“Flexibility does not mean Card Blanche and giving up your brand message and control entirely.”

Carsten Cumbrowski, Critical Thinker

Lately, I’ve spouted off about how the cost-per-action/performance based marketing industry is busy shooting itself in the foot and how to improve affiliate marketing.  It set off a bit of healthy debate about the future of affiliate marketing.  Thanks to Carsten Cumbrowski… who’s one of the brightest critical thinkers in an industry that too often chooses to deal in the simplicities.  Performance marketing IS simple and that IS what makes it so adored and widely adopted… BUT.  And Carsten is always out there asking questions and pushing for improvement.

Find Out What Works, What Doesn’t
Speaking of critical thinking I’m assembling a panel of experts (including my trusty side-kick-always-there-to-tell-me-I’m-not-necessarily-right-colleague, Lee Gientke) with a wide range of experiences.  You should consider joining us in lovely San Francisco on October 1 at Online Market World, a top Web marketing conference run by a top Internet researcher/conference producer, Lisa Morgan.

The Pitch
Here’s my 2 minute pitch on why you should attend this affiliate marketing discussion panel.  (listen)

Hey, Carsten… you should consider joining me on a panel discussion some time soon!

“To Be In Multiple Networks or Not to Be — That Is The Question”
Should you be involved with multiple affiliate networks? Why or why not? If so, how does that work technically — from a tracking, reporting and optimization perspective? Find out what experienced retailers and industry analysts have to say about their successes, failures, trials and tribulations when it comes to working with multiple affiliate networks — and the overall net worth of this approach!

Joining in the discussion:
Donald Schamber, Online Marketing Manager, Vistaprint.com
Carolyn Tang, Client Services Dir, Shareasale
Jonathan Miller, Founder, Forge Business
Jamie Birch, Dir, Affiliate Marketing, Converseon
Patrick Goodfellow, AMWSO

Date: Wednesday, April 23, 2008
Time: 4:00 PM - 5:00 PM ET

REGISTER TODAY! SPACE IS LIMITED!

To do so contact me!

All the Best,
Jeff Molander (and Vintage Tub & Bath’s Allan Dick)

The Paying for Performance Webinar is brought to you monthly by Vintage Tub and Bath’s Allan Dick, GoToWebinar and Jeff Molander. Please note, this is a “retailer only” event with an open door policy to others. Please contact Jeff or Allan (allan at vintagetub.com) to request participation in consideration of quality content you might present to our group.

Have you checked the health of your online pay-per-click advertising or affiliate marketing program lately? Why should you? It could save you a lot of money and headaches. Both tried-and-true Web marketing strategies are coming under increasing scrutiny as savvy marketers begin to do pay more attention to success metrics.

Here’s the skinny: Marketers are using multiple strategies — on and off the Web. They’re working with multiple parties — agencies, affiliates, etc. — as they try to chase down customers. Lately, they’re noticing “cross over” or conflict of sorts. Campaigns are influencing each other to varying degrees. This can create both marketing budget waste and confusion on what strategy is yielding the most cost-effective results.

Good news: The doctor is in and his name is Alan Rimm-Kaufman of the Rimm-Kaufman Group. Uniquely, Alan’s search marketing agency specializes in making sure ALL of marketers’ performance-based campaigns are working together in harmony (similar to Angel Djambazov’s efforts when he was with OnlineShoes.com).

Lucky me, I was able to sit down with Alan recently over lunch to learn more about why savvy marketers are so interested in performing pay-per-click and affiliate marketing campaign audits. I’m making the audio interview available for immediate streaming, download or reading via the transcript below. Enjoy!

Press Play to Listen NOW

Download Audio (MP3 — 11 MB)

So I thought, Alan, come on by and explain to the world why they should be questioning their search marketing program, its health. You’re saying that anybody out there who’s got a search marketing program, a paid search marketing program may have problems, although they don’t know they have problems with it. Either they’ve got an agency, or they’re doing it themselves.

Alan Rimm‑Kaufman: That’s right, Jeff. Thanks for having me in today. It’s great being in Chicago. I enjoyed coming by, and thank you for lunch. I really enjoy being in Chicago.

Just as a matter of background, I have a pay search marketing agency. We serve over 100 clients, most of them BDC retailers, many of them IR500, IR100, a couple Fortune 500 clients ‑ big and small, managing paid search.

I think that the topic you asked me to address today, which I think is kind of interesting, is that your paid search program may look fine on the surface, and quickly it is. But, just as we recommend you go to the dentist twice a year just to prevent problems before they get big, we’d suggest you do an audit of your paid search programs about every twice a year just to make sure things are as they should be.

Jeff: An audit. We should also mention to folks that you actually come from, what I call, a hard‑core direct marketing background. You were with Crutchfield several years…

Alan: Sure. Before I started in the business, I did direct marketing in the financial services industry with Signa Bank before First Union involved them. For five years I ran marketing at Crutchfield Corporation, a leading retailer of consumer electronics: car stereos, large TVs and so forth.

So I’ve mailed my share of catalogues and done my share of portal deals and written many, many large checks to Google over the years.

Jeff: My point is that you come from a direct marketing background, and those are typically the people you are serving now. Right?

Alan: That’s true.

Jeff: You’ve lived in their shoes.

Alan: That’s true. My agency does have a focus on direct marketers, folks that want to buy their search so as to make profit.

Folks come to search with different objectives. Some folks are doing it for branding. Some people are doing it for awareness. Some folks maybe just looking to grow revenue, and I guess our concern is about the bottom line. Those are all fine objectives. Our sweet spot, our specialty, is for folks that are using search to drive web profits.

Going back to the audit. A couple of steps in doing a paid search audit ‑ Is this something I should get into? Is it of interest to you?

Jeff: Yes.

Alan: OK. Cool. Before we even get to the economics of your program, we’d suggest you should look at the data quality. If you’re looking at a spreadsheet filled of key ratios and you’re going to make management decisions based on them, I’d say it’s worth your time to make sure the numbers are accurate.

Jeff: How do you know what numbers to look at?

Alan: As silly as it seems, we first recommend doing a cost audit. So if your agency or if your internal team says that last month you paid Google $1,000 or $100,000 or $1 million or $10 million, whatever it is, you pull invoices and see that the checks you wrote to Google maxed the number on the report. And match what’s in the dashboard.

It’s a silly kind of thing. You don’t need to do this once a week, but you’d be surprised at how often people are making mistakes based on cost data that aren’t accurate. Many of the leading platforms out there, at least on a daily basis, use estimated cost data rather than actual cost data. What really matters is that check to Google, is that check to Yahoo, the actual authoritative cost that you’re being billed for, not clicks. There’s robots; there’s fraudsters. It’s the actual money going to Google.

At some point, every six months or so, you should actually get your Accounting Department to figure out your true costs paid to the engines and that goes against your reports. Just to give yourself some comfort that the cost side is correct.

Jeff: Twenty percent of the people out there in your estimate don’t do that? Eighty percent of the people? What do you…

Alan: I don’t think though…I think a lot of people have some squirrelly numbers there. But if costs are difficult sales are even more difficult. And the reason that sales are difficult is because of the double counting issue.

So on your site you probably have web tracking beacons and all sorts of different tracking systems. You may have Coremetrics and Omniture. You’ve got an affiliate program running. You’ve got search. You’ve got email. Sometimes if you add up all the revenue from all of those programs, they can exceed your total site revenue. You’ve got some double or triple counting.

The most important thing to do is ‑ so we said step one was get a sense that your cost data are accurate. Step two would be to get a sense that your sales data are accurate. If last month your report said that through search you did a million bucks in revenue, you say, “I’d like to see those order numbers. Show me the order numbers that add up to a million dollars. Cool. There they are.”

And then look in your back‑end systems and order by order number make sure they don’t tie out to something else. First of all, if the total report says you did a million bucks in search revenue last month, make sure that you agree with that. Your agency may have a different cookie. You may be using a different tracking platform, so the numbers may be different.

“… different tracking systems come up with different revenue numbers; sometimes, as much as 30 or 40% different. Big, big swings. So before you sit down and make a management decision, you want to make sure that your total costs are right and that your total sales are right.”

Legitimately or not, this might not be fraud or deception on anyone’s part, but different tracking systems come up with different revenue numbers; sometimes, as much as 30 or 40% different. Big, big swings. So before you sit down and make a management decision, you want to make sure that your total costs are right and that your total sales are right.

Now, on the total sales piece. Once you’ve shown that the million dollars in revenue ties out to 10, 000 orders or whatever they are, you want to then go back and make sure those orders are actually all tied to search.

Again, in most cases, this should just give you a good warm feeling, like when you go to the dentist and he or she says; no problems. But you might find something. You might find something actually quite important.

Jeff: What have you found with some of your clients that was important and/or why don’t you tell us what was devastating on top of a real good story?

Alan: Well, a lot of times when we see all kinds of issues with tracking, and this order audit where you take a total search attributed revenue and break it down to orders, it can be very revealing. In the most egregious case looking at a potential client’s numbers we saw that actually a former agency had attributed organic search to the paid program. So in order to pump up their results, they were basically counting as attributable paid search the organic search on the retailer’s brand name.

Probably later in the conversation, we might come back to that notion of brand versus non‑brand. I think taking free search and shoveling that into the same pile as paid search to plump up sales to make the paid side more efficient because it was grossly inefficient, that would be pretty fraudulent or deceptive.

Usually, the case is of tracking discrepancies. We had one client that instituted a Web multi‑variant testing platform, like an Offermatica or an Optimus, I forget which one. That system was overwriting the acquisition code with a test code. So where the person may hit the site saying “from email” or “from search”, this testing platform would overwrite that and then say “saw the red home page, or saw the green home page”.

Anyone who went through an experiment, in effect, was removed. Their origin was lost so that’s a major retailer hustle; the name of the retailer you would certainly be familiar with.

Reported sales could be high. They could be low. I think every six months you should actually dig down and audit them so that you have faith in them. Again, those first two steps making sure your costs are accurate and that your sales are accurate is well worth spending the half day every six months.

Then we get to the good point, and that’s the ratios.

Jeff: And it’s worth it, why? Because usually you find problems, or?

Alan: I would say, more often than not, you will find problems. Sometimes the problems can be happy problems in your favor. Oh, good. Opportunity. Sometimes they can be bad problems against you. Oh, crap. Things were not as good as they looked.

Either way, I think that as direct marketers if we’re going to be steering these ships that we’re driving, we need to have a clear dashboard. We’re about to get to the ratios, making sure that you’re headed in the right direction.

Even before that, are you actually seeing reality? I’m almost embarrassed to bring it up; it’s so basic. But if you are going to make decisions based on numbers, yeah, put in four or five hours to make sure those numbers are actually reasonably accurate.

Jeff: You keep referring to these ratios. What are you talking about there?

Alan: We’ve looked at your business. We’ve said the numbers on the reports are basically right, both on the cost side and the sales side. Now we want to make sure you are getting an appropriate level of sales for each dollar of cost.

We want to do that in aggregate to make sure that the numbers you need support your profitability goals. A certain ratio of cost to sales might be three to one or five to one, whatever it is. You then want to look at that by engine. You definitely want to break that up by engine.

A very critical dimension that you want to break it out on is brand versus non‑brand. The issue there is you should take your search portfolio and categorize all the words in it as that which has your name, retailer.com, and that which doesn’t.

The reason being is that your brand name… Just do a quick example. Suppose someone goes to Google and types in “Lands End oxford” looking for a man’s button‑down shirt. Case 1.

Case 2. Same person goes to Google and types in “Men’s pinpoint shirt”. Case 2. It seems pretty similar, but I’d suggest they are radically different.

In the first case, the search query has the words “Lands End” in it. That consumer had identified the marker they wanted to buy from, and was looking for to find their website through Google. It’s a White Pages search. It’s a navigational search. It’s get me to Lands End; I want to buy a shirt.

In Case 2, the person said “pinpoint oxford” or “men’s oxford”. I forgot my example already. In that case the person didn’t have a pre‑cooked notion of who to buy from. It’s a competitive search. It’s a Yellow Pages search. It’s going and saying: show me everyone that sells shirts.

So the value of someone coming in on a non‑brand search is higher. It’s more incremental. Search on your brand name is great. It tends to be super high converting and super low cost. All good.

It’s probably the result of your catalog mailings. It’s the result of your good reputation. It’s the result of years of customer service, your direct mail, your print, your television, your retail stores. When someone comes and looks for your name, the retailer’s name, that’s really spill over goodwill from all of your other marketing and fulfillment goodness over the years. So it’s not incremental.

