Are you curious about these small performance advertising networks featuring sports car give-aways and huge cash prizes?  Today I aim to take the lid off of affiliate marketing’s secret underworld of “affiliates that are affiliates of affiliates” (read: layers of middle-men).  I’ll give you the real story behind so-called CPA (pay-for-performance Cost Per Acquisition) networks—what they are, how they operate and why advertisers lose when working with them. 

I’ll also explain why every marketer with an affiliate program can learn a lesson from an affiliate-focused brawl between two affiliate solution vendors, aZoogleads and Valueclick’s Commission Junction, as it relates to eBay’s affiliate program (one of the largest).

Behind the scenes traditional affiliate networks are duking it out with their own affiliates who look to compete.  What does this translate to for marketers?  Whether you’re looking for sales or leads affiliate networks have become, in varying degrees, inefficient.  I endeavor to explain how:  Adware has played a role as has affiliate marketing’s intersection with search and, finally, CPA networks—miniature affiliate networks. 

CPA Networks Defined
In order to understand what a CPA network is one must understand, first, where they came from.  While this month’s Revenue Magazine discusses Cost Per Action networks and attempts to contrast them against “traditional” affiliate networks like Commission Junction and Linkshare, it fails to present the most interesting, useful perspectives that speak to why CPA networks are the work of the devil and what, exactly, they are. 

In order to understand what a CPA network is one needs to understand a few facts:

1) Affiliates have grown up to become affiliate networks
2) Many of your biggest affiliates aren’t affiliates; rather, they’re affiliates who have transformed into affiliate ("CPA") networks
3) These affiliates-now-networks are better at motivating affiliates than traditional affiliate networks

Confused?  Here’s an example.

An advertiser pays 10% to any affiliate (or “publisher") off the street through their CJ program.  It pays 15% to its very best or “super affiliates.” One day, a super affiliate realizes that it could use it’s privileged position and eliminate all the business risk associated with being an affiliate (buying advertising, conducting search optimization, managing product data feeds, testing creatives).  The affiliate simply approaches and motivates other affiliates to generate orders and/or leads for the advertiser… offering them 12%.  Hey, that’s better than the 10% “street” commission over at CJ.  The other 3%?  That’s profit for the super affiliate.  Indeed, it comes at the rate of 80-90% margin to the “super affiliate now turned network”—even after it has purchased 2 Porsche Boxters as contest prizes to their highest grossing affiliates.  Sure beats the little tchotckies advertisers themselves use as contest bait (you can keep your plane tickets Orbitz!). 

Dangers for Advertisers, Profits for CPA Networks
The result?  From the advertiser’s perspective, transparency is further clouded and affiliate accountability is diminished if not eliminated.  At this point advertisers are multiple arms length from the affiliates who present their brand—without access to their names, addresses basic company information, etc.  They literally have no idea who is presenting their brand, how or where.  Who does?  Their affiliate who has “gone network” on them.

Then again many big brands out there don’t care… “it’s a volume game”—the budget waste and lack of control (risk) is accepted as a cost of doing business.

Again, the “super affiliate turned network” takes its 15% and breaks it up.  It’s operational costs amount to an ISP / hosting bill as most of these cats are programmers and can easily create a tracking solution - or lease it from Digital River (who recently acquired DirecTrack’s tech solutions division).  In short, anyone can be an affiliate network today… so long as there are advertisers willing to pay the various layers.

Advertisers Waking Up
Increasingly, advertisers are being invited to understand the details of this rather scandalous shell game that translates to “serious financial waste” within their affiliate programs.  Of course, some marketers are more vulnerable than others based entirely on how much they choose to understand regarding how affiliates send visitors and rack up commissions.  Some are happy to not know the details, over-paying affiliates on occasion, while others are more frugal.

Increasingly, larger numbers of advertisers are troubled by this phenomenon and are making change by auditing affiliate programs.  As a result, affiliate rules, terms & conditions are being modified to reflect a more balanced financial arrangement. 

eBay Offering Retailers A Lesson
eBay knows how to run an affiliate program—paying affiliates based on customers acquired and percentage of actual profit (unlike retailers).  Also unlike retailers eBay has announced that it will not participate in Commission Junction’s (CJ) Link Management Initiative.  What’s good for the rest of Valueclick’s CJ unit isn’t good enough for eBay, a company that recently found itself in the middle of a spat between CJ and rival Azoogleads—an affiliate turned competitor; indeed, a CPA network that wanted to remain a CJ affiliate and have some direct relationships with advertisers. 

In summary, Azoogleads built its business on CJ’s back (as a super affiliate), got funded and then sat up and proclaimed itself a competitor (a CPA network). 

If I were eBay I’d be mid-stream on a seven year itch considering the circumstances.  Could the AzoogleAds - Commission Junction spat signal eBay’s love affair with Valueclick’s Commission Junction is waning?  Might eBay tell them both to kiss off?  While some might label this wild speculation I believe that eBay’s technical prowess is significant (read: they could easily build and implement their own tracking and reporting) and affiliate loyalty strong (affiliates are more likely to do what eBay suggests than take orders from a network).  Does the third party (network) really play a valued role?

How Super Affiliates Beat Networks
Indeed, the battle is over and in some ways affiliates that are now CPA networks have beaten the networks that helped create them.  They maintain much higher profit margins and are flush with cash to the point where they pay their affiliates in advance.

AzoogleAds’ funding, I thought, was remarkable.  I suggested in a blog at Revenews that VCLK had better pay it some attention.  To summarize, a few years ago large affiliates figured out that they could create a business much more lucrative than being an advertisers’ affiliate… even if they were receiving an elevated commission/bounty from you (the advertiser).  In fact, this “super affiliate” level commission would allow them to beat the affiliate network at their own game. 

Could Affiliate Networks Implode?
Almost like a cherry on top of a poison-laced sundae, the realization of this shell game might just send retail-based advertisers over the top.  Realization of the above described economics could be the straw that breaks their back and forces large, multi-channel advertisers - and even some smaller brands - to bring affiliate marketing in house—out of the hands of affiliate networks that have, in many ways, failed them.  Retailers have already realized:

- Affiliate marketing doesn’t scale well
- The promise of a “virtual sales force of teeming thousands” offers little value and increased risks
- As their own search efforts increase, affiliates offer decreased value (as affiliate search marketing tactics clash with the advertisers’ tactics)

When you realize how simple affiliate marketing tracking and reporting technology really is you start to see how a techno-Goliath like eBay (who should already formed tight bonds with its affiliates) might just take a pass on not only the shell game but the inflated costs that come with it.  I’m left wondering if the entire affiliate services industry loses here. 

As a side note, in September 2002 “auctions” made up 15% of CJ’s business according to publicly circulated documents defining “Vertical Market Strength.”

Advertisers are tired of paying Commission Junction for Google-supplied visitors through affiliates. 

Valueclick is tired of operating Commission Junction, allowing Google to pocket the big money.

The operational aspects of Commission Junction’s (CJ) recently announced Link Management Initiative draws attention and concern but there’s more afoot.  Valueclick (NASDAQ: VCLK) has already told us what they intend on doing with their Commission Junction unit and, in fact, where the affiliate marketing segment of Web marketing is heading—cost-per-click (CPC).  One need simply put things in perspective; hence, I posit, they’ve announced their intentions.  They’ve declared war with Google and will now run like hell from affiliate marketing—a novel idea but a colossal missed-opportunity that Google has cashed in on.

Google Envy
In short, I see this as all about VCLK (a company with many direct relationships with advertisers) realizing that Google (GOOG) has it easy.  Think about it this way: At Google, advertisers require no transparency on where visitors come from (upon clicking ads).  Affiliates?  Advertisers increasingly want more transparency on who the affiliate is, where they get their visitors (do they have a loyalty or affinity to the affiliate site or just passing through a link—a.k.a. “affiliate arbitrage”?).  Sure click fraud is discussed but has the fear of getting ripped-off held advertisers back from throwing billions at Google AdWords and that poor excuse for a contextual advertising network, AdSense?  Has it stopped affiliates from successfully reviving the get-rich-quick-in-your-undies-without-leaving-home dream?  No again.  Affiliates have profited wildly forcing some affiliate networks (i.e. the one I helped found in 1999) to become affiliates themselves.  How?  Affiliate-style arbitrage called “search services.”

Buh Bye CPA, Hello CPC
So… what’s Valueclick’s answer?  Their own existing click network?  Not a chance as it’s frozen “TV dinners” compared to Google’s surf & turf (in the eyes of advertisers).  But what about CJ’s network—there are a few diamonds in the rough here. 

