2010 Affiliate Industry Preview Series: Interview with Brian Littleton of ShareASale

As part of the ReveNews 2010 Affiliate Industry Preview Series, I interviewed industry leaders to get a sense of their plans and goals for 2010. Today’s interview is with Brian Littleton, Owner of ShareASale.

How do you feel about the affiliate industry’s current health overall?

Overall, I feel great about it actually.  You look at 2009 which was a horrific year for the United States  economy in just about every industry.  Despite this there was a lot of positive growth in the affiliate channel .  We heard great stories from advertisers along the lines of, “Hey everyone else in my company had a really bad year but our department grew 10% or 20% and we were the most profitable marketing channel in our company.” Those kinds of comments.  So the model has proven that it’s functional and it works even in down economies which I think is one of the founding benefits of affiliate marketing because of its tie-in to performance.

Any time you have industry growth you’re going to have challenges from the outside in terms of people who are looking to grab an easy buck and try and exploit the weaknesses of a system.  As an industry we have to cut down more on that; and of course there is the government issue with taxes targeting affiliates.  But overall I feel pretty great about this industry.

How has the affiliate industry evolved?

Well, nowadays there’s a lot more people getting into it.  I think if you were too look back at it a decade ago…which I think technically this isn’t the end of the decade but I can never get a definitive answer on that (laughs) I think it should just be modified that the nine is the end of the decade no matter what the actual rule is.  But that’s beside the point.

If you look back at 2000-2001 you’re not talking about that many affiliates in this business and so there was a lot of open territory to claim.  With the emergence of Google and other search engines, where a  natural listing on a topic was obtainable relatively easily, not only obtainable, but also extremely profitable.  The evolution of the search engine in general, from being a place to deliver search results to being more of a place to deliver ads was huge for this industry.  It really changed the game entirely.  Off the top of my head that is probably the biggest change that has happened overall in the last decade.

Obliviously the next one is kind of the social media revolution and how we’re all going to get involved in it.  I say “we” meaning the advertisers really, because it’s the advertisers who are the ones that need to get involved in the social business. They need to leverage their affiliates to be involved so affiliates can help them figure out how to reach new customers without annoying everybody.  That is going to be a pretty big challenge and one that will reap a lot of benefits if done right.

Is diversification then the biggest lesson the affiliate industry learned in the last decade?

Absolutely. There’s been a lot of growing-up evolving from what was essentially easy money if you were into SEO at all a decade ago, to trying to learn how to really own the relationship with the customer.  As an affiliate the ones that are going to be the most successful, in my opinion, are the ones who don’t rely on just search traffic and don’t have to deal with that advertising game.  Affiliates who have their own unique brand; their own foundation; their own technology; with a real user base will be the most successful.

That is where I’ve been trying to focus some of our affiliates’ attention on helping them realize it’s not good to put all your eggs in one basket so to speak.  You need to diversify, although it’s a lot harder and more involved to build a business that way obliviously.  But it’s going from just kind of having a side business where you do this “affiliate stuff” while you have your day job, to taking a model and growing it into an actual site that is it’s own business.

One thing that obviously had a big impact in 2009 and the later part of 2008 was the so-called Amazon Tax.  How were ShareASale affiliates and merchants impacted by those laws, especially in states like New York?

It’s definitely a huge impact.  The advertisers don’t feel they can just migrate to accepting those state laws and collecting sales tax.  They feel it puts them in a very competitive disadvantage in those states and won’t do it. Currently what we’re hearing from affiliates is just mass cancellations, almost a mass hysteria.

I get these emails from retailers who received these letters from states which are essentially just exploratory.  You get one from the state of Texas for example that says, “Hey we noticed that you have these people and we’d like more information about it.”  Some retailers are getting these letters and instead of dealing with it or fighting back they’re just saying “We aren’t going to have any affiliates in Texas anymore.”  To clarify I’m just using Texas was a fictional example at this point, not an actual real-life one…but that is exactly what I keep hearing, a sense of confusion from advertisers and affiliates not really knowing what these laws mean to them, not knowing if or how they will be affected.

