Affiliates, Search & Denial

Feb 26, 2005
by

I woke this morning thinking to myself, “is this industry in complete denial?” Four things converged to trigger this thought.

1) Jim Zarley’s (CEO of Valueclick) comments still haunt me from the last earnings call.

“Affiliates were anticipating this change and many were already complying with Overture’s similar long-standing affiliate policy.”

2) Adam Viener’s defensive comments on The Top 10 Ways to Repel Super Affiliates from your Program

3) This mini-search industry correction that may have started happening this week.

SEND IN THE PROBE
As I see it, it’s time to send in a probe when:

- ValueClick tells the world not to worry by suggesting that “nothing is moving *that* fast”

- High profile “super affiliates” continue to try to exact change by creating presentations/blogging their frustrations in the form of negative suggestions

- Suddenly the investment world begins to question valuations of search companies (valued anywhere from 10 to 20X earnings) as rumors re: various forms of click and impression fraud suddenly seem worth considering


I’d like to spend this entry discussing Adam’s comments. Candidly, I don’t see them being a helpful guide for affiliate managers so much as I see them as a cry for help. Adam longs for the way life used to be – when marketers were beyond lazy and, in fact, frightened of search. I think Adam’s voice resonates with a great number of others like him so perhaps there is an audience but I doubt that it’s affiliate managers or their superiors. A list of “10 things you don’t understand” is a curious yet typical approach.

So… what are the issues behind Adam’s comments that are important indicators for investors? The fact remains, there’s a war on between search and affiliate marketing… and understanding the details is critical given the amount of affiliate marketing that is, in effect, search marketing. While Google remains active in doing battle on many fronts one of it’s primary (yet completely un-discussed) challenges is to wean itself off of affiliate and shift to direct-to-customer revenues.

THE ISSUES
Adam tackles poor communications, passing out coupons and offers in an un-streamlined manner and other things but I will skip right to the good stuff. He uses his platform to remind everyone that affiliates are valuable over and over. He repeats himself and does what I see happening behind the scenes quite a bit: propping up search-focused affiliates as marketers continue to run the other way.

Pay-Per-Click Search affiliate pay for every click and often lose money. That is important, so let me repeat it. THEY OFTEN LOSE MONEY.

So… feel bad, marketers and if you don’t… well… then you just don’t know the value of a “pure performance” sales force. When things are great in life, you typically don’t need to convince people they’re great, right? That’s for them to decide. If marketers think that relying less on affiliates (most of whom they have never spoken to, do not and/or cannot know) turns them on so be it. If giving search to SEM agencies like Performics makes them happy… great. Maybe affiliates need to consider working at affiliate/SEM networks and stop working as an affiliate. But that kind of progress is not natural to a maturing industry. In fact, that would be un-American (say the affiliates). No, I’m not kidding… they say that.

He goes on to give examples of how things work in click arbitrage and concludes:

This merchant either needs to drastically improve their conversion rates or pay a lot more in commissions to make the relationship work. Merchants must do the math, and understand these metrics to make sure affiliates have room to bid and be profitable.

They do? You see, this is what I call the inalienable Right to Bid that affiliates hold… and it doesn’t stop there. The Right to Bid is all encompassing and includes trademarks for this is the only means that affiliates can gauge if they should conduct further search arbitrage for marketers.

Translation (and don’t let anyone tell it to you otherwise): If affiliates can make a bunch of easy money on trademarked terms (intercepting customers bound for the e-commerce Web site) they can afford to experiment at buying other non-trademarked terms that might work (take on risk). How can they do this? That’s right… using the money they’ve got laying around from the fat profit they just made bidding on trademarked terms. Not only have you bought them dinner at McCormick and Schmidt, they had enough left over to shoot craps!

At the end of the day, all of this is propped up on “Mr. Marketer, you don’t know search and never will… therefore, I have the Right to Bid.”

Don’t forget… this is the most cost effective online marketing strategy out there. Given a litany of easily explained yet “behind the scenes” phenomenon that happen every day we can see the fat that exists and is aching to be sliced away. Where will it fall to? How long can we remain in denial?

These are the signs of war… war between advertisers/marketers and their affiliates and that, friends, translates to risky times ahead for affiliate marketing companies. How are they mitigating the risk? Indeed, by becoming the affiliate as Performics did years ago… but how’s that process going lately?

About Jeff Molander

Jeff Molander is the authority on making social media sell and corporate trainer to small businesses and global corporations like IBM and Brazil’s energy company, Petrobras. He’s an accomplished entrepreneur, having co-founded what is today the Google Affiliate Network. He’s adjunct digital marketing professor at Loyola University’s school of business and author of Off the Hook Marketing: How to Make Social Media Sell for You.

