Performance, December 2009

The Right Niche

With over 400 ad networks, segmentation has become a big part of successful performance marketing campaigns.

Katrina Toft loves sushi. So it’s only natural that the designer, a recent college graduate, started a blog about the Seattle sushi restaurants she haunts. Already, she’s making enough from BestSeattleSushi.com to feed her fish habit. Now, she’s working on a site for gamers.

The explosion of ad networks – we count more than 400, and rising – makes it easier for people like Toft to make money from some very niche content for very small groups of readers. Vertical ad networks that segment according to their incomes, interests or ethnicity, help marketers hone in on these spot markets.

There are all sorts of ways to segment American consumers. Forbes Ad Network goes after high-earning executives, while BlogHer addresses women with wide-ranging interests, and Complex Media focuses on cool young guys. But one of the best opportunities lies in ethnic marketing, for two reasons: First, the spending power of Hispanics, Asian-Americans and African Americans is growing faster than that of U.S. consumers as a whole. Second, because advertisers tend to lump them into mass-market ad campaigns, those who address them directly have an opportunity to grab new, loyal customers.

For example, even during the recession, the purchasing power – and spending – of Hispanics has grown. According to Ethnic Technologies, a research firm focused on global multicultural marketing, because Hispanic-Americans tend to abhor debt, they weren’t overleveraged like so many other American consumers. The Conference Board’s Research Center forecast the purchasing power of Hispanics less than 44 years old will grow from $295 billion in 2008 to $397 billion by 2010 – that’s about a third in two otherwise sluggish years.

According to the Selig Center for Economic Growth at the University of Georgia’s Terry College of Business, African-American buying power is projected to top $1.1 trillion by 2012 – a 34 percent increase over a five-year period, while the purchasing power of Asian-Americans, the third-largest minority group, is forecast to grow 45.9 percent in the same time, reaching $670 billion in spending by 2012.

But tapping into this market via horizontal networks may miss many of them, according to Alicia Morga, CEO of Consorte Media, a vertical network focused on the Hispanic markets in the United States and Latin America.

In order to reach Hispanics, Best Buy worked with Consorte on a banner and paid search campaign in English and Spanish to bring new customers to Espanol.Best-Buy.com. Dealix, a company that provides leads to auto dealers in the United States, ran a lead generation campaign with Consorte to find the Hispanics it knew it was missing with its generic campaigns.

Are You Being Served?
The Hispanic market is well-served by a variety of performance- and CPM-based ad networks, including Batanga Network, Hola Networks and ImpreMedia. In addition, Yahoo, MSN and AOL operate Spanish-language portals to reach U.S. Latinos.

There’s a dearth of ad networks focused specifically on other ethnic groups. AdGroups.com and the Nubian Ad Network target African-Americans, while BET ad network focuses on music, entertainment and lifestyle sites. For reaching Asian Americans, there’s the Asian American Ad Network.

However, networks for non-ethnic demographic and interest verticals are popping up like mushrooms after a monsoon. According to comScore, vertical ad networks as a whole doubled their reach from 2008 to 2009. More important, comScore found that content-targeted verticals were significantly more engaging to consumers. People reached by vertical ad networks spent at least 60 percent more time in those site categories than the average category visitor.

The marketplace may get still more crowded, thanks to Adify and DevHub, two services designed to let publishers easily build and manage their own ad networks. Adify also operates a larger ad network spanning all the properties
on the platform.

Wide or Deep
Of course, advertisers also can reach Hispanics – or whomever – via the large portals: AOL, Yahoo, MSN and Google. These mass, horizontal ad networks segment via behavioral targeting, a technique that uses a unique cookie to track consumer behavior both within the major property, as well as over its network of third-party sites, in order to build a richer profile of each individual. The profile includes interactions with both content and ads, and the aim is to gather insight that can be used to show ads that are more relevant to each person. For example, a woman who reads pregnancy-related content may be a desirable target for an automaker with a vehicle that appeals to new families.

Horizontal networks can help large advertisers reach more consumers in a vertical than some targeted networks can.

“Performance advertisers may need to reach a certain audience, but at the end of the day, they’ll be judging the success of the campaign based on performance. Simple things need to be there: They need the reach, and they need the data and optimization tools to drive the performance,” says David Zinman, general manager of the Yahoo! Network.

Michael Sprouse, CMO of Epic Advertising, a performance marketing company that operates the AZN ad network focused on big brands and super-affiliates, says that because his network is so large, advertisers can reach a niche as well as a vertical – at a cheaper price. “We don’t change our pricing considerably based on how specific you want to get. We take the model that is used to appeal to large constituencies and hone that to reach something very specific,” Sprouse says.

Buys on horizontal networks also tend to be cheaper. As a replacement for contextual targeting, BT could let that automaker reach the pregnant lady with ads placed on lower-cost media. According to Amy Manus, director of media for interactive marketing agency Nurun, 70 percent of horizontal networks and portals either already offer this kind of targeting or plan to.

“The latest trend is for advertisers and brands to utilize networks to determine who they should be targeting through audience analytics like Blue Kai, Quantcast or Personifi. These allow you to find untapped target audiences. It has really become more about psychographics than demographics,” Manus says.

Boutique Approach
“The Hispanic market is easier to understand in terms of language preference. One third is Spanish-dominant, one third is English dominant, and one third is bilingual. So, an advertiser might be missing a portion of that pie they want to reach,” she says. For example, if you advertise on Yahoo en Español, you’d miss English-dominant and bilingual Hispanics, while advertising to Hispanics who visit English-language sites would miss the Spanish-speakers.

Vertical ad networks sell their deep knowledge of their customer segment and their publishers’ passion for it.

Says Genia Stevens, publisher of the Women’s Blog Ad Network and the Lesbian Blog Ad Network, “The advantage of using a targeted network like ours is that bloggers tend to have that trust relationship with their readers. Blogs tend to be more engaging and speak more to their readers, so ads can feed the conversation.”

In addition, the vertical networks consult with advertisers to share what they know about their audience’s interests and what they respond to. “They are people who understand their market deeply and select the sites that speak to the passion of the audience. They also maintain a long-term relationship with their publisher that helps them understand what the community cares about,” says Joelle Gropper Kaufman, SVP of worldwide marketing for Adify.

