing on the cake,” he says. “Whenever an affiliate calls, we know them. Our job is to help our affiliates find the campaign that is working the best for them. We can help them figure out what list is best for them.”

GOOD LEADS

Matt Hill, CEO of eForce Media, says they apply technology and science to matching leads to clients. Others, he says, create leads by traffic driving – but so many requests go unanswered because there is no matching. A guy looking for a mortgage deal ends up getting a thousand calls by mortgage brokers, Hill says. Or leads come but no calls are made because the company can only afford to buy so many leads per day. “Most companies in this space only sell about 50 or 60 percent of their inventory,” he says, “so it doesn’t matter if leads fall on the floor.”

Pritz at Unique Leads also aims high, which is why he runs a closed network. “The affiliate managers will say what offers they want and we create the links for them,” he says. “The control is better that way. There are human beings involved; we do what we can to make sure the system works.” Unique Leads likes to see website screenshots and have an understanding of UI experience of each site they sign and they always make the users sign privacy policy forms.

“Like every industry on the Internet there are black hats and white hats,” says Hill. “It’s a business that’s been around longer than the Internet. But since the Internet, it is becoming more sophisticated.” He says his lead gen company’s mission is to find the most perfect match between leads and clients. He says there are still some big companies who do opt-out co-reg because the volume they get is so big it cannot be ignored – but in the end, he says, “those companies will weed themselves out.”

“Some websites say, if I throw a few opt-outs on my page I make 20 cents more,” says Felter, adding that the websites figure a few opt-outs won’t be noticed. And some companies will turn a blind eye to it all because the sheer numbers of leads (regardless of their quality) are meeting their quotas.

Chris Jeffers does B2B lead generation as CEO of netFactor and says that his buyer is a marketing executive. “They are frustrated because less than 2 percent are converting and completing online registration,” he says. “This is critical for sales – sales says, ‘give me quality’ but marketing is rewarded for providing tonnage.” This means sales and marketing are effectively operating against each other. Quality leads can help close the gap.

GUIDELINES AND BEST PRACTICES

That is another aim of OLGA: to define the best practices for the whole industry. The founding members of OLGA include Felter; Stephan Pretorius of Acceleration eMarketing; president of Feedster, Chris Redlitz; and Kitt Collier Odukoya, director of marketing at EarthLink. Member companies include Active Response Group, CoReg Media, eForce Media, Flatiron Media, Innovation Ads, LeadVerifier, MediaWhiz, Monster Worldwide, ON24, SendTec, Unique Leads and WiseClick Media.

Initial guidelines that OLGA endorses include that advertisers always know where their offer is being placed; that advertisers clarify that they are buying an opt-in only; that the leads did not come from offers “forced” onto customers via opt-out or opting in as a requirement of registration; that it is easy for customers to bypass all offers if they prefer; that the registration process in general is about the content and not all about signing up for offers; that an auto-respond email include opt-out and unsubscribe links; and that it is always clear what exactly the customer is signing up for.

If trade associations and policing succeed there is no doubt the industry will grow even more than it has already, provided there are no more high-profile debacles that could trigger a call for federal regulation. No one wants that. “We need to keep rules flexible so that people can operate their businesses,” says Sujay Jhaveri, CEO of Flatiron Media. He says “pro-business people in the business world” will take care of tempering regulation. He notes that the CAN-spam legislation passed in California was much stricter than a version that went federal. Testing the limits of regulation will probably continue. “You are dealing with a marketplace that is very profitable,” Jhaveri adds. “Online multilevel marketing will mimic off-line eventually.”

Other events to look forward to in online lead generation will be consolidation. Hill of eForce says there are many lead gen companies that have maybe 10 employees who are operating in niche areas that are ripe for acquisition. In fact, eForce just completed funding for that very purpose, he says: to add companies’ expertise to what they do. And, he adds, the transitions are very easy since the employee counts are so low; you see an immediate profit increase by applying the traffic you acquired.

Vines of Leader Markets says being a former lead gen affiliate helped him be a better president of a lead gen network; that is, he wants to remain small. “Some affiliates can do six figures of traffic per month,” he says. “They don’t want to feel like they have come to a cattle call.” That’s why he wants to keep it personal with his network. “I’m not looking to become the next CJ or LinkShare,” adding that while the challenges are many, so are the rewards. “If someone is gun-shy, they probably shouldn’t be in it,” he says.

OLGA’s Felter says the key terms are transparency and awareness. “You’ve got to watch your metrics. What are you getting and is it valuable?”

Performance Powerhouse: Q & A with Steve Denton

Earlier this year Steve Denton was named president of LinkShare, following the resignations of Chairman and CEO Stephen Messer and President and COO Heidi S. Messer, who led LinkShare’s development from its founding in 1996 through its $425 million sale to Rakuten in late 2005. Denton heads up all day-to-day operations including management and continuous development of the talent and processes required to drive LinkShare’s continued growth. Revenue Editor-in-Chief Lisa Picarille spoke with Denton about the cultural, organizational and other big changes that LinkShare is dealing with in order to achieve its goal of becoming a performance marketing powerhouse.

Lisa Picarille: What’s changed since LinkShare became part of Rakuten last year?

