As most followers of performance marketing space know, one of, if not the largest, pure plays, certainly within the online lead generation segment, filed to go public last month. It is a company that has for many years had its eyes on a public offering, and their determination to do so reminds me of Advertising.com, who in 2000 probably felt close to an exit of their own before the market correction. Both showed the difference between a company aiming for an exit and one whose only chance for success was through an exit. Both companies persevered, stayed focused on growing a profitable business, knowing it might be years before the payoff.  For Adverising.com, that payoff took place shortly after filing their S-1. For Quinstreet, referenced above, we will see whether they get snapped up or go public. Regardless, the S-1 presents followers of the online customer acquisition space a rare glimpse into a company who has to date ranked among the most tight lipped. Despite their reticent nature, theirs is a fascinating story, one that could fill an entire book let alone a handful of posts.

Having smart friends with greater patience and ability to interpret the S-1 than I, below consists of a collection of their thoughts along with some of my thoughts on the business - its successes, opportunities, and challenges going forward.

In General

There are very few public comparables to Quinstreet, so I would say that many who aren't normally fans of the company are in some ways rooting for them. A successful exit would pave the way for others of near size or great growth stories. I'm relatively optimistic, as theirs is a digestible story. And, perhaps in an ode to differentiate themselves from Valueclick (VCLK), Quinstreet refers to themselves as a leader in "vertical media and marketing online." You will find "lead generation" on the homepage but not as a descriptor of the company itself. I have mixed feelings about this, but from a positioning standpoint I understand.

By The Numbers

Quinstreet notes having 477 Employees at the time of filing.

• 152 Product/Engineers
• 62 in Sales
• 52 in G&A and
• 211 in Ops 
• They have raised a significant amount of venture capital; they own ~40% pre-IPO
  

For their fiscal year ending June 30, 2009, Quinstreet put up revenues of $260 million, and for the three months ending September 30, 2009, they have shown growth of 23.4% compared with the same three months last year - $78.6mm vs. $63.7mm. EBITDA is also strong, $56.9mm for the year ending June 30, 2009. Revenue comes from three verticals, Education, Financial Services, and Other (presumably encompassing home services, B2B, and elder care.)

Education is Quinstreet's largest contributor to revenue representing 58.1% of revenue FYE June 30, 2009. In a sign of solid diversification, this percentage is down significantly from two years ago, when education represented almost 80% of their revenue. And, while Education has seen mid-single digit growth year over year, they start with a large base. Customer concentration catches most people's eye when looking through the S-1 and as summarized below. Their largest client, DeVry University, who FYE June 30, 2009 was 19% of their revenue, is one with whom they have an almost agency of record relationship. It is a relationship similar to that between Apollo Group's University of Phoenix and Advertising.com from 2004 - 2006. The DeVry relationship is being handed over to an ad agency, so it will decrease in terms of its contribution.

The Top 20 clients made up 68% of revenue for this same period. It's higher than many, but declining as they aggressively diversify. Their clients, too, are relatively stable, and in my opinion there is some elasticity. If they lost a top client, they could compensate with others.

Phil Fresen, a partner of Garros Group, shared with me the following spreadsheet that I used for the information above; it is presented here:

Quinstreet Revenue Analysis

Organic Growth vs. Acquisition Growth

In addition to client concentration, the topic raised by everyone with whom I've spoken involves Quinstreet's organic growth compared to their growth due to acquisitions. And acquisitive, hardly begins to describe Quinstreet. As mentioned in the S-1, Quinstreet says, "“Our growth over the past several years is in significant part due to the large number of acquisitions we have completed. Since the beginning of fiscal year 2007, we have completed over 100 acquisitions of third-party website publishing businesses and other businesses that are complementary to our own for an aggregate purchase price of approximately $189.5 million." An investment banker I know chimes, "In my experience, they have been financially disciplined around price, structure and terms." But even he was surprised by the aggregate purchase price.