They can use this expertise to help marketers fine-tune their messaging. Colors used in ads, key phrases and photography all can increase performance of ads, according to Candace Kennedy, sales and marketing director for Ethnic Technologies, a market research firm. “It’s more warming to the individual, so there’s higher chance they’ll read it and do business with your company,” Kennedy says.

For example, an auto maker ran its mass-market campaign on AdGroups.com, a vertical network of 300+ independent publishers focused on the African-American market, with not-so-great results. After consulting with AdGroups, the advertiser included images of African-Americans in the ads for the network and saw response triple.

Roary Wilder, CEO of AdGroups, says that, in general, these tactics increase the response by about 300 percent. “The relevancy of what you’re able to do in a niche network is always going to be more powerful,” he says.

Vertical content networks also claim that their ads reach consumers when they’re more receptive. For example, a stockbroker might be interested in a call from a mutual fund while she’s at the office, and incensed to receive the call at night, when she’s home with her family.

“It’s the right target but the wrong environment and the wrong frame of mind. We’ve got the same people as the horizontal networks. The difference is the ability to reach somebody in the right frame of mind,” says Robert Pietsch, Forbes co-president and chief advertising officer. Adds Brian Silver, CEO of the Travel Ad Network. “What makes my network special is that, because we are trying to monetize the travel audience at all times, we have the ability to understand where someone is in the purchasing lifecycle and target the appropriate ad.”

Premium Placements
All these factors position verticals as premium networks, able to charge more and insist on terms – at least in theory. Other factors that go int0 making a network “premium” include curating the sites in the network and using the CPM ad model.

On the Adify network of vertical blogs, “We focus on great brand engagement. Your advertising will perform better in the right context, but the right context is often expensive,” says Kaufman.

Content- or interest-targeted vertical networks tend to carefully select publishers and keep networks to a manageable number.

“We have our bloggers all sign the editorial guidelines, and we have humans who are reviewing every blog all the time, making sure they are blogging regularly about their vertical, that there are no paid endorsements or paid posts, and no unacceptable content,” says Elisa Camahort Page, co-founder and COO of BlogHer.

Tactics like these assure advertisers that the quality of traffic on the sites is as good as the content. In addition, most networks provide statistics on what percent of Internet users they reach, as well as how many times they can reach an individual, on average. They often do user studies to help advertisers understand their readers. Information on the demographics of visitors to media properties is also available through third-party media analysis and tracking services, including comScore and Nielsen@plan, paid services used by large networks, and Quantcast, a free audience measurement service.

Premium CPAs
In today’s tight-fisted economy, even brand advertisers are looking at CPAs – even if they’re paying based on CPMs. The difference is, when they advertise on CPM networks, they do some reverse-math to analyze how the CPM translates to whichever action metric they choose.

“In display, there’s always a back-end metric. For example, an advertiser may have a $7 CPA target on the back end. We may charge $10 CPM, and if the campaign garners a $12 CPA, we can see the lowest-performing sites, eliminate them and we’ve reduced the CPA to $6,” says the Travel Ad Network’s Silver.

Large advertisers and agencies, such as those that advertise on Forbes Audience Network, often have their own, very sophisticated analytics platforms used to track conversions; they may also use their own optimization services. Others make use of built-in analytics and dashboards provided by the ad networks.

The Big Deal
When it comes to the publisher’s revenue share, some, like the Gay Ad Network, let publishers set their own CPMs and fill unused inventory via other networks, a process known as backfilling or tethering.

“They can use us as the primary sales channel, but if we’re unable to sell their inventory at their minimum CPM, we’ll relinquish it and send it over to Google or whatever backup they choose. If a publisher knows what their effective CPM is, if we don’t hit it, they’re no worse off, because we’ll redirect back to what they’re using today. It’s like a no-risk trial,” says Gay Ad Network CEO Mark Elderkin.

Other networks demand exclusivity, but say they make up for it with the quality and quantity of advertisers they can provide.

“Our brand lends credibility and an access to advertisers that most networks don’t have,” Pietsch says. For example, a major financial advertiser on Forbes.com, the publisher’s original content site, wanted to reach small business owners. It targeted them via IP address on
Forbes.com, and then also ran ads targeted by content on the Business and Financial Blog Network.

Some networks have a reverse sliding scale, rewarding high-performing super-affiliates with better splits or custom models.

DevHub gradually raises publishers’ percentages as they build up their sites. Says Mark Michael, co-founder and SVP of strategic marketing for Evo Media Group, which operates the service, “Out of the box, you get our standard rev share. As you’re building that site, one piece of content today, another tomorrow, slowly your rev share would go up.”

Power in Numbers
Large publishers and superaffiliates on the Casale network – those with more than 250,000 unique visitors a month – may be able to negotiate a guaranteed CPM or exclusive representation.

“Everybody starts with us in a revenue-share scenario, so we can have the opportunity to evaluate the property and audience, as well as advertiser demand for the inventory. From there, we set a benchmark, work with publishers to improve how their traffic is performing, and recommend where we could take the relationship potentially,” says CEO Julia Casale-Amorim.

CPMs and rev-shares are all over the map. Casale Media pays 70 percent of ad revenue to the publisher, while BlogHer shares 45 percent and Forbes offers 40 percent. Some networks we spoke with didn’t disclose their revenue shares.

Ultimately, though, what’s more important than the CPM or the rev-share is the publisher’s net revenue. Says Gay Ad Network’s Elderkin, “Whether it’s 90 percent of a five-cent CPM or 50 percent of a $10 CPM, the percentage almost doesn’t matter. Sites that perform well get a larger percent of campaign dollars and a higher percentage fill-rate, while sites that don’t, get optimized out of the campaign.” Another key factor is the audience growth a vertical network can provide by operating a portal or central hub that features all the sites in the network.

Says BlogHer’s Camahort Page, “We do a lot to try to cross-promote our sites, and foster the amplification effect across our community.” For example, every blogger, regardless of the size of her audience, sees her headlines run in rotation in a “what they’re saying” box on all the other blogs in her group. Selected headlines are also distributed to iVillage.com.

That audience growth translates into more revenue for publishers. Says Richard Antoniello, CEO and publisher of ComplexMedia, which publishes a print magazine and original content on Complex.com, “Say Nike or Brand Jordan comes to us. We run the campaign on Complex.com, but of course they also want to run on NiceKicks.com (one of the independent sites in the network). We usually end up running a little more on the individual sneaker site, but Complex.com is successful as well, because we get a smaller slice of lots of ads.”