Where you want to be growing your program, and where your program needs to be profitable, is in the non‑brand words; the words that are competitive. Just as the first slice should be your profitability or your advertising efficiency by engine, that should also be by engine by brand versus non‑brand.

What you’ll find is that the brand search; very low cost, very high conversion, very high sales, could hide a lot of crap on the other side of the portfolio. It’s very important to disaggregate. You know, if I were advertising the retailer’s name itself it doesn’t really take a lot of work, and it isn’t that incremental.

That’s a very important slice to make: brand versus non‑brand.

Jeff: And in making that slice, this gets into one of my favorite subjects every time… Well, we don’t talk about it anymore because we’ve kind of burned through it. But the whole third party affiliate… Do you turn it over to your affiliates? Do you not?

There seem to be two camps in this. The decision all boils down to, seems to boil down to coverage. What you will hear people refer to as coverage and “whack and tackle” and that kind of stuff where, in particular, with paid search as well as organic non‑paid search.

The 2006 best practice, I suppose, is to allow certain affiliates, a limited number of affiliates, and to maintain separate terms with those affiliates. The way you pay those affiliates is different than you would normally pay. Some actually pay higher; some actually lower in terms of commissions.

How do you answer that question? Is balancing it…

“I think my solution to the affiliates would be to turn the programs off entirely. In most of the cases, I see little value to the programs at all.”

Alan: Well, I think my solution to the affiliates would be to turn the programs off entirely. In most of the cases, I see little value to the programs at all. For most retailers that are running a typical affiliate program if they turn them off entirely they would see those savings go right to the bottom line and they would see their top line stay intact. All of the affiliate dollars would switch over to their untracked or their organic search column.

It’s not the case for all retailers. There might be five or 10% that are getting incremental value out of affiliates. It’s really in the minority. I think most affiliate programs are probably not worth the time or the cost that they ensue.

Jeff: And you say that based on what?

Alan: Looking at both numbers.

Jeff: So the audits?

Alan: Yep. Strong words, but that’s my sense.

Jeff: Well, at the ACCM Conference recently, I forget the gentleman’s name from…one of the founders of Flax Art, stood up and said: after saying that some people look at affiliates disparagingly, he then went on to say that many people are doing exactly what you are describing.

Now, I don’t know that that’s the case. I don’t know that there are… I certainly… I’ve told the story of Lisa Papagaras from Universal Screen Arts to people at conferences and those kind of things. We don’t see a lot of people shutting the program down. We see companies like Lands End, as an example, really going through and restructuring quite a bit, but we don’t see them actually shutting down.

Alan: There’s a small amount of good traffic in there. I was estimating 5%, maybe it’s 10% as a first order effect. So affiliates can be done well, but it takes care and attention. I think just the average program plucked at random from a hat would act not to be done as well as best practices would ensue.

But getting back to search, you just want to make sure that each portion of the search portfolio is pulling its own weight. You wouldn’t allow the wonderful goodness of your brand name to be carrying lackluster performance in the non‑brand portfolio.

You should be really charging your in‑house team or charging your search team to make the non branded keywords profitable and growing.

You know, you might say, “What’s the right amount?” I’d say as a manager I’m not sure. But that’s where I would push on the team to get growth. The branded search will jump when you mail a catalog or run a TV campaign. What you should be charging your team with is aggressively growing sales from your non branded keyword portfolio and doing it profitably. That would be in a nutshell the kind of audit things that we’d be looking at.

Then after looking, we were talking about by engine and then by engine brand versus non brand, we want to go down to the keyword phrase, of course. And the things we would be looking for are keywords that have excessive cost and insufficient sales or vice versa. We want to look for keywords that have great sales at a very reasonable cost and are in position number one. If you have a word that’s high performing and it’s not at the top of the page, that’s a red flag. If you have a word that’s burning more cost than its revenues justify, that’s a different kind of red flag.

So looking at the economics of your top, say, 200 or 400 terms sorted by cost descending and then looking at the economics of your top 200 or 400 terms sorted by sales descending ‑ those are very instructive things to look at. And again, that’s certainly by engine results at the keyword level very widely across the major engines.

Jeff: When we were having lunch earlier you had mentioned that the search industry is growing more complex. In fact, you’ve mentioned this more than once and that one of your takeaways from some of the conferences you’ve been to ‑ and you’ve been to a whole bunch of them lately, including “Internet Retailer…” How can someone like you sit across from me and say search is getting more complicated?

Now, obviously, what we just talked about a lot of folks aren’t doing. And when you talk about search marketing very few people talk about audits and the health of their program and all that, and understanding channel confluence and all those kind of things: the way that different marketing channels interact together and how this can be costing you a lot more money than you should be spending and all that kind of stuff.

But when we see companies like Yahoo! Chasing after companies like Google… What I’m getting to here is the black box. Where in paid search marketing everybody is saying, “Just put money in the black box. We’ll do the rest ‑ don’t worry about it.”

Alan: That would be an engine or an agency saying that?

Jeff: Well, that would be an engine saying that. My question is: How can it be when Yahoo! Takes away your control as an agency… Is that the kind of complication? Is it complicating your job as an agency?

Alan: I think that things like Google’s quality score algorithm changes this year, which removed transparency to the retailer be it an agency or direct marketer, are in general bad. I don’t think the industry is well served by having Google in the position of “we’ll do what’s best for you.”

And, you know, Yahoo!’s position in the market… They’re such a small portion of the search. Focusing on Google at 65 or 70 percent of the market ‑ they are they are the dominant player.

I think the complexity comes in not so much because of the release of features and I think Google is certainly to be lauded for making some of these things simpler. I think Google should be lauded for the tremendous effort they’ve put into their public tools, the tremendous effort they’ve put into their desktop tools… AdWords Editor ‑ tremendous, as well as the tremendous effort they’ve put into their APIs, which agencies and larger advertisers use to communicate with them directly.

Google’s done everything they can to really give people good access to their platform in a fair and reasonable manner and they should be commended for that. I think that the complexity they’re talking about is, the engines have succeeded in forcing or in encouraging so many marketers to jump into the space that the average CPCs have been rising aggressively and steadily. So it’s not that the complexity is in the tool side it’s that you need to be a much more savvy marketer. You need to know what you’re buying and why you’re buying it. You need to know your economics cold. You need to know what words you’re bidding on for position for branding because you care about them, which words are actually making you money and why.

For example, Google has integrated AdWords with the new Intuit QuickBooks platform, allowing even more retailers to push skews onto Google. So the game when I started in search, probably six or seven years ago, it was a printing press. We were just making money hand over foot. We could throw up ads, we could bid low. Revenue would come in at huge multiples of the ad spend. Every time we added new words every word worked. It was a gold mine.

In my role at Crutchfield, we moved a huge amount of cost in marketing expense out of paper in the mail and moved it to search and had some great runs. What’s happened over the last couple of years is the market’s become more expensive. There’s still a tremendous amount of sales to be had through search, but the sophistication you need… The direct market sophistication? That’s the complexity to which I was referring.

Jeff: OK, so, I think what you’re saying is the black box is actually what is making it more complex.

Alan: Well, I don’t think the box is that black. I mean, in some ways the box is totally black because of Google’s quality score and so forth. But retailers should be tracking all this stuff. They should be seeing at the most atomic level what they’re spending and what they’re getting back. So in that case, while Google’s inner workings might be completely opaque ‑and those windows are painted over black, you should have complete awareness into what everything is doing, click by click, word by word.

Jeff: But… I suppose you’re right. And that’s when you’re saying the audit comes in. Where you’re actually looking at not the data that necessarily Google reports in its system, which is an approximation, but the actual check that you’re cutting, right? You’ve got to use the right data.

Alan: No, actually the numbers that Google reports on their web screen will match the invoices you cut to Google. The issue is more with agencies or reporting tools. If you’re trying to estimate sales or costs through a quarter metrics or through, say, a paid search agency. If there’s an intermediary in there, be it a software or another organizational entity, that’s the kind of place. Google’s actually quite good at matching their public reporting tools to their real invoices much better than the other engines.

We’ve had an interesting one with Microsoft recently where Microsoft would randomly bill some of our clients basically for other clients and the only thing these clients had in common was that they were working through the same agency. And Microsoft was just scrambling invoices! And everyone’s like, “What’s going on?” Actually sending an invoice to Client A to the address of Client B… jumbling names and addresses.

And so, Microsoft is working thru some issues and I’m sure they’ll find their way soon. But no, I’d say the Google numbers are quite solid. It’s more the other entities in the space, like agencies and reporting tools.

Also, you were talking about cost data. Google knows exactly what you’re paying them. Sales data reported through the Google tracking tool or through your own tracking tool… that’s where you’re going to get the possible double accounting issue. And that’s where, again, you need to do an order audit, looking at the million dollars that came through search in that time period. Show me the order numbers that add up to a million and make sure that all those orders in your system are all tied to search. That’s a very important audit to repeat.

Just when you thought it was impossible to balance healthy doses of affiliate-generated sales while maximizing incremental revenue and avoiding cannibalization of search campaigns along comes an Angel… Angel Djambazov, 2006’s Affiliate Manager of the Year and marketing chief over at PopShops.com.

Listen as AffiliateFairPlay.com’s Kellie Stevens chats candidly with Angel about a best practice he pioneered. This interview will give you everything you need to know about launching, setting expectations for and then managing successful Web affiliate marketing programs that meet cost and brand objectives.

[96 minutes]

Download the program’s MP3 file HERE.

A full transcript of the program appears below.

[theme music]

Kellie: Hello and welcome to AffiliateFairPlay Affiliate Salon Podcast Series. This is the first of a series that we’ll be doing, where we bring in experts in the industry to just sit back and talk about different aspects and issues and ways that folks can improve their programs and improve their revenues as both merchants and affiliates. It’s going to be pretty laid-back but totally spin-free zone and no BS, all that’s left at the door and we’re just going to talk about the facts of how to make more money and be more productive in the affiliate marketing industry.

Our first show is going to be talking about “Keeping It Clean - Achieving High ROAS Through Affiliate Channel Integrity.” Our guest today with us is Angel… and Angel I’m going to let you say your last name so I don’t completely slaughter it.

Angel Djombozov: That’s OK Kellie, my last name is Djombozov.

Kellie: And Angel is the affiliate manager for Onlineshoes program. He took over their program in October of 2005, and in a very short time has turned that program around into a pretty good success story for an affiliate program, where we’re going to get into more details to that in a minute. He had even taken the program over towards the end of 2005, we’re going into Q4 for 2005. He was voted as the Most Improved Affiliate Program by the ABestWeb Community in 2005, and just last month he was voted Best Affiliate Manager at the Affiliate Summit in Vegas.

So, we’re very glad to have Angel with us and he has a lot of experience in achieving a very productive affiliate program with high integrity and productive or what we call value add affiliate within that program.

So, thank you for being with us today, Angel.

Angel: Well, thanks for having me on boat, Kellie.

Kellie: Just so people will have a little idea, can you tell us a little bit of what the Onlineshoes Program was like when you first took it over.

Angel: When I first came on board with Onlineshoes, the program was run through B3 and it had been around for several years and had been mostly on autopilot during that time period. Without a dedicated affiliate manager, with only rudimentary banners in the program, without a steady point of contact as far as newsletters out to affiliates. The program itself was open to anybody who wanted to join, which basically meant that year over year the program had been relatively flat for Onlineshoes in terms of both activity and in what the program itself was doing as compared to the rest of the marketing department.

Kellie: And basically, the program which is on auto-approve, would be free and…

Angel: Right. Complete auto-approves that meant…

Kellie: And that was pretty much just whoever signed…

Angel: Everybody and their mother was in that program. [laughs]

Kellie: So, it’s so active. Recruitment going on, looking for specific type of affiliates for the program, definitely no type of development or creative, or tools, or things like that.

Angel: No, and also none of the even rudimentary basics as far as… just no one was even looking at the affiliates coming and seeing if just even the content was appropriate. Forget anything more…

Kellie: Or…

Angel: …Advanced than that.

Kellie: A suitable match for the online shoes program for yourself.

Angel: Right, for our audience.

Kellie: Exactly.

Angel: And so…

Kellie: Basically you came in and it was pretty much relaunching a program from scratch. Actually in a sense sometimes that’s more difficult for a manager to walk in, then to starting a program that’s completely nonexistent and starting one literally from scratch. At least, I think that sometimes it’s more difficult for a manager, when they’re coming in and dealing with what’s already in place even though it hasn’t really been managed for a good while.