The acquisitions are predominantly, smaller ones, at least in quantity - a large number of six and seven figure transactions with several, rarely publicized eight figure ones. The larger ones all focus on diversification and establishing a foot hold in those markets. They then roll-up smaller properties to increase the number of leads generated by properties they own and operate. Large and notable acquisitions include (in no particular order):

• SureHits - Insurance lead generation, counts under Financial Services
• Reliable Remodeler - Home services lead generation, e.g., kitchens, baths, etc.
• Internet.com - The most recent purchase, presumably to beef up their B2B traffic
• ElderCareLink - Senior care, a starter before getting into senior housing
• VendorSeek.com - Their initial foray into B2B
• WorldWideLearn - One of the oldest acquisitions I can recall, cementing their SEO foothold

Of the above, SureHits ($27.5 million in cash and $18.0 million in potential earn-out payments), a primarily auto insurance marketplace where clients pay on clicks not leads, has been an absolutely winner for Quinstreet. Here is what they say in the S-1, "Financial services net revenue increased from $15.2 million in the three months ended September 30, 2008 to $31.0 million in the corresponding 2009 period, an increase of $15.8 million, or 104%. The increase in financial services revenue was driven primarily by lead and click volume increases at relatively steady prices." Much like Google whose AdWords became AdSense, Quinstreet, post acquisition has scaled distribution of Sure Hits pay per click ads. 

Another friends comments, "How much is Surehits? In fiscal 2007 (pre-SureHits), financial was 7% of 167m, or 12m. Surehits came on about ½ through fiscal 2008. So that’s about 100m in incremental revenue (annualized). I think between mortgage and debt they are probably doing about 10m annualized. They are probably doing some straight insurance lead gen. Hard to say how much. Doubtful it’s more than 20m. So that leads me to think SureHits is in the 70-80m annualized rev range."

As Phil Fresen says, "I’m certain that the question of acquisition vs organic growth will be a threshold issue to investors and come out in the roadshow. There will be a nuanced answer to the organic growth because they will want to get credit (as they should) for the post-acquisition 'synergies.' I would expect that they will give examples of large and small success stories. I would also expect that they will build an acquisition growth story around the ample opportunity to continue to pick up subscale web properties and convert them into high quality lead flow for major companies."

The bearish version on the organic growth vs. acquisition can be summarized with, "The one thing they don’t tell you is how much growth is from acquisition. I think the answer is 'all.' This is a company without organic growth. And ALL of their partner-driven business is vulnerable (they give low payouts and lock up them up, meaning they run when they get a chance). On the other hand, their CEO was a former nuclear sub commander and Bill Bradley is on the board."

Bottom line: The company is well diversified in its traffic and verticals. Some weaknesses exist to grow education through internal media buying versus buying smaller sites with traffic.

Additional Thoughts

I'd thought I'd share a collection of feedback from others after they read the S-1. Comments include:

• Gross margins are 30% and Operating margins are 15% - NOTE: these numbers are depressed since there is rather significant (6-8%) of D&A in these numbers
  
• It's a roll-up play now
  
• They note SEASONALITY in their business (not substantial but not neglible)... essentially 4Q is weak and 1Q is strong(er)
  
• They have CONTINUED to see solid revenue growth in their EDU lead business (6-10%) due to volume increases and recently, PRICE INCREASES!
  
• Page 59 reports on some of their interesting technology platforms (high-level is helpful)... 1/3 of their 500 employees are Engineers!!
  
• Also, they note that they have VERY LOW ATTRITION - no $100k or more rev client (per month) has left in the last year.
  
• Goodwill on the balance sheet is SUBSTANTIAL (120m as of 9/30/2009)... Amortization of this is a non-cash expense and is upwards of 10-15m per year so take it out of our analysis of the margins... AKA this is still a great biz!
  
• More than one person in the space has quit their job, built a small business and then sold it Quinstreet as their exit

What Happens Next

According to my banking friends, Quinstreet is "in quiet period until the SEC approves their registration statement. Once that happens, they can start the roadshow and promote the IPO."  "There is typically some iteration that goes on between the SEC and the bankers/company to make sure they’ve covered all the risks, properly laid out financials, etc."

Continuing, he adds, "The bankers will mail out the prospectus to all the institutional investors. They will tear through the document and then there will be a roadshow where investors get access to management team and bankers (no one really cares to talk to them) to do further diligence. Then there is a ‘book building’ phase, where the equity capital markets team at the bank reaches out to all the institutional investors (some portion is allocated to retail as well) to get a bid with price and volume."