The Intangible Factors
And then, there are the intangibles: better branding, a sense of community and the availability of technology and services to improve a site may all be important.

If affiliate marketing and blogging are solitary businesses, the right ad network can ease the loneliness. BlogHer hosts annual conferences, as well as conference calls where network members can ask questions and share knowledge. Even some large networks like Epic try to leave the door open to help publishers improve site performance and traffic.

Networks may also provide technology beyond what most indies can easily acquire. “Publishers are as loyal as the biggest check, which doesn’t always come from the CPA that runs across my banners. If you’re site 1,000 in the long tail of 10,000 travel sites, you’re going to look to see who’s going to drive higher CPM, but also, what products and services do they have that I can add? When you come to us, you can extend your pages through microsites, or add widgets, and make more money from those,” says Silver of the Travel Ad Network.

Evo Media also promises an expandable platform for publishers. Says Michael, “No one should ever outgrow the platform – even if you get ridiculously popular. If you want to add a forum or chat layer, it should be right there for you in your publishing dashboard.”

A Tidy Marketplace
Clearly, the CPM model removes the risk of many types of fraud facing super-affiliates. But there are different gotchas publishers should watch out for.

First, they should read the fine print to determine what a network’s fill rate is, says AdGroups’ Wilder. “That’s where the sneaky language starts coming in from networks with lower fill rates. They can fill a certain amount of inventory at a certain CPM, but it’s only 20 percent – and the rest is filled in with CPMs at less than a dime. That’s the language some inexperienced publishers will
miss.”

Don’t forget to ask about when and how you’ll get paid, warns Casale-Amorim. Some networks don’t pay publishers until they get paid by advertisers. “Net 30 would be the ideal,” she says.

Seasonal Sunshine

Despite the gloom hanging over the holiday shopping season, affiliates can boost sales by giving consumers what they crave: value.

Last year, Kim Berry gave her husband Dennis a miter saw and a massage chair pad. He gave her a high-end juicer, a DNA test for their mixed-breed dog and jewelry. There were also plenty of smaller gifts under the tree, and they spent $1,200 on gifts for their parents, a grandmother, brothers, sisters, nieces and nephews.

This year, Kim, a corporate writer, moved to a different company and took a 20 percent pay cut. Her husband’s IT job was outsourced overseas.

"Where we once had two professional incomes, we are now living on 80 percent of my income," she says.

This year, she and her husband will exchange gifts worth less than $100, and Kim’s sisters and their families will get nice greeting cards. For his large family, the’’ve agreed to keep the budget below $250.

"We’re not sure how we’re going to divide that yet. We may not be able to buy things for the nieces and nephews this year," Kim says.

Welcome to the holiday shopping season, 2009 edition. Expect a replay of last year, when consumers kept their wallets zipped until the last possible moment and spent less when they finally spent. Despite recent assurances from Ben Bernanke and other economists that the worst is over, there’s plenty of gloom among consumers, who are facing the highest unemployment rate in a quarter century.

Research firm eMarketer forecasts that online retail spending will stabilize by the end of the year, that is, growth in sales will be zero year-over-year. But that’s no growth from a memorably bad quarter in 2008. "Last year was very disappointing, there was a real contraction. It’s going to continue to be tough for the rest of this year," says Jeffrey Grau, eMarketer’s senior retail analyst.

And that’s the good news. According to the U.S. Department of Commerce, ecommerce sales in the second quarter of this year fell 4.5 percent year-over-year. Optimists called that a slight improvement from the 5.8 percent year-over-year decline in the first quarter.

Indications from the back-to-school season are another indicator of a challenging gifting season. According to the National Retail Federation, spending on kids’ clothing and school supplies was down 7.7 percent from the previous year, which was also bad. Consumers seemed to have trouble letting go of their hardearned dollars. Less than half of families with students in K–12 or college completed their shopping by early September.

"Back to school happened late this year, and we expect to see the same with the holidays as we have the same short shopping season as we did last year once again," says Mark Kirschner, LinkShare’s CMO.

At the same time, coupon-clipping and bargain hunting intensified. Ebates, one of the top 2 percent of affiliates in terms of sales and merchant revenues, benefited from this. Spending at its back-to-school stores was up 133 percent. This example shows how affiliates who respond to the public’s deal-seeking mood can grow their market share.

"Shopping lost its fun last year. It used to be, ‘One for you, one for me.’ Last year, purchasing was more focused," says Kevin Johnson, CEO of Ebates.

According to LinkShare, the price-conscious mentality may not be a temporary response to a slip in the economy, but a lasting cultural shift. A study by the performance marketing network and gsi interactiveSM found a new kind of online shopper: the value hunter. Certainly, the ability to find the best price has always been a feature of e-commerce, but, according to the survey, price now beats brand – and it may even change what people buy.

Okay, kill the gloom. Most folks will still buy gifts, and slightly more of them will buy online than last year. Says eMarketer’s Grau, "There are consumers out there that are unhappy with traditional stores. They’re up for grabs."

Here are some tips that will help affiliates maximize the effects of holiday promotions — as well as their revenue.

Add Value

According to the LinkShare survey, 63 percent of value hunters will buy something online they normally wouldn’t have purchased because of a special offer. This is an opportunity for affiliates to step up and differentiate themselves through value-based products and promotions. While you can’t control product pricing or selection, think about what you can add to make a purchase feel worthwhile.

Today’s consumer can’t afford to make mistakes. "They’re looking for confirmation that they bought smart," Kirschner says.

Good content is a cost-effective way for an affiliate to add value, according to industry consultant Lisa Riolo, formerly of Commission Junction. One of the benefits of shopping online is that consumers have access to a broader selection of merchandise and better information about not only price, but customer service among merchants.

"One opportunity an affiliate has is to provide true comparisons that are relevant to the consumer. Instead of showing the alternatives, provide content, comparing and contrasting the different brands, styles and merchants they’re buying from," Riolo says. The more information you include to help fire the purchase decision, the better. For example, one merchant may price an item higher but offer free shipping.

Building a site that’s rich in media can be another powerful tool. "Rich media has been a tool that can drive results, as have video and interactive widgets, as long as they are designed to drive a sale, and not just to be interactive for the sake of being interactive," according to Kirschner.