Angel: Well, I think the one aspect of that, that was slightly more difficult than just launching a program, was the fact that you did have a baseline worth of revenue coming in. So, suddenly there were requests going out to our graphics department and to our IT department. And not just a few new requests, but a lot of requests because of a lot of building that still needed to happen to the program. So there are definitely those conversations of, “Well, are these things necessary?” “Do we really need landing pages to track all our different brands, and do we need banners for all those really?” And those simple kinds of questions because again the program is what was raking in cash…

Kellie: Because we’ve been having revenue coming in. Right, we’ve been having some revenue come in for a good while now and we haven’t been having to do any of this work.

Angel: Right and definitely…

Kellie: We’re knocking for, to get that revenue.

Angel: Right, and definitely the work - we weren’t expecting the work to quadruple rather as far as the amount of resources that the channel was requesting from other departments and online shoes.

Kellie: So, at this point now in February of 2007, what kind of growth have you seen with the program since you took it over?

Angel: Well, I guess it’s important to note that we did move in May of last year, of 2006, to LinkShare. We did do a lot of due diligence as far as, even while we were with BeFree, as far as building out communication channels with affiliates. Bringing them into the process of; how we would approach any enterprise level marketing partner, as far as talking about where the creative needs to be, what kinds of campaigns are appropriate for their audiences.

Having those kinds of conversations that you would with enterprise level partners. And then we spent a lot of time cleaning the channel, making sure and actually with some help from you yourself, as you remember, just cleaning the channel and making sure the partners that we were working with were good partners. So, now in December of 2006, we achieved 110% growth year over year compared to December of 2005, which was great growth in the channel.

Corporate was very, very happy with that. And, I think some of the accolades that we’ve received from folks from ABestWeb and from affiliates that have also kind of testified to the kind of growth the channel has seen both in terms of success and in terms of interaction with the community.

Kellie: Yeah, and that growth as you said, is coming from basically relaunching a program and getting all the ducks in a row and changing networks all during that same time period.

Angel: Right.

Kellie: So, that makes the 110% a little bit more meaningful than someone who’s walked into a program that already active and running and had good communication with the affiliates than…You know, tools and creatives were in place and you were just building upon something that was already there and rocking and rolling along fairly well. I think it’s much more significant with that percentage growth.

Angel: Well, I think I was also lucky in a lot of ways, because often times affiliate managers don’t deal with merchants who are at least committed to the affiliate channel in such a way of giving the affiliate manager enough freedom to grow the channel and the resources, at least access to the resources needed to help with some of that growth. So, Onlineshoes is at least committed to that process.

Then I was also pretty lucky in the fact, that I think that the community responded with suggestions. When we queried, “Hey, what do we need to do to grow this channel?” we were smart enough to listen.

Kellie: Yeah, I think that’s the key. The community will always give you an opinion, if they’re asked to voucher about anything…

[laughter]

Kellie: But it is a matter of listening and, again, having management and the merchants themselves who are willing to commit to the channel itself.

Angel: Right. And I think also key there, too, along with listening, is kind of engaging them in the conversations. I think oftentimes, especially ABestWeb itself gets a reputation for having a lot of noise and a lot of chatter and some relatively negative threads. But, on the other hand, if you as a merchant, talk to the people and actually engage them in a conversation, instead of like, “Oh, they’re yelling at me!” and then just running away. “Oh, I can’t talk to these people. It’s too aggressive.”

Kellie: There’s usually a grain of truth in the noise…

Angel: Oh, absolutely.

Kellie: It’s a matter of being able to filter that out, and sometimes being perceptive enough as a manager or merchant to say, “What’s really behind this noise that these affiliates are generating?” Because there’s usually a legitimate point behind that noise that you’re hearing…

Angel: No, totally. Not only a legitimate point, but I think that once you engage them in conversation, they really do give a lot of good points to improve your program, because, ultimately, if they are interesting in working with you, it’s in their best interest to help you improve your program.

Kellie: I mean, affiliates are out there to make money themselves.

Angel: Right, right. If you’ll listen, they’ll give you that advice, and especially if you engage them in conversations. So you’ll find, if you go to our Onlineshoes forum on ABestWeb and look, you’ll find some interesting threads on turning a negative thread around to a positive thread, just by simply engaging in conversation and not running away from the dialog that’s there. Because, really, you need that dialog in order to help grow a channel.

Kellie: When you were walking into a program that definitely needs to be improved upon… which I would imagine that’s one reason that Onlineshoes hired you to begin with… then of course there’s going to be negative comments. I mean, you walked into that program knowing there was a lot of work to be done.

Angel: Oh yeah. [laughs]

Kellie: If you go to affiliates and say, “Hey, what do we need to improve?” you are going to get comments that could be perceived as being negative, because if everything was hunky-dory, then you wouldn’t have had a program that needed improving upon to begin with.

Angel: Sure. There were a lot of very simple things, like, “Hey, you big dork, if you update your creative [laughs] to actually make it meaningful to what’s going on in the channel,” to “Hey, guess what: we’ll post it.” [laughs] There were a lot of very simple things that, once you open it for comment, you may be thinking about doing those things, but then you realize how impactful neglecting the channel is on how the channel does.

I think oftentimes people think of the affiliate channel as equivalent to running a search campaign, where you can just log in, turn it on, push out your coupons, push out your offers, push out your creative, and everybody is just going to snatch it up, and, “Boom!”, it’s going to be up on their sites the next day, and that’s it. You just run it on autopilot like that and check on it once a week, and it should be fine. It’s really not.

It’s more similar to running a media program, where you’re talking to people and you’re planning, on a regular basis, successful segments. Because in order for them to be successful, you have to plan out when you’re going to set them loose and whether they’re appropriate for that channel or not.

Kellie: One of the things you mentioned was that when you took it over, you came in and you cleaned house. For some merchants who, maybe, are new to the industry, or managers who are new to this industry, what do you mean by “cleaning house”?

Angel: Well, there was a lot of affiliates in, again, the program we had: I believe 8,000, at the time. So literally, lots and lots of affiliates. Most of those were not active. Of the ones that were, you start to look at them, and right off the bat, there was the first call-outs, which were, just the look and feel of the site is not appropriate for our audience. There were some sites that normally, their tone, as far as being an adult tone for example, was just not appropriate for our retail audience, so those were removed.

And then we started just getting some feedback about the cleanliness of channel, in terms of some of the partners that were in the program. One of the big call-outs right away was, at the time, Shop at Home Select… I’m going to go ahead and name them… was in the channel and was one of our big affiliates. It was in our top 10. Suddenly, CJ kicks them out. This was before we had really fully started the process.

Kellie: When CJ kicked them out, they weren’t kicked out of the BeFree program also, were they?

Angel: No. No, they were not.

Kellie: I didn’t think they were, because usually that didn’t go hand in hand.

Angel: Right. They were not. Although, eventually, they were actually phased out of it, but it didn’t happen simultaneously. So we were just like, “Wait a second…”

Kellie: “What’s going on?”

Angel: “Maybe we should be concerned that one of our top 10 affiliates…”

Kellie: “You just kicked these guys out…”

Angel: Right. So we started kind of a dialog on ABestWeb with a forum, and people started pointing out, “You should really take a look at these tactics and practices.”

Kellie: I’m sure that got some responses. [laughs] I’m sorry. Go ahead.

Angel: “You should really look at some of these tactics and practices, because they’re against your affiliate agreements, against the network’s agreements, and probably are impacting the channel in different ways.” So we start to look, and realized that, “Hey, not only are these affiliates not clean, as far as their impacting the commissions of other affiliates, but they’re also impacting our return on ad spend because they’re affecting other channels in our marketing department.”

That was really problematic, especially from, again, that aspect of, “Hey, we’re trying to grow out this program. We’re already asking for new resources.” There’s affiliates that are negatively impacting our return on ad spend elsewhere, and suddenly that became a focus for us.

Kellie: So you started looking at identifying those types of affiliates who were bringing traffic and sales into your program along the lines that some of the tactics or practices that “Shop at Home Select” were using.

Angel: Right. In hindsight, after a year, I think one of the things I realized was that cleanliness of channel is very important, in terms of knowing where your true customers are coming from. A lot of these affiliates were what I would term as “double dipping, ” where basically, our click, on Google, for example, in Google AdWords, would generate, based on a downloadable they had, a window on our customers’ computer that would launch, basically, our site up again, even though we had the initial launch inside Google AdWords.

Basically, they were using our Google AdWords, for example, to facilitate their own commission in our affiliate channel. So they were getting paid on the front end and getting paid on the back end. When you start to look at it in that kind of manner, one, in terms, again, of not knowing where your true customers was coming from, because obviously, in that case, they came from Google and not from that affiliate. Number two, how that would count after as being effective both in your search campaigns and your affiliate channel; you start to become concerned. The more we dug into it, the more we realized that there were some tactics that we couldn’t deal with growth.

Kellie: For some folks out there, who may not have really heard of these tactics before, basically there are affiliates out there who have software applications, generally called Adware or you’ll hear affiliates call them parasiteware, and it’s software that’s installed under different conditions on end users’ computers. In a majority of cases, that software is triggered by the actual merchant’s website itself.

So, they’re not bringing new customers to the merchant; it’s being triggered by customers that are already on the merchant’s website and then, in different ways that software will then invoke that affiliate’s affiliate link and set the tracking so any subsequent sale gets tagged and tracked as an affiliate sale. So, basically it’s one end user, but that end user is being tracked two times, once from however they originally got to the merchants site, either directly typed in, through the merchant’s pay-to-click spins, another affiliate sent them to the merchant, and then again as the merchant Adware affiliate.

So that definitely can impact you poorly as like you said, double dipping, you’re paying twice in certain situations. But it also can definitely show statistics. If you look at some of those Adware affiliates, they show very good statistics to a merchant, because they’re targeting end users that were already on the merchant’s website, so often times there’s a higher chance of conversion with that end user; they’re there already at least.

Some of these applications will actually target end users when they’re at the merchant’s shopping cart, so there’s an even higher chance of conversion. So they can show some really good numbers and like you said that “Shop At Home Select” was in your top 10. Now “Shop At Home Select” also has a website, and I’m sure some traffic comes legitimately from the “Shop At Home” website.

For a merchant, could you really…is there a way for you statistically to look at that data and say I know that X percentage of their traffic from this affiliate is coming from the Adware who’re already our own customer on our website, and X percentage is coming from their website, legitimate traffic?

Angel: I think there is now, for us. Back then, there really wasn’t a way to legitimately define that especially because due to upgrades that we had in our backend in 2006 and 2007, we were kind of waiting for those upgrades in 2005, so we couldn’t segment that out that way. But what we then briefly reporting, I mean if anybody that was using it, was not great. So no, there was no way to segment it out. You are right that they know that there probably was some legitimate traffic in there.

But ultimately again what you are doing as a merchant is you’re paying… The affiliate channel is ultimately an acquisition channel; you’re paying for new customer acquisition. When somebody is already on your site and then it’s being “taken away from that experience to having a secondary experience”, and then also almost like déjà vu, showing up on your site again.

That to me, isn’t a new customer, that customer is already there. That’s different, if they are going out and… there are legitimate reasons why they may leave the site and might not come back, in those cases at “Shope Home Select” and some of the other players, definitely not legitimate reasons for them to suddenly have this deja vu experience of seeing the site twice.

Kellie: Right. In your experience… Again, like I said, some of these affiliates, they’re top performers in all the major networks. They’re top performers. I know when you initially contacted me and gave me the list of your top affiliates, to go through and help identify for you guys, there was quite a few that I flagged for you all that were top performers within “top 50 active affiliates.” I forget exactly how many you gave me to look at that, that I flagged for you. You had already removed some of them that you had identified yourself.

Angel: Right.

Kellie: So definitely, they were… That can be a tough sale to management.

Angel: Well, I think it is a tough sell to management, often times.

Kellie: You know, when you come in and you say, “Hey look, there’s twenty or whatever percent, and there’s six of our top ten, or four of our top ten that you’re showing revenue-wise in your affiliate channel…” Of saying, these are partners that…those aren’t real numbers that we’re seeing.

Affiliate marketing is pay for performance. It is bringing in an actual new customer to the merchant, and these guys really aren’t doing that. But when you’re looking at, “that’s your number five affiliate, or your number three, affiliate revenue-wise, ” that can be a hard decision to click the terminate button on, and say I’m going to drop this. Even though I’m being told that, I’m going to drop this number three performing…

And it’s not just one affiliate that I’m doing it with. How is that going to impact the revenue overall for our affiliate channel?