I suggest Valueclick is, already, slowly weaning advertisers off of paying a pure cost per acquisition (CPA) / commission structure.  Here’s how: They are boiling all CPA advertising (the “pure revenue sharing” arrangement that powers all affiliate programs) down to an effective cost-per-click (CPC) and, slowly, “moving over” all the affiliates.  This includes their existing Valueclick network (the “old” network + Webclients + Fastclick) which will work on a CPC or a CPM (cost per thousand impressions).

Affiliates & Publishers Are Already Dumping CPA
Why will affiliates change to a CPC model?  Are you kidding?  It’s the dream of all moderately successful affiliates.  Ever wonder what separates a Web publisher from an affiliate?  Visitor traffic, of course, and when an affiliate gets enough traffic they tend to shun “pure commission” deals (money on the come) for the sure bet (cash for every click they send).

More evidence: Affiliates have rushed head-first into the domain industry and the “domain tasting” realm.  The domain industry?  Indeed, there is such a thing and if you’re unaware of companies like Marchex (publicly held, no less) it’s time to pay attention to the hands-down hottest sector in the interactive media realm.  A good place to start learning is DomainNameWire.com or hit the industry’s trade show T.R.A.F.F.I.C. 

My point: affiliates created the domain sector.  How?  By buying domains.  Why?  Take a look at Marchex’s books (and strategy - they buy domain-savvy affiliates!) and you’ll see a clear answer: AdSense and Yahoo! Search/Overture ads.  In short, ”forgotten about“ and/or abandoned or just plain available but not owned Web URL’s (domains) can receive a lot of visitors—all looking for somewhere to go (click).  Let’s not forget everyone’s favorite—mis-spelled URLS for companies or products.  Yes… affiliates know that game well but the game is changing from shuttling visitors through an affiliate link (when they leave the “s” off of 1800flower.com) and on to the URL they were looking for to providing them with a page filled with adds (AdSense and Yahoo Search ads). 

Affiliates want the money not a promise of money IF the visitor converts.

VCLK’s History of Hating CPA
But I said that VCLK is dumping CPA for CPC as if it’s been formally announced.  Indeed… I offer more evidence:

At the end of the day “traditional affiliates” get paid a commission or bounty on the desired action (sale, lead, subscription, registration).  That “pure performance” payment can be boiled down to an effective earnings per click using simple math.  Commission Junction itself calls it (for years now!) EPC (earnings per click).  Hell, they measure the value of their entire network with the EPC metric and have used it as a point of differentiation for years.  Hello!

The Quiet Revolution
Was CJ’s Todd Crawford’s departure a surprise?  Why would it have been.  A look at what CJ has become now should be no surprise considering how they positioned themselves (EPC, refusing to call affiliates anything but “publishers” and marketers “advertisers") prior to the Valueclick acquisition.  In fact, CJ “dressed itself up” for someone like VCLK to come along and buy them, did they not?

In the end VCLK wants to sell clicks, folks.  It’s a much bigger and EASIER (more fluid) business to be in.  Affiliate marketing is, by definition, a project that involves partnerships. 

What’s been the biggest mantra the last few years inside the space?  “Know your affiliates.” Check AffiliateManager.net, Affiliatetip.com, MarketingSherpa and on and on… the message has been loud and clear for a good half decade now—AFFILIATE MARKETING IS WORK!!!

Google Adwords?  Just like the “auto pilot” days of affiliate marketing we’ve seen Google capitalize on advertisers desire to 1) pay on performance and 2) set it and forget it.

Advertisers Want to Set It & Forget It
Advertisers love ‘em and hate ‘em.  Affiliates.  So why are affiliate programs the darling and, as MarketingSherpa and others have documented, concurrently the most under-funded marketing channel? 

In my experience, a majority of advertisers don’t want to know affiliates at varying degrees—they’d just assume look past them (especially those using adware and spam).  Marketing teams are paid to move the needle and blow through ad budget.  As Wayne Porter points out in my interview with him, this does not include detecting what amounts to be ad fraud.  Again—it’s a lot of work to know your affiliates (build relationships) let alone run investigative campaigns on them each week.

Advertisers Leave CPA, VCLK Ready to Help
Search + Incentives = The Affiliate Marketing Sector

CJ has told us that this is true and one need only do simple math to figure out who’s benefited most from affiliate marketing since its inception—GOOGLE.  If most of affiliate marketing is search, incentive shopping and coupon sites then isn’t the need to dump CPA for CPC fairly obvious?  VCLK is simply removing the middle-man… namely Google in a colossal cash-grab.  The implications for Google here are quite serious in my estimation.  Moreover, advertisers:

- Struggle with having to discount themselves (work with coupon and “cash back” sites)
- Hate “sharing loyalty” (partnering with the likes of uPromise)
- Are clashing with affiliates in paid and natural search engines
- Are taking calls from Google reps asking “tired of paying your affiliates a premium for our visitors?”

VCLK’s success has, for years now, been limited AND tied way too close to that of the affiliates in their network—who use PPC search (Adwords) and “natural” search optimization techniques to drive visitors to their sites.  The optimization affiliates are getting whacked by Google (systematically taken out of the index faster and faster).

Are advertisers ready?  VCLK thinks so.  I think so.

I’m excited to release a audio program and FULL transcripts (appearing below) as part of the ongoing Best Practices In Affiliate Marketing series. 

I’m very interested in making certain programs available for professional education purposes and will continue to do so on topics that are of critical importance.

What is Commission Junction’s Link Management Initiative all about? What does it mean for advertisers and publishers/affiliates?  Industry veteran advertisers discuss the situation as it unfolds.

“Anybody who thinks this isn’t a response to Google and the technology that Google offers to their advertiser base isn’t looking at this from a far enough perspective… Advertisers are in droves in Adwords spending billions... Adwords is making an assault on rich media, video now… you have to respond; if they don’t respond they’ve got 2 or 3 years left before their entire affiliate base migrates anyway.”
Jeff Nienaber
Allstar Directories

Affiliate manager Nate Griffin suggests affiliates have innovated in past and this is becoming more about who should control innovation—a critical part of affiliate marketing’s strength.

“There’s a lot of questions in my mind of weather or not it (this change) makes it closed to that innovation now and if CJ (itself) wants to control that innovation.”
Nate Griffin

Does CJ want to shake loose the low-value affiliates by frustrating them… thereby improving network quality?

“At the least it’s a fringe benefit… if it’s not the actual goal.”
Patrice Colancecco-Milligan

“They decided that this is what they want to do, and where they want to move, which I can understand them making that decision, I just think they did a lousy job of putting it out. It just seems they’re not affiliate centric, which to me is part of the game. You have to try to keep them halfway happy, or explain to them; they just put it out there like the affiliates have no say in what goes on, and that’s offensive to me.”
Chuck Hamrick
Backcountry.com (and all associated ecommerce sites)

Program Length: 37 minutes

Click PLAY button below to stream.

Download MP3 file here

PROGRAM GUIDE
00:00 Introductions of guests
02:23 Strategic shift for affiliate marketing?
04:00 Backcountry.com reacts to announcement (Hamrick)
06:41 Operational concerns: Affiliate categorization (Molander, Griffin, Colancecco)
10:08 Google vs. CJ (Nienaber)
10:19 CJ losing track of affiliate/publisher needs? (Hamrick)
12:02 CJ “holds all the cards” how will they use them? (Colancecco)
13:32 Advertisers or CJ - who gains from the change?
15:32 Advertiser being given illusion of power (Colancecco)
16:48 What might this mean tactically for advertisers? (Griffin)
18:35 Departure of CJ’s Todd Crawford (Hamrick)
19:57 A Valueclick mandated change driven by Google (Nienaber)
20:54 Is Google going to innovate around Adsense a la Japan’s Ichiba?
22:40 Subtext: Google, Yahoo, MSN competing direct for advertisers
23:10 Could CJ be handling this better? (Colancecco, Nienaber)
23:45 How long will links remain intact? (Hamrick)
24:46 Valueclick’s motivations (Nienaber)
25:23 CJ has opportunity to enhance network quality… will they? (Hamrick)
26:55 CJ’s ace in the hole - advertisers aren’t going anywhere; what about affiliates? (Nienaber)
28:39 Does CJ want low value affiliates to go away? (Nienaber, Colancecco)
31:48 Who’s leaving; are threats valid? (Griffin)
34:52 CJ must do right thing w/ right affiliates (Nienaber)
35:35 Wrap-up: this is all about Google & “media” (Nienaber)

Subscribe via RSS.