Cozy Up to Merchants

One of the most important things you can do is to make sure you stand out to the affiliate managers, whether they’re at a large network or working for one of the brands you sell. Although they don’t like to talk about it, there are special deals available for super affiliates and rising stars.

The best way to stand out is to be proactive, says Matt Enders, founder of mgecom, a company that manages affiliate programs: "If you really want to capitalize on the fourth quarter, make sure not to wait for affiliate managers to contact you. Don’t be afraid to contact a manager and pitch them," Enders says. Instead of looking at yourself as an extension of the brand’s business, he advises, remember that you are running a business yourself.

You can see how this works for Vistaprint affiliates. This year, as always, the online printing shop will feature holiday cards and calendars for the new year, along with discounts and, as it gets closer to the final shopping countdown, free shipping offers.

The most successful Vistaprint affiliates add a truly personal touch to these offers, according to Donald Schamber, manager of affiliate marketing. Many build custom holiday pages, many of them specific to Vistaprint. They might also do some blogging, or send out emails and newsletters.

During the planning period for the holidays, Schamber does quite a bit of direct email communication with the company’s top-tier affiliates, letting them know about the top offers and making sure they understand new ones. Vistaprint will even adapt an offer to work better for a valuable affiliate.

It also offers holiday-themed, co-branded landing pages on the Vistaprint site. These pages, although hosted by Vistaprint, carry-through the look and feel of the affiliate site that referred the shopper. Schamber says testing has shown improvements in the conversion rate and an increase in the size of the average order when the affiliate’s brand carries through to the actual transaction.

"For some affiliates, this is 60 to 80 percent of their business. It’s such a short window of opportunity that we try to be really responsive to them during that time," Schamber says.

Tricia Meyer, founder of Sunshine Rewards, uses photos and videos to provide a personal touch that appeals to her members and to affiliate managers. For example, last year, she posted a video of her and her mother in front of a Christmas tree, bickering over a box of Ghirardelli chocolates. She also featured her daughter singing, "All I Want for Christmas Is My Two Front Teeth." Says Meyer, "The program managers we work with treat us really well. Even if we don’t send a ton of traffic to them, they know we’ll go the extra mile."

Watch for Trends

It’s great to be offering some of the hottest holiday gifts. It’s stupendous to be among the first to have hopped onto a meteoric trend. Marketers who stand out from the year-end madness have well-developed campaigns ready and waiting when a product hits big. Trend-spotting, formerly the purview of large, rich research companies, has become accessible to everyone, thanks to the search companies.

Keeping an eye on Google Trends, Bing xRank, Yahoo Buzz Index (buzz.yahoo.com) and Alexa’s What’s Hot will show you the current most popular searches. You can also put in your keywords — or any term — and see a graph of its popularity over months. These services can help you find the moment when the popularity needle begins to quiver. To keep up with the blogosphere, monitor Technorati. For truly immediate insight into what we’re all talking about right now, Twitter provides a list of trending topics on its homepage.

As you look at trends, Riolo advises that you keep in mind how the economy may influence them. She says, "For example, entertainment products remain hot this holiday season, but consumers are interested in things they can enjoy at home with the family, instead of spending money going out."

Customer Evangelists

Word-of-mouth has never been more powerful or ubiquitous, thanks to Internet sites that let you rate everything from your toothpaste to strangers’ tuchuses. "Reviewing is the new advertising," says Reinier Evers, CEO of trendwatching.com. His consulting firm recommends offering customers the ability to post product reviews on your site. You should also make it easy for them to post reviews of your products and your site to third-party sites.

There are a couple of advantages to enabling reviews on your site. First, Evers explains, it’s the best way to keep track of what customers are saying — and to quickly and visibly respond if a review is less than stellar.

"Engaging in conversations from an early stage on will often help defuse a potentially damaging, angry thread with others jumping in," he says.

To help your site visitors understand just who is doing the reviewing and why they should listen to them, Evers advises that you provide context for reviews by letting people set up profiles and then adding the profile information to their ratings.

"Consumers are not as accepting of advertising any more. They are more conscientious about researching products," says eMarketer’s Grau. "They’ll buy from the retailer with more information in the form of user ratings and reviews, and personalized recommendations."

With some additional work, there’s another potential bonus for installing reviews: awesome SEO. In May, Google introduced Rich Snippets, a search feature that Evers calls revolutionary, and here’s why: Rich Snippets could get your site reviews into the top organic search results.

First, you need to add some new markup to your review pages; the search giant provides information on how to do this in its Webmaster Central Blog. Then, if Google’s search algorithms deem your reviews to be relevant to someone’s search, a link to the review on your site will show up in the results. Your Rich Snippet link will include the overall product rating, review count, and a snippet of actual review text, making it eye-catching and highly attractive to searchers.

Conversion, Not Price

Once you get into the mindset of today’s consumer, you realize that it’s not all about getting the rock-bottom price. Riolo advises you try to segment both your advertising and your offers to appeal to veteran online shoppers and newbies, as well.

For example, if you normally merchandise "Gifts under $100," try "Gifts under $50" to appeal to bargain hunters. Appeal to time-starved, convenience-oriented shoppers by emphasizing quick shipping.

"Discounting is a vicious game. To lead with a discount can kill you," says Grau. "Instead, give them a reason to come to your site, and then sweeten the deal. To ensure they make a purchase on your site, you offer them an incentive."

A coupon offered at point of purchase is an excellent deal-sweetener. Riolo notes that many affiliates find consumers abandoning shopping carts to go in search of coupons. Then, they convert on the coupon site instead of where they made the purchase decision. Even if you don’t normally work with coupons, you should. She says, "If a coupon is available, every type of advertisers needs to do that, not just the coupon sites."

Avoid the Google Rush

Keyword prices skyrocket in the run-up to the holidays, as major marketers throw their weight into search marketing.

"They dominate the market and drive cost-per-click so high that affiliates can’t compete anymore, even for what you thought was an obscure keyword. They have teams of people looking for those same obscure keywords," says Shane Donnelly, an account manager for eZanga.com, a meta-search engine.

EZanga.com claims that keyword prices on its search service average half the price of the big four. Donnelly adds that, while eZanga.com’s network of second- and third tier search engines handle around 12 billion searches a month, compared to Google’s 70 to 80 billion, it offers plenty of scale for most affiliates.