Angel: Totally. The last thing any management wants to hear is you coming into a new program and taking one over and saying, “Hey, I know I’m supposed to grow this program, but I’m going to whack four of our top ten, or five of our top ten affiliates right now. We’re going to end our relationships with them, and I’m still going to grow the channel anyways.” That’s a hard sell for sure.

I think that the main thing is getting the merchant to realize that, the affiliate channel does not run as some kind of isolated segment out there. Things that you do in the affiliate channel will impact your email channel, will impact your search channel… So, when you’re looking at those impacts, if you look at the whole marketing initiative as that return on ad spend, and seeing how the affiliate channel affects certain segment, it became an easier argument when you said, “Well hey, look…”

I’m going to throw out another example. eBates, in particular, was a huge partner for us, prior to the cleaning, and not… to me they’re in the grey level of parasites. I mean, there’s definitely far, far worse ad situations out there.

Kellie: I know affiliates won’t like to hear this, but there are definitely worse players out there than eBates.

Angel: Right, right. Way worse. But that being said, it was very easy to kind of look at how much traffic they were sending us… what their overall clicks were, what their overall sales were… and then start doing some analysis on, “OK, well, how many times does MoMoneymaker, which is their downloadable from TopMoxie, how many times does that affect our other channels? Whether it be our payed placement channels, or whether it be our search channel…

Kellie: Or our free traffic.

Angel: Yeah, our normal traffic, our free traffic from Froogle or from wherever.

Kellie: The organic traffic.

Angel: Right. You know, from the shopping preston portals from BizRate and so on. When you start to look and kind of make comparisons of, “OK, well if this is popping up so many times…” We can get a baseline percentage here, and how is it affecting our rest of return on ad spend? The return on ad spend in the affiliate channels start to look bad because, well, it’s affecting these other channels. I think that was really the argument. “Hey, look. You should be one, worried about your, how it’s affecting those other channels.

Number two, there’s negative associations especially if you’re a merchant that has vendor relationships that you care about. Often in our vertical, our vendors - you know, by vendors I mean the brands - Merrill, Puma, Timberland - they really care about the customer’s experience. If they feel that you as a merchant appreciate their products via Adware, and that Adware has a negative association, negative impact on the consumer, they’re going to terminate their contract with you.

So, it’s not only just a matter of how it’s impacting other channels. Certainly, you’re also worried about vendor relationships because last thing you want to do as a shoe merchant is lose a big brand like Merrill because they’re mad, because…

Kellie: Otherwise, it’s a misrepresentation of their brand.

Angel: Right, it’s misrepresentation of their brand with your Adware, you’re inadvertently or purposely using. I think that the other lesser argument affected at this point, once these arguments are weighed out was that, “Hey, not only is it affecting our return on ad spend these other channels. But if the customer came from BizRate or from Google, or Miva, or wherever, and eBates is discredited bringing it to customer, then somehow we’d lost the track of where that customer’s coming from. Especially, you know, at that point when we didn’t have the more advanced tracking that we do now, that was of huge concern because certainly we don’t know which is the right acquisition channel.

So, I think when you combine those three things and you lay out that kind of argument, it becomes easier to say, “Hey, you know, I know these are tough, so many performers. But we should either remove them from the affiliate channel or understand that they are impacting our return on ad spend elsewhere and take that into account when we look at overall marketing spend.” Maybe some merchants do that. Maybe some merchants incorporate that to overall marketing spend. But I don’t think so. I think a lot of merchants, again, it’s kind of look at those affiliate channels as its own little entity that is separate from what is happening to the rest of marketing.

Kellie: Yeah, I think that at least from what feedback I’ve gotten from other managers is, a lot of times, that statistically looking at the program and gaging the performance or how successful the affiliate channel has been, is so much focus is just placed on the sales revenue or the volume of the program and not looking deeper into the statistics of what’s really going on.

Angel: Well, sure. I think it’s partially because…

Kellie: …Looking at possible customer acquisition cost there are the ROS, the ROI of the channel itself which to me is a more valid statistics for gauging what’s really going on in the affiliate channel.

Angel: Well, sure, but I think that some merchants are just only worried about share of market. If they are only worried about share of market, they’re going to be less worried about the strength of their dollar where how much cost to acquire a customer. But, our shoes, a lot of other healthy merchants are worried about where the return of ad spend is coming from.

I think it is important to understand that the affiliate channel is going to impact other campaigns. One, it’s good to understand that because then, if you really understand that, you can use that knowledge to help them improve those other campaigns. Because then, you really know where your customers are coming from, what’s affiliate brought them, what type of affiliate it was. See, know a little bit of information about your customer and then you can speak to them better.

But in this kind of case where the channel’s muddy and not clean because of the different players that you’re allowing in there using tactics that are not the best for channel. Once that’s happening is that your ad return on ad spend lessens. So, instead of getting, you know, $10 back for every dollar you spend, now you’re only getting $3 or $4 back, and that’s a huge hit if you look at it in those terms rather than, “Well, this is my overall revenue, and this is my overall market share in the affiliate channel, and that’s all I should care about.”

Kellie: And that really was a turning point, I think, for you, with Onlineshoes management really understanding what you were wanting and trying to achieve with the changes that you were making in the channel, wasn’t it?

Angel: Well, sure. It was a turning point…

Kellie: When they saw the hard proof of the impact that it was having on your other channels and what it was actually costing them to have certain players within the affiliate channel.

Angel: Yeah. I mean, it was an absolute turning point, especially not only in the cost factor, but again, in our situation, because of the relationships with the different vendors or brands. Again, we wanted to keep those relationships, and you don’t want to lose one of those relationships. Losing one of those relationships is more impactful than almost anything else. When you combine those two, it was a definite turning point.

But I think that it would’ve been a less valid turning point that, if the next December, we didn’t have that growth. But I think it was really validated in December of 2006, when suddenly we have the growth, even with keeping the channel clean. I think that that gave more validity to all the changes and work we did.

Kellie: Yeah. You said that you had the growth, even keeping the channel clean. Again, a lot of these affiliates can generate some really good numbers, as far as, again, sales revenue and volume within the channel and again, can show some very nice superficial statistics that you can show somebody in management, that a manager can show somebody in management.

I know that there are managers out there, or there are OPM’s out there, who actually actively seek these types of affiliates to generate those types of statistics for them, right? To show what I consider an inflated growth or value of the channel, by bringing these guys in.

I know a couple of OPMs that actively market… They have special relationships with these guys. These are their top affiliates, their super affiliates, that they can immediately bring in for a merchant. They showed them the dollar revenue that they can bring in, and it’s pretty heady stuff for a merchant to see some of those figures.

But why shouldn’t a manager, when they can show those types of numbers that make a merchant very happy… or I would say a not fully educated merchant, maybe… very happy with those numbers, why should a manager bother to take all this extra effort to have a program that’s clean?

Angel: Go ahead. Sorry.

Kellie: To have affiliate partners that don’t engage in these types of activities that can bring high volume and high numbers actually very quickly into a program, perhaps.

Angel: Well, I always keep in my head that, to some extent, Kellie, we’re in marketing and marketing can be a lot about blind faith and imaginary numbers. [laughs] And depending on how you’re spinning numbers, you can put together stuff, or somebody in a corporation puts together some numbers, and then other people buy off on it, and suddenly, you’ve got this imaginary streak based on numbers that were not accurate in the first place. Then the numbers kind of kept around because people were worried about it. That’s how you get Enron.

Kellie: Oh…

Angel: Not to compare this to Enron, but that’s how you get those kind of things.

Kellie: It’s the one thing that I took away from back in my other life, when I had to suffer through two college courses of statistics when I was in medical school, was that you can make numbers look or mean almost anything that you want to. That’s why they have the field of statistics out there is to be able to draw accurate and valid conclusions from the numbers that you’re seeing and from the data that you’re seeing. Because you really can make numbers look any way that you want them to and mean anything that you want them to.

Angel: Well, I think that your motivation as an affiliate manager, I think comes from the fact that if you’re wanting year over year growth that’s meaningful, that if you just play with… let’s say you just play with those affiliates that are using those kind of practices and throwing up big numbers… well, two things happen; One, the channels are getting very expensive because over time… because other affiliates will not work with you.

Over time your diversity in channel starts to shrink, and you start paying out more and more to the segment, and this affiliate that’s really not bringing you 100% new customers and are bringing you only 30% new customers and 70% customers that you already have, but you’re crediting them for a double.

And so, suddenly the channel long-term… short-term may look great, long-term is going to start getting expensive for you, especially if you’re trying to bring about a certain amount of growth because what’s going to end up happening is that, because you’re diluting your knowledge of where your true customers are coming from, you’re not going to be able to then go and say, “Well, I need to go and find myself more affiliates that are similar to these ones or bring in successful real numbers.”

Because what’s happening is like in Ebates situation, you’re going to go to other people like Ebates that have downloadables like TopRebates, for example. Well, suddenly TopRebates and Ebates are competing for that same duplicate customer. So, if TopRebates and and Ebates are competing for that same duplicate customer for that 70% of duplicates, that were only there on your site and only sending you 30% of new traffic, there’s really a new customer.

Again, you start to limit your amount of real growth, whereas in, if you’re dealing with. For example, we have a very successful relationship with an affiliate by the name SheFinds, and they were an affiliate that previously are doing the B3 at times and they hadn’t registered with us, there was no activity with you know, a couple of things have been tried but there’s not much response. I systematically start to work with them, partially because I noticed that their conversion was right where I wanted to be in terms of… and they’re sending not very much traffic but the conversion was very good.

So, I started to work with them and started to get a bit of branding and voice with their customers and suddenly from nowhere, they started to impact the channel in a very, very positive way. Well, I’ll guarantee you that if I had been working with those other players, their impact would have been muddied and instead looking for a new SheFinds who’s bringing me real new customers, I’d be looking for a new Ebates who’s bringing me, again, 70% duplicate customers that I would have already had through another channel.

I think that the key is, if you want that growth, you need to spend time on making sure that the channel is clean so that way, when you start to look for new media relationships, you know where you want to acquire those customers. I think that’s a key to a long-term program.

Kellie: And again, I think you’re right there, that the mind set of long-term versus short-term. Sometimes with long-term corporations, they tend to think especially public corporations, they tend to think short-term because I think quarterly reports to their stockholders and along those lines. But as they’re establishing they’re long-term relationships with affiliates, that are going to be all bringing you true value to your program, and having those and because those affiliates, statistics aren’t muddied down by these other guys that you know where there’s true value of those affiliates or to you.

Angel: Right and not only the true value but to have a better understanding of how to speak to those customers and I think that the other factor is.

Kellie: When I say true value, is that, you have a better statistical analysis of those affiliates, like you said, you went to Shoefinds, and started working with them directly, but when you have muddy statistics, it’s hard for you to be able to accurately say if an affiliate isn’t performing as well as they could for you, why aren’t they?

Angel: Right.

Kellie: When somebody, other players, are diverting that affiliates traffic into their own, then you can’t make those judgments, because it’s difficult enough as it is sometimes to figure out why somebody isn’t converting, or they’re not performing as well, and they expect to win the pictures clear, that’s just the nature of online, ’cause we can’t fit behind every end user to see exactly what they’re doing, right?

But we have limited amount of data that we can try to draw conclusions from, and when you don’t have accurate data to make those conclusions, it’s even harder. To be able to establish those long term relationships with affiliates that are going to be working with you, potentially, for years down the road.

Angel: Right, and I think sometimes people, in that rush as affiliate manager to show that growth, I think sometimes you kind of forget what attracts then to marketing, which is that diversity in the channel is really, you want in a marketing program, because the less diverse it is, the more expensive those segments become.

Not only more expensive those segments become, but the larger segment of customers that you’re missing out on because you don’t know where they are or who they are and how to contact them. I think that once one of the really great things about the affiliate channel is that if you reach out to your affiliates, that often, they themselves are one, in the business to make money, so they’re very entrepreneurial about how they contact those customers and segments.

It can react in ways that you, as a big corporation, as a merchant, as somebody who is worried about your distribution channels, cannot react to finding those customers, and so you really need to keep that channel clean in order to facilitate the conversations, again, with affiliates like SheFinds, for example.