On pricing of the offer, he shares, "There is a history of ‘under-pricing’ IPOs to make sure there is plenty of demand (and a nice stock pop once the thing starts trading). So generally, if a bank is doing a good job, the IPO will be oversubscribed by some multiple 1x – 4x (so there may be $1Bn of demand for QuinStreets $250MM offering). The bankers can then move the IPO price up and still meet the company’s funding requirement with less dilution. Once the book is filled and the price is set, the money comes in to the company and the shares begin to trade. I assume they are aiming to start the roadshow after the holiday season and start trading in late Jan/early Feb (assuming markets hold firm)."

As for price, "Last week they valued shares at $19. There are 34.6m shares, so they value themselves at about 660m or 9x their annualized EBITDA of (4 * 18.15m). I think Ancestry.com is the purest comp, and they are valued at 9.3x TTM EBITDA." Quinstreet's growth story looks better, so it should go out higher.

If I had to guess, Qunstreet will easily see a $900 million valuation by the end of the first week trading. Any friends and family shares left guys?

A (hopefully) comprehensive write-up to explain not just what actually happened Arringtongate but why it happened and more importantly some thoughts on how to make it better.

Setting the Stage. Literally.

By now, almost everyone it seems has heard of or actually heard the the unique verbal sparring that took place two weeks ago at the end of the Virtual Goods Summit. The sparring took place between two well-known Silicon Valley names - one the founder and chief muckraker of the most well read internet / technology publication, the other, a co-founder of a platform company at the heart of social media monetization with a large exit already under her belt. The exchange was the result of a recent revelation Michael Arrington had regarding the monetization of social media traffic, specifically, third-party Facebook applications.

What Arrington "discovered" is not new to those in the performance marketing space (that iq quiz, fka crush, offers make up a large amount of the virtual goods revenue), but it emboldened him with a sense of urgency to report on his findings. To paraphrase his words, he told his sparring partner and the rest of the audience that it's a topic he will be writing a lot about, and true to his word, he has, starting with 'Scamville' (image left from TC). The exchange itself will live on in infamy, certainly for those who geek out on this stuff, because while fewer than one hundred people saw it in person, the video made its way to YouTube, and thanks to posts on PE Hub, Techrunch, and links in countless inboxes, more people than work in the internet advertising space have seen it. Nothing new to those operating in the space, it could become an unintended watershed moment for the space as a whole. 

For those not familiar with the 'Scamville' series of articles, the issue comes down to this: Many of the ads running within the third-party applications provide limited to no or even negative value to the user. They are form fitting function (marketers monetizing traffic) as opposed to a service the user might truly want.

The Accidental Intersection

This is one big pre-mature market accident. No one could have predicted or prepared for the current hoopla involving Facebook, Third-party Applications (Zynga having been singled out the most), and Alternative Payment Platforms / Managed Offer Platforms. While some might have guessed Facebook's growth, none could have predicted a) the volume of installs /activity on stupid simple games ( 70% of Facebook's 300 million active users engage with applications each month), b) the amount of inventory / transaction opportunity it would create ($1bn/year in less than three years), and c) that people would willingly subject themselves to offers for such a non-monetary service, i.e., virtual currency for stupid simple games. It's almost as though putting that paywall in makes the games more valuable to the users, like why hazing or boot camp increases dedication to greek life, the military respectively.

Large amounts of inventory that is not well-understood + rapid growth outpacing demand = a hotbed for misbehavior in an attempt to monetize. Those first to heed the call to help monetize - performance marketers. That they would be the key driver to 40% or more of the $1billion virtual currency market in US was no one's plan. There simply wasn't and hasn't been anyone else around. 

Square Peg, Round Hole.

Even the performance marketers who have embraced the social gaming inventory didn't know what to do with it. That's why they've been stuck trying to adapt a system clearly ill-equipped to makes of social media. They have been using the ads and infrastructure from the Free iPod days. Those ads were meant for an audience of a much different sort. They weren't designed to accommodate a micro-payment environment. They were meant for single use not as part of an ongoing system that will see the same users over and over again.

Brands are meant for users to see over and over again. That's for later, though.

Explaining why it can work for a select group of advertisers is Justin Smith in his Future of Offer Monetization in Social Games piece. Smith writes:

"...it’s important to note that many of the most sophisticated performance advertisers – who have been around the block a few times – are investing in this space, and have been for some time. The Netflixes and Equifaxes of the world have well-developed methods of evaluating lead quality and adjusting bid prices accordingly, and if you look on your favorite offer wall today (in the US), they’re still there near the top of the list. It’s unlikely that Netflix doesn’t understand how its ads are showing up in social games.