Website: JeffMolander.com

Blog: Off the Hook Blog

Answers: AskJeffMolander.com

You can find Jeff on Twitter @jeffreymolander.

Filed under: Affiliate Marketing + Online Marketing + Search Engine Marketing
  • http://www.anycoupons.com David Lewis

    Jeff, you are right, at least the "typical approach" that you pioneered. (Was the Performics comment a brag?)

    You have taken an extremely narrow view. As I always say, trademark bidding is a privelege and not an affiliate's right. I do not think that merchants should allow affiliates to bid on their marks for the sake of the affiliate, they should do so to protect their marks.

    Don't turn your search management over to Google and Yahoo! Take control. Pick your best affiliates (value added resellers) who are willing ot work with you to promote your brand the way you want it promoted.

  • Wayne Porter

    Why don't arbitrage bidders morph to become their own specialiaty agencies? Clearly they are adept at what they do. They should charge for it.

  • http://www.molanderassoc.com Jeff Molander

    David:

    There's nothing to boast about. You assume I'm proud?

    My view (that you criticize) is pretty much what I'm describing as Adam's view. I don't know anyone who turns their search over to search engines (so far as I know they're not in the business) but I do know plenty of people who hire outsourced SEM companies that don't hide or use P.O. boxes to do business from.

    Wayne: Excellent idea but they have already done this. Those are the "affiliate networks" in many cases. More importantly if they did this they would need to be accountable for their practices. They would also need to sign a real contract with clients, pick up the phone when clients called, have weekly meetings to discuss strategy (revealing their secret sauce to clients). As you know, most people who are affiliates don't much care for things like that. They'd rather just remain below the radar and rake it in, keeping overhead low. Talking to clients just wastes time.

  • http://www.StopScum.com/ Steve Shubitz

    "I'd like to spend this entry discussing Adam's comments. Candidly, I don't see them being a helpful guide for affiliate managers so much as I see them as a cry for help"

    I stopped reading his entry at the conclusion of the section titled "Number 10: Poor or Missed Communications"

    I think thats a cry for help (as you say) and more importantly, a total lack of real world knowledge with respect to using the "phone" to enhance relationships and heaven forbid generate new quality relationships. Affiliates love and cherish phone contact. It's usually number one on their list and the smart ones are inclined to call YOU for special deals.

    Call me old fashioned dear AM but if you intend to retain your job then this is what I require. Rather than wait and punch the clock, do this:

    Get a phone number for the Publishers and a best time to call.

    Welcome to the world of split shifts, telacommuting, and time zones. AM, adjust YOUR schedule to reach Super Affiliates and others whith huge potential via phone. Next, I want to review your call notes which must also include "schmooze data" like the name of the wife, dog, car, birthday, and other personal details.

    I require you to make these phone calls throught the month and document everything. If this means you work Saturday, Sunday, 9 PM, or other strange hours then dear AM, adjust your schedule and get it handled.

    Good luck to all
    :)

  • http://www.anycoupons.com David Lewis

    Jeff, please reread my first TM blog on Revenews (http://www.revenews.com/davidlewis/archives/000121.html). The whole point about turning over control of the brand to Yahoo! and Google is that this is exactly what merchants do when they ban all of their affiliates (including VARs) from bidding on their marks (not to mention using their marks on web pages).

    Steve, please continue to encourage AMs to talk to affiliates (especially VARs). I have always questioned why merchants like affiliates who refuse to talk to them on the phone.

  • http://www.goyami.com Adam Viener

    Jeff,

    I appreciate your view point and can understand some of your points in regards to what you consider my "point of view". I am sorry that you read my presentation as a "cry for help". My presentation for eComXpo and my subsequent post of the content from that presentation was meant to give affiliate managers some insight to and advice on things they might do that would drive search arbitragers from their programs.

    We can discuss until we are blue in the face weather search arbitragers add value or not, I think they do.

    My comments about coupon codes were simply to demonstrate that a search arbitrager is not going to be effective having to list a coupon code in their ads, and that merchants should consider having the code as part of the link and landing page where they send the customer. This doesn't mean I think coupon codes are bad, in fact, I have a site http://www.web-coupon-codes.com where I specifically promote coupon codes.

    The section where I highlight that affiliates often lose money specifically talks about how important it is for merchants to understand the metrics if they want to attract and keep good search arbitragers in their programs. The fact is some sites simply have too low a conversion rate and commission rate for this type of affiliate marketing to be affective. Is that a good thing or bad thing? That is up to the merchant. If they have a goal of getting some of the better performing search engine marketers to promote their programs, than they should do the calculation and understand if there is room for search arbitragers to bid and make money.