Steve Denton: Rakuten USA is the company set up in Boston, and the CEO of Rakuten USA is John Kim and he’s the CEO of LinkShare. LinkShare was the first international acquisition for Rakuten. It’s been great working with John and the entire team at Rakuten, including Hiroshi Mikitani, the CEO. Rakuten is now the sixth-largest Web services companies in the world from a market cap standpoint. And having access to those resources from that organization has been very rewarding and very fulfilling. When there are new products we want to roll out, new markets we want to enter, new geographic footprints that we want to establish, I don’t have to wait for two years to accumulate the capital to do that. I have an owner that has the resources and that’s why we sold the company. We also sold the company because we don’t just compete against affiliate companies. We are in a performance marketing industry – so we are competing against everyone out there that is going for inventory on these publishing or distribution sites.

As far as the way we operate the business, there has been no real change. The financial results roll up into Rakuten. That is obviously a structural change. There’s a new board of directors. But as far as running the day-in-and-day-out business there’s John Kim and myself. We have seven teams’ employees working with counterparts in Japan on integration projects to see where we can find some synergies and some best practices from both organizations. That’s taken a good amount of time and we just looked at the final presentations [in June] and there have been some subtle changes there that you wouldn’t notice externally. We’ve been the beneficiaries of development resources from Japan, which again, Jonathan Levinson, our CTO, came from Rakuten. But as for the nuts and bolts, it’s all about continuing to build on what we have.

LP: What impact has there been for LinkShare since the departure of Steve and Heidi [Messer]?

SD: Clearly anytime the founders that established a business and an industry leave, they are missed. But as an organization we are moving forward. I run the day-to-day business or the customer-facing business. I deal with distribution services, merchant services affiliate support, marketing, product development, client development and search. All of those roll up to me. And beyond the customer-facing – tech, legal, GNA, finance – John Kim manages that.

We’ve been focused on three things since this past February: the leadership transition; strengthening our core offering; and the cultural transition from being a New York-based privately held business to a business unit in a division in a large international media company. That’s been a big transition – culturally, and the leadership change, that’s been a big focus.

The second big thing – strengthening the core offering – not that we had any issues with the core offering and some of the products we announced at the symposium – rolling out Link Locator Direct, which is our first Web services offering. It enables affiliates to have easy access to links, and have them defined in categories: coupons, hot products, logos, general promotion, free shipping and best converting.

We’ve made some changes to our merchandising product. We have a client in beta now for whom we’ve recently categorized the data feeds; so, working with normalization and unification. Synergy Analytics has been in beta for some time. We held the affiliate and merchant advisory boards in San Francisco at the [LinkShare] Summit; we got some great feedback. And working with the development teams, and it’s our intent to take both of those products out of beta by the end of the summer, then run dual reporting for six months as the performance testing and get the feedback from the users. It’s been in beta a long time but that’s because it’s a product that’s going to change and revolutionize the way we do things here at LinkShare and send information to our partners. That’s been a big focus.

LP: What changes have you made at LinkShare since being appointed president?

SD: Lead generation, ad networks, AdSense itself and shopping comparison, performance- based and what used to be known as affiliate marketing deals have all evolved. I think that we need to embrace that and find a way to be inclusionary with that, rather than just watching it grow up around you.

People ask me if the affiliate marketing industry is slow – no. I don’t define affiliate marketing as just what I do; I look at performance marketing. Anytime you are paying a third-party website a commission for some sort of thing that is a measurable and definable event – applications, sales, subscription – that’s inventory that a company like LinkShare should be going after. Because we’ve got great merchants, and we’ve got great distribution partners. That’s inventory we should be going after.

LP: What are some of the initiatives LinkShare has planned over the next 12 months?

SD: It’s been a busy four months: leadership transition, cultural changes, integration with Rakuten. The Synergy Analytic product – getting it out of beta is just step one, but then refining that product and taking the feedback from users and enhancing that product over the next six months and beyond is key for us. The work we’ve been doing on the merchandising data feeds and expanding that out. Taking this new locator direct and expanding our Web services offering in new ways of distribution of links is critical. Then we’ll be in the middle of back-to-school, then right into fourth quarter, and that’s not a time to roll out new products. So, our road map is fairly well-defined, with some of the exciting things we did last year and with Athena and enhancements we’ve been making to that – the affiliate analytics and the changes to that. It’s been busy. And launching U.K., that road map is fairly well-defined. And at the end of the day it puts us in a space where we can make LinkShare a safer, more reliable and more profitable place to do business on the Web. We’re focused on the right things.

LP: Is the reign of the “Big Three” (CJ, LinkShare and Performics) over?

SD: When you talk about the big three, I think Yahoo, Google and Rakuten, and we’re all going to be just fine.

LP: Interesting that you don’t count Microsoft in there at all.

SD: I do, but you said three, not four. I think Microsoft all the time. I spend a lot of time thinking about Microsoft. I spend a lot of time thinking about Yahoo. I spend a lot of time thinking about Google. And eBay. And Amazon. And ValueClick. That’s what changed. Because all those folks are in my game. They all have performance- based products – they are called different things. They look different, but they’re all in this space. It’s just not LinkShare against CJ and Performics. We are competing against well-funded big organizations with many assets. What you need to talk to your clients about is, How can I help you with your performance- based needs?