"During the holidays, when you can’t afford the cost-per-click on Yahoo, Google or MSN, second-tier search engines are the place to go," Donnelly says.

The Tried and True

In 2007, holiday sales through Sunshine Rewards shot up, thanks to a Disney cruise contest. Members got an entry for every purchase they made through the cash-back and coupon site. Even if they didn’t win, people who booked the cruise on their own could earn Disney gift cards to use on the voyage.

In 2008, Sunshine Rewards founder Tricia Meyer wanted to make her holiday promotion even better. For starters, instead of one big contest, she hoped that a series of smaller ones might give her site a steady stream of publicity. It also seemed like a good idea to branch out from the Disney theme, in order to reach a new audience.

Both ideas backfired. Bloggers weren’t excited about the smaller contests, and Meyer found out just how many of her more than 13,000 members were Disney fans.

"Now, we realize those Disney fans are our bread and butter," Meyer says. "In this economy, we’re better off playing to our strengths."

In this economy, that goes for all of us.

Editor’s Letter: The Sun Shines Through

Have you driven down Main Street lately? If your town is anything like mine, you’re seeing a lot of empty storefronts with “For Lease” signs in the window. My favorite bagel shop is gone after more than 20 years in one location. A hot new restaurant closed before I could even try it. Even a thrift store shut down after decades of service to a local charity. How bad is it when people can’t afford second-hand stuff at bargain prices?

It’s a tough time for small business people, where cash flow gets tricky when vendors pay late and customers push back on pricing. Merchants slash prices to attract customers, but that narrows their profit margins, effectively adding to the economic pressure. And despite recent upticks in economic indicators, it looks like this holiday season will be another downer for consumer spending.

All this means, of course, it’s a perfect opportunity for smart online marketers.

Online sales are rising as shoppers save gas and shoe leather by seeking out the best values on the Web. Performance marketing tools and techniques get better every single day. There are now more than 400 ad networks, ranging from tiny mom-and-pop operations to companies listed in the Inc 500. And performance marketing veterans seem more committed than ever to stomping out the ethical lapses that hurt their industry.

Now it’s up to you. Whether you’re an affiliate, network, agency or merchant, this season will test your ingenuity, business savvy, ethics, design skills and guts. If you fail to rise to the challenge, you’ll probably have an awful season. If you make the right moves, you’ll seize the opportunity and charge ahead.

Revenue Performance is here to help, with a holiday sampler for stories and columns that can help anyone on almost any level of the performance marketing industry.

First, please take note of our pull-out supplement, the Online Advertising Blue Book. The Blue Book is designed to help smart affiliates connect with the right networks. Eric Reyes, who has written many of our best feature stories in the past, edited the first issue of this new magazine for our publisher, mthink.

We’re very pleased to welcome back Senior Writer Susan Kuchinskas, who was the founding managing editor of Revenue five years ago. She’s contributed two superb stories for this issue, including our cover story, Seasonal Sunshine, which offers specific strategies for boosting clickthroughs and conversions in the current environment. Kuchinskas has also analyzed the increasingly segmented world of ad networks in her second feature for this issue, providing a much-needed map through an ever-thicker maze.

In our feature interview, media guru Clay Shirky talks about the evolution of new media, including performance advertising, from being quirky and cool to “boring” and fully integrated into our lives. You may be surprised to learn why boring is good.

Our columnists have still more ideas. Designer Pedro Sostre goes against the grain by talking about how product features must outweigh aesthetic consideration when designing in a recession. Affiliate manager Paresh Vadavia tells how to sell luxury goods when consumers are pinching pennies. Jim Lillig explains which networks will be best-positioned to avoid the inevitable shakeout. Rebecca Madigan updates what the Performance Marketing Alliance is doing to stop taxation of affiliates.

New to this issue are columnists Mike Evans, who reviews some popular mailing programs, Jay Weintraub, who opines about ethics in continuity programs, attorney David Klein, who discusses proposed regulations affecting fake blogs and articles, and Geno Prussakov, who outlines the risks when affiliates sign up for multiple networks.

We can’t do much about the economy. But we hope this issue brings a little sunshine into your holiday season. Now, if I could only figure out where to get a good bagel.

Cheers!
Tom Murphy, Editor

Perform

Protecting Consumer Privacy

Legislators, online marketers and consumer privacy groups still struggle over the creation of mutually acceptable online privacy laws – although all see the need for some level of protection. A coalition of 10 consumer advocates and privacy groups called on Congress to limit companies’ ability to track Web users and serve them targeted ads. Two key proposals under debate are to establish a Do-Not-Track registry similar to the Do-Not-Call registry, and imposing a 24-hour limit to holding consumer data. While the proposals are likely to draw protests from online marketers, the fact that privacy groups are allowing behavioral targeting for any period of time – even just 24 hours – represents a departure from the staunch standpoint that tracking and targeting always requires opt-in consent. The coalition’s proposals also aim to protect American consumers in online and mobile channels by bringing consumer data collection under the authority of the Federal Trade Commission. Rick Boucher (D-Va.) is expected to introduce new privacy legislation late this year.

Microsoft Adds Ad Preview

Microsoft’s adCenter has added a new tool that lets you preview your ads while avoiding accidental clicks and unnecessary impressions. The Ad Preview Tool helps ad- Center advertisers confirrm that their search ad is appearing. While managing campaigns, users can access the Ad Preview Tool directly in adCenter and preview their ads as they would appear on Bing.com.

Opting Out on Ads

AOL has agreed to notify all subscribers about how to opt out of email footer advertisements. The change in course comes after the filing of two class-action lawsuits, one of which alleged the ads in email messages violated a federal privacy law. AOL began inserting ads in email footers more than three years ago. However, in April 2008, the company quietly allowed paying subscribers to opt out of the ads. Now, after settling the lawsuits with a $110,000 donation to charity, AOL has agreed to proactively inform users on how to opt out of the ads. Tricia Primrose, AOL’s executive vice president for corporate communications, said the decision to allow all users to avoid the ads reflects the new management team’s commitment to offering users a good experience.