Kellie: Well, I know, just from a few conversations that I had last month in Vegas with some merchants, these were managers I should say, these were experienced managers that have taken over programs recently in the last couple of months, who moved into new positions, and they are working with programs that have a reputation in the affiliate community with affiliates of wanting quote “dirty programs, ” in other words, they have a lot, a high percentage of these Adware type affiliates, or cookie stuffers, or affiliates that use questionable tactics to generate profit and sales to the merchant in their program.

These programs have a long history of that over years time, and these managers have stepped into the positions now and more merchants are now beginning to truly understand what is really going on with some of these tactics, and they’re kind of over a barrel now, because, when you came and the way you approached cleaning your program, and maybe Onlineshoes wasn’t as known out there, or their brand wasn’t as known or as visible as some other programs and other merchants in general, and you said, “Hey, what can we do?”

You would show a concerted effort and you were able to, as you cleaned up and proved yourself to affiliates, you were able to bring in some true value ad affiliates into your program, which you definitely need. Now these merchants are, because of the way the program was run in the past, they’re kind of over a barrel now because a large percentage of their affiliates, or these “questionable players”, and true value affiliates either promote them in a link, or don’t want to work with them at all.

So now, they came to me and said, “What can we do? We terminated all these guys, we pretty much just lost all of our revenue for our program, but nobody wants to work with us. The affiliates that we really want now, nobody will even want to touch our program or really want to put much effort into promoting us. So, what can we do?” They’ve kind of boxed themselves into a corner now. Their program has become very reliant on these other affiliates.

Angel: Right, and I think that’s unfortunate, because I think that has to do with lack of, I guess will, whether on the part of the networks or the merchants to a lot for other means of tracking or other technology to work with those affiliates. I think a big part is the “clean affiliates” are not going to want to work with you because you are not interested in preserving your agreement with them. If they feel that you are not interested in preserving your agreement with them and they feel that you are not interested in crediting them for the correct sales….

I saw a recent thread where a merchant said to an affiliate “Hey, I saw this other affiliate stealing from you and they got credit for that theft. I went ahead and terminated working with them and maybe now next time you’ll get better credit for the customer you sent me.” My first thought was, “Well, if you as the merchant knew that this was the affiliate that sent you the right customer, why even go through that process and tell them ‘Well, maybe next time you’ll have better conversion with me and I’ll give you more commission?’ You knew who the right affiliate was that sent you the customer. That should be the person that is credited with the sale.”

I think it’s kind of that lack of, not lazie-faire, spacing on the term, it’s that lack of “Oh well we don’t have to honor this agreement until next time” attitude that I think really hampers things. Because ultimately this is a relationship, you’re not going to…

Kellie: Well, there is a business relationship.

Angel: Right.

Kellie: Affiliates, they’re getting paid by performance only. If the customer that they sent to you makes a purchase, that’s the only time they are going to get paid. It’s not like publishers who just have to have the banner load and they get compensated for it, right? So it is more critical to them that the agreement, the actual legal contract that they have established with the merchant is honored.

Affiliates take that very seriously, especially as affiliate marketing becomes more competitive in general. There’s more programs out there, there’s more affiliates out there. It’s even more critical to a lot of affiliates that they actually get paid for what the merchant told them they were going to be paid for. I don’t think that’s an unrealistic expectation that your legal agreement with your merchant is honored, from the affiliates perspective.

Angel: Right, and I think that, again, there’s lots of reasons for you as a merchant to want to do that. I think that, again, that one of the problems is that…

Kellie: Outside of, it is a true legally binding agreement, but…

Angel: Right, just outside of that.

Kellie: Outside that tiny little fact. [laughs]

Angel: Right, [laughs] well as long as you know… I think again, merchants also look and then say well CJ or Linkshare, or Performics or whichever the network is, has allowed these super-affiliates in and I know all the small folks complain about them stealing, but obviously they can’t be stealing because these networks have let them in. I think that from my experience with Linkshare…

Linkshare has done really well by us and has helped us through a lot of things, but it’s my due diligence as Affiliate Manager to look and to make sure that my affiliates are playing by the rules of my terms and conditions with that affiliate. As Affiliate Manager I shouldn’t expect the network to do all my work for me. I think that often times, merchants do that, then affiliates blame the networks. Really, LinkShare overall has treated us very, very well.

Kellie: Ultimately, ultimately, it is the merchant’s responsibility.

Angel: Right.

Kellie: As a merchant or as a business person, in general I’m not going to let somebody else’s internal policies dictate to me how my business is run, or how I want to conduct my businesses, or who I want to have partnerships with or do business with. So although a network may allow certain affiliates into their network, still it’s ultimately the merchant’s responsibility to say is this particular affiliate’s business model what we want for our own business and our own business model.

Is it a match or is it not? I think it’s, I hate to say it, but, to me in a sense it’s a merchant or a manager who’s being somewhat lazy when they fall back on, “Yeah, well, you know the network said.” Because they’re still within the network, the network has said that they’re OK.

Angel: Right, right. I mean at least be…

Kellie: Merchants don’t accept affiliates for a lot of different reasons, outside that they use Adware, because they don’t meet certain criteria for that particular merchant.

Angel: Right.

Kellie: So, to fall back on that I think it’s somewhat of a cop out on the merchant. You know?

Angel: Right and at least and really if you’re going to as a merchant, if you sat down with your marketing department and said, “OK, despite XY and Z, I’m still going to work with these affiliates that are doing some of the more shady practices.” At least be honest with yourself and say, “I’m going to do this and I know they’re going to double dip. I know my actual return on ad spend is actually going to go down, but I’m OK with it because I’m just out for market share.”

Then beyond that, be honest with your other affiliates and say, “Hey, yeah, we are working with these people.” You have two fold choices there. You can say, “We are working with these people and if you don’t want to work with us, ‘Too bad’.” Or you could do the other step of due diligence, which I think a lot of merchants are even more lazy on, “Hey, you know there are other methodologies that I can choose to work with these affiliates on.

I know that they’re going to ultimately impact negatively my return on ad spend, but I’m going to work with them and still not cheat my clean affiliates of their commission, by choosing other methods of tracking.” And they don’t.

I know it causes technical problems and I know there’s legitimate business costs there, but I think it’s just lazy to say “You know, well we’re going to work with these affiliates that are double dipping and are stealing your commissions and it’s either work with us or not, ‘Too bad’.”

Kellie: Yah, there’s technical costs involved, but there are technical costs in doing that type of alternate tracking. It has definitely gone down over the years. I know merchants who do it on the QT anyway. They have their own internal tracking set up, affiliate tracking set up, very quietly on the side that they use for their special, very special super affiliates. They run them on that instead of through the network.

Angel: Well, sure, I mean right…

Kellie: That happens all the time. I mean, that happens and I don’t care what networks may have exclusivity clauses and the networks know what happens.

Angel: Well, I mean after…

Kellie: That to me that’s somewhat of a cop out too, because it’s easy enough. I mean how much is a direct track license now?

Angel: Right.

Kellie: I think it’s like $5000.

Angel: And after we moved “Shop at Home Select” out of the program, we got contacted several times by them saying, “Hey, I know you moved us out of the program. You know and I know you’re with either BeFree or LinkShare. Why don’t you come and work with us directly? And that way we want to pass through your affiliate channel and we can show you this value ad then.” If we had chosen to do so, we could’ve done it offline through the network, you know I mean outside the network. Except for the fact that, again, 70% or 60%… I’m just making up that number…

Kellie: Whatever.

Angel: A large percentage of their traffic is going to be duplicate traffic. Is going to actually impact negatively the return on the ads on my other channels. I’m just going to accept that. Because I want the market share and the market share is more important to me.

Kellie: That’s what “Shop at Home Select” is. Shop at Home Select has bought themselves a license for direct track. They have their own network… tracking network. They can pull in merchants from outside of the networks and they actually track them themselves. Right?

Angel: Right.

Kellie: If an affiliate can do that then a merchant can definitely do that. That’s what they had when they were terminated from CJ. They lost such a huge portion of their merchant base that they provide to their end users, in one swift move, that they really started focusing on that.

When I look at their offerings now, their relationships with “Shop at Home Select”. They still have link share and performance merchants on there. Now CJ has let them back in. But even since CJ has let them back in, the bulk of their relationships now, or through CPA Networks, may only have four or five per CPA merchants that they are promoting per CPA Network.

A lot of internal tracking, independent programs in their own tracking. A lot of that has to do with merchants going outside their normal networks. Even on the CPA Networks, the merchants whose primary program is on one of the other three major networks out there.

Angel: Right. I haven’t followed that money trail… super Adware affiliate to CPA Network. My guess is if you are a merchant and you are in a long term relationship there with that negative affiliate. What’s going to end up happening again is that child is going to become really, really expensive because there has to be an incentive if you are…

Kellie: I understand why they are certain of these Adware players. Use “Shop at Home Select” for example. I understand why there are certain merchants that want that relationship even though they know what it is costing them through the affiliate channels.

Angel: Sure.

Kellie: That is because “Shop at Home Select” is a cataloger. That’s how they started and they are huge in that. So your catalog type merchant, when they get their foot in the door with “Shop at Home Select” through the affiliate program, they are also being promoted on the catalog side of things. That is where they are seeing their true value. As their marketing and advertising value with “Shop at Home Select” isn’t necessarily through the affiliate channel but it’s on the catalog end of Shop at Home’s business.

Angel: One of the things that makes me frustrated, because the way you just pointed out, there is actual value there. It would just take a certain amount of due diligence from the merchant and a certain amount of due diligence from the affiliate, “Shop at Home Select, ” in this case. A certain amount of due diligence from the network, or you can take it off site, just to make the child clean.

Stop the double dipping. Stop taking away from other affiliates. It is a matter of people not doing that because… again, they are seeing this, as the way to quick growth without having to implement that extra due diligence. Which again…

Kellie: I don’t know…it is actually is now, with the way technology has advanced, to do that due diligence. So, they are sacrificing the value of their “clean affiliates”, that they could also be deriving, if they took that of and made sure in real life, “Hey, we are just going to pay on both of it.” They’re paying them on the double dip anyway.

Angel: Right.

Kellie: So if the overall value for “Shop at Home Select” when they factor in the catalog end of the business, still makes it worth… still gives them an “oral eye”, that they are happy with, overall. Why sacrifice your true value ad affiliates?

Angel: Well it’s funny I…

Kellie: For that overall “oral eye” that you are looking at for “Shop at Home Select” you promised something like that.

Angel: In San Francisco, right before our affiliate summit, I was at LinkShare Symposium and I got approached by an affiliate. They were a super affiliate and they were the ones that are in the Gray Area and they said, “You know, look we’re no longer on your program. We’d like to be back in your program, what can we can we do to get back in your program?” And my sentiment was, “Well, make it to that what you’re downloadable doesn’t overwrite the affiliate cookies of the affiliate that you sent me the clean traffic.”

They stopped and looked at me, and they said they know all about talking to their engineer. I have not had a phone call from them.

Kellie: Right.

Angel: And it’s a simple matter of, again, when people first created the technology, let’s grab as much cash as possible and rake it in, and not worry about what contract we’re breaking, what agreement we’re breaking, who we’re stepping on, because the easiest route for me to be instead of, again, doing the diligence of building it out in an ethical profitable manner. It still doesn’t make any sense to me.

Kellie: Well, you know again, I learned from way back when some of these guys first came on to the scene. Comments that were being made behind the scenes by the owners of these companies and it was basically is like, “We’re just going to make as much money as we can, as quickly as we can and when all falls apart, we’re just going to take out all the money we made and move on to something else.” Things really didn’t pan out that way.

When you go to some of these guys and you say, “Look, I’ll let you in our program but just opt us out in your Adware. We just want traffic coming in for your website, and see what kind of response most merchants were going to get from those affiliates.” They’re going to be told, “No, we can’t do it.” They can do it but they won’t do it. To me that indicates how reliant they have become on that Adware segment of their revenues within their own business model, and things are much more competitive now overall for affiliates and between Adware affiliates.

Angel: Sure, which is sad because if they’re both competing for that imaginary 70% of duplicate…

Kellie: Oh, I’ve watched applications go to war on end-user’s computer. I’ve installed more than one and watched the battle that they do with each other, on the end-users for control of the browser. But, some of these companies wound up getting VC money and things like that and they couldn’t just walk away from it then. So, now they’re forced to try to maintain and compete within the market place, and I think that they’re going to have to find a balance.