    I have always said, and re-iterated at the end of my presentation, that in order for this to work, there needs to be good communications between affiliates and merchants, and there must be a win-win relationship.

    Love your work, keep up the writing, and thanks for reading my posts on Goyami.com

    Adam

  • http://www.birthdayexpress.com Jeff Nienaber

    David-

    Let me get this straight: You really believe the absence of search arbitrage is blindly handing over control of your brand to the search engines? Wow. That's so 2003.

    Adam-

    So let me get this straight too: You expect marketers to…

    1. Focus their energies on communicating to you the way you want to receive communication (if it's smoke signals you prefer, then dog gone it they must adapt).

    2. Keep inactive affiliates around indefinitely – regardless of performance or drain on resources.

    3. Provide all sorts of fresh new coupons – regardless of the merchants margins or merchandising schedules.

    4. And you want to have free access to bidding on branded terms in search – regardless of the fact merchants spend millions of dollars building those brands?

    Well that sounds like quite a bargain – maybe I'm on the wrong side of the fence.

  • Wayne Porter

    Jeff N.

    I can see point 2. The common rhetort is they aren't a "Resource drain"…although I think they are a hidden drain. Granted many affiliates "prospect" first but the AM doesn't know this- if they are a serious aff. prospecting or not.

  • http://www.StopScum.com/ Steve Shubitz

    "Granted many affiliates "prospect" first but the AM doesn't know this- if they are a serious aff. prospecting or not."

    Amen!

    Let me see if I understand this. A Network pays money and resources to drive Prospective Affiliates to their site.

    Then they fail to review each site when they join. They don't have a clue about what kind of sites have joined. Do they care? Is the AM on salary only as opposed to heaven forbid a draw plus commission!

    Then they wait for the numbers to show up on the board. Waiting is not part of my vocabulary.

    Please, you have some gems who have joined but you squander the opportunity. Pick up the bloody PHONE and call the quality sites BEFORE they forget about you and or fail to put numbers on the board.

    Offer custom advice AFTER you have reviewed the quality site. Ask the Affiliate to tell their like-minded quality site friends about your programs which appear to work for their sites.

    :)

  • http://www.molanderassoc.com Jeff Molander

    Steve:

    I agree with most of what you say but strongly discourage marketers from paying AM's any kind of performance bonus based on hitting goals… simply because doing so invites AM's to pull the trigger on all the wrong affiliates (those who drive sales without regard to cost and/or supporting the branding/user experience).

    Wayne:

    Remember this?

    Jeff Pullen (to advertisers):

    "Under the productive publisher program, beginning in March we will require that publishers in our network maintain an active, productive account that is generating results for our advertisers. Publishers who have not generated any commissions in six consecutive calendar months will be assessed a small monthly fee to motivate them to increase their efforts to produce results for their advertisers. Unproductive publisher accounts that do not become productive will be closed."

    They have not stuck to guns on this so far as I can tell.

  • http://www.birthdayexpress.com Jeff Nienaber

    W,

    In my opinion; if an AM can't distinguish the big fish lying dormant in their pond then they are not cut out for the job.

    JN

  • http://www.StopScum.com/ Steve Shubitz

    Jeff: Point taken and very valid.

    Perhaps I/we need to rethink the entire structure of a real honest to goodness Affiliate Program? Perhaps my own commision only experience has clouded my judgement.

    As I mentioned in another thread, a REAL compliance officer who does not report to Marketing along side the current Marketing centric role of an AM might create enough healthy "office friction" to enable one or the other party to work on a bonus/quasi incentive basis. This of course assumes that the Boss nee Senior VP who supervises both departments is very experienced and thinks long term.

    I could imagine some interesting "drama" around the water cooler. :)

    Joe: Sally, did you look at the site thoroughly?

    Sally: sure did

    Joe: Guess what geek girl! A Millon pops, active x, drive by installs, and porn appear on all the interior pages! The home page is a ploy because they know you are to lazy to drill deeper. :)

    Terminated!

    …have a nice day!

    :)

  • http://www.goyami.com Adam Viener

    Let me address these one by one:

    "Adam-

    So let me get this straight too: You expect marketers to…

    1. Focus their energies on communicating to you the way you want to receive communication (if it's smoke signals you prefer, then dog gone it they must adapt)."

    Adam: No, I was suggesting that AMs understand that some superaffiliates belong to a lot of programs and as such use a different email address when they sign-up so that they can separate out all the newsletters that they get. I market over 200 different programs and I would say that I communicate with the AMs on about 20 of those. I am just providing another perspective to consider.