No-Keyword Search

Imagine paid search without keywords. Nick Fox, Google’s business product management director for AdWords, speculated during a keynote address at the San Jose Search Engine Strategies show that no-keyword search could become a reality within the next five to 10 years. Increased user sophistication in searches, longer query length and unique search terms are just a few reasons why keywords may no longer be essential. According to Google, 20 to 25 percent of search queries in the last six months were new queries. Additionally, a Hitwise study reveals that the number of five-plus word search queries increased by 10 percent in the past year, while two-word search queries decreased by 5 percent. The changing landscape has many advertisers asking whether their skills should be measured based on painstaking attention to long query keyword detail. However, a no-keyword search could spell out advantages for advertisers. Advertisers would have an opportunity to better connect with searchers on natural language queries, and could better connect with consumers to capitalize on all relevant advertising opportunities. PPC advertising campaigns could also be much more efficient without a keyword research component. We’ll see how Google tries to make it work.

Face Time on Facebook

Social networking sites now account for one out of every five ads people view online, according to a recent comScore study. MySpace and Facebook were the top online display ad publishers, delivering more than 80 percent of ads among sites in the social networking category. It’s no wonder. The rise in popularity of social networking sites means Internet users are spending a large portion of their time on these sites. Meanwhile, affiliates are still figuring out the best ways to use low-cost ads to optimize access to highly targeted audiences. “As social networking sites innovate on their existing ad offerings, the category should continue to grow in ad volume, while CPMs could also increase if the sites can demonstrate a high campaign ROI,” said comScore senior vice president Jeff Hackett.

Tighter Tracking Restrictions

Online businesses may have to be even more careful about tracking and consumer privacy. In a case closely observed by privacy advocates and behavioral targeting executives, the Federal Trade Commission gave final approval to a settlement with Sears Holdings Management Corp. about tracking software. The settlement requires Sears destroy all data it collected from online users who downloaded tracking software it distributed between April 2007 and January 2008. While Sears didn’t admit to wrongdoing or agree to pay any monetary damages, it promised to “clearly and prominently” notify Web users about any tracking applications in the future. In the company’s market research program, users were paid $10 to download tracking software that would monitor their Web activity. While many in the marketing community insist the opt-in email solicitation is commonplace and legally valid, the FTC censured Sears, alleging it did not adequately convey that the program would “monitor nearly all of the Internet behavior that occurs on consumers’ computers.” The FTC crackdown on potential online privacy violations will keep behavioral targeters on their toes and could set a new disclosure standard.

m-Commerce

With an estimated 71 percent of teens now owning mobile phones and using browsing functions more than adults, it’s no surprise that teen retailers like American Eagle Outfitters are scurrying to create mobile commerce divisions. While still in its nascent stages, mcommerce should give a significant boost to companies who build a mobile strategy that effectively interacts with their customer base. However, it may be too soon to tell. According to Forrester Research, while about 52 percent of Web buyers (consumers who’ve made purchases online) have cell phones with Webenabled features, only about 14 percent have ever used their phones to make a purchase without speaking to anyone. Most of those purchases are for online content for the phone, such as games or ringtones. Only 5 percent purchased clothing.

Media Consumption on the Rise

Americans are consuming more media than ever with huge jumps seen in mobile and online video viewing, according to data from The Nielsen Company’s “Three Screen Report.” Mobile video viewing increased by 70 percent over last year with over 15 million Americans saying they watched mobile video in the second quarter of 2009. Online video consumption also continues to rise with a 46 percent increase in viewership compared to last year. At 83 percent, shortform video (like YouTube clips) still makes up the biggest share of online video viewing. Namebrand TV network content comprises the majority of mobile video viewing. Adults 18 to 24 lead the pack, watching more than 5 hours of online video each month. But the surge in online and mobile media consumption hasn’t been at the cost of TV viewership. Nielson data shows 57 percent of consumers with Internet access at home watch TV and go online simultaneously at least once a month. Given the convergence taking place, those who look at content holistically and disseminate their brand message across the three screens will have the greatest advantage. That will require high quality content that can traverse online, mobile and TV screens.

Impulse Buys

Smartphone users are open to receiving targeted advertising on their mobile devices, with certain types of ads working better than others. According to Compete’s quarterly “Smartphone Intelligence” survey, nearly one third of all smartphone owners are comfortable or very comfortable receiving targeted marketing on their device. Of these, nearly half are receptive to location based ad offers at restaurants and 45 percent of respondents said they would use mobile grocery coupons. If cell phone users find your ads useful, you will have an opportunity to target consumers the moment they are making purchasing decisions. Conversely, if your ads are not helpful they could be quickly tuned out as a nuisance.

Google on Display

So, Google has joined the display ad game. In a bid to duplicate its search-advertising success in the display ad market, Google launched its much-anticipated automated ad exchange in September. Google’s DoubleClick Ad Exchange works much like a stock market. It offers a real-time, automated auction system where ad networks and publishers can post their ad inventory to auction while other networks and publishers can bid on and buy specific kinds of inventory.

Ad Exchange is a rebuild of DoubleClick’s old exchange using Google technology. According to Google executives, the new system will greatly simplify the process of buying and selling display advertising space, allowing many more publishers and advertisers to enter the display ad market. “The objective from the outset is to grow the display advertising pie for everybody,” said Neal Mohan, Google’s vice president for product management. In fact, the new system will automatically allow hundreds of thousands of advertisers and publishers who now use Google’s AdWords and AdSense systems to run their ads and ad space through the exchange.

But Google’s entrance into the business could shake up the market. Up to now, Yahoo’s Right Media has led the online display-ad world; Google’s Ad Exchange could come to dominate the market over time. Some industry executives assert that the DoubleClick exchange will give advertisers more flexibility than Yahoo’s, helping marketers to more precisely target the audience their ads are shown to and monitor the results. While Google says ad inventory available in the system will reach 76 percent of U.S. audiences and 73 percent of international audiences, time will tell how effective Google’s display ads will be.

New CEO in SEO

Search engine marketing firm and SEO 2.0 pioneer Relevant Searches picked Maury Domengeaux for the CEO’s chair. In addition to his career in search marketing, Domengeaux has more than 20 years of experience in venture capital, executive management, high-technology development and marketing. Domengeaux has held executive management positions in both private and public companies that include Rivio, Hewlett-Packard, Iomega Corporation and Quantum.