Angel: Which also means to me that the amount of legitimate new customers that they’re bringing in, if they’re that dependent on their applications that the amount of new customers… legitimate new customers they’re bringing in to their side because of whatever value ad, that they’re offering to their customers is shrinking because of the amount of competition.

Kellie: Well, I think they’re going to…

Angel: And so…

Kellie: They’re going to have to be true value ads like everybody else. The days of just getting an application on a computer, no matter by hook or crook or however you can do it, that’s dwindling. There’s lawsuits happening over, there’s government intervention coming into those tactics and I think these companies are going to have to really look at how their applications are behaving and look at their overall business model of what value they’re actually bringing to their own end-users.

But they clearly do have a base of consumers themselves and it’s not just that they got their application installed by bundling or through different technology exploits to get their software on the computer. They have a legitimate base. Merchants are becoming more educated.

Before, there really was almost complete lack of education on merchant support, of what was really going on and how the traffic themselves were being generated. More and more merchants are becoming educated to becoming concerned about it, and as you said, the channel has become more expensive for them and now they’re looking at as to why. These companies are having to justify themselves to merchants or they are being terminated.

Angel: Sure.

Kellie: So I think they are going to have to look at their own business models and continue to make adjustments along more long term… solid foundations of what their own business models are themselves.

Angel: Sure, and I think that is not also not just being… Truly, I think a merchant is looking at it and the affiliate keeps coming back to, and these affiliates are coming back to “Well, we are going to need more money to keep you on our tool bar, or you need to be this more competitive, or you need to put out these coupons and offers because they are not in”, and merchants, even after that initial short term boost the merchant going to start to look at it and go, “Well forget about the return that’s been. What’s my gross profit after working with all these?”

That is going to start to minimize and they are going to start to say, “Well I just can’t keep increasing throwing money after money to participate in something where I’m not 100 percent sure that it’s providing me new customers.” I can just see that being… just increasing as the competition increases.

Kellie: Well one of the things that I have affiliates often ask me is they will say that “Contact your merchant and let them know what we have provided improved documentation. We showed them how their own traffic is being cannibalized by these guys, ” and the merchants continue to partner with them. The affiliates just don’t get that, and they say, they ask me “Why would a merchant continue to partner with these guys, when they see and they have been shown what is happening.” Do you have any thoughts on why some merchants or managers take that approach?

Angel: Well, I think that sometimes that approach is taken because… sometimes a company is not always driven by return that spend, again, sometimes they are driven by simply a market share factor. So you find yourself as an affiliate manager making buys through their affiliate channel, and starting relationships with affiliates that you normally would never ever do. Only because you are not necessarily interested about that qualified traffic, you are interested in getting as much placement out there on the net as possible and…..

Kellie: I have to say, and maybe you can share in your own experience talking with other merchants and managers, but I know that from companies that take that approach, especially when the manager is, well probably for OPN.’s too, but for in house manager, they have a lot of pressure on them by there supervisors and their bosses to generate certain numbers along those lines, and they can be some hard numbers to hit.

Angel: Well, I always call it the Google addiction. Where your corporate CO comes up to you and says, “Why spend this amount of money in the affiliate channel, when I know I can get an absolute return on my investment in Google?” I think, there is that kind of pressure, because in other channels like Google, like shopping comparison portals, like the email channel, you have a far more direct control of the creative, of the customer relationship, and that customer relationship is based solely upon your brand. In the affiliate channel you are kind of handing off the, it’s like passing the baton, where the affiliate really is in control of the customer relationship portion.

If they’re doing their business right, they’re sending you a qualified customer that’s going to convert for you, but that process is not as clean and instantaneous as email or Google or BizRate, and so, suddenly, you have a lot more pressure on you as an affiliate manager to perform the way those other channels are performing. In one of my interviews with that at an affiliate summit, WebMasterE asked me about what growth, on, and she’s expecting in 2007, and really they expect 300%, where 300% in any channel is difficult and the affiliate channels is really difficult because, again, you don’t have direct control about where that affiliate is going to put your links.

You often don’t know, you hope the affiliate is again, under due diligence and sending you qualified traffic, traffic that makes sense for you, you hope that the offers you put out in the channel really do convert and they don’t negatively affect your gross profit, and there’s a lot of stuff that you want that removed from, so that pressure to have those instantaneously results is there, and “Oh, eBates can be my savior because I’m going to throw them on there, and they’re going to generate 70,000 in one month for me, 170,000 even,” and…

Kellie: Even when, an affiliate channel is being put up there compared with, you have again, email channel and search channel, but I can tell you, from my own work and what I do, those channels are also bringing in some of those really good numbers through Adware partners.

Angel: Sure.

Kellie: And I think that’s a misconception about a lot of affiliates that these are playing primarily in probably by merchants, too, in the affiliate channel and they’re not anymore, they haven’t been for a good while. When you start looking at contextual applications and some of the really rogue type pop-up Adware applications, they’re all over email, and pay-per-click like you wouldn’t believe, probably not, sometimes more so than actually operating within the affiliate marketing channel themselves.

So those channels are having really inflated numbers driven into their channels also, that the affiliate channels are being compared to, and some of those guys, really rogue applications, I mean, they pop off… I have tested applications that I’m not even doing anything at the computer, I just boot it up and I leave it, and I’ll come back 30 minutes later, and I’ll literally have 30 pop-up windows on the computer. A lot of times those will be, they will be links that are tagged, I can tell they are tagged is designing, and they’ll be click fraud, they’ll be pay-per-click click fraud…

Angel: Yeah, I think that click fraud, there’s definitely other issues in other channels, but I think that, as a merchant, I can make more meaningful adjustments to what’s going on in my campaigns immediately in other channels where you cannot in an affiliate channel. Because you’re handing off the creative, and so merchants, whether or not they’re concerned about click frauds, which they should be, or whether or not they’re concerned about those other…

Kellie: What my point was just being that some of that really large growth that you see sometimes in other channels oftentimes inflated too, though.

Angel: Absolutely.

Kellie: Then the affiliate channel is being said “Hey, you need to compete with the numbers that we’re seeing over here in these other channels, ” which have some, which can have some really inflated statistics going on, some numbers being shown.

Angel: Right.

Kellie: And there seems to be even less awareness of the degree to which that is happening… those numbers being inflated… than there is in the affiliate marketing channel, which was really just my only point on that one.

Overall, how much impact do you think that affiliates who are using Adware are having on ROAS for a merchant… and I know that’s going to vary from merchant to merchant, definitely.

Angel: Sure. I think that for us, specifically during the cleaning process in 2005, it seemed to… Whereas our multiplier was $11 back on every dollar we spent out, prior to us kind of doing that cleaning, we saw a several dollar drop. If I remember right, it was a $3 drop on what the multiplier really would have been, had we factored in that impact on return on ad spending.

That’s going to vary heavily, and I think that some of those numbers for us are based on estimates based on the fact that… some of the actual tracking we didn’t have on a one-to-one basis, but that is significant. Especially if you’re in a budget-tight situation. You’re trying to budget where… to which channel are you going to give money as a merchant?

Luckily we choose… we really have a strong internal dollar, and we can be very creative with our campaigns, and very aggressive with our campaigns, but I think that for small merchants especially, if you’re in a tight budget situation, you’re trying to decide where you’re going to put that dollar. If suddenly what you thought was a home run turns out to only be a second base hit, as far as what the channel is doing, you start to question whether or not you want to throw more money in there because of that impact. So, I think that’s a pretty significant impact, when you look at it… knocking things down by that many points on your multiplier.

Kellie: I think merchants who do their shares of their traffic that come through their different channels… That’s going to vary from merchant to merchant also, but you have a merchant that’s deriving a lot of their traffic, or a high percentage of their traffic, from their own pay-per-click campaigns… I think they’re going to be impacted a whole lot more, especially if they’re dropping a whole lot of money on first tier search engines, where the clicks are more expensive to begin with. I’ve consulted with merchants where that was their situation, and that was their concern.

Angel: Right. I think that if we had, at the time that I came onboard, if the search channel had been actually more active, and we had extensively used those players because of how large and robust our search segmentation is, that that impact would’ve been much bigger. I think it wasn’t a catastrophic hit, because, again at that time, the affiliate channel itself was very… again, auto-pilot. But… I mean, it could’ve been very impactful.

So to me, in a company that’s, on all issues, it’s very return-on-ad-spend driven… a $3 drop in your multipliers is huge. So even just in that channel, it’s impactful, and then again, if you look at the potential of how much more impactful it could’ve been, and again, beyond return on ad spending, the effect it could’ve had on our vendor relationships. It can be very impactful on your channel.

Kellie: I think that because that’s how you approach looking it is the impact on your return on ad spend overall. I have a lot of merchants that come to me and they say, “We terminated X parasite from our program, because we were getting all this feedback and flack from our other affiliates, so we terminated them. We looked in the affiliate channel for those numbers to be made up… and it didn’t happen. So we let them back in.”

Angel: Right.

Kellie: And I said, “You didn’t look the right way. Right?” But what they hear so much on the forums and from other affiliates… because it’s from the affiliate perspective, and it’s what they’re concerned about of course… is their own links being overwritten and being re-directed to the Adware affiliate. The merchants never looked outside of their affiliate channel. I’m like, “I’m looking at the guys that you were partnered with.

Those players are somewhat compliant, so there’s a portion of other affiliate traffic that they won’t re-direct on, depending on how the other affiliates are coding their links and things like that. So “No, you didn’t look in the right place. You didn’t look in your other channels, you looked just within your affiliate channel. So if that affiliate was generating $X in sales for you, and you expected to see all $X sales re-surface within your affiliate channel… I could’ve told you beforehand that wasn’t going to happen!”

Angel: Right, and I think that’s also back to the mentality that the search channel should be kind of an automated thing, where if I take out the bad affiliates, boom, the next month my good affiliate volume should go up. It’s not that way.

Kellie: But some of the sense I think is still a lack of education out there for merchants, because they weren’t seeing that it wasn’t only other affiliates’ traffic that was being re-directed. The Adware affiliate they terminated wasn’t just re-directing or overwriting other affiliates… because that’s what they hear from affiliates, and that was all they were hearing from affiliates, is that my links were being overwritten right?

So they weren’t looking at their other traffic sources were being re-directed on to that Adware affiliate. It’s a very myopic view. I think sometimes it is truly just a lack of understanding on their part, or the managers taking the time to really understand the behaviors and what’s really going on with some of the Adware affiliates out there.

Angel: Yeah. Your affiliate channel is not your only little entity, and if you have an Adware affiliate in your affiliate channel, it’s going to impact other channels. If you’re not looking at that, like “OK, I removed them, ” and I’m looking back again at the affiliate channel, you’re going to miss not only the true impact of that Adware affiliate. But what you are also not going to do is take the time in your affiliate channel to reconnect with the affiliates that were sending you the good traffic.

They’ve probably stopped sending you good traffic, or a limited the amount of traffic they’re sending you, because you’re not crediting them with the right sales. So, that relationship does take time to rebuild, and again… obviously, 110% growth at the end of December of 2006 to 2005, those relationships can be rebuilt…

Kellie: It’s become a trust issue, with your other affiliates. Trust is… the Internet is instantaneous, and I think a lot of times, we want to see everything instantaneous related to the Internet…and it’s not. Those relationships do take time to rebuild, and for other affiliates to have their confidence and their trust restored in a merchant.

I know that you spent a lot of time out there, connecting and communicating with your affiliates to let them know…. “Hey, this isn’t just some marketing spin that I’m throwing your way. This is something that we’re truly doing.” You had to prove yourself to affiliates, and there’s probably some affiliates you’re still proving yourself to.

Angel: Sure, but I think ultimately it wasn’t simply because we were trying to be ethical.

Kellie: You were doing a lot of other things apart from it…

Angel: Sure, but to me it also makes absolute business sense. I mean, an affiliate is not going to promote you… especially a clean affiliate… if you are not converting for them. So, if you don’t look like you’re converting to them because you’re really giving the credit to the not clean affiliate, then of course they’re going to stop promoting.

Kellie: And not just in conversion, it’s not just from legit to parasite, if you’re not converting for…I mean, you can be a clean merchant, if you’re not converting.

Angel: Sure.

Kellie: There’s where the other issues that you are addressing. You know, with developing tools and developing your landing pages and your creatives and things to improve your overall conversions. Once the consumer landed on your own Onlineshoes but definitely it’s not going to help your conversion for your other affiliate if you have these other parasitic type affiliate within your program.

Angel: Right.

Kellie: No way is it going to improve your conversions for your other affiliates.

Angel: No.