LP: But many of the big three you talk about have mainstream mindshare. What is LinkShare going to do to establish itself among those players?

SD: LinkShare is a B-to-B company – not a customer-facing brand. Although Rakuten is a customer-facing company in Japan. As a B-to-B, we need to stay focused on executing where we are. It’s new markets, new product and new ways to monetize. As we move forward there are lots of other areas we can make headway in. Like mobile. That’s an area in which we are very successful at LinkShare in Japan. We have a significant amount of transactions through mobile devices. As new platforms become available for us to work with, that’s an area where we can do really well.

However, the affiliate terminology limits us. I would submit that LinkShare brought affiliate marketing mainstream. We are recognized as the pioneer in affiliate marketing. When you are the leader in any space, it’s great; people look to you for your thought leadership but you can get pigeonholed as well. The difference between lead generation and ad networks and AdSense is those are affiliate sites, but just the way you compensate them and contractually the way that the relationship is set up may be different, but at the end of the day a third-party website is getting paid to drive a commissionable action to your site. And who manages that salesforce for you – that’s where the differentiation lies. So, if an ad network is managing that salesforce for you and they’re taking a financial risk and they’re putting their money to work and they are working on a spread – then that is called an ad network. If Google is doing it and they’re sharing a percentage of it – that’s called AdSense. But yeah, it’s jargon. But the bottom line is websites are getting paid commissions to drive commissionable and measurable events.

We need to stay focused on providing our clients with new ways to engage with their customers, new ways to monetize those engagements and expanding that global footprint.

LP: How are you doing that?

SD: We are opening our LinkShare U.K. office [on July 1, 2006]. We have space over there and we are staffing it up. We’ve got people on the ground. We already had the LinkShare U.K. network, but we’re putting people on the ground there and aggressively going after that marketplace now. There will be five to seven people to start out. Mostly customer-facing – sales, service, distribution, affiliate support, things like that. I’m really excited about that. That’s the resources of Rakuten. I can make the commitment to do that and aggressively go after that market. Our clients expect that from us, being part of a global company.

LP: Give me an idea of what you think the performance marketing space will look like in three years.

SD: From a LinkShare standpoint, we’ll reflect the needs of our customers, we’ll help them grow their business cost-effectively by acquiring new customers at a fair price or on a pay-for-performance basis. We’ll introduce new products, new channels of distribution and new marketing. International expansion is key in this space. New tools, Web services.

The performance space in the next three years. Let’s take a look back three years. Search has transformed this landscape. And that was very new three years ago. I imagine there will continue to be transformations like that in the future. The key with LinkShare is to remain flexible enough to ensure that we can offer our customers any new performance-based marketing tactic.

We do that today, but need to remain flexible to continue to give them insight to the ROI – whether it’s a click to a sale, or subscription or pay per call or mobile.

As our merchants find new ways to monetize and exchange with their customers we need to be there – one dashboard – to provide that feedback. I think the methods are going to vary but LinkShare’s core value proposition will not. The performance marketing space will still exist – it will experience robust growth as we see today, continue to grow. The performance-based marketing industry outpaces the growth of e-commerce. That’s where we need to stay focused: on this platform that can track all of that and provide the markets and the channels that our clients need to get there. I think it’s a two-pronged approach – platforms and channels.

New Network Flavors

The affiliate network menu is expanding to offer many more options than just vanilla, chocolate and strawberry.

Call them what you wish – ad networks, sub networks, CPA networks, CPA ad networks. No matter the name, these aggressive challengers are mounting pressure on the “Big 3” affiliate networks.

CPA ad networks, which use a cost-per-action payment model, are providing increased competition, which is likely to mean publishers will benefit from more choices, bigger payments, a wider range of potentially lucrative offers and what some observers claim is a more nurturing environment.

Affiliate consultant Shawn Collins refers to ad networks as the “hybrid of affiliate marketing – part merchant and part affiliate.”

Like traditional affiliate networks, CPA ad networks rely on publishers willing to promote their advertisers’ offers. But unlike their cousins, ad networks act more like direct CPA-deal brokers and generally focus on lead generation, registration-based offers and bounty programs. In addition, CPA ad networks often don’t require start-up fees and advertisers to prequalify, thus lowering the barrier to entry. It’s estimated that one needs approximately $5,000 to get a CPA network off the ground.

However, many claim the life span for the bulk of these emerging ad networks is limited and this crop will never be able to truly compete on a larger scope with the bigger established networks such as Commission Junction, LinkShare and Performics. “

CJ started in 1999 and the landscape has changed over the last six and a half or seven years,” says Kerri Pollard, director of publisher development at Commission Junction. “There’s been an increase in competition and new CPA networks.”.

Some affiliate managers argue that CPA networks fail to add value because they poach advertisers who are already in merchant affiliate programs. Others insist CPA networks add tremendous value because they attract new and unique advertisers who in turn, deliver new valuable customers.

Regardless, CPA networks are emerging as major players in the online marketing world. These marketing companies have direct access to groups of advertisers who, through a wide array of techniques, have the potential to drive a high volume of clicks, sales and new customers.