For example: if you’re a retailer in the state of Missouri and you focus your entire operation in Missouri, you of course pay attention to Missouri law. In Missouri you have access to and know the local representatives, state legislators, senators, all that kind of stuff, you know what you’re doing in Missouri.

Then all of the sudden, you get this letter from Delaware that says you’re violating Delaware law by having these affiliates and that you owe Delaware tax money. The thing is that retailer doesn’t know where to turn for clarification on the law because by default they are not operating in Delaware and they don’t have ANY representation there, they have no one to call, there is nothing they can really do about it. That lack of representation, that lack of services provided by this other state where you don’t have a nexus is the crux of the argument against such laws.

State governments who find themselves in situations where they are mostly broke are going to take some pretty desperate measures to maintain their budgets.  They are going to push the legal limits and they know that they have the upper hand in terms of the “fear factor”.  You know you get a letter from the government of Delaware and you’re like, “Whoa, I have to pay attention to this!”, when in reality you may not have to.  That is a legal question and states are using their power to bully these things through a lot of the time and it works.

Unfortunately that means advertisers will call us first; which I’m happy to help anybody at anytime but certainly I’m no legal expert in the state of Delaware.  That puts me in a bad spot, I can’t help advertisers make a legal decision as much as I would want to.  In a way it is unique problem to ShareASale because we have so many retailers, so many merchants, who are smaller and below some of these legal thresholds that are being put out and who don’t have the resources to retain legal experts in Delaware or wherever in order to sort things out.

I mean, you don’t even know what’s a rumor and what’s fact. All of the sudden one day you hear Arkansas is looking into this, Wisconsin is looking into that.  Wisconsin is not as a point of fact looking into anything currently. They have a law on the books that says something very specific which uses the word “affiliate” in a context that has nothing to do with our industry.  So the rumor stuff just flies around and as a retailer that is the crux of the issue; being forced to pay attention to state governments where you don’t live or operate as a business. That is the fundamentally unfair portion about all this.

People underestimate the seriousness of the problem until it affects them directly.

Most likely in 2010 this tax stuff is going to come to a head.  Hopefully the one key moment will be an appeal decision in New York with the Amazon Tax.  That is the one law that is actually being challenged in court and from what I understand Amazon is looking to go pretty far with this process because it affects them so personally.

You’re going to get states coming up and saying “Hey, we looked at this last year and we didn’t do it and we’re looking at it again this year”.  There’s probably twice as many states considering such initiatives this year.  That’s just a huge thing.  It’s going to be a huge thing that is going to come to a head in 2010 and it’s going to impact things in the industry on a very large scale I think.

You mentioned a law on the books that uses the term affiliate in a confusing sense.  You know the Performance Marketing Association, and Jonathan Levine Co-President of LinkShare mentioned it as well in previous interview, have come out with a push to change the lexicon;  for it to be performance marketing instead of affiliate marketing.  Do you see that as one of the necessary changes coming up?

I don’t know if a simple language change is going to do anything.  I think using the right terms is important, I think it’s good that we are starting to us the word advertising in this instead of the word affiliate because of the misunderstandings that were going on in the government sector.  ShareASale has been using the tagline, “true performance marketing” for years.  I think it’s a good use of terminology in terms of what we are doing but I don’t know if that is necessarily a mandatory change.

The problem with the word affiliate, is not necessarily that it has baggage. The problem is that it’s just used in so many ways.  It’s one of those words that just kind of spreads itself around.  You have affiliates in some companies that are subsidiaries, you’ve got affiliates in terms of broadcasting networks, there are all these different things that whoever chose the word “affiliate” to represent our industry way back when wasn’t really considering the confusion they would create.

As far as baggage goes another word could possibly just acquire the same baggage if you don’t address the issues that created the problem.  I not against a change in the lexicon but I would caution to think that this would solve the crux of the problem.

Last year ShareASale made an announcement that I know you specifically took a lot of flak for. How did the toolbar issue play out for ShareASale in 2009?