    "2. Keep inactive affiliates around indefinitely – regardless of performance or drain on resources."

    Adam: Maybe I don't fully understand how much resources an inactive affiliate takes. Help me understand better.

    "3. Provide all sorts of fresh new coupons – regardless of the merchants margins or merchandising schedules."

    Adam: Not at all what I said. I simply said PPC affiliates are not going to list a coupon code in their Google ads.

    "4. And you want to have free access to bidding on branded terms in search – regardless of the fact merchants spend millions of dollars building those brands?"

    Adam: This is an entire topic in it's own right. I don't think affiliates should have the right do it if the merchant doesn't want them to. I do think that some merchants don't look at the full picture on this issue. I would encourage you to read some of my posts on Goyami about this topic, as well as David Lewis' articles here on Revenews.

    Thanks,

    Adam

  • http://www.birthdayexpress.com Jeff Nienaber

    Adam-

    1.

    Adam: No, I was suggesting that AMs…

    JeffN: I believe it's imprudent for merchants to cater to the whimsical needs of every affiliate. If I'm an active AdWords advertiser and Google chooses to communicate to me via email but I prefer IM – well I'm SOL. Why can't affiliates simply filter their emails to flag their essential merchant communications?

    2.

    Adam: Maybe I don't fully understand…

    JeffN: It's all in how you define inactive. If they're eating up your bandwidth (image hosting, mental energy, whatever) and not performing after x months I consider that a drain on resources; however small it might be.

    3.

    Adam: Not at all what I said. I simply said…

    JeffN: Oops, I misread the bold type. I actually completely agree with your point – if the merchant has done the math and their margins can support affiliate coupons in the first place.

    4.

    Adam: This is an entire topic in it's own right…

    JeffN: Agreed, this is a very complex issue that lately has become an infinite loop. I have read quite extensively both arguments; I know what works best for my organization, but do feel both sides have validity. However, it's all irrelevant when Google & Yahoo say it's forbidden.

    By the way Adam, I have read your work. I think you're a very smart guy…my point is that you're actually smarter than the merchants you work for, and they need to wake up.

  • http://www.goyami.com Adam Viener

    Jeff,

    I appreciate your comments, it's only with open discussions can everyone fully understand the issues. On the communication side, I think merchants need to consider affiliate more like an inside sales force. If you have a top performer that is driving sales for you and you email their general account where they have over 3,000 unread affiliate communications, than you are risking that your message gets lost in the void.

    I guess it really depends how important it is for the AM to get the message across to the specific affiliate they are trying to communicate with.

    On the inactive affiliate side, I think we have two definitions. If the affiliate has not engaged at all, they have no impressions and no clicks, what resources are they using? Poor performing affiliates that are running your ads and not generating anything are not inactive, they are active and not performing.

    Adam Viener

    Editor

    Goyami.com

  • http://www.molanderassoc.com Jeff Molander

    I still don't understand why so many people in our industry push others to keep affiliates who do nothing – and show no signs of doing anything – around. The fact is that marketers probably don't have much need for johnny-come-lately affiliates who may or may not elect to pick up the phone or put the link live on their own schedule. Don't want to be dumped? Don't apply till you're ready to do something!

    I have the same reaction toward this "treat them like a sales force" argument (and why is it an argument, not a best practice?). If things in our business were really moving in a direction toward "virtual salespeople" then why is this an argument? Why do so many continue to remind the world that "THIS is the way you do it!" Marketers should be able to run things "as a sales force" or "as media buy"… or both. No?

  • http://www.corante.com/goyami/archives/2005/03/05/misperceptions_about_search_arbitrage_affiliates.p Goyami

    Misperceptions about Search Arbitrage Affiliates

    Over the past few weeks I have spent some time talking to some affiliate managers and reading some recent articles which lead me to believe that there is a lack understanding of perspectives between affiliate managers and search arbitrage affiliates,…

  • http://www.goyami.com Adam Viener

    Jeff,

    Regarding keeping inactive affiliates around: I think Beth Kirsch said it best, a good affiliate manager knows how to identify the affiliates with good potential sitting in their inactive list. I am just suggesting that there might be other reasons why a good affiliate might be in your program and not yet active. I had one Halloween merchandise affiliate manager purge me 2 weeks before Halloween, right as I was creating http://www.halloween-costume-sale.com

    I agree with you that merchants and their affiliate managers should have the right to run their programs as they see fit. It's their business. As I said in my recent post on Goyami, I think affiliates and affiliate managers need to spend more time understanding each other's perspectives so that they can create long term win-win partnerships.

    Keep up the good work!

    Adam