Smith concludes with, "At the end of the day, the most fundamental question facing the industry is whether incentivized marketing in social games is providing real value to honest advertisers and users." And, "The best thing all offer networks can do for themselves, users, and the industry overall is to keep adding more offers that provide more value to users and advertisers, while eliminating any deceptive ones."

What You Should Know (regarding the current intersection of performance marketing and social gaming / social media monetization)

1. It's not lead gen - Read any of the articles relating to the Scamville / Arringtongate and you will see the words lead gen throughout and in such phrases as "lead gen scam policy." It's not lead gen. As a lead gen guy, this hits close to home, but personal feelings aside, there is a big distinction. The offers in question here are as MySpace points out in their terms of service change, opt-out offers. These are subscription services, continuity programs with negative option billing. They fall into the broad categories of performance based marketing, performance marketing, and online customer acquisition but they do not qualify as lead generation. Lead generation does not involve any direct billing. It involves only data when users express an interest in a good or service. There is a multi-billion dollar ecosystem of expressed interest that does and should not get lumped in this fray. 
2. Mobile is not the problem - A couple of companies come out worse for wear, such as Tatto Media, but the real loser is mobile. The knee jerk reaction by most applications implicated looking to clean up was simply to ban mobile related offers. Mobile isn't the problem. Ringtones, which has had its share of issue in the past, is all things considered, well regulated and very different from the quiz offers. The quiz offers added very little value to the user. And, it's quite likely that many users agreed to be charged because the connection between phone and wallet is not strong. We can go into a whole slew of conjectures as to whether it is kids billing their parents, people who sign up but intend to cancel, etc., but either way two things hold true. A push based text service will have a hard time defending the the $9.99 monthly price point, and you have to be really unsophisticated to know you aren't getting charged. Today, all opt-in messages are explicit; they have to be if companies want to keep their short code. The text explicitly
3. Facebook is no co-conspirator - In his articles Arrington at times accuses Facebook of turning a blind eye because of the advertising revenue they receive. The truth is that like Google, it isn't that Facebook doesn't care, it's that they really don't understand online marketing. Ask Zuckerberg about IQ Quiz, and he will have no clue. Ask him how developers make money, and he can answer in general terms, but the nitty gritty is not what they think about. Even their head of platform development or monetization doesn't think about these things. Once on their radar, they like Google will crack down. They will turn down $50mm in revenue any day if it means harming the users. They've done it in the past and are doing it again. 
4. People don't work for free - Monetization for developers and all players in the food chain has dropped. There is a good amount of money that has just exited, and its impact could send ripples which lead to layoffs, less support, and less talent working on the social media / gaming ecosystem. That monetization is needed for valuations, and it causes people to do stupid things.
5. Better offers - It's not the developers, social media sites, or offer platforms. At the end of the day, it's the offers that lack. We can and should criticize the race to the bottom, but that's just human nature. Fake blogs are the same. People copy the one that monetizes the best so that they can compete. Hence the IQ quiz ads get run by all and they get more and more deceptive in order to monetize the best. Running the vast majority of Free iPod holdovers is trying to fit a square peg into a round hole. Again, they are there because no other offers dare to figure it out. That said, the same offers that ran during the Free iPod era shouldn't run now. But they are. The real opportunity is in bringing a new generation of advertisers and teaching them about incentives. Gurbash "G" Chahal of Blue Lithium fame, writes on his blog, "Bringing large brands and agencies into this space requires an extensive amount of education. You have to teach these players how to create value; you have to create specific social media offers that are different from traditional advertising or affiliate network buys." Until that happens, we're going to see the performance guys make it work - square peg, round hole.

Where Do We Go from Here

The Scamville related pieces started with, and the straw that breaks the camels back are select mobile subscription services. The savvy performance marketers for the most part ran compliant campaigns (they couldn't have had their short codes otherwise), but that doesn't mean they weren't guilty of really bad, completely unsustainable, and absolutely unjustifiable behavior. 