As always we were just looking to have a conversation and talk about an issue that is going to come up a lot over the next coming year or two.  It’s a very debatable point that has so many different sides to it and unfortunately in the past I personally have witnessed knee-jerk reactions to the topic.  The word toolbar to some is like the word affiliate to others, it triggers a knee-jerk reaction. I don’t really like to take action based on a knee-jerk reactions. I like to think about what we’re doing.

So we tried to take a look at the issues of toolbars.  I doubt that you can find too many browsers out there today without some kind of toolbar involved.  They are getting tied in much more easily, they are coming pre-installed, and they’re not harmful for the most part. Usually if there is a toolbar on a machine it’s there for a reason, the consumer knows it’s there or they downloaded it.  It is a different issue than it was five or six years ago with problems like forced downloads or stuff that was all really, really bad.   So we wanted to bring up the use of toolbars as discussion as it applies today.

We had a lot of great discussion about it actually.  It may not be 100% evident in some of the public threads.  I think it’s very hard to have a discussion on a message board where it’s easy to create misunderstandings.  It was important because you’re going to have some very large players coming in to the industry that will probably involve themselves with toolbars.  We’re not really changing any type of policy.  I don’t know if it was one of our goals or not but we didn’t really end up changing anything.  We just wanted to get some real rules written down around toolbars.

The changes will be instituted in a terms-of-service change pretty shortly but it was combined with a bunch of other things we were doing basically in terms of service update to include some issues that involve terms like PPC bidding restrictions.

ShareASale is one, frankly the only, network I can think of that spends as much time in public discourse with your affiliate and merchant partners.  Why is that important?

I love public discussions.  I’m not afraid to express my opinion, I’m not afraid to get into a public discussion because I welcome that type of input.  We get some of our best ideas that way.  I’m not really afraid of looking bad.  If we’re doing something wrong and someone calls us out for doing something wrong and then we need to fix it.  It’s not that big of a deal, none of us are perfect in what we do and you know if somebody’s out there complaining they probably have a pretty legitimate reason in their complaint. I’m of the philosophy that it’s okay to go out there and admit you’re wrong and fix it rather than pretend nothing happened.

I would venture to say that you guys were social in your engagement before social media was in vogue…

Sure, that is what social media is doing.  It’s drawing people out because you realize that a customer of yours can be the smallest customer you have on your entire sheet, but they go on Twitter and they start saying things about you that are bad and soon it affects other relationships.  If you’re not there to engage you’re missing out on a huge opportunity to turn a frustrated customer into a happy customer and do it in front of everybody else.

If the news team came to your office one day and was broadcasting live to four million people and they brought to you an unhappy customer, my  bet is that you would treat them pretty well.  They would probably leave happy.  Social media replays that interaction on a daily basis.

Before social media was in vogue there were a lot of active message boards like ABestWeb.  ABW had the largest following and the largest affiliate audience, it still does, for us we viewed being part of that community as an opportunity for us to show what we could do well in a public forum.  That openness is my philosophy, we’ll see how that turns out for us. (laughs)

What are ShareASale’s goals in 2010?

We have some big goals we’re looking to make a relatively large announcement here at the upcoming Affiliate Summit, which is going to change the way our network operates, how people interact on it.  We are looking to increase the involvement of affiliates that are part of the network, we’re trying to help merchants build those programs from an inside the network perspective.  So that is a big goal for us to try and complete that this year.

We will also work on the interface which probably the biggest complaint that we get.  It’s one of those things that until you build an interface you don’t really understand the types of problems that come up because when you use something 24 hours a day it seems to make perfect sense to you.  But we need to work on that a bit so that is a big goal of ours for 2010.

I also think pay-per-call will see a lot of adoption this year.  Pay-per-call is a huge opportunity; it allows us to engage on a local level and provides the opportunity to draw in affiliates that don’t really work in affiliate marketing space at all so it’s going to be big.  It’s going to be big for a lot of people.

I want to thank Brian Littleton for taking time out during his busy schedule to take part in our 2010 Affiliate Industry Preview Series. Stay tuned for our next conversation with Larry Adams, Product Manager at Google.