Kellie: I’ve had more than one manager call me or contact in a state of panic, because they had one affiliate get into in their program and they’re on a network that reports EPC, and this one affiliate sent them just junk traffic to Adware and tanked, completely tanked their EPC in a day’s time.

Angel: Right.

Kellie: And affiliates were like running from them like crazy just based off of that tanked EPC. They went from showing great numbers to just really, really poor because they got tens of thousands of clicks from one affiliate that was just garbage through Adware.

Angel: You know, ultimately to me, aside from my own ethical beliefs, when it comes to Adware, to me, not playing with it is a business decision. The business decision to me is about having the true strength on the dollar and having the ability to grow a clean channel where you understand where your customers are coming from. To me, that’s a business decision that’s even beyond, again, this is not on personal ethical feeling is about, I just don’t want to work with these scumbags but…

Kellie: Well, I think that I always try to make the discussions on the business aspects because out here, the business aspects speak for themselves. I think it is a business decision. Ethics are very near and dear to me, but I think this issue stand on the business and the business side of things by themselves, outside of ethics in a lot of cases. When you start really looking at the true numbers and the true value, I just don’t comprehend as a merchant, I want something for my advertising dollars.

Angel: OK.

Kellie: Something is not paying the advertising dollars for visitor that I already have on my website. To me, that just makes no business sense whatsoever to do that. Why pay for something that I already have?

Angel: Well, not only that but why… the last thing you really want on a big website is to confuse or get your customers off track. To me, you want that bread crumbs to start from the moment that they hit your website to be the surest possible to get to what they need from you as a merchant. To me, an interstitial page that has no value ad and suddenly pops up and just shows them the same merit that they would have see in the first place is completely useless to you as a merchant and is a horrible customer strength.

Kellie: Well, I know that some of the applications that I test and some of the applications that I’m more concerned about, actually from the end-user’s experience, there’s no indication that, that application is even on there. They don’t do any pop up, they refresh the browser in the same browser window, that can be the same exact place to end user were that, already on the merchant site. They just refreshed with their affiliate link.

There’s some very crafty guys out there developing technology, and they’re getting it styled in very stealth, crafty methods on end users’ computers, and it really goes undetected. They’re using very fraudulent methods to hide the traffic patterns from the networks and merchants.

Those are the types of affiliates that are really a concern, to me, more so than something that you see that’s very obvious, that you or the end user get a pop-up window saying, “You’re earning X number of rebates right now.” So I think there’s just a lot of considerations for merchants.

Angel: One, I think you said something very key there, which is that they are very crafty and they are evolving. As a merchant and as an AM, you need to do your due diligence, in order to understand what’s happening in the space, because if you don’t, those players are going to come back in.

That’s why, one of the things that always kind of gets to me is when people are like, “Our program’s 100 percent clean, ” I’m always worry, when somebody says that, that they’ve stopped checking their program and adapting their program to the newest tactics that are out there. I think that that is, again, another level of dangerous complacency out there.

Kellie: Yeah, I definitely agree with that. I tell everybody that 100 clean or parasite-free or whatever you want to call it is a myth. What you can have, are networks to merchants who do due diligence and work really hard to try to achieve that state. But having that, it’s impossible. That just doesn’t happen.

And that type of complacency, or that type of false sense of security, sometimes, on a merchant’s part, they say, “Because I’m partnered with this particular network, or I have an in-house program.” I never understood that, the merchants who say they’re running their own in-house program, so they’re parasite-free. I never understood why they would assume that, based just off of that fact.

But that always concerned me, because, to me, I wonder if they’re monitoring their program as closely as they should be. I think that there are a lot of those guys who really do want to have that state in their program, and they’re very opposed to questionable tactics in their program, but I get concerned that there’s probably things going on in their program that they’re totally unaware of.

Angel: Right. I think, any day, I’d rather be actively anti-parasite than throw up “100% free” and then forget about it.

Kellie: Yeah, because that’s probably going to come back and bite you in the butt.

Angel: Right. You want to be… You do need to…

Kellie: Because somebody’s going to find what’s in your program eventually. It’s going to come out eventually, one way or another, most likely.

Angel: Absolutely.

Kellie: Well, I really do appreciate you coming on with us today…

Angel: My pleasure, Kellie.

Kellie: Sharing your perspectives with us…

Angel: I have to say that I’m drinking as we’ve been talking. I’ve been drinking your coffee that you sent me, from New Orleans. I’m going to send you some coffee back, because we need to give you some Seattle coffee, just to give you a taste of the real coffee. [laughs]

Kellie: Oh, so our coffee isn’t real, huh?

Angel: I’m just saying that, again, you want to diversify your overall coffee availability and flavors. [laughs]

Kellie: Yes, I actually have about five different kinds of coffee in my cupboard right now. [laughs]

Angel: [laughs] That’s why we get along so well.

Kellie: Not all of them are New Orleans, not all I have. There’s a variety in coffee up there, I have, yes. [laughs] We’re from different…

Angel: Well, I appreciate you having me on your show.

Kellie: Thank you very much. I hope that we can have you back discussing some other issues, because I think you really have done quite a bit with the online shoe program.

Angel: I’d be my pleasure.

Kellie: All right. Thanks a lot.

Angel: Thank you.

Kellie: And I’d like to thank everybody for tuning in and listening. We’ll be having more shows in the near future.

What’s the latest trend in the area of building an online business that “sells stuff?” Find out in this short interview with Angel Djambazov, Director of Marketing at “Affiliate 2.0″ innovator PopShops.com (left) and Peter Koizumi of drop-ship e-commerce innovator Shopster.com (right). Each company is blazing a trail and promises to take digital Web-based retailing a new direction. From better user toolsets to total business model revolutions each offers slightly different approaches to E-Commerce 2.0.

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AUDIO TRANSCRIPT

Jeff Molander:

Hello this is Jeff Molander and today I am joined by Peter Koizumi of Calgary-based Shopster.com, and Angel Djambazov of Seattle-based PopShops.com.

Each of these companies are recent entrants onto the web-selling scene, and provide technology solutions to digitally-inclined entrepreneurs looking to set up and sell stuff on the web.

While they share a common goal, well, relatively common, they each offer fundamentally different solutions.

PopShops brings access to thousands of products, storefront creation, and merchandising power to cost fraction web-affiliates. Those are the web affiliates that get paid to refer customers on to advertisers in exchange for a commission.

Shopster brings similar storefront creation to the website owner, yet gives them complete retailing power; from customer service to order processing and delivery. In essence, Shopster takes a referral-based affiliate and turns them into an honest-to-goodness Web retailer, able to set prices, run sales and promotions, etc.

So thank you for joining me today, gentlemen, and let’s take a listen to how Chris Sanderson of AMWSO, leading affiliate program management firm, looks at this evolving space.

Chris Sanderson: I think it’s really exciting to see so many well-built and well-managed tools coming onto the market now. A lot of what we’re seeing is hardly new, but the way it’s being put together and presented is making it far easier for some of them to use.

The flexibility of the tools is really the key to their success. I remember seeing Geocities in action on the Homestead system back in 2000, or even earlier, but they weren’t very flexible, and what they now use or to present how they can be used.

Leading commerce focus such as PopShops allow for a massive amount of customization by affiliates. It’s easy to set up. You can put what you like in there in terms of the quality, in terms of the merchants. You can cross-promote a vast array of products across many different niches all within a particular niche. It’s easy to do and anyone can do it, and that’s really the key to their success, I think.

For affiliates wanting to go the extra step beyond other people’s products, then I think Shopster is really a product that stands out for me. Sure, they’ve had their growing pains, but I think now they’ve reached a point where they have a really subtle offering for people to use. Offering a lot of flexibility in terms of what people can sell, how they can sell it, and how they set it up. And again, flexibility is really the key for me.

It wouldn’t surprise me in a couple of months we see Shopster being plugged into PopShops as well, so we’ll see how Shopster works in the PopShop widget.

Jeff:

Well it’s interesting that Chris sees a potential partnership in between Shopster and PopShops, but let’s circle back to that later perhaps. So thank you guys for joining me today.

Pete Koizumi:

Thanks for having us.

Jeff:

In 60 seconds or less, I’d like each of you to comment on what your company is bringing to the table for small business owners. Small business owners, small business hopefuls, start-up entrepreneurs, or affiliate marketers. What makes both Shopster and PopShops truly innovative, or different, and what’s the big opportunity?

Let’s start with you Peter.

Peter:

Well, as you may have seen, Shopster is a solution for individuals who are looking to make money over the Internet. What we provide is a tool, an e-commerce software, as well as a 900,000 products where you can pick and choose and place in your store.

Really, what makes Shopster unique is that the individual isn’t required to find the product, and then they can sell it over the web. From there we basically take over the fulfillment, work with the suppliers, and those orders are shipped directly to your customer. And so really what we do, we allow you to grow a long-term business, and really build up your own individual e-commerce store without having the inventory, without carrying any inventory yourself.

Jeff:

So it sounds, at least to me, Angel, that this is very similar to what you guys do. Is that fair to say?

Angel Djambazov:

I think as you go on in this discussion, we’ll see some diversions and differences in terms of what Shopster does and what PopShops does, but I think on the surface there are some definite similarities.

To me, PopShops is a next generation of online tools. It focuses on agility and allowing small business owners who are interested in taking an affiliate marketing space or an online marketing space, that don’t have the technical knowledge or perhaps the resources necessary to build their own databases and to manage those databases in such a way that they can fill and post products that are relevant to their audience and to their niche.

What we do in PopShops is we do the heavy lifting for such online entrepreneurs. We give them access to, currently, 24,000,000 products. These are commissionable products, these are affiliate products. And they can then easily take those products and, in a variety of very flexible ways, customize the look, the feel, the integration of those products into their website or blog.

Jeff:

Interesting. So, when new companies emerge, it’s always with good reason, and typically that reason has to do with money being left on the table by incumbent players. So what about the existing digital business model, namely affiliate marketing? It’s broken in your opinion. Of course, that’s a pretty strong premise.

What could be done better for the small business owner, or the affiliate, and where is there being money left on the table? This is obviously, like I said, a loaded question, but it needs to be asked so we can understand the void you guys are each looking to fill.

Who wants to take that first?

Peter:

Well, at least for Shopster, I think one of the things that we see is that there’s this disconnect between the affiliate and the client. What’s happening is that with Shopster, what we allow you to do is really own the customer, and so you’re driving the lead to your store, you’re putting together the message, the product is being sold through your site, and once that sale is made, you own that information, or you have access to that customer’s information, so you can remarket to that individual.

The issue that we see with the current affiliate marketing business, is that affiliates are pushing leads over to the client, and it’s really there’s no touch-points after that with that affiliate. It’s become the challenge for affiliates, because you’re basically just driving leads and depending on the clients to make the sales for you, whereas with Shopster you spend the time and the effort to drive that lead, make the sale, and then you have the ability to remarket to that individual, and I think there’s a lot of value there.

Jeff:

To be fair to affiliates, I know that there are a lot of affiliates out there, and Angel you know this very well, that are obviously moving toward, or in the case of companies like FatWallet.com, these folks have been forming relationships with the customers that they refer to advertisers for a long time.

That’s not to say that the problem, the void that Shopster is looking to fill and offering a solution, doesn’t exist, it certainly does, it’s just very difficult for an affiliate to form that relationship.

Angel, how do you look at the business opportunity for PopShops? What is it that someone has failed to provide that you guys are able to provide now?

Angel:

Well, I wanted to expand on Peter’s point a little and touch on the PopShops differential. I think that Peter has a good eye on a void I think that Shopster is filling very well. I hear in this industry all the time the argument between whether it’s the affiliate’s customer or the website owner’s customer, or the blogger’s customer, or whether it’s the advertiser’s or the merchant’s customer, who, in affiliate cases, the affiliate is sending referrals to these people. So, who actually owns that customer relationship?

I hear both sides of that argument constantly. An affiliate like FatWallet is doing a good job of engaging their audience beyond just simply being a referral point to a distant merchant.

I think Shopster is doing good job as engaging their audience beyond to simply being a referral point to a different merchant. I think Shopster does a really good job of empowering their users to take up those element of customer service and really become actual…real owners rather than simply a gateway to a merchant that’s out there that wants to bring in new customers.

So, I think that is a kind of an expansive point because I don’t think that a lot of affiliates do that very well. I think the FatWallets of the world are rare and it’s a difficult proposition as you said just to do that well.