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AUDIO TRANSCRIPT
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Jeff Molander:  Thanks to all of you guys for taking the time out of your day and joining me in this interesting discussion with regard to Commission Junction’s recent announcement where they’re going to change their links, and the way that they do linking. On the call, I have Nate Griffin, Chuck Hamrick of Backcountry.com, Jeff Nienaber, formerly of Birthday Express, now involved with Allstar Directories, primarily in the lead generation business; and Patrice Colancecco Milligan. Everybody on the line here are very experienced affiliate managers, to say the least. Patrice goes all the way back to CDNow. Jeff goes way back; when did you start Jeff? Was it 1999ish, something like that?

Jeff Nienaber:  Yes, ‘98.

Jeff Molander:  Okay. ‘98? Geez, I think that’s even earlier than me; I thought I was an old man. Chuck, how long have you been in the business? How long have you been in the business?

Chuck Hamrick:  As a full time affiliate manager, only for the last year. Although I used to just launch programs, back from 2000 on, both in Commission Junction and Linkshare. I’ve had an interesting online marketing experience; I started in 1999, in the days of doorway pages and worked through SEO through 2004, then broke out into consulting, and started with Backcountry last year in October. In that time, we did a lot of mini-sites, and whenever a client would leave, I would back-fill them with affiliate links to news and traffic before I found a new home for them, so I have been playing in the affiliate space since 2000.

Jeff Molander:  Nate, I don’t even know if I know your background. Where were you before where you are at now?

Nate Griffin:  I’ve actually been an Internet marketing manager, not exclusively affiliate, but I actually started with doing email and some project management about two years ago. I’ve been a full time affiliate manager for about a year now, and prior to that I worked on the agency side as a project manager and account manager for a small agency in Florida for two years.

Jeff Molander:  So, we’ve got people who are definitely not new to online marketing, but fairly new to the affiliate game, as well as people who are affiliates marketing veterans. Let’s cut right to the chase. With regard to the link management initiative that Commission Junction just announced, I came out and - I received an email from Commission Junction - started talking to people, putting pieces together… talked to somebody who works at a different affiliate network, who is a CTO type person, and started thinking about this, and ended up with this blog. People have been fairly critical about it in regard to - I don’t know - I just looked at it as reporting the news from fifty thousand feet; I see this as a big strategic shift for affiliate marketing. Would anybody else agree with that? Or am I way out in left field?

Chuck Hamrick:  No, you’re absolutely right. I actually talked to the vice president of advertiser development, who was my old account manager at CJ. We’re legacy; Backcountry has been with them since 1999. I spoke with him yesterday, first I wrote an email kind of complaining and protesting that we were a bit blindsided. We have a weekly meeting with them, just the account manager and his assistant, and it was announced to us first on Tuesday. We have an SEO engineer that’s pretty savvy, and works closely with Matt Cutts from Google, he recommended that we suggest our affiliates use the “no follow” tag because there is a lot of evidence, or buzz, that Google is devaluating affiliate links, or possibly penalizing them. We had a prior discussion about that, then Tuesday we heard from CJ that they were going to do this change to Java script. I didn’t realize it was all or nothing, so we got the email Wednesday morning and it starting a huge buzz on our forum we have a couple forums on ABestWeb. We had posted our “no follow” at the same time, so this thing all merged together.

Chuck Hamrick: My complaint was that it seems like it’s pushing something down the throats of affiliates, as well as the merchant. In that email from CJ, it said that this was a recommendation or suggestion from affiliates, merchants, as well as employees. Well, that’s news to me. My complaint was, thanks for the notice, but this June date, where it rolls over, it really leaves us high and dry.

Jeff Molander:  But, is actually all or nothing? I heard it’s not all or nothing.

Chuck Hamrick:  In time it will be all Java script, although we set our data feeds up and our HTML. We batch that to CJ, so ideally we can keep that going. I don’t have an answer as to when their cutoff date is that it has to be Java script, but I just felt that it was a mandate. There was something similar to this pitched out in August by Linkshare, and it created a huge fervor with affiliates because nobody likes to be told they have to make a change. There was a comment made, that I found interesting, one affiliate said, “I’ve got ten thousand links to change, and it will take me half as much time to just change to a different network, so I think I’ll do that.” Of course, they like to threaten and get a little whiney at times, but it was an interesting comment.

Chuck Hamrick:  So, there’s pros and cons, and I don’t know how anybody else feels, I just don’t like the fact that we had no prior notification to have our PR in place, our communication to our affiliates in place before it came up from CJ. I had one day notice, and I really hadn’t delved into it enough, so I was kind of put upon Wednesday morning. I felt that they had thrown this out at us, and told us that it was going to change, now we have to circle back and figure how it impacts us and how it’s going to effect affiliates when we have to talk to the affiliates about it. I didn’t like to be blindsided, and I told them that. They actually admitted that they are working on some new PR, that their marketing efforts were not done properly and that they are circling back.

Jeff Molander:  It doesn’t seem like they’re controlling the blogosphere very well, because they’ve got me all half cocked out there according to a lot of people. I’m not going to drop names here, but I’ve been receiving heavy criticism for, essentially I think, reporting the news and pointing at I haven’t even had the opportunity, Chuck, to point at experiences like yours, so I’m glad you just shared it but, I’ve been pointing at affiliates freaking out, and looking at what this really means from fifty thousand feet, because I think it’s relevant, just as relevant for you, and for Nate, and possibly for Patrice, to be in a situation where you’re looking at a network and you’re saying, “Okay, now I’ve got to really operationally scramble.” That’s one side of the story, but the other side is what does this mean for affiliate marketing when a network takes the fundamental link structure and they throw it out the door, and say, “We’re not going to do this anymore.” For the most part, they’re saying, apparently Chuck, they’re saying they’re going to grandfather, to a large degree, HTML links, but they’re also saying, as Patrice pointed out to me in an email, they’re also saying, “We’re going to put affiliates in buckets. We’re going to call an email affiliate an email affiliate,” rather, everybody’s going to have to be in a bucket now. Some affiliates get treated differently; they’re all in a different buckets.

Nate Griffin: I think to a certain extent segmenting your affiliates by their marketing tactics is a good idea, and it’s a good practice, I think. It helps you to break down the different economics of each selling method. Being required to do that, I think a lot of affiliates sit in a number of different buckets, if people are being forced to go into one bucket or another, I think that’s probably not going to be the answer, a kind of one size fits all solution.

Patrice Colancecco Milligan:  Not only that, but as we know from CJ letting the affiliates self categorize, almost nobody changes the default anyway, so you have some people are going to try to categorize themselves, and some people who are going to try to put themselves in one bucket, when they need to be in more than one; and some people are not even going to change whatever the default is. I don’t know how effective that necessarily is going to be. It could be more effective based on the fact that somebody who says they are a search affiliate might get a different kind of link than an email affiliate, so that might be the impetus for somebody to actually truly put themselves in the right bucket. We’ll see how that plays out.

Nate Griffin:  It would be nice to get some more validation, I think, of “I’m saying I’m a website affiliate, but now I’m going to go and by a bunch of AdWords,” and I, as an affiliate manager, am going to spend a whole day trying to figure out where your ads are, where your sales are coming from, and documenting all of that. If there’s some validation that gets built in through this system, I think that’s beneficial.

Patrice Colancecco Milligan:  Definitely, because I don’t really know too many people who run straight up websites, who don’t do some sort of search, usually it’s pay per click. You’ve got to get traffic to yours site some how; you can’t just be in some dusty corner of the Internet not driving traffic to your site. That’s almost impossible, to just be a straight up website and be in the website bucket. We’ll see how that plays out.

Jeff Nienaber:  I think if anything, CJ wants to quantify to Google, and to Yahoo, and MSN, how big of a player they are in the space. They have an ad budget aggregated number that they can throw around.

Chuck Hamrick:  I found out recently, I’ve been going through a contract re negotiation and was actually able to move it up to the VP level because I really wasn’t getting anything at the account manager level. I found that they had channel managers that managed the bigger players, and the three that I’ve heard defined, and there maybe more, are search affiliates, deal coupons sites, and loyalty affinity programs. So, I’ve been trying to work in those areas to get some of those bigger players and bigger trafficking.