Maybe that’s why you can’t attend a conference or trade show related to online marketing without seeing the booths of the exhibit hall jam-packed with CPA ad networks looking to woo affiliates and garner some attention.”

Who’s on First

With so many players in the game, it’s difficult to keep tabs on everyone. Some well-known current networks include CPA Empire, DirectLeads, Endai Worldwide, Adteractive, Metarewards, The Vendare Group, XY7.com, YFDirect, eMarketMakers and TheBizOppNetwork. In addition, several new ones are popping up nearly every week.

In 2005, many of the major players gained a bigger foothold by partnering with other companies. Affiliate Fuel, also known as Thermo Media, LLC, was acquired by Experian in April. PrimaryAds was bought by Think Partnership for nearly $10 million. And ValueClick purchased Web Clients for $141 million.

For affiliates, much of the appeal of these ad networks is the size and frequency of payments. Affiliate networks usually pay on a monthly schedule or when a certain revenue level has been achieved, whereas CPA networks typically pay affiliates weekly so they don’t need to float the costs of advertising or, in the case of incentive sites, the costs of the incentives themselves. CPA networks often negotiate top-rate commissions for their publishers. In many cases, these deals are much better than what a publisher can negotiate from the merchant’s affiliate manager.

A post on the ABestWeb.com forum from an affiliate sums up the appeal of CPA networks:

“As an affiliate, I love them because they often pay considerably higher commissions than the major networks, they often pay quicker, and most don’t allow reversals,” writes Michael Coley, president of AmazingBargains.com.

While the affiliate appeal is high, some downsides to dealing with ad networks exist, including poor practices, such as cookie stuffing, adware, spyware and spamming. “

The biggest problem I’ve had is that campaigns will get canceled without any notice sometimes, so I end up having to find another source and switch out my links,” Coley continues. “I don’t think any of them are ‘clean.’ Most seem to work largely with email marketers, some of which are notorious for spam.”

Merchants claim to be somewhat cautious for a variety of reasons. Although CPA networks reduce the risks for publishers while maintaining the direct-response needs of the merchant, the merchants have no control over how their offer is presented. “

As a merchant, you don’t know who is promoting you, and the CPA network is not going to tell you, because you’d cut them out of the deal if they did,” according to Collins. “

What I like least about CPA networks is they build loyalty between the network and the affiliate with merchants’ money,” says Beth Kirsch, group manager of affiliate programs at LowerMyBills.com.

J.T. Stephens, director of auctions marketing and business development at Overstock.com Auctions, offers some tips for advertisers dealing with CPA networks:

  • Communicate your business needs;
  • Provide networks with an email suppression list of marketing companies/ affiliates on your blacklist and a list of your top affiliates that the network cannot contact;
  • Be on the alert for unsavory affiliate activities (adware, spam, spyware); and
  • Do not let the networks determine how to market your offer.

Many CPA network advertisers are huge proponents of free iPod offers and promotions. That tactic is likely to bring in customers more interested in the prize or giveaway than the merchant offer. This type of promotion fuels the perception that CPA ad networks only cater to less-savory advertisers.

Still, some figures state that big brand names make up 30 to 45 percent of all CPA advertising. Big-brand sites can also act as affiliates accepting CPA ad buys, such as MSN, when it has remnant inventory. Big-name publishers are selling CPA buys, but often it’s directly to the advertiser and not through the network.

Everybody into the CPA Pool

Though networks generally make more money selling on a cost-per-thousand (CPM) basis, some will sell leftover inventory and run CPA offers, according to an executive at one of the major affiliate networks, who asked not to be named for fear that the industry stigma associated with CPA practices would be damaging. In most cases, the networks are “booking these revenues as CPM,” the source says.

Another network executive says her network will continue to stay focused on its overall value proposition.

“We want to make CJ remain the preferred place for the new publishers,” Pollard says. “We have many different categories of publishers. They are the backbone of affiliate marketing. The top request from our 1,500 to 2,000 advertisers is overwhelmingly, ‘How can we help publishers trying to make money?'”

Pollard claims that by leveraging CJ’s connection with its parent company ValueClick, it can provide more value than CPA networks can by going beyond affiliate marketing to include lead-generation business, click integration, tracking and email.

“It’s a bigger and better picture to the clients. We have more synergies and offer them in a streamlined way,” she says. “But there is a lot of value that CJ brings as a trusted third party and the value associated with that is worth a lot to our clients. It’s currently a win/win situation and we want to make sure it remains that way.”

Rob Key, president and CEO of online agency Converseon.com, says the Big 3 are doing well with fraud initiatives and payment services. He also applauded LinkShare’s efforts in the area of analytics, which he says adds a higher level of sophistication to its program. However, he feels there is some room for improvement in the area of data feeds and customization.

“There will always be a place for LinkShare, CJ and Performics,” Key says. “But the space is expanding and people want more customization than the Big 3 can offer.”

He claims the movement toward more customized platforms has “topped out in the networks, which are looking to be all things to all people.” Instead, by offering specialized services, certain network alternatives help “people look beyond the traditional and reinvigorate.”