The struggles faced by advertisers, developers, offer platforms, and the social media framework home to it all is not a story about greed, conspiracy, or good applications not winning because they don't run certain ads. It's the same story that has existed for years and years - a Wild West of trying to maximize yield, doing whatever they can until rules are set. The good part about Arrington stirring up this pot as that it can lead to greater awareness and ultimately greater accountability.The bad part though is that he has in one broad stroke completely miscategorized an industry and while enabling some change, it wasn't a true step forward.

Bring in The Brands

I had an eye opening conversation with Nir Eyal, founder of AdNectar, a technology platform and business that focuses on the insertion of branded virtual goods. I'm paraphrasing, but I believe his data suggests that people will actually spend more of their virtual currency to buy a branded item than a non-branded item. Brands increase the experience. Imaging playing a driving game and not having a Porsche to play, or a sports game but not getting to be your favorite team. Games reinforce our brand preferences and brands make the experience more enjoyable. In a social environment this gets magnified and the benefit to the brand is enormous, because people's preferences get shared without having to create an inauthentic experience. Facebook pages are necessary, but they don't compare to an experience that is more powerful and safer than Second Life. For example, 65mm and growing virtual farmers should all be using Miracle Gro to plant, John Deere tractors to till, and Whole Foods to sell their food to. 

Here are the perfect opportunities for brands wondering how to leverage digital and social to do so. Now is the time to be engaging brands further and making sure they understand the opportunity. That is what will end the "scams." This ecosystem isn't meant to be ruled by performance marketers. They deserve a presence, but they are like plutonium - a great energy source (money for developers when no one else is around) but also a potential danger (bad offers due to short term thinking by all). The key is that these events shouldn't scare brands away. They should be a call to action for more to join. I'm by far the first to suggest this. It took Nir to make me realize it, but it's so important that any chance to make the call to action needs to take place.

Further (Required) Reading

• TechCrunch guest post by Alex Rampell, CEO and founder of TrialPay whose business also operates in the alternative payment space but didn't start as a managed offer platform for social gaming. A supplier of offers to Playfish.
• Andrew Chen's detailed analysis on the Scamville series. 
• Nick Gianos, the public face at the intersection of Facebook and third-party apps. Hard to nail down in person but prolific on paper.
• Playfish by EA for $400mm acquired.
• Top Social Games in November 2009 (so far), Inside Facebook.
• Future of Social Gaming, Justin Smith, Inside Social Games.

Recently, I had the chance to moderate a panel discussing the virtual goods / virtual currency ecosystem. While, an ever increasing amount of funds entering this ecosystem, a large and multi-hundred million dollar annually portion, comes from users engaging in ads to earn points. In other words, incentivized marketing. If you have ever gone to a sporting event, you have had a first hand experience with a long-standing offline version incentivized marketing. This is but one of many. The internet, though, has allowed companies to use incentives in new way, one that no longer has a geographic constraint.

The downside of using any incentive is of course that you don't really know if the user has an interest in your good or service or simply the incentive. I started thinking about the world of incentivized marketing again not only because of the panel but due to personal experience with fraud that occurred to an advertiser friend who tried the space for the first time. It was clear from this experience that the users didn't want his service, only the incentive. That's not always the case, but don't ask him to believe that.

I wouldn't call this an anniversary piece, but incentivized marketing is celebrating at least its 10th year online. This is what the landscape looks like today.

Loyalty Programs
Almost all of us have joined a loyalty program at one time or another. Those in our space are some of the biggest users and proponent of such programs - just look at all the black American Express cards floating around Affiliate Summit. Spend money, earn points, redeem for rewards. Pretty simple formula. It has worked for card companies and large stores to keep customers spending. Not surprising that someone figured out how to do it online. The big difference is that spending is agnostic. Instead of having to use a particular card or spend at a particular store, you could spend anywhere that had an affiliate program. The online versions, like ebates and mypoints, in essence split the commissions they earned back with the consumers in the form of points. Earn enough points and you get cash back. It's not all that different from Bing shopping.

The skinny: Top tier quality among incentive sites. Volume harder to scale. Minimal fraud. Rating: Accumulate.  