Chuck Hamrick:  Our affiliates are primarily niche; the ones that seem to be successful are the ones that couple content with data feeds. They use the data feeds for the technology and the ease of getting products positioned, but they write reviews, or they write some type of copy to keep their site fresh and get attention from Google. But then, some of my top players are pure search affiliates. So, you’re right, I don’t know if there is a move on the part of CJ to give us more depth or for them to do more analytics. Some of the comments made were that they wanted to push other technologies, and the Java script allows them to do that, where the straight edge HTML link doesn’t, so this is kind of a future move. They decided that this is what they want to do, and where they want to move, which I can understand them making that decision, I just think they did a lousy job of putting it out. It just seems they’re not affiliate centric, which to me is part of the game. You have to try to keep them halfway happy, or explain to them; they just put it out there like the affiliates have no say in what goes on, and that’s offensive to me.

Patrice Colancecco Milligan:  It seems like they’re not only not affiliate centric, they seem to actually just be CJ centric. Because the way I look at it, they’ve always controlled the information the affiliate managers see, with regards to you can see as much information as you can on some on the other platforms. Now, they’re holding all the cards in terms of what is going to be shown on a publisher’s site. Now they’ve got two ways that they have control over both sides of the coin, and really the people that win out the most with that is CJ. They’re controlling what’s going on in the publisher’s site, their controlling what the affiliate manager sees in their portal; so they’re really holding all the cards at this point.

Patrice Colancecco Milligan:  It will be interesting to see what they do with this. They have the power to do many things, certainly, that can make life difficult for certain types of affiliates. Whether or not they actually wind up doing that is something else. The only thing that we know for sure right now is that they are making it very difficult for affiliates to change their links, and they are going to have to change links in some sort of time frame, whether it’s six months, or a year, or a week, or a month. At some point, people are going to half to change; that’s all we know for sure. We don’t know what they’re going to do with the information when they have it, they could use it to penalize affiliates, they might not. But, really CJ is the win in this because now they hold all the cards.

Jeff Molander:  I think CJ is in the win, but I also think it puts advertisers in a more powerful position, because what they’re able to do is then say to the advertiser, “You hold all the cards.” This is where I’m completely is confused, and perhaps it’s because, Chuck, like you said, they’re not putting out the messaging. I see, and this is what was reported in ClickZ today, by Kate Kay, who, I think, did an excellent job of offering great balance in that, I put forward the theory that this is just a house cleaning. Jeff, that jibes with what you suggested with regard to Google, and it jibes with a lot of what we see going on inside affiliate marketing with regard to low value affiliates, the way that Google looks at them, the way that advertisers look at them. But, I read this ClickZ article, and I see Frank Gerstenderger suggesting that this is not a house cleaning, that this has absolutely nothing to do with anything other than providing advertisers with access to technology that has been available since 1998/1999, which is Java script enabled delivery, which allows advertisers to swap out creative at their whim.

Patrice Colancecco Milligan: That does make sense.

Jeff Molander:  Sure it makes sense.

Patrice Colancecco Milligan:  That’s why we’ve always like the fact that even though banners don’t do a thing for anyone, at least the banners are hosted and you can swap them out at will.

Jeff Molander:  So how is that new though?

Patrice Colancecco Milligan:  As far as putting it into the advertisers’ hands though, I can’t go in there and change CJ’s Java script, so it’s not really in my hands. I still have to ask my CJ representative, or my account manager, to do something on my behalf, and they can still say no. So, it’s not really giving us the power, it’s giving us the illusion of power, that we have some kind of control over the affiliate site, but really, we still have to ask.

Jeff Molander:  You’re saying that’s the way it was, or that’s the way it is now?

Patrice Colancecco Milligan:  That’s the way it is now. You said part of what they’re doing is giving the control back to the merchant. They’re giving the illusion of control back to the merchant, but really, CJ still has the control. They have even more control now, because now they don’t have to worry about reaching in and pulling someone’s HTML, which was impossible before, now they can change anything. Let’s say you don’t pay your bill, you don’t put your money into your escrow account. You could be a conspiracy theorist in all kinds of directions on this, you could say if someone’s not paying their bill they are going to get their largest affiliate turned off. Of course, that’s not going to happen, but I’m just saying that there are a lot of things that CJ can do with this information. If they’re going to spin it as something that is beneficial to the merchant, well yes, it is beneficial to the merchant, but it doesn’t give control to the merchant, more of an illusion of control.

Nate Griffin:  This whole thing goes back to the original comment about I wouldn’t say this has really been communicated well. I’m having a hard time understanding what this means in a very tactical sense. Now, when I put together a text link, am I responsible for making sure the context of that text link works within where ever the affiliate wants to place it? I don’t want to have to put together a link that makes sense no matter where it’s going to be dropped. Or, if I want to change a link because it’s not working, to suddenly worry about breaking or changing copy out there that somebody else has embedded a link within content.

I think that really is a question; who really has control, who benefits from this control, do I really benefit from this control, do I want this control? Or, am I more comfortable letting the affiliates innovate ways of selling the products, or getting people to click through to links? I think there’s a lot of strength in letting affiliates be creative with the link format. I think that’s where you get things like the Product Showcase Creator, GoldenCan, and things like that, it seems that the platform is somewhat open to innovation, and there’s a question in my mind whether or not this makes it closed to that kind of innovation, now that CJ wants to control that innovation.

Chuck Hamrick: I asked that question. I just recently launched GoldenCan; I did more of a PR campaign, but I asked specifically, what is this going to do, because they’re a Java script based sniplet, or whatever you want to call it, and I didn’t get a strict answer back. He actually said he didn’t know. The one comment I want to make is remember that Commission Junction is now owned by ValueClick, and with Todd Crawford leaving, he’s pretty much it for the old guard. He was actually their voice on the forums too. I know he’s blogging now on Revenews, but as no one really represents the old school thought and it affects us.

Chuck Hamrick:  The comments I’ve had from top affiliates are they want some control on whatever they get. They take our data feeds, is that they don’t want it so controlled that they can’t do anything with it; they want to have the ability to massage it the way they want for their website. I’ve looked at their data feed and they’re a little sophisticated. I think the affiliates that are complaining are the ones that see they are losing more control. What I was going to ask is anybody on Linkshare using dynamic rich media? I haven’t, but if it’s the same concept that you could just simply change something internally on the program and push out to where it looks on one case like text blanks; on another case it’s pushing a different banner to other media. I wonder if this thing is being pushed down from ValueClick, which is a database aggregator, it’s CPA networks and all types of other things like that, that they’re trying to maybe push some of their influence down. They may say that there’s a benefit for the affiliate channel, but it certainly doesn’t come across that way.

Jeff Molander:  Jeff that’s begging for you to make a comment on.

Jeff Nienaber:  Well, I think that’s absolutely the tip of the iceberg. I definitely think this is a ValueClick mandated change. You look at the BeFree acquisition, it was inevitable that technology was going to be rolled into the fold, so that’s a big piece of it. The technology infrastructure that we’re seeing, pre this announcement, is six to eight years old; it’s about time for an overhaul. That’s where the industry is going, and anybody thinks this isn’t a response to Google, and the technology that Google offers their advertiser base, isn’t looking at it from a far enough perspective because advertisers are in droves in AdWords, spending billions. AdWords has made an assault on rich media, video now, so you have to respond. If they don’t respond then they’ve got two or three years left before their entire affiliate base migrates anyway.

Chuck Hamrick:  Has anyone heard any comments that Google was actually trying to integrate their AdSense into of more of an affiliate network, like Launch and Gbuy, having ability to pay affiliates? I’ve heard of this concept before that actually Rakuten with Linkshare, this is how they work in Japan. They’re the Yahoo of Japan. They have affiliates on one side that are building small websites and positioning collateral, and they have the merchants on the side; they actually use it as a barter system where they don’t really exchange cash. The affiliates are then able to go into that huge network of merchants and basically use their credits to buy whatever they want, so the only thing really spent, besides labor to ship, is their shipping fees. I have heard that there’s a suspicion that Google maybe heading in that direction, tying AdSense in with the means to pay back affiliates, and monetize that instead of the way the model is now, and maybe tying it back to the merchants and saying, “Okay, here’s your credit, just pick a part from the merchant part of the network, we’re going to handle whatever transaction background.” Then you have Connection Junction with ValueClick looking at the whole online ad industry and how they can get another piece of that. I don’t know. I’d love to see some great migration and shifts in the industry that would make us all better off. It’s still cloak and dagger out there, we don’t really know what’s going on behind closed doors.

Jeff Molander:  What do you think about that theory Jeff?

Jeff Nienaber:  That’s the first I’ve heard of that. That’s pretty interesting. I’ll have to noodle that one. Regardless there’s, I think, a subtext in this change that says, “Hey, we recognize the threat of Google and the Yahoo Partner Network,” which is coming now, essentially, to the base of our business and I think the affiliate networks have to make a response that’s legitimate, that’s quality focused, that’s advertiser focused, yet affiliate base friendly, and let the chips fall where they may. They have to make a move one way or another.