Converseon’s network-agnostic custom platform is designed to aid companies that are trying to get a view of their data across all channels, Key says. “You can’t do that if the affiliate data is off to one side, like it is with the networks,” he says, adding that the traditional networks will see continued price pressure.

Pollard expects to see consolidation in the CPA network space over the next year or two and says there’s no threat of a CPA network displacing any of the Big 3.

“I also expect that one or two other larger players may come in, but nobody that’s the size of LinkShare and CJ. CPA networks will evolve for months and years, but many of them will not be around for long,” she says.

The increasing power of ad networks was brought to the forefront at the end of last year when Commission Junction ousted AzoogleAds from its network. Because AzoogleAds was a CJ affiliate that grew into its own revenue-sharing network, many industry watchers claim it was just a matter of time before CJ kicked out the sub network.

Joe Speiser, AzoogleAds.com cofounder, called the move by Commission Junction “flattering,” adding that his company was clearly “dangerous enough from ValueClick’s point of view” to warrant giving up the “nearly 80 percent of traffic we brought in on the eBay campaign.” That’s a huge factor, since eBay is CJ’s biggest campaign.

Speiser also says that CJ was threatened by Azoogle’s growing presence.

Pollard says despite the incident with Azoogle, CJ has no plans to ban sub networks.

“Our business is always changing and we never want to put policies in place that hamper publishers and stop them. I want the creativity to remain,” she says. “Sub affiliates are great partners and we want to continue to have relationships with them.”

From Pollard’s point of view, sub affiliates “have found good niches and are good at servicing the advertisers.” However, she notes that it’s important for CJ to maintain network quality and ensure sub networks do not do business with affiliates that are engaging in questionable practices, such as performing downloads and software installations.

Collins says CPA networks are a dime a dozen. “A good amount of them fail quickly. If 10 new CPA networks open today, most of them will fail within months,” he says. “I guess it’s sort of like affiliates; there are a million affiliates and only about 10,000 that are doing things. Some aren’t going to move the needle,” Collins continues. “The networks certainly don’t need to sweat it just yet.”

Rather, according to Collins, pay per click is a much bigger threat to the networks than CPA. He expects a viable challenger to soon emerge (such as Direct Response or KowaBunga) that is backed by significant capital from a public company.

Regardless of the challenges, Pollard claims the good news is that the performance marketing pie is getting bigger and there’s room for everyone.

Dialing for Dollars

Whether it’s fashion, technology or commerce, what’s old often becomes new again. Pay per call is the latest revolution in performance marketing, and it focuses on incorporating a 130-year-old technology – the telephone – into the process.

While it’s not a surprise that pay per call is rapidly becoming a preferred model for local advertisers, it’s remarkable that it hasn’t been a significant part of the equation all along.

The rise in popularity of performance marketing, which now represents 40 percent of online advertising revenues, made it inevitable that someone would create a mechanism for businesses that do not have websites to market themselves, according to Greg Sterling, senior vice president at analyst firm The Kelsey Group.

Instead of ads linking to a website, pay-per-call marketing lists phone numbers, often accompanied by phone icons. Merchants pay a fee to the publisher when someone calls after seeing the ad. The number of calls is easily tracked because each ad is associated with a specific phone number, a practice that has been used for many years in print and broadcast ads.

The pay-per-call market, in all forms of media, is expected to reach $60 million this year, and rise by an astonishing 6,000 percent to $3.7 billion by 2010, according to The Kelsey Group. Pay per call enables small and medium-sized enterprises (SMEs) that do not have websites to spread the word and only pay for phone leads.

“Most local businesses don’t know how to deal with clicks,” says Sterling.

He notes that many small businesses complain that understanding and monitoring pay-per-click advertising is too complicated. Approximately 70 percent of SMEs prefer receiving calls to receiving clicks on their websites, according to Sterling, who estimates there are 10 million SMEs.

A survey of SMEs, by The Kelsey Group, indicates that 74 percent of small businesses would pay up to $1 for a call.

The persistent problem of click fraud will also spur advertisers to shift to pay per call, which is difficult to fake, Sterling says. Most companies that advertise in local Yellow Pages are more comfortable with communicating with customers on the phone. Also, two-thirds of SMEs that have websites do not participate in online marketing, suggesting that companies have been reluctant to commit the money and attention to develop leads online.

SMEs also believe that a person who calls is a better quality lead than someone who clicks on a website for information, Sterling says. “If you pick up the phone, you are more buy-oriented than people who are clicking,” he says.

The promise of pay per call has prompted a variety of networks and technology providers to enter the market in recent years, including ADSclick, Jambo, VoiceStar, Miva, eStara and Ingenio. Publishers currently offering pay per call include Verizon’s SuperPages, YellowPages.com, Local.com and Amazon’s A9. Search giants Google and Yahoo are currently testing the pay-per-call model to attract local and small business advertisers.

Microsoft is also working on a click-to-call solution to be included in its Windows Live offering, according to David Cole, a Microsoft SVP and head of MSN and the Personal Services Group.

The click-per-call capability, introduced in mid- March, will let users connect to businesses via Web-based calls by clicking on MSN search links. Last September, just a week after Google launched its Google Talk instant-messaging service, Microsoft purchased Internet-calling startup Teleo to expand the capabilities of MSN Messenger. With the Teleo acquisition, Microsoft also gained click-to-call dialing capabilities that would allow MSN’s upcoming adCenter service to offer pay-per-call pricing.