Promotional Offer / Reg Path
While a good model, loyalty themed incentivized sites struggle to get more customers. Recognizing the power of incentives, a new breed of companies pioneered their use in a different way. Instead of a loyalty program, they went for a model more akin to the offline rebate system - it was a model of breakage. It was get this by doing this, but not everyone who starts the process will complete it successfully. Calling the online version the breakage model, while true, doesn't sound quite as favorable. These offers all start with an offer for the user to receive something, generally with the well known "Free*" tag line. And, for years they ruled the roost on run of network buying and the incentive space, creating multiple $100mm+ yearly revenue companies. Beginning with the media rebound in 2005/2006, it became a tougher landscape, and while still going strong for a select few, the overall size of the promotional incentivized landscape is a fraction of what it once was. That doesn't mean the incentivized landscape is smaller, but the Free Mac product method has seen its peak.

The skinny: Moderate to lower quality. High volume potential. Moderate fraud as a percentage of total. Rating: Market Under-perform.

Get Paid to Try (GPT)
When a veteran of the space calls the Get Paid to Try or GPT's as they are known amongst those working the daily incentivized grind, a cancer, you get a clear sense of how this person feels about the model. At one level, GPT's seem quite similar to the loyalty iteration as users receive a cash incentive for participating in offers. The biggest difference it seems is a subtle but important one. They tend to have a lower barrier to entry both from a business perspective and a user one. From a user end, the person has to do less to receive money. From a business end, they have a much less robust selection of offers - few to no name-brand merchants and a heavy emphasis on the value of making money from using the service, instead of the value of a relationship with the site. The combination is a model where you can literally buy a script for a few hundred bucks and open up your own GPT business. Often sold as part of a work-from-home lifestyle business, those starting it have less interest in policing quality or an awareness of quality. They become easy targets for those looking to perpetrate fraud and earn money by completing offers without any interest in the service itself. As one other said, we stopped working with these sites and didn't miss a beat. Not all are bad, but so many are that they've definitely hurt the overall perception.

The skinny: Low to no quality. Moderate to high volume potential. High fraud. Rating: Sell.

Micro-payments / Virtual Currency
Active users of Facebook will know these businesses well, not so much from who they are but what they do. Players of the 50mm active user strong and growing Farmville can tell you about the distinction between Farmville Coins and Farmville Cash. The former you earn while engaging with the site. The latter you get only by making the site money. And, users can make the site money in one of two ways, through actual payments via Paypay, credit card, and mobile phone or by participating on an offer. These offers are integrated into the user experience, and the process of tracking offer completion and awarding points are handled by a new breed of incentive firms, the managed offer platforms, which includes the subjects of a previous set of articles looking at the space - OfferPal, SuperRewards, Gambit, and DoubleDing to name a few. In some ways they create mini-loyalty programs as they enable users to earn points towards a social game being played. They differ slightly as the points are desired at a specific time, i.e., people convert on them when they want something from the site as opposed to they want something and want to earn points with a specific program.

What the promotional space has dropped in market share, the managed offer platforms have picked up and then some. The companies in this space include your typical self-funded opportunistic firms but also some high powered companies with serious investor backing. Separating themselves further from their high volume predecessor, users here have their identity tied to usage. Whereas in the GPT or Promotional iterations a user can relatively easily go through giving false information or with false intentions, users of social games on their social networking site can't mascaraed as someone else, not without losing the benefits of the social landscape which often attracted them in the first place. The identity feature doesn't ensure perfect quality, unfortunately, but it tends to limit the damage. Instead of them saying to an advertiser I never signed up for this, they might just say, I'm not interested and/or cancel a trial quickly.

The skinny: Moderate to A- quality for the right advertiser. High volume potential. Low fraud. Rating: Recommend.

Macro-payments / Alternative Payments
Those willing to date themselves (age wise not in an ego sense), will admit to remembering Ken Chan's YourFreeDVD's ruling the display landscape. True to its name, YourFreeDVD's, or as some jokingly called it YourFeeDVD's, offered users a straight forward proposition. Complete an offer and get a DVD of your choice. It was arguably the first of the Promotional Offers, certainly the first to hit such scale. For better and worse, though, the straight forward model evolved into more of today's registration path and requiring users to complete more than one offer ton increase breakage. These acts weren't done out of malice but to compete with other headwinds - the decreasing novelty of DVDs (lowering their perceived value), increased media costs, and the need to pay more per email submit to compete against newer entrants offering promotions of perceived higher value - such as gift cards and electronics, the stuff that created the promotional legends. At its core, though, the YFDirect model was the predecessor of today's macro-payment / alternative payment format. It offered users interested in a good or service a chance to get it through an alternate means (as opposed to the promotions business that was historically defined by its obfuscation of what users have to do)