Germany Joins the Google War

First, Google Books came under fire from three U.S.-based companies. They warned Google’s plan to digitize millions of books and post them online could give the company an exclusive license to profit from millions of texts. Now, Germany has taken up the fight. In a U.S. court filing, the German government said Google’s plan would violate the country’s copyright law while having an international impact on user privacy protections and the rights of German authors. While some believe the digitization of books would offer more content to an increasing number of consumers, others argue Google is going too far. For its part, Google says it will allow rivals to sell access to the digi-books, but that’s done little to appease critics. Critics fear the deal would give Google the unchecked ability to set prices for libraries once books are scanned and online. Time will tell whether Germany’s ongoing efforts will thwart a Google book deal with the European Union.

Solar Marketing Power

With all the talk about going solar, there’s not much to show for it. While solar technology is expected to play a major role in the U.S. renewable energy program, investment and installations are proceeding at a snail’s pace. According to a study by Clean Energy Group, improved marketing initiatives will be fundamental to expanding consumer interest in solar energy. Educational websites, partnerships with local builders and working with celebrities are some of the marketing tactics solar companies intend to employ. The group is encouraging solar marketers to connect with consumers by using marketing messages that emphasize the value and financial benefi ts of the alternative technology. Nearly half of consumers cite initial out-of-pocket costs as the main barrier to installing solar energy systems in their homes. The findings have fueled solar energy companies to transform their marketing campaigns.

Flogs and Farticles

New media such as blogs and social networks have opened vast territory for information dissemination, networking and connectivity. Due to their low costs, every “netizen” with an opinion can set up a Web-based soapbox from which to broadcast to the world. As a result, like-minded communities of writers and followers have sprung up around any number of topics large and small: from politics to film, video games to parenting tips.

The word-of-mouth, informal style that prevails on blogs and social networking sites, and the interactive exchanges that regularly occur between author and readers, create a certain level of trust within that community. That familiarity and trust is bolstered by the fact that most contributors are unpaid for their efforts, and are instead motivated entirely by an interest in the subject matter at hand.

This level of comfort is particularly valuable in the context of product reviews. Readers looking to make purchases have come to expect and appreciate honest appraisals from impartial and informed reviewers who are not, themselves, looking to sell anything.

Advertisers have begun to take notice of the enormous potential that blogs and social networking sites have as vehicles to promote products and services. Riding this trend, some advertisers are providing free samples to review sites. Others are creating corporate sites to provide real-time updates on product releases and foster interaction with their consumer base.

More Than Just a Blog
Affiliate marketers and other publishers have discovered the advantages inherent in this environment. Many now incorporate product promotion within various blogs and Web pages. Some have even begun creating fake blogs and profiles masquerading as review sites, known as “flogs” in industry jargon. Going even farther, some aggressive marketers have penned fake articles (or “farticles”) and include fake or paid testimonials extolling the virtues of a given product that they promote on their blog or other Web venues.

While potentially lucrative, this conflation of marketing and social media carries significant risk and potential liability. Because of the nature of the medium as a place for amateurs and average citizens to voice their opinions, there is an expectation on the part of the consumer that the author is not a paid spokesman or salesman. But when a publisher is engaged in marketing products and services for a fee, or when that person is an employee of a company selling the products discussed, there is an inherent conflict of interest. Under those circumstances, flogs, farticles and
dubious testimonials amount to a form of deceptive marketing, and the Federal Trade Commission (FTC), various state attorneys general and other regulatory bodies are cracking down.

For example, in June 2009, as part of the increasing attention that governmental regulators have directed toward these practices, Lifestyle Lift, a cosmetic surgery franchise, paid $300,000 in penalties to the New York Attorney General to settle allegations that it had posted fake customer reviews of its services on Lifestyle Lift’s blog and other websites.

A Code Is Born
In turn, the FTC recently issued a draft of proposed revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising designed to address marketing efforts now proliferating in new media. The essence of the proposed guideline revisions is that online marketing forums must fully inform the unsuspecting reader of any and all financial interests that the subject bloggers or writers have in connection with blog posts, social networking site pages, articles or testimonials.

Pursuant to the draft guidelines, if writers would receive a commission for the sale of a given product or are employed by the company making the product, they must disclose this fact prominently. Even where the author has received the product for free for review purposes, the reader must be made aware through an appropriate disclosure.

Similarly, the author of a fake article (perhaps the riskiest form of marketing) must disclose prominently and explicitly at the top of the piece (or other suitable location) that the article is not from a real news organization, that it is not a real article but, rather, that it is a marketing device and what, if anything, the author stands to gain by virtue of the products or services promoted therein.

The draft guidelines also contain provisions that are applicable to the use of testimonials. First and foremost, fake or fictitious testimonials are strictly prohibited. Second, when using a testimonial, the blogger or writer must not edit or change it from the original in any material way (outside of correcting grammatical or spelling errors, and cutting down the size when doing so does not distort the testimonial itself). Lastly, where the provider of the testimonial is paid or stands to gain by providing the testimonial, this fact must be disclosed to the reader in close proximity to the testimonial itself.

When properly utilized, the sense of community, group interaction and citizen input facilitated by blogs, social networking sites and other new media can greatly enhance your business, whether you are an advertiser, marketer or both. However, in order to steer clear of regulatory scrutiny, you must take steps to ensure that you aren’t deceiving consumers by pretending to be an average Joe with an opinion when you’re really just utilizing a different medium through which to make your sales pitch.

Please note that this is only a brief overview of some of the legal issues surrounding new media advertising on the Internet. Remember to obtain guidance from a licensed legal professional prior to engaging in such advertising.

A Survival Guide For Networks

Cost-per-action networks are all the rage today. But what will it take for a network to win with 400-plus competitors? And how does a network keep ahead of the curve (and the FTC) while building its publisher and advertiser base and fending off tracking and fraud issues?

These are the tough questions that CPA networks face.

It might just be me, but I’ve always felt that CPA performance marketing (or as the Madison Ave. types refer to it, the pay-for-performance model) is one of the best ways the Internet can connect and engage the target customer for less than other channels – a lot less. Further, it can convert them into buyers, or at the very least, generate some measureable brand awareness.

But this promise comes with a need for tracking solutions that allow advertisers to assess on a micro level the quality of the traffic sources on which their campaigns were placed.