Dialing for Dollars

Sterling says the potential rewards from pay per call dictate that eventually all publishers involved in local search will incorporate some form of pay per call. “Calls can generate much more revenue than clicks,” he says.

Pay per call is desirable for publishers because companies are willing to pay a lot more for a call than a click. According to The Kelsey Group, the advertising categories willing to pay the most for leads include mortgage lenders ($35), lawyers ($30) and travel agents ($8).

More than 1 billion searches per month are performed on pay-per-call network Ingenio, according to chief marketing officer Marc Barach. Ingenio’s launched in 2004 and has relationships with America Online, MySpace, Miva and Infospace.

Pay-per-call advertisers can decide if they want their ads to reach local or global audiences. Ingenio ad network can specify geographic region, and the company has also implemented IP tracking to determine the consumer’s location, according to Barach.

One potential limitation of the pay-per-call model for publishers is that unlike clicks, which are generated around the clock, call revenue will primarily be generated during business hours. By specifying that pay-per-call ads only run at certain hours of the day (or “day parting”), customers can make sure they don’t receive calls off hours, Ingenio’s Barach says.

The amount that Ingenio’s customers pay for a call depends on the amount that competitors are willing to pay. Taking a page from the SEM model, Ingenio’s auction model charges one cent more than the next highest bid at the time the call was placed. The company sets prices based on categories, not keywords to simplify the model. The minimum charge for a call is $2, which is the case for many categories.

David Clarke, the marketing manager for American Incorporators Limited of Wilmington, Del., began placing pay-per-call ads on America Online one year ago, and is happy with the results. “The biggest advantage is that those who call are a lot further along in the decision-making process and are more serious than people who click,” he says.

Clarke pays between $15 and $18 per lead for calls requesting information about AIL’s services for forming corporations, and approximately 10 percent of those calls result in a sale.

Publishers will have to weigh the potential revenues to determine if ads that generate money from calls or clicks get top billing. Where they are available, the higher-priced pay-per-call ads seem to get preferential treatment, getting the prime spots on AOL and YellowPages.com.

Pay per call is a “small but growing portion” of Ingenio’s overall revenue, which was $83 million in 2005, according to Barach. Ingenio has deals with networks Performics and Miva to promote pay per call, he says.

While pay per call has promise, it will not overtake traditional ads in search marketing, according to Mike Kerans, a senior vice president at Miva. Pay per call is appropriate for selling complex goods such as financial services, travel and “high-ticket items” like flat screen TVs, but because of the higher premiums charged, “I wouldn’t use it if I were selling ink cartridges,” Kerans says.

Pay per call will grow in popularity for the 25 percent of searches that are local, but national ad campaigns will continue to rely on other models, according to Kerans, whose company began offering pay per call in late 2004. “It’s never been that new media completely replaces old media,” notes Kerans, adding that pay per call is an effective way for small businesses to dabble online, as only one in three have a website.

Miva works with local TV stations, newspapers and larger publishers, including Verizon’s SuperPages and Infospace in the United Kingdom, and recommends that advertisers include a telephone icon to distinguish listings from pay-perclick ads, Kerans says. Companies should also use landing pages with maps to show the proximity to the customer, or promote special offers to induce people to call, he says.

Kerans says publishers have to determine how much ad space to give to pay-per-call versus payper- click ads based on the cost per thousand (CPM) that they expect to receive.

Calling All Clicks

An alternative form of pay per call enables consumers to prompt a phone call from the advertiser by entering their phone numbers online. Click-to-call technology was originally used to provide customer service, and automatically connects the two parties when consumers click a button. Click-to-call work can be financed through a pay-per-call model when applied to advertising, or through a flat fee or volume pricing.

Using click to call for sales enables customers to continue with their online sessions without having to stop to dial the phone, according to John Federman, CEO of eStara, which offers click-to-call and pay-per-call services.

While pay-per-call advertisements require unique phone numbers that identify the referring publisher, eStara’s Web-initiated calls save money by requiring only tracking numbers for each publisher, according to Federman. Using “cross-channel data passing” technology, the customer’s information is automatically forwarded to the advertiser’s call center, where sales representatives can view it on their screens. eStara customizes the pricing for each publisher, offering auction as well as flat pricing and subscriptions.

Click-to-call technology is also being used on commerce websites to prompt customers who are idle on a website. For example, after a shopper is browsing a website for a few minutes and stops clicking, a pop-up window offers customers the chance to talk with the merchant live to complete their order or to ask for more information, Federman says.

Some people aren’t anxious to fill out forms or give credit cards or social security numbers online,” according to Federman, whose company provides click-to-call services for Amazon, DaimlerChrysler and Continental Airlines. Federman said that after switching from formbased leads to click to call, DaimlerChrysler cut its conversion time from 30 days to four days or less, and doubled its conversion rates.

Search engines and local publishers of Voice over Internet Protocol (VoIP) technology reduce the cost of click-to-call phone connections, Federman says. Consumers using dial-up connections may be hesitant to go offline to call an advertiser, but click to call using VoIP enables them to instantly converse online. Technology developed by eStara automatically checks to see if the consumer’s PC has a microphone, and if so, launches a VoIP window.