Patrice Colancecco: They certainly could have done a better job of it.

Jeff Nienaber:  That’s standard operating procedure for any affiliate network change. It’s always shoot from the hip and spin the PR later; see what happens, see where the damage is, and then address the damage as it comes on the message boards.

Chuck Hamrick:  Well the comment I heard was CJ made the decision that this is the direction they wanted to go. They didn’t see [unintelligible], a legacy versus the other, they felt that if they were going to make this change, the change had to be made, so they went ahead and put it out there. I’m told that the legacy links will work until March of next year (2007), so I am not overly concerned that I have to get everything resolved now. But, we need to delve into it more and find out what this means. The complaints that come back from affiliates are “So, you’re telling me I have to replace all my links on the site with Java script; I have may have a hundred text links on a page. Java script would make that a huge, fat page and now we’ve got bandwidth problems and all that.” Has it really been thought out or is it some new technology that we don’t understand? We didn’t even get examples or a chance to really play with it. The actual code we don’t know what the deal is, and I agree. I think both the big networks… I don’t really work with Performics so I don’t know how bad they are. They don’t really consider the impact, not just on the affiliates, but the merchants as well, because if our affiliates are upset we have to placate them. We’ll work on our part too, then we’ll all have plenty on our plate.

Jeff Nienaber:  Absolutely. Any time these decisions are made and any time they are executed it’s always been 99/1 rule. They’re absolutely focused on accommodating the top one percent of their client base, and they’re going to build the greatest tools for the top one percent of their affiliate base, and the rest be damned. You either join up and suck it up, or you move to another network, which they know is already extremely frustrating. They have key differentiation points that they think are going to maintain 50 to 60 percent of their affiliate base, and the others, well, maybe we’ll get them back when Linkshare’s performances tick them off.

Chuck Hamrick:  There was an interesting comment made about getting rid of low quality, low value affiliates. Now when we’re proving to affiliates that we look at the numbers and page rank… we’ll look at a site and if it’s in being in niche, then we’ll accept it even if it looks like it has no traction and no traffic. Generally, if it’s got little value, we don’t want to waste our time.
I thought one of the benefits of CJ was that an affiliate would have to make a sale within six months or they are kicked out of the network, so they’re kind of doing diligence there. It speaks to, if there is an opportunity for them to not just push data out through the affiliate channel, but also to take some analytics back and to look at the sites that are not doing much. The other flip of the coin is take the sites that are doing really well and push that. The one thing I love to get from the network is for them to come to me with twenty affiliates a week and say, “These are affiliates that will go really well with your plan. Would you hook up?” They don’t do that, unless you want to pay extra for it. So, it’s always us out there trying to find these allusive affiliates for networking with each other. It’s like, “Hey, trade me a super affiliate for another one. I’ll give you two for one.”
If they came and told me internally, or confidentially, that this will give them the ability to analyze more, and it would be a benefit to us, then I’d support it. Here again, it just comes out as, “We’re making this change and here it is.” We can’t as merchants just flip networks. That’s a big endeavor.

Jeff Nienaber:  I think that’s what they are counting on. That’s their ace in the whole. The average advertiser, the average merchant is not going to get up and walk away because they’re going to have great account management, and they’re going to walk me through the change, and they’re going to offer to manage the message boards, and all the communication nightmares. At the end of the day, that’s their ace in the hole. If the affiliate likes the merchant, they’re going to stay with the network.

Jeff Molander:  Aren’t you going to have, Nate, a bunch of applications, and Chuck, all of the sudden when people are told that they have to now start using the new links, aren’t you going to have a flood of applications to go through with regard new affiliates coming in?

Chuck Hamrick:  According to them, I am. I think that go date is June 25th or 26th, but I don’t have that in front of me. At that point, any new affiliates will only get Java script. Now as I mentioned, we’re covered because our data feeds are handled and we actually deliver those directly to the affiliates outside of the network. As it is, the link comes back, we capture the affiliate ID, then we batch it back to CJ and get credit. We don’t get impression data and we lose click data, but we’re covered on that up until March of next year. For my bigger producers that are data feeders, I am not as worried there, but we’re doing some new initiatives and changing engineering, now we have to put some time into investigating how this changes. It’s the damage control now with affiliates, they’re very emotional. They’re entrepreneurs, they’re independent sales people and now they see it as a threat, whether it’s perceived or real, we have to spend a lot of time taking care of that.

Jeff Molander:  Is it perceived or real? I’m a guy who’s sticking my neck out there saying one of the reasons why some are saying I am saying it’s the only reason why, it’s not the only reason why Jeff’s pointing out a lot of reasons. Chuck, you’re pointing out some reasons. I’ve put out there that they’re out doing this to clean house. They are out there and they’re saying, “This is the way we’re going to do business.” They had to know that a certain group of affiliates are going to freak out and leave. That’s what they are doing, and I am suggesting that, that is part of ValueClick’s plan. I think what you said earlier about Todd Crawford, Chuck, is interesting and probably true if you look at the timing of Todd Crawford’s departure, and you look at the type of guy he was, and the type of things that he did in the trenches.

Jeff Molander:  I’d like to go around to each of you, and I am sure someone will disagree with me.  Convince me (I’m wrong); or do you think that they did this because they knew that a certain group of affiliates were just going to fall off, and that group of affiliates doesn’t mean much to them. Frankly, Chuck, to what you’ve been battling with for the last year or so, or half a year or so, there are problems out there that you have described to me, with regard to OEM manufacturers, and what they’re seeing when they type their name into search in terms of the what the affiliates are doing to their product images, and their product description, and pricing, and the freshness of that information. So, if each of you could let me know… am I crazy to think that Commission Junction just doesn’t care about a certain group, and is kind of trying to appease advertisers with regard to that group of affiliates that causes headaches for them?

Jeff Nienaber:  I’d vote for that, absolutely. I think it’s even more sinister than that. I don’t think it’s just that they expect a fallout, they want them to fall out, and if they don’t, if they stay, they want to know exactly what they are doing. I think it is control. I think you’re absolutely right. It’s a quality play for ValueClick and a control piece for the CJ piece.

Patrice Colancecco Milligan:  I think that, at the least, it’s a fringe benefit. At the very least, it’s something that they wouldn’t say that they didn’t like, if it’s not the actual goal.

Nate Griffin: I haven’t heard that they’re going to be changing their criteria for becoming an affiliate. Again, I am not sure if there’s going to be more validation on the up front of, aside from sending in a W 9, if you’re a US based affiliate. I think that in terms of improving the quality, I think that this will have the effect of hopefully improving the quality of the network. I don’t think it’s going to be JoesBlog.com sites that necessarily that will get kicked out. I think that those folks, as long as they’re interested in being an affiliate, will probably adapt to the changes.

Jeff Molander:  There are a lot of affiliates that fit that mold that are saying, “I am going to leave.” Did Commission Junction not foresee that?

Nate Griffin: Yes, but is that the vocal majority or the vocal minority? Are they valid threats or empty threats?
I think that goes to the fact that the people who are making the most noise are also the affiliates that are producing the most in revenue from the their involvement with CJ advertisers, then they’re going to complain because they’re going to have to make changes and spend more money with their developers, or spend more nights at their PC working, but they’re going to make the change. I just think it’s the lesser evil. For affiliates who are engaging in bad search practices, you got to get rid of them; nobody wants them anyway. That’s something that I would hope would come from better accountability, if that’s what we’re gaining through this new linking, then I think that’s fine. I think that’s kind of a bold move by CJ, because I am sure certain amount of revenue they know is flowing into them from affiliates who are engaging in bad behavior. I think that’s to protect CJ’s brand.

Chuck Hamrick:  I think that it’s a probably a case of they’re already talking with their top producing affiliates and have a sense of what would be a value to them. The other affiliates are the nameless masses that they are really arrogant about and they don’t really care about.

Jeff Molander:  I don’t know if they are talking to their top affiliates because I talked to a couple of them that are really big yesterday, and they weren’t talking to them.