I spoke with my old friend and industry veteran Todd Crawford recently, and he made the same observation: “The CPA space needs to legitimize itself in order to see larger advertisers and their larger budgets shift to the performance model.” For the last 12 years, I have watched the online advertising community mature, and have always been involved in affiliate marketing. But the current players in the CPA network distribution channel need to ask themselves where they see the industry in two, five or even 10 years.

There’s no doubt there will be a shakeup, or more aptly put, a shakeout, in the CPA sector of Internet marketing within two years. With 400-plus networks (thanks to DirectTrack and other platforms that have allowed almost anyone to start their own network) all competing for their fair share of online publishers, what will it take for networks to distinguish themselves and stay standing after the dust settles?

Here are a few guideposts on which nearly all the players seem to agree.

1. Address Fraud Issues
Fraudulent transactions constitute the No. 1 complaint among networks. While some platforms do an OK job of trying to identify fraud, it is ultimately the network that needs to be proactive in spotting trends early and monitoring their advertiser’s channel sales. There will soon be a suite of products and services that will begin to set new standards, and the networks that embrace them will experience greater loyalty from both publishers and advertisers.

Lead-generation fraud is another area that will seriously decrease the move to online performance marketing by bigger advertisers. Lead gen is the logical starting point for most big brands as they experiment with social media and other outlets where they can establish a one-to-one relationship with their brand-loyal consumer. But fraudulent leads gone unchecked will destroy the ROI or branding goals of the campaign. Networks offering lead-verification services will be better off with larger brand advertisers and their agencies.

Publisher application fraud is the final puzzle piece in fraud and also one of the most costly in terms of networks’ time. Most large CPA networks get hundreds of publisher applications daily. Screening out fraudulent applications is tedious and necessary. Because publishers themselves will more than likely never band together as a whole to screen themselves, additional network standards and negative databases (like those used for SPAM) applied across all networks would be at least a first step.

However, as with anything, most solutions that include blacklists or certifications can be gamed or hacked. The message here, if you are a publisher, clean up your act and make sure networks can verify your identity and your traffic. Network screening procedures will tighten up. Those networks that admit anyone and everyone will be the earliest to exit in the shakeout.

2. Exclusive Advertisers
Networks whose existence relies only on cross-published campaigns or “brokers” to bring them campaigns will find themselves being left behind. Agency-of-record advertisers for a network are their lifeline to healthier margins and increased budgets for campaigns.

CPA Networks have the potential to be the online advertising agency model for the future. The best networks add value to both their publishers and advertisers by understanding the space and how to best enable all parties to capitalize on unique capabilities and returns. In essence, that’s the same benefit most Madison Avenue. shops were supposed to follow with traditional media companies.

CPA networks are the new agencies for online advertising, because they have in many cases cut out the “media companies” and are better able to connect brands, products and services directly with the target audience through their publishers’ traffic. Networks that realize and capitalize on this opportunity also will be targets for acquisition.

As the bubble of CPA networks grows, here’s a plan to help publishers survive the inevitable shakeout.

3. Niche Yourself
Networks that niche themselves around a vertical have better loyalty than the everything-and-the-kitchensink networks. Networks that have established themselves in a vertical will tend to polarize the larger publishers in that niche. This in turn will attract advertisers that want to reach those visitors.

CPA network publishers are mercenaries by the nature of the game, but as this model matures and the fraud and tracking issues are sorted out, publishers will exhibit greater loyalty to those niched networks where they know they can get the highest payout because the network deals with the advertiser exclusively.

I am sure there are many other factors that will contribute to the survival of a CPA network in the coming years. This is a relatively young business model that is evolving constantly with new horizons such as mobile, social networks and online video.

The networks that continue to add value to both sides of the equation will win, because they will no longer be the middleman, but a vital and necessary part of the process of making money online.

You Need a Friend

As you may know by now, the Performance Marketing Alliance filed an "amicus" motion in September to help challenge New York’s nexus tax law as a friend of the court. Our intent is to support Amazon’s and Overstock’s lawsuits which seek to strike down a tax law passed last year that discriminates against affiliate marketers and has had a devastating effect on the livelihoods of thousands of Americans.

The issue at stake is a law that claims that affiliates establish physical presence for out-of-state merchants — what is called "nexus." Merchants with nexus in the state are required to collect sales taxes from their New York consumers. The unfortunate result is that over 200 merchants terminated their relationships with New York affiliates to avoid the costly burden of collecting sales tax.

Amazon’s claim is that this law — N.Y. Tax Law § 1101 — is unconstitutional under the Commerce Clause of the U.S. Constitution. The PMA filed its brief to provide arguments from the perspective of affiliate marketers. Our hope is that our perspective will provide additional evidence that this law is seriously flawed.

Our argument has four main positions:

Issue No. 1 — The law is unconstitutional.

We support Amazon’s contention that the law is unconstitutional because affiliates can’t fairly be classified as a "physical presence" in the state.

Affiliates provide a form of Internet-based advertising akin to traditional print ads distributed by catalog retailers. Posting an ad for a merchant does not qualify the affiliate’s locale as a physical presence for that merchant.

Affiliates sell no products, collect no payments from buyers and make no deliveries. They have no further involvement in the sales and marketing process beyond a posted advertisement.

Issue No. 2 — The law threatens the livelihood of business owners.

The statute has decimated the income of thousands of affiliates in New York as retailers such as Overstock.com have terminated all affiliate agreements to avoid imposition of use tax collection responsibilities. We believe over 200 merchants terminated their affiliate programs as well.

Issue No. 3 — The law could stifle interstate e-commerce.

Retailers often have thousands of affiliates spread across the country. The New York statute has the potential to strangle interstate e-commerce with complex and varied regulation. The reality is that the residence of the affiliate or the merchant has no relevance whatsoever to the consumer experience or the effectiveness of the advertising.

Issue No. 4 — The law has the potential to curb the availability of free information on the Internet.

Revenue generated from performance marketing has allowed thousands of small businesses and individuals to build and grow Web sites that facilitate the more rapid diffusion of free information to the public. Thousands of affiliate websites provide valuable content for thousands of visitors every day. Lacking performance marketing revenue, many will fail.

What’s next?

The state of New York required oral arguments to be heard before the end of October. The PMA hopes these appeals, along with our amicus brief and its logical arguments, will provide a reasonable case to the court to determine this law is indeed unconstitutional and should be reversed.

For more information on this complex issue, as well as other states that are considering similar legislation, visit PerformanceMarketingAlliance.com.