While clicking an ad to talk live with someone is a “lower barrier to action than picking up the phone,” according to The Kelsey Group’s Sterling, consumers are not yet comfortable with making calls through their computers.

However, the rise of inexpensive VoIP services from Skype and Vonage could change consumer perception. “When VoIP is mainstream, you may start to see ads with phone icons (that initiate PCbased calls), but that is years away,” Sterling says.

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, Alter- Net.org and in MIT’s TechnologyReview.com.

Scrutiny on the Bounty

As every good bounty hunter knows, capturing your target requires exacting execution of a well-designed plan. But unlike intrepid fugitive hunters such as reality television star “Dog” Chapman, earning sizable rewards by corralling customers online doesn’t require risking life or limb.

Instead of offering commissions paid in nickels and dimes, bounty programs attract a growing number of publishers by handing out dollar rewards of tens and twenties. Programs offering substantial bounties for acquiring customers and qualified leads are now among the most lucrative opportunities for publishers. However, the increasing competition among bounty programs requires publishers to rigorously scrutinize leads and to be more aggressive in pursuing consumers.

“The biggest money in affiliate marketing is bounty programs,” says Beth Kirsch, group manager of affiliate programs at LowerMyBills.com. Kirsch, who says publishers can earn up to $75 for delivering a credit card customer, says bounties provide the greatest opportunity for rapidly increasing revenue “without going for porn or gambling.”

Companies on the hunt for consumers will pay hefty premiums “because advertisers are willing to pay up front for the lifetime value of the customer,” Kirsch says. Unlike retail sites that focus on capturing a single transaction, the companies paying bounties are looking to build an ongoing relationship with a customer. The most popular industries utilizing bounty programs include real estate, personal finance (such as credit cards and loans) and subscription services, according to Kirsch.

Kirsch says that while most bounty programs pay commissions after a transaction is completed, companies such as Netflix and Audible.com will pay out merely for getting people to sign up for free trials. “The amount of money flowing through [bounty programs] is amazing,” she says.

Leading to Search

The prospect of earning lucrative commissions is prompting companies to increase their online advertising as well as the incentives offered to attract consumers. Sites such as FreeiPods.com that are relying on search marketing to acquire new customers now make up 6 percent of total online advertising revenue, according to the Internet Advertising Bureau. During the first half of 2005, online advertising revenues for lead generation and customer acquisition rose by more than 200 percent over the prior year to $347 million.

“Paid search is a focus for customer acquisition,” says Shar VanBoskirk, a consulting analyst with Forrester Research. VanBoskirk says that search marketing is an effective tool for bounty sites in industries such as travel because it “captures a person at their point of interest.” The increased spending is raising the cost of keywords and encouraging companies to become smarter at search marketing, she says.

To earn these bounties, publishers are aggressively pursuing consumers by promising cash incentives and free popular electronic devices such as iPod music players and Xbox 360 game consoles to those who will fill out a credit application or subscribe to a publication or service. These sites have found that consumers are willing to provide personal information as well as refer several friends in order to receive a device worth up to $400.

However, VanBoskirk says that while some marketers do not seem to be concerned with how their publishing partners attract an audience for their subscription or financial service, they may be putting their customer relationships at risk. “You could turn away a loyal customer if you were associated with a bad brand or screwed-up message,” says VanBoskirk, who recommends that marketers retain some control over the incentive process.

Service and subscription companies looking to acquire customers are among the top individual Internet advertisers. According to Nielsen//NetRatings AdRelevance advertising data for November 2005, telephony company Vonage spent more than any other company in online advertising, while LowerMyBills.com, BellSouth Corp., Netflix, Verizon and QuinStreet were also in the top 10.

Interest in bounty programs has spurred the development of specialty performance networks, such as QuinStreet, Adteractive, AzoogleAds and MetaReward, that are focused on customer acquisition and lead generation. These networks are bypassing the largest networks and offer generous bounties to publishers who can funnel traffic to their clients.

“To the extent that you can deliver more quality leads, advertisers are willing to pay for them,” says J.B. Orecchia, president of MetaReward.

Detailing the Demographics

Orecchia says the increasing competition among bounty programs is prompting marketers to collect more extensive demographic and lifestyle information so that they can match consumers with advertisers. MetaReward collects date of birth, gender and address information as part of their registration process. The company, which along with Lower MyBills.com and PriceGrabber.com are subsidiaries of Experian Interactive, analyzes the information and delivers targeted advertisements for its advertising clients.

“Deriving positive return on investment from cost-per-lead/account programs relies on the marketer’s ability to match the consumer profile with the type of customer the advertiser is looking for,” according to Orecchia. “It all comes down to yield management,” he says. “Marketers must identify the characteristics of the programs that maximize the quality of the leads.”

Orecchia says his clients do not want to filter out bad data themselves, so publishers must scrub the lead data at the same time it is being collected. MetaReward relies on technology developed by parent company Experian to verify the authenticity of address information as well as remove duplicate leads in real time so that the consumer experience is not disrupted.