Chuck Hamrick:  I hadn’t had a chance to talk to anybody, and so I am curious if they were. You read between the lines, and they said that they took this from feedback from affiliates, merchants, and employees, but what does that mean? But, I think it’s a matter that, it’s coming from ValueClick, they see that they need more control over what they can push, what they can experiment them with, but also to see how well it’s converting, more depth… They’re on the other side database wall, the data feed wall, or whatever you want to call it and so they’re able to look at analytics that we can’t even touch on. They probably have some insight into what they would like to have to be able to control that mix better. They just don’t really care about the individual affiliate, and they haven’t for a long time. That’s what puts me up in arms. If it affects the affiliates, it affects me, and I don’t like the fact that I am blindsided as well. I don’t know if they can effectively pitch it out to all the merchants too, if they’re going to push something. It’s a mandate. If it benefits them, then boom. It’s the 1 in 99, which I am glad you said that, that’s exactly what I’d use. It’s not 80 in 20 anymore. It’s 1 in 99. If they can control that and make it more profitable, and narrow it down to work with the producers in the means that are effective, then they can care less about the rest of them.

Jeff Molander:  Well according to Frank Gerstenderger they won’t, “They won’t loose anything significant,” in this change

Jeff Nienaber:  That’s because if it’s significant they’ll do whatever it takes to retain them. They’ll build them the right tools, they’ll manually change every single link if need be. If it’s not worth their time, they’re not going to invest in it.

Jeff Molander:  I think Chuck has brought up in this call, I know you guys probably need to get going, and actually I do as well. But Chuck brought up a couple of very interesting points earlier where he’s suggesting that this is really all about where ValueClick is going and less about where Commission Junction is going.

Patrice Colancecco Milligan:  That definitely could be, we’ll never be privy to that. I am sure that in a few months, or in a year, when all this plays out, it’ll be a lot easier for us to look back and say, “Oh this is what they were doing.” Right now everything is sort of pandemonium and we just how everything plays out.

Jeff Nienaber:  My comment earlier is that yes, absolutely ValueClick is a media company. Google is a media company. This is one on one competition; it’s on the front lines. One of their arrows in their quiver was CJ, but this is definitely a response to Google’s position within the media market. Yes, they have to move. They have to do something. Google’s killing them.

Jeff Molander:  I appreciate you guys taking time out of your day to chat about this important issue. I hope might be able to again pull people like you all together, and do it again.

Patrice Colancecco Milligan:  Very good.

Nate Griffin:  Definitely.

Jeff Nienaber:  Thanks guys.

Nate Griffin:  All right. Thanks.

Chuck Hamrick:  You’ve been great, thanks Jeff.

Jeff Molander:  Thank you all.

Jeff Nienaber:  Thanks Jeff.

Chuck Hamrick:  Bye.

Affiliate marketing’s future looks bright but a lot different than the current landscape.  Careful observation of trends indicates dramatic change is on the horizon.

Valueclick / CJ
Consider Valueclick’s (NASDAQ: VCLK) recent shift within its Commission Junction unit—toward a more “media” centric world when it decided to change the most fundamental of all operational tasks (linking).  In the end, the move gives more power to the network and, perhaps, the advertiser.  When it comes to understanding the data-driven economics of affiliate marketing Valueclick will hold the power position moving forward.  Sound Google-like?  You betcha.  In fact Commission Junction goes as far as suggesting, today, that the company is henceforward part of a “significant move in the industry towards javascript links” by other companies such as Google Adsense (via Monetize).

This lead this particular affiliate to suggest…

“Everything about this initiative indicates that you are switching to a contextual advertising model and away from traditional affiliate advertising.”

Buzz, Viral & Word of Mouth
Consider the myriad of highly experienced, respected industry veterans who see a future for “traditional” affiliate marketing that looks a lot more like word-of-mouth / viral and buzz marketing.

Emerging Product Data Goliaths
While most of the “product data feed management” discussion in affiliate marketing is focused on Feedshare, GoldenCAN and similar technologies affiliate managers would be wise to research companies like ChannelAdvisor, Channel Intelligence, Mercent and Truition.  I recommend reading up on companies like eToys (PDF) and take note of how affiliate marketing is becoming a cog in a multifaceted, highly automated wheel—less of a stand alone marketing strategy.

Last week, Seattle-based Mercent (a company founded by the same team who originally developed the Amazon Services unit) rolled out the retail industry’s first search engine solution to quantify keyword performance by client-identified business metrics—metrics like return on advertising spend.  Quite literally this allows marketers to “pre-set” business rules that allow them to automatically adjust keyword bids within a range that results in results in a ROI metric such as return on ad spend.

As an example, when working with pay-per-click search engines or comparison engines, Buy.com may set a rule that it will only pay $1.50 - $1.90 for the term “Toshiba Flat Screen” providing that ROI works out to an ad spend of $0.35 for every $1 in revenue produced.  Buy.com can also factor in how fast a particular keyword produces (turns inventory) and raise its budget assuming that the keyword can produce a volume threshold.

An Automated Future?
What does this mean for affiliate marketing?  Mercent suggests that it can automate similarly and has named Linkshare and Commission Junction as partners.  I say again as partners. 

The Future: Affiliate Managers
Such a future could signal a re-writing of the typical affiliate managers’ job descriptions given the “freeing” aspect of such tech tools.  Less time may be spent fussing with newsletters and more time with analyzing data to create better business rules that enhance a more important metric (versus sales and conversion).  In the future, affiliate managers may very well require a background in analytics much like search managers do today.

Will affiliate managers be automated out of existence?  Allow me to cut off the critics and suggest absolutely not.  I’m suggesting that they may, however, require a new skill set in a more “performance media” dominated world.

What works for affiliate managers and what doesn’t?  How can you work more creatively with super affiliates to tap into their true selling power?  I convened around 10 advertisers and 2 respected affiliates to find out.  What we learned may surprise you.

As part of an effort to deliver quality professional education materials to online advertising professionals, I’m releasing (below) a free, partial transcript of the audio program, “Best Practices in Affiliate Marketing: What Affiliates Want”.  A full transcript and audio CD copies of the program are available at the Molanderassoc.com Web site.

The entire program may be streamed or downloaded below.

Best Practices in Affiliate Marketing: “What Affiliates Want” (Part ONE)
Moderated by: Jeff Molander

Twelve small, medium and large brands discuss the ins-and-outs of affiliate marketing in 2006.  Discussants range widely from marketers in financial services to commodity marketers, lifestyle fashion brands, housewares and sporting goods marketers.  Two “super affiliates” join in to discuss how marketers should be working with affiliates to drive increased sales and leads. 

The program’s participants include:
A major beauty and a major lifestyles clothing brand.
Figleaves.com
Batteries.com
Lamps Plus
Golfsmith International
Factory Card & Party Outlet
VF Imagewear, Inc.
Batteries.com
Team Express, Inc.
Kitchen Collection
Rugman.com
iGive.com
Vesdia Corporation (BabyMint.com, Schoolpop.com and others)

Press PLAY button to listen now or download as MP3.

Best Practices in Affiliate Marketing: “What Affiliates Want” (Part TWO)
Moderated by: Jeff Molander

In this segment 12 small, medium and large brands (and 2 affiliates) focus on discussing how to best work with cranky affiliates who can often be un-communicative and how to work with affiliate networks that sometimes don’t go beyond handing a list of URL’s to marketers (affiliate recruitment assistance).

Press PLAY button to listen now or download as MP3.

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AUDIO TRANSCRIPT SAMPLE
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Announcer:  The following presentation is brought to you by The Partner Maker, connecting you with super affiliates and taking the work out of affiliate marketing. Learn more at ThePartnerMaker.com.

Molander:  Hello everyone, Welcome to our discussion on to collaborate more closely with Web affiliate partners. My name is Jeff Molander and I’ll be facilitating our discussion today.

Joining us on our call I’ll just run down real quick we have, of course, Vintage Tub & Baths’ Allan Dick, who is one of our industry’s greatest networkers in my opinion. Thanks, Allan, for the opportunity to commandeer your group. And I’ll do my best to keep us focused and productive.

Joining Allan is Christine Richmond from Vintage Tub as well. Julie is on the line from a major name beauty brand. Jamon Heller, I believe is on, from Factory, Card and Party Outlet Center. Jamey Maki from Golfsmith International joining us and if I mispronounce anyone’s name, I apologize ahead of time, please correct me. Bobbie Zucker Bryson, is on the line. Trish Tickle, of Kitchen Collection, joins us. Rachel, who is with a major lifestyle brand in the clothing and accessories sector. John Bankroft of VF Corporation is here. Richard of Baseball Express. Patrice Colancecco Milligan is here, a long time affiliate manager and currently in the financial services space. Kristin Collier and Dale Petruzzi of Batteries.com. I think Shane Wagg of Rugman is with us. And I’m told that we also have, yes, Heidi Chu, is also with us from Lamps Plus. Did I miss anybody first of all?