In a strange, full-circle manner, alternative payments are back and thriving. They are lead by a new breed of companies - Trial Pay being the most notable - who have put a slight twist to the original model. Instead of starting with a promotion or product that users can receive through alternative means, they sit in the background of the existing shopping experience and help to capture users that might end up abandoning the process. Let's say you want to download a popular software title, not necessarily knowing the price. When you find out about the annual fee, say $29.99, you start to balk. That's where Trial Pay comes in. They work with the software titles to allow them to offers users a non-cash (not directly cash option), such as by signing-up for a credit card. It's almost like a modern day barter system - trading one customer for another - but executed in a scale not available offline. Trial Pay in particular has leveraged their alternate payment platform to help more traditional merchants increase the average order size of their carts. They can reward users with movie tickets as an example by hitting certain thresholds.

The skinny: Amongst the highest quality of any incentive platform. Moderate volume currently. Minimal fraud. Rating: Buy.

Two years ago Affiliate Summit Las Vegas overlapped with an adult webmaster show. I was in the elevator with my very good friend and DMConfidential founder Hagai Yardeny when two guys entered, two guys from the internet marketing world but not one with which I was familiar. They looked like two guys who met a hot girl that said sarcastically "Nice shirt" only for them to take her seriously and express their bromance by only wearing clothing from Affliction. Never before would I have thought a group of people, all of whom had worked in the performance-based internet advertising industry, could have less in common. Whereas we spoke of revenue per thousand, they talked of "one in what." AzoogleAds - they hadn't heard of them. Nor did we of theirs, which was something like Pink Pays.

For years I had known that not all in performance marketing, or as some would say affiliate marketing, were alike, but on that elevator I realized just how far apart we really were. But that's ok, really. Stepping back, it makes sense that adult internet marketing and mainstream internet marketing would differ. While almost everyone I now has joked about should having worked in adult, most don't really want to do it. There's something to be said for being able to tell the broader world what you do and have them respect you for the work that you do instead of just envy the money you appear to have. In other words, it takes a special breed of person, with nothing negative implied, to work in that industry, and the overlap exists but in smaller quantities. Thus, after the incident, I took it for what it was, a sign showing that it makes sense that our skills sets aren't as easily transposeable as I might have assumed.

If I had to categorize the difference between what I felt our version of performance marketing and theirs was, I would say lifestyle development versus business development. The group we met and saw lived large - lots of bling, opposite sex company, cocksure and carefree attitude. They represent to many exactly what people think they want in life - that snapshot of success and wealth that belongs on a work from home landing page. That image would drive plenty of people to wish for such a life, and at some level we understand, but at another level, what we saw in that elevator was an unexpected glimpse into the mainstream world of performance based advertising if we aren't careful. As enticing of a lifestyle as many of them have, their world has become a world unto itself. Given their choice in marketing, they certainly don't care. Theirs is a conscious decision, and that is an important distinction. 

This divide between mainstream and adult hasn't changed. What has changed is the mainstream internet community. The world of affiliate advertising and arbitrage based affiliate advertising has always had some fundamental distinctions, but the cultural differences between the two camps are starting to become more and more exaggerated. That's not a problem if everyone involved has, like the adult marketers, chosen to go down a path of industry isolation - one that separates themselves from companies they might wish to deal with on a close level namely all mainstream websites and search engines. Choosing to go down such a path is one thing, but if those in the "mainstream" industry don't want to go down that path, it's a another.

Keep at the pace they have, the mainstream group is going to find themselves there, shunned from a large and potentially helpful group of companies that include traffic sources and funding sources. Where as they tolerate some of the cat and mouse behavior today, the won't. Like the adult side, the mainstream group will find themselves more and more written into terms and conditions of sites (and not in a good way). Again, that's fine if all agree to such a path and understand what such a choice means. So far, the mainstream group hasn't chosen isolation, but they are acting in a way that will lead to it. Ask anyone who has switched over from adult to mainstream, though, and that world of isolation is tough grind, the difference between operating in a third-world country versus a first-world one. If the mainstream performance marketing world wants to continue to being on the path of a first-world one, they aren't doing a great job of it.