Publishers need to be diligent in filtering consumer data because consumers are being more creative in trying to scam companies out of free goods, according to Greg Morey, executive vice president at marketing consulting firm GR Wyse. “The free iPod generation prompted people to [find new ways] to beat the system.”

Morey says despite improvements in screening submissions, there is “still a high amount of bad data” being submitted to lead-generation sites. He says the additional techniques for weeding out spurious information, including email verification, double opt-in steps and survey questionnaires, are increasing the cost of processing leads. In recent years the cost to publishers of verifying a lead has risen from approximately 50 cents to more than $2.

Data verification companies such as TARGUS info use multiple databases to check the authenticity of information in real time. These databases not only verify that the phone numbers and addresses are valid, but also that they match the names of the person filling out the form, Morey says. After a form is submitted, TARGUS info checks the data and, if it is valid, consumers are sent to a landing page from the advertiser.

Morey says competitive verticals such as travel companies, vitamin supplements and mortgage lenders are willing to pay the additional cost to reduce the number of bogus leads.

Media Get Their Share

Publishers and broadcasters are also receiving bounties by converting audience members into leads. Technology from LiveDeal enables newspapers and radio stations to host classifieds on their websites and receive commissions for leads, according to Steve Harmon, vice president of corporate development at LiveDeal.

Harmon says publishers that are losing revenue from classifieds to companies such as Monster.com and Craigslist can earn between $10 and $30 for a lead on a vehicle, and between $30 and $300 for a real estate lead. LiveDeal partnered with radio and advertising giant Clear Channel Communications to create classified site SFBayAuto.com. ClearChannel promotes the classifieds on its six San Francisco Bay area radio stations, and the media companies receive a bounty when someone clicks on a vehicle listing and then fills out a form with her contact information.

LiveDeal provides all of the technology, including the classified listings, e-commerce and images of the items for sale, according to Harmon. The lead-generation service, which went online in 2005, enables media companies, which already collect extensive demographic information about their audience, to connect their fans with products that are likely to be of interest.

Turning Leads to Clicks

Performance network Kanoodle has developed a program for niche publishers who can earn small bounties by sharing information about their site’s visitors with larger publishers. BrightAds, which became available in December 2005, is a third-party cookie program that uses information collected on a website to generate relevant ads on another, according to Doug Perlson, Kanoodle’s chief operating officer.

For example, a golf blog or enthusiast site will install BrightAds software, which places cookies on consumers’ computers to record their activities while on the site. Should that consumer then go to a Kanoodle partner site such as MSNBC.com to check the weather, the cookie information would be retrieved, and they would be shown a golf-related advertisement.

“Third-party cookies are going to be the lifeblood of publications that offer free content,” Perlson says.

When a consumer clicks on an ad, Kanoodle gives 5 percent of the revenue from the publisher to the referring web- site, according to Perlson. Because BrightAds has no exclusivity requirements and does not conflict with existing advertising programs, publishers can earn additional revenue without having to modify their current relationships, he says. And while getting a sliver of the PPC commission (Perlson says the money comes from Kanoodle’s share, not the publisher’s) may not sound like much, third-party cookies can be delivered to all consumers who don’t actively block them.

This “stealth” referral program leverages the information collected by niche sites with dedicated audiences to deliver ads to general interest sites, according to Perlson, who expects consumers to become more comfortable with third- party cookies as they realize the benefits of being exposed to more targeted ads. To address privacy concerns, Kanoodle deletes the cookie information after a maximum of 30 days, and sometimes in less than a week.

Forrester’s VanBoskirk says that while BrightAds helps larger publishers to optimize the yields from the ad programs by targeting customers, some consumers may be concerned when they realize that behavioral information is being shared among sites. Consumers are gradually learning that visiting sites utilizing cookies can provide a better experience, but the cookie placement has to be made known to consumers. “Responsible publishers will want to explain that they are collecting cookies,” VanBoskirk says.

She also notes that some small publishers may have reservations that participating in third-party cookie programs could help competitors. “The biggest concern is that a third party will be selling data to another advertiser,” she says.

Going Offline

Publishers in industries that are completed by offline transactions have been limited to pay-per-lead programs, but new technology allows bounties also to be paid on a pending-sale basis. Because advertisers control the offline sales process, fraud is a concern for publishers, according to Jackie Bates, Web marketing director for affiliate network LinkConnector.

LinkConnector’s pending-sale technology enables publishers to follow a campaign’s performance by tracking the progress of the consumer-seller activity until it is completed, Bates says. LinkConnector monitors the progress when leads become pending sales, such as vacation packages or jewelry where sales representatives are often needed to close the deal, she adds.

LinkConnector passes a completed call form from the publisher to the seller, which initiates the monitoring process. The network provides publishers with status reports and processes the payments to guarantee that publishers are compensated, according to Bates.

Bates says the technology gives merchants that do not have online shopping carts more flexibility in setting commission structures. LinkConnector “enables more merchants to come into the affiliate marketing game,” Bates says.

Bounty programs are popular with publishers because of the substantially higher commissions offered for capturing new customers. New tools that clean up lead data and collect more extensive demographic information will make them more useful both to advertisers and consumers.

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 MIT’s TechnologyReview.com.