Robert Grosshandler:  I’m here.

Molander:  Oh, yes I’m coming to you next… And Robert Grosshandler also joining us. Yes. CEO of iGive and Todd Jirousek of Vesdia Corporation (Schoolpop.com, Babymint.com).

Molander:  Some of you on the call, may or may not be partnered with one, one or both of these companies that are affiliates. So for the sake of discussion, each maintains, I’ll just give you a quick update here.

Each of these gentlemen maintain shopping portals that cater to a specific kind of interest group. Rob’s company caters to philanthropic cause, cause minded type of individuals, and Todd’s company is kind of taking a major life events approach to shoppers, helping them to save money and achieve lifestyle milestones such as building a college and retirement savings.

So, without any further delay, I’ll stop talking and we’ll get some discussion going around how marketers might work in more creative ways with affiliates. That’s our subject for today and hopefully, perhaps, we’ll find out some ways in which they have not considered before working with affiliates.

Rob I’d like to come to you first if you don’t mind and then back over to Todd regarding your thoughts on, in particular, data feeds. Before we had the call, I heard from people via email that they were very interested in this aspect of distributing their products and services. Maybe you can start by telling us how I give works with marketers using data feeds and how this is somewhat unique.

Robert Grosshandler:  Well, we really love getting data feeds, both catalog data feeds and as well as offer data feeds. We view our role at making our site as simple for our consumer to use as possible, and to be that portal, to be the place where our consumer, typically women, comes to figure out where she’s going to go shopping in order to help her favorite charity.

We use the data feeds from about 300 merchants to do that; it is a newer part of our site and it’s been highly successful. We find that folks both search broadly as well as deeply. The kinds of terms we’re seeing go through our search engine, shopping comparison engine, look exactly like what you might see going through Froogle or one of the bigger brand names. We find it very valuable for our consumer, and therefore we find it very valuable for our merchants that we partner with.

Molander:  Todd, I’m not sure if your sites of all of your sites, and perhaps if you can name a few for us if they get involved in data feeds, but I know there are some creative means for marketers to work with you guys, on and off the Internet. Maybe you can speak to either or of those subjects?

Jirousek:  On the data feeds, we don’t really work now with the data feeds. But we realized that we’re going to need to.

Little history on Vesdia: We primarily run loyalty programs on behalf of clients such as Citi and we’ve been primarily dealing with in store merchants. That’s history of the company.

We recently made more of an investment on online marketing. So, we recently acquired Schoolpop and some other Websites as well. And, one of the things we are really starting to do now is redesigning the Websites to make them more user friendly and incorporate product enhancements like products level search, which we haven’t done in the past. I would say, while we don’t have that, one of the neat opportunities we have is direct mail.

Since we work with Citi, we’re able to include our merchants who we work with via the network, indirect mail pieces, credit card statements inserts, catalogs etc., that Citi sends out and that reach roughly five million people on a regular basis. So that’s kind of a neat way to reach customers. I don’t think most affiliates can offer.

Molander:  Absolutely, that’s what, I think, makes you guys fairly unique in that regard.

So having warmed up our affiliates guest with a few questions here… I can certainly ask some followups, but I’d like to hear from others, we’ll got a lot of retailers and catalogers on the line here. I’d like to see if you all have any questions that we can toss at our affiliate guests today.

Christine:  Yes, I have a question. This is Christine, from Vintage Tub & Bath.  We’ve been doing a lot of recruiting over the past month and one thing that we’ve come across, that is new for me because I’m fairly new to this position, is different publishers that actually have a setup fee or an insertion fee in order for them to become one of your publishers. I was just wondering if our two guests have any insight into what value added services are provided when a publishers actually charges?

Bryson:  I didn’t understand that.

Dick:  The question, what we’re concerned with up here at Vintage Tub, is that certain affiliates charge setup fees.

Bryson:  Oh, like a slotting fee or something?

Dick:  I’m not certain why, if we are paying in commission, why do we have to pay a setup fee as well. It almost seems as if the affiliates would want to be paid their commission in advance. I necessarily don’t have a problem with that, but if I have to pay my commission ahead of my sales. Then I think a reduced commission rate afterwards is merited. I’m just curious as to what the affiliates would have to say about that, or if they have any experience with that or what the group has to say about that.

Molander:  I know Rob, works that way at iGive. Maybe you can help answer that.

Grosshandler:  Yeah, I’ll be happy to: We actually have what we think is a rather low slotting fee compared to some of the other folks who charge slotting fees. We do it for at least three reasons.

First we have a finite amount of merchandising space and we want to make sure that our partners are serious about partnering with us. There are, I don’t know, two or three thousand retailers that we could choose to offer to our member base of a 1/4 million people and we need some way of at least, easily, filtering that out. So that’s way, we have, I think, our slotting fee is either 700 bucks or 1000 bucks, something along those lines. So for it’s a quick filter for helping separate the wheat from the chaff.

Second, we do bundle in things to our slotting fee, that we hope are attractive. We have lots of different merchandising opportunities on our site that go beyond a mere listing. And so for us, a slotting fee will include newsletter listings, more prominent placement on our site. And so forth.

Third, because we do have a scarce resource which is the attention of our consumer… we want to make sure that the folks that we partner with are serious about working with us. That it’s not simply, O.K., let’s just go get a listing at iGive and see what happens. We want to make sure they are interested in working with us, to maximize the messages that we put in front of our consumers.

Allan:  Your problem, or the problem you are trying to address, is that you get retailers that come to you that aren’t serious partners. That seems to me the theme – you want to vent out the bad retailers, or the ones that aren’t going to pay attention to it and you would rather have active merchants on your side.

Grosshandler:  Without a doubt.

Allan:  O.K..

Grosshandler:  When Jeff invited us to the phone call, we were really excited about it, because we’re in the business with our merchant partners of making sure that consumers who come to our site, get the best experience that they can possibly get. Part of that is making sure that we have the right merchant mix for them, and that we have the right kinds of offers for them, and that they’re expressed in the right kinds of terms, so that we’re not interested in partnering with every Tom, Dick and Harry retailer. It’s much of the same issue that retailers have with affiliates.

Molander:  How about Vesdia, Todd? Do you guys ask for anything in terms of a fee upfront?  I know from experience actually in working with you all in the past with some of my clients, when I used to do program management work that you do ask for a very serious commitment. I don’t know of, if there is a slotting fee involved. But I do know that you ask for usually, the commitment to a larger type of relationship. And you mentioned earlier the direct mail aspect of that.

Jirousek:  On Schoolpop we also have a slotting fee, we call it our new merchant launch package: For a new client, it’s a 15 hundred dollar, one time fee, and it includes a couple of Hot Deals weekly newsletters that go out to 150 thousand people each and banner placement on the category of your choice.

One thing we believe in is really introducing a new merchant to our membership. We can’t just put thousands of merchants up on our site with a text link because you are never going to find them, so for new merchants, we like to announce them to our membership, include them in newsletters that our members read and get you in above the fold banner placement, so that there is a greater chance of long term success for our partnership. We found that if we just bury a text link somewhere, hardly anyone is going to find it, and it’s not going to be worthwhile for either party in the long run.

Molander:  Great. Anybody else have some follow up questions to that? I believe that Jamon recently joined us. Did I hear you chiming in there, Jamon?

Heller:  Oh, I’ve been here.

Molander:  Great.

I know you have some data feed questions. I think actually I received an email from Christine, I believe, suggesting someone had a brand new affiliate program and I know you’re pretty new to the game. Is that right?

Heller:  Actually we don’t have one. We are considering one.

Molander:  O.K.

Allan:  They’re a very good thing.

(Laughter from all sides)

Molander:  I don’t know if we’ve covered that deeply enough for the folks on the call: That’s why I’m bringing up data feeds again, we touched on them briefly.

Rob’s got an affiliate also like Flamingo World. They have their own proprietary comparison search engines, that’s what they are doing with those data feeds. Does anyone else have any probing questions on data feeds?

Heller:  How prevalent is it as a part of the affiliate marketing program? And that’s related to my naive idea of an affiliate program.

Grosshandler. : I can speak to the folks who are in the loyalty and the incentive space.

We’re seeing either they have it today or we expect them to have utilize data feeds or searching comparison engine kind of practice within the year. Or they’re creating individual landing pages that better merchandise some of the products when use the catalog based data feeds for that.

The other trend that we expect to see is more and more of the special offers that we all like to see from merchants coming through an automated interface data feed if you will, but it’s offer oriented data feeds as opposed to a catalog oriented data feed.