Jeff:

Yup, I actually have been involved in a couple of consultations recently and even with peers in discussions where I’m hearing either from advertisers directly or through peers that advertisers are beginning to look at affiliate networks as toll booths. And I think that’s kind of what you’re giving at here and I think that’s dangerous for an advertiser to begin to look at an affiliate network because then of course they’re looking at affiliates as a toll booth. And that’s a much lower value type of arrangement.

Angel:

Well, I mean in fairness man, I do think that the networks are beyond that and I think they also are starting to get that there’s other things that they themselves want to be able to offer. So, the pain point of PopShops looks at kind of came my own affiliate manager experience and dealing with affiliates who wanted access to the product catalog for I was the affiliate manager for OnlineShoes at the time.

One had access to that product catalog and in a practical fashion it was difficult to give them the amount of flexibility and customization and breakdown of the product catalog that they really need to succeed. And PopShops ultimately is trying to do that. PopShops is kind of…we looked around and said: “Wow, all these merchants and all these networks have this huge list of products.”

Like Barnes and Noble for example has almost 2-3 million products in their feeds and if I’m a brand new affiliate and want to access those products but I only want instead of two million books, I only want the Agatha Christie style mysteries of those books. It’s really difficult for me to segment those out even though they maybe the most appropriate for my audience.

To do that kind of segmentation and customization requires the building of databases, requires all these extra work that really I think excludes a lot affiliates because of the technical aspect to it. Much less if they wanted to mix Barnes and Noble with Powell’s, with Abe, with Amazon, with all these other companies that also sell books. And featured books that are perhaps more appropriate to one audience or better priced point for the particular audience they are trying to address.

And so, PopShops is attempting to give those affiliates access to tools that allow them on a very easy drag and drop basis, visually browse to the 24 million products that we have in our catalog currently in PopShops. We figure out which products are best for their audience in a more merchandising stance. They’re really merchandising to the audience. And then integrate them again without having to do that heavy lifting with the databases because it really again is a huge barrier to entry for lots of entrepreneurs will be interested in the industry but don’t bill with actual products because it’s too difficult.

Jeff:

It sounds very similar to what you guys are doing with the store front creation and merchandising at Shopster, Peter. Is that the same?

Peter:

Yeah, absolutely. I think Angel just brought up a good point where I think what’s become very challenging for a lot of affiliates and new affiliates is there’s become this large area to entry now for new affiliates coming in to the market and really opportunity programs such as Shopster and PopShops. What they really allow you to do is allow the entry level as well as the expert affiliate to come in, build a long term sustainable business and because they’re pushing on multiple product, they’re really building out a store or blog or whatever it maybe.

And hopefully in the long term driving repeat traffic to those sites and what that’s allowing you is new entries that kind of start building on a business as oppose to a lot of existing affiliate programs which really are catered much more towards those who have the financial backing to push a strong pay per click program or who have the expertise in really pushing a long tail keyword, etc.

So, really I mean, from Shopster standpoint, we feel as though we’re opening the doors to a lot of new web entrepreneurs and that’s what really makes it successful.

Jeff:

So, technical hurdles and operational hurdles are kind of being democratized and lowered, it sounds like by both you guys.

Peter:

Exactly.

Jeff:

So, how would each of you see…this may not be a question that you want to answer but I mean if someone out there is listening and says: “How do I make a decision? I’m looking at PopShops and I’m looking at Shopster and perhaps certainly not in any kind of competitive light but as options to set up shop on the Internet. What process am I going through in my head as I now understand a little bit more about each company and what each solution set provides? How do I make a decision to either be retailer or be an affiliate in today’s kind of scenario?” Is that a fair question?

Angel:

I think so.

Peter:

Yeah.

Man 1: You guys are serving a bit of different audience or are you serving the same audience?

Peter:

[laughs] That’s good question. I can only speak for Shopster but in terms of Shopsters’s audience we obviously a have a wide range of customers and one of the advantages of Shopster is that we allow you to be able to really not just locked down to the online store kind of software in terms of selling products but we allow you to place those products onto other online store front as well as auction sites such as eBay and should we drop ship the product and so we provide some variety there in terms of you being able to make money on the web.

In terms of making a decision between PopShops and Shopster, at least the message I would preach to our customers all the time is that you really have to be looking long term and by long term we mean at least three months to really kick start your business. I mean, it does take some…you do have to overcome some hurdles initially like any business, building up the traffic, building up your storefront and a lot of times, if you’re selling on eBay, you have to build up that reputation on eBay as well.

Really, if you’re looking for a long term, sustainable business and really looking to, if you have some retail experience in terms of merchandising or setting margins and if you’re…what Shopster really allows you to do is we allow you to take your own margin…

Jeff:

Well, it sounds like there’s a few more decisions that need to be made that Angel…that in your…that in the affiliate marketing model although you have lowered some technical hurdles, there’s still a level of simplicity involved that maybe appealing in terms of putting up a store and making money with it. Fair to say or…?

Angel:

Well, I think that’s fair to say. I think that for Shopster you’re essentially utilizing Shopster to start your own business around either solely the Shopster’s inventory or a combination of Shopster’s inventory and some other inventory that you are drop shipping as well. So, you’re really in that term, in the retail e-commerce space and building out your own business that way.

I think PopShops’ goal was to address what affiliate marketing to me really originally was, which was that: “Hey, I’m a website owner. I’m a blog owner. I have an interest something. Let’s say it’s film. I have an interest in film and I’ve been talking about film that I know really well and I have this passion for it and because of this passion, and the content that I have created about film, I now have an audience who comes and reads about films.

And I start thinking to myself: “Well, how can I monetize this audience so that way I can still be passionate about film and talk about but yet put content on my website in terms of advertising that is relevant to what my audience is interested in?” And I think that’s why the affiliate industry got kind of quagmired down into simply banners or…

Jeff:

Or search, I think. Right?

Angel:

…or simply text links or search, right. And instead of actual merchandising about products because I’ll tell you what: If I’m talking about “The Godfather” and how much I love “The Godfather” and how interested I am in the movie Eastern Promises which is just coming out now with Viggo Mortensen which is supposed to be the Russian version of “The Godfather”.

If I’m talking about these two films, I’m going to convert my audience far more if as well as talking about those two films, I also place a link if they would like of a product to someone who is selling “The Godfather” or “The Godfather” pack of movies rather than just simply throwing up a banner of their saying: “Hey, go into a good so and sos, you know, movie site and maybe you’ll find “The Godfather”.”

It’s relevant to my audience. I’m bringing my audience something that they’re already interested in. So, I’m really doing what inherently is merchandising and I’m tying it to my content and what PopShops ultimately does is it gives those website owners and bloggers the ability to be agile about that and move quickly through the choices of product. So, if one day I want to talk about movies, the next day I want to talk about camping or any of my passions, if I want to talk about Nascar racing.

If I want to talk about any of those three things, I can talk about them one a day or the next day and then grab products quickly without having to go through the headache of how am I going to manage this database, how am I going to track all these as far as what inventory I have out there in terms of advertising. We just lowered that threshold so you can go back to: “Hey, I just talked about something I enjoyed. Let me put something relevant as well to the website.

Jeff:

And it sounds like there are some definite similarities here as an example both of you guys allow someone to take that product or those products and interface with people like eBay and certain, I think PopShops interfaces in a click, in a single click with various blogs. Is that right, Angel?

Angel:

Yes. Yes that’s right. We interface currently with TypePad and Blogger and have a WordPress, a really fancy WordPress which is coming out shortly.

Jeff:

So, correct me if I’m wrong and this may sound overly PC, you know. I’m not usually overly PC believe me.

Angel:

[laughs] No, no. [laughs]

Jeff:

Nothing precludes a web entrepreneur, if you will, from working with both of you guys even on the same web page. Is that fair to say?

Peter:

Yeah, absolutely. My personal thoughts is that the two can definitely work hand in hand and we have several affiliates, I guess customers who use multiple programs. They use Shopster along with other programs such as PopShops and I can’t say that they…I don’t know offhand whether or not we have a customer using both Shopster and PopShops but at the same time it’s definitely doable.

Jeff:

Yeah.

Angel:

Yeah. I mean, to me using both platforms, PopShops and Shopster is equivalent of…you have a to make face which should be really geeky and make a facebook analogy of using multiple widget plug ins into your facebook page. They both can work together very and there’s absolutely no reason not to take advantage of all these great tools that are coming out.

And I think that’s one thing that’s really exciting about the industry currently is all the conferences I’ve been to this summer have talked about this need out there for merchants to really engage with a long tail advertisers and affiliates and this need for affiliates to have merchants networks provide them better and more robust quicker tools.

So, I think it’s an exciting time for me and Peter right now in Shopster and PopShops because we’ve already created those solutions and now it’s a matter of being ahead of the curve and really fulfilling that message to affiliates and the merchants out there who feel that need.

Jeff:

So, what’s this talk about a partnership that [laughs] Chris Anderson seems to think maybe in order. I’m not quite sure…any thoughts on that?

Angel:

I just think Chris is a rabble-rouser. [laughs]

Peter:

[laughs]

Jeff:

[laughs]

Peter:

[laughs] But Angel brings up a really good point and I think it’s really exciting times for companies like Shopster and PopShops in that what really allows a company like Shopster to grow is that the consumer buying mentality I guess has really changed over the last three or four years. In that, in the past they were really looking to purchase from these larger box of retailers and now the mentality has shifted towards people want to buy from experts within that domain.

And so again, if you want to buy light bulbs, you want to buy from an expert of light bulbs as opposed to Wal-Mart or any of the larger retailers because you have a larger selection and if you have any questions somebody can most likely help you directly. So, going back to what Chris was saying in terms of the partnership, I think one of the things is that Shopster offers obviously a variety of different products and PopShops, obviously having a very large of warehouse.

Jeff:

Yes, it’s similar.

Peter:

And for the consumer or for the end retailer or affiliates, why not take advantage of two large databases of products and really become an expert in one small niche and being able to pull products from multiple different areas without… and using just one interface and I think it’s exciting times for those affiliates out there to have the options. I think they could have available [cross talking]

Jeff:

Totally agree, excellent. I really appreciate you two guys taking the time out of your day to chat about your solutions and best of luck moving forward.

Peter:

Thanks for having us.

Angel:

Thanks for having us, Jeff.

[theme music]

It’s finally official and word is out on the street… not just behind closed doors. Retailers engaged in Web affiliate programs are not settling for less when it comes to their insatiable desires: Incremental sales. Affiliates be damned if they’re not able to provide more accountability, transparency and really get into bed with advertisers — form relationships that allow advertisers to have their cake and eat it too.

Increasingly, affiliates are expected to offer advertisers something that they, themselves, cannot access. Affiliates’ domination of the search landscape is forcing the issue as advertisers themselves rush into search marketing — only to find their affiliates have beat them to it. The environment has become highly competitive and downright nasty at times.

Earlier this year a panel convened in Boston at the conference for Multi-Channel Marketers to discuss the state and future of retail-focused affiliate marketing programs. The panel featured:

Amanda Watlington, Principal, Searching for Profit
Carol Steinberg, VP eCommerce (not pictured)
Stephen Fuller-Rowell, Chinaberry Inc.

Slide presentations presented at the session are also available below.

PROGRAM GUIDE
3:55 - State of Industry Overview (Molander)
9:50 - Panel present brief summery of experience
14:19 - Chinaberry presentation
23:21 - Amanda Watlington presentation
36:29 - Affiliates as consultants?
38:34 - Affiliates must bring incremental sales (C. Steinberg)
40:20 - Tools affiliates need
41:25 - Question: Staffing for affiliate marketing
46:00 - Question: Tools for monitoring affiliates
48:38 - Question: New customers and loyalty sites
51:57 - Question: Google’s Universal Search and affiliates
60:44 - Digital media protection
61:30 - Closing, forward-thinking take-aways on affiliate marketing

(63 MINUTES)

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Play the program now!

(20 minutes)

In this segment of a two part series (Part I here) 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).

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(31 minutes)

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)

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On a recent Weekly Insight show we discussed the dramatic shifts going on in Web-based cost-per-click and cost-per-action (sale or lead) affiliate programs like Commission Junction and Google Adwords. As Amanda Watlington and I were fresh back from the Direct Marketing Association’s ACCM Conference the gang focused discussion on the use of such strategies among multi-channel marketers.

(63 MINUTES)

Featuring:
Amanda Watlington, Searching for Profit
Lee Gientke, Leadpoint.com
Sam Harrelson, CostPerNews.com
Jeff Doak, Converseon

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