That of course means that the bigger the data feed and the more accurate the data feed, the better we are. We’re seeing a significant portion of our member base using data feeds and then shopping from the links in the data feeds, and I know that, in our case and I suspect in most of the affiliates who are using data feeds, there is no additional charge for being in that search engine, so that we’re using the traditional affiliate’s commission to pay for that service.

Bryson:  This is Bobbie of Figleaves.  I think that Rob brought up a good point. Even a year ago, data feeds work, if you had one, it was a nice to have kind of thing. But more and more affiliates are making that a bigger part of their business model. If you are thinking about launching an affiliate program, you’re really going to have a step up on the whole game, if you include that as part of your launch.

Heller:  Well, is it still worth having an affiliate program if we can’t handle that type of thing?

Bryson:  Oh, oh, yes. I wouldn’t say that don’t have an affiliate program if you can’t have a feed; but if you can, it’s a nice to have, because more is going to become part of the norm rather than the exception, if it hasn’t already.

Colancecco:  If you don’t have a data feed, I would say if you are going to go launch without one, be prepared with an answer for every affiliate that ask you for one.

Bryson:  Exactly.

Colancecco:  Because they will.

Tickle:  This is Trish Tickle of Kitchen Collection. I’m sorry I joined late… Your resident geek should be able to build you a data feed pretty easily.

Heller:  O.K..

Trish:  They are really not that hard to build, because most of your affiliates will give you an example of how they want it built.

Heller:  O.K..

Trish:  Which will make sense to your resident geek.

Heller:  O.K..

Molander:  A lot of times — and correct me if I’m wrong everyone — the problem, the real challenge is not creating the data feed, it’s creating the data feed in a manner that is acceptable to more and more affiliates. The more folks who keep asking for it, while there really isn’t a standard out there yet.

I don’t know if all of you received an email, if not, I know I missed a few of you before the call. I will be sure to follow up with a link to an article that just came out a couple days ago regarding movement with regard to standardizing data feeds and how some retailers are moving to look into that very seriously.

Colancecco:  You might be in a unique position if you don’t have an data feed yet, with all this coming out now. You might be in a pretty unique position and be able to align yourself with standards. That’s instead of being in the position of a lot of other data feed merchants, where they might now have to change what they are doing currently to align to standards if that goes through, or must have different data feeds based on different partners needs. It may not be a bad thing to be starting out on a data feed now.

Heller:  I heard at the Shop.org conference that some providers can take the data feed, separate it out and sends it to various engines and such, on behalf of the vendor.

Molander:  Sure, Performics is in that business. A company called Mercent, Channel Advisor. There are a few companies that do that as a service.

Grosshandler:  As a consumer of data feeds, we actually don’t care so much about the format as we do how we go get it. I don’t know the economics involved, but if you use the Performics or the Linkshares of the world to help be the middleman for that, that makes it easier for us and therefore more likely we’ll use it and use it to it’s fullest extent.

Tickle:  A lot of us on this last call were Commission Junction people and we all have the option of putting up a data feed through Commission Junction. Does anybody use it?

Richmond:  We use it. At Vintage Tub, we use it.

Heller:  How hard is it to use?

Tickle:  That’s what we have our resident geek for.

(group laughter)

Bryson:  This is Bobbi at Figleaves. We were with Commission Junction, now we are with Linkshare. And you also get easily through Linkshare through their merchandiser program. And as long as you maintained a certain level as an affiliate across their entire channel, they don’t charge you.

Heller:  Would you ever need a data feed not for an affiliate program? And if so could you use the data feed through your Linkshare?

Bryson:  You can, that’s another whole topic.

Tickle:  Actually the data feed that sometimes go up to different shopping comparison engines. They like to read those a little differently than the ones we put up on our commission conjunction site.

Heller:  O.K.

Tickle:  That’s where either you have, probably the hardest thing about data feeds is being sure that it’s done on a consistent basis, and you have to pick out what that timing is, whether daily, weekly or monthly is too far apart based on your inventory.

Heller:  O.K.

Rachel: We had a data feed that was pulled for another reason, and just somewhat reformatted it so that it was useful in Commission Junction, so it can be done. And so ours was threaded for a while, for search purposes.

Colancecco:  Yeah, it usually does help if, once you pull together the information the first time, you can have your resident geek, slice it and dice it, depending on where you going to go. The first one’s the hardest, and subsequent ones are much easier.

Molander:  On the same subject of what people are doing on the merchant side, on the advertiser side, I’d like to shift a little bit and talk about what some of the… Again the whole conversation here is about how to creatively work with affiliates, either how have you creatively worked with affiliates or looking forward, how you are planning on, and what you can do and that’s why we’ve actually invited couple of the affiliates on the line to talk about what options there are.

Anybody out there on the marketer’s side that would be willing to tell a success story or maybe a horror story about something they’ve tried, creative maneuvers within an affiliate that maybe either a home run or an abysmal failure?

Dick : We’ll share one from the Vintage Tub, and this was on the bad side. Jeff, you’re intimately familiar with this one, so we had you help us iron this one out…

Last year we had a situation where the prices that were on one affiliate site for our products were at half price, or 80% off, and customers were beginning to call us saying we would like to buy that 1200 tub for 200 dollars! I told my affiliate manager, who was different person at that time, to immediately get that changed.

Well, she wrote to CJ, saying, please stop this immediately. Instead of investigating, CJ turned around and immediately cancelled the account which annoyed the affiliates. They didn’t realize they were doing anything wrong, they were just using our feed, and our feed I think was corrupt.

I never really found exactly out what happened at that time, but we didn’t have any direct contact information with her. This affiliate turned around and then blogged about us and it actually got some traction online. Not a huge amount, but it just goes to show you that if you don’t have a direct means of communication with your most important affiliates, this is the kind of stuff that can happen.

This was a mistake that just grew well out of proportion to what was really going on.

One of the things that I wanted to ask the affiliates that are on the call: We seem to have trouble getting affiliates to communicate with us. We actually have a higher commission structure for affiliates that we have direct contact information for. Now as direct result of this, we never want to repeat that mistake again. We want to be able to talk to folks and get the situation resolved without having to communicate through a third party, which is why I think the problem happened. So that was a mistake on our part. We don’t want to repeat it. And I’m curious as to what the affiliates have to say about… how can we improve our relations with our affiliates. How do we get our affiliate to give us contact information?

((END SAMPLE))

Hats off to Kate Kay who presents a balanced, informative and engaging view of Commission Junction’s Link Management Initiative without eliminating the good stuff—the different perspectives on CJ’s announcement.  Kate’s piece is worth a read as Commission Junction denies that it’s caving to pressure from advertisers:

Pacifying advertisers and search engines by eliminating link farms is “not what’s driving [the Link Management Initiative] at all,” countered Frank Gerstenderger.  Instead, he insisted, because the JavaScript links will enable dynamic alterations, the changeover will lessen the number of future changes for affiliates.

An interesting position, indeed, as such technology is a throwback to 2000 and has largely been a low-value function from the advertisers’ perspective.  Historically, few advertisers actually use it or want to use it.  Indeed, this could change and meshes well with meeting advertisers increased desire to have more control over affiliates and a the good old fashioned “house cleaning” (of affiliates) that is well under-way.

As for CJ’s comments on the house cleaning? 

As for the potential loss of affiliates due to the switch, he estimated, “I don’t think we’ll lose anything significant.”

Ouch.

Leading Minds & Advertisers Speak Out
In an effort to get some perspective from advertisers, I’m convening a few leading minds in the online performance advertising business today so as to discuss the implications of what we know about Commission Junction’s recent link structure ("Link Management Initiative") announcement.  The group consists of experienced affiliate managers and a prominent affiliate who promises to, quickly, get at the heart of the situation (get the details from the affiliate side).  The audio program and transcripts will be published here on an ASAP basis.

Commentary
Briefly, a quick bit of commentary on my disappointment in our industry.  Dramatic change seems to be leading to new levels of denial (that this is a significant shift) and venom in a time where it’s nothing but distracting.  Talking about when the links will actually switch is interesting but distracting from what I wish to discuss—a serious power shift that benefits some (advertisers for sure) and punishes others (certain kinds of affiliates). 

Specifically, some peers suggest I’m dangerously presumptuous.  You would think that they might make sure that I don’t actually know something before making such accusations—presuming (ironically) but this is not the case. 

Rather than pointing at people who accuse me of being presumptuous, un-knowing, having a secret agenda and such I will point out something that seems obvious yet is worth stating plainly:  Each of us is an expert in something.  Let’s try to focus on that and play nicey-nice in the sandbox together.