E CHANNEL: Untangle Web Affiliate Marketing

Posted: 1/2002

E-Channel

Untangle Web Affiliate Marketing

By Josh Long

An affiliate program — in which a business works with partners to promote its products and services on multiple web sites through banner ads and other links — is one way to broaden an e-business initiative.

But, without software-based tracking tools, it can be unwieldy to manage these relationships, which can number in the hundreds.

Tucker Sylvestro, a senior at Massachusetts Institute of Technology (MIT), developed affiliate management software for his employer, Nobel Limited Company, a Newton, Mass.-based retail and wholesale prepaid provider.

While Sylvestro, Nobel’s CIO and vice president of software development, could not be reached to comment, Nobel’s general manager Christopher Berejik, explained one advantage of developing the software in-house: “We didn’t have to trust anybody else with our information.”

However, not every company is fortunate to have an MIT alumnus on its payroll. For many companies, the software development exercise could go awry. In fact, after spending $150,000 to develop software in-house, one company finally had to turn to an independent software vendor to do the job.

Groundbreak.com, for example, offers the Ultimate Affiliate, a $200 software package. The Winston-Salem, N.C.-based company also will install the software for $100.

Ralph Wilson, who has written extensively on Internet strategies, including a 108-page Report on Affiliate Management Software, says Ultimate Affiliate is a good fit for a small business that either is tech-savvy or willing to hire someone to set up the software. The downside, he says, is that the software may be obsolete in a few years.

For these reasons, e-marketers increasingly are turning to application service providers (ASPs) that host the software on their servers and specialize in helping businesses generate sales through online partnerships.

These ASPs take care of some or all of the functions of affiliate marketing, from recruiting affiliate partners to evaluating the success of a program to cutting the checks at the end of the month.

Commission Junction, based in Santa Barbara, Calif., is among the largest affiliate-marketing ASPs. Commission Junction does all the legwork, from recruiting affiliates to tracking the success of campaigns to paying affiliates. The company works with about 120,000 active affiliates who display advertising on behalf of about 1,500 merchants seeking to generate sales through other web sites.

Verizon Communications Inc. is one merchant that offers DSL on nearly 3,000 web sites through Commission Junction. Verizon pays affiliates $25 for every sale made, says Commission Junction spokeswoman Beth Mansfield. Commission Junction earns either 30 percent of a commission or 30 cents per transaction if the payoff to the affiliate is less than a $1.

Affiliates usually are compensated based on sales, not on the number of people who visited a web site after clicking on a banner ad: “Instead of paying for eyeballs you are paying for results,” says Mansfield, who calls the model pay-for-performance advertising.

Commission Junction charges merchants a $1,295 network access fee and requests $500 for an escrow account, which is earmarked to pay affiliates as they refer customers to merchant sites, resulting in sales.

The marketing company also has instituted a monthly minimum. The company requires each merchant to pay at least $250 to Commission Junction each month. Consequently Commission Junction lost a few hundred clients, but Mansfield says those clients were “not true online marketers” and participated in the program more as a hobby, generating little revenue through their affiliates.

Commission Junction’s ASP model allows merchants and affiliates to evaluate the success of programs. For instance, Commission Junction publishes data online regarding what an affiliate is earning per 100 clicks. That information can be important to merchants trying to determine whether they want to partner with a specific affiliate.

Commission Junction also publishes a charge-back ratio, which allows affiliates to see how many sales on a merchant site are taken back due to cancellation of orders, fraud and other reasons. The affiliate specialist also reports a dollar figure that gives affiliates a ball-park idea of how much money a merchant has paid affiliates since joining the company.

But Commission Junction’s model is not for everyone. “That [minimum fee] is a little rich for my blood and small businesses,” says Wilson, who says he left the company’s merchant program after it raised commission rates and implemented the $250 minimum fee.

The Internet Marketing Center is another affiliate specialist that hosts software on its own servers. The company, which targets small to medium-sized businesses, charges $677 for the software and a $35 monthly fee. Merchants cut their own checks.

One of the company’s major advantages is that merchants can customize their affiliate program on a web site rather than requiring affiliates to go through a third party, such as Commission Junction, to access information, says business development coordinator Chris Reynolds.

Reynolds says that Commission Junction’s reporting capabilities can prove detrimental to merchants, because affiliates may get distracted looking at all the other merchants and possibly defect.

And Wilson says there is no easy way to reach affiliates after leaving the program.

One of Wilson’s favorite affiliate ASPs is the My Affiliate Program run by Westland, Mich.-based KowaBunga! Technologies Inc. Wilson gave My Affiliate Program his Editor’s Choice Award in its ASP category in his affiliate software report.

The company has about 1,000 merchants operating their own private affiliate programs using tracking and management software hosted on KowaBunga! Technologies’ server farm in Charlotte, N.C. KowaBunga! Technologies charges a $795 setup fee and $50 a month for its most comprehensive affiliate program.

KowaBunga! Technologies spokeswoman Rachel Honoway said in a recent e-mail interview the company added a number of features to the reporting capabilities during the last year.

Among the new features is a marketing material report showing the merchant how many clicks, impressions (number of times an ad has a chance to be viewed on a web site) and sales were generated by each specific linking method.

In addition, a hybrid tracking add-on function allows merchants and affiliates to see payouts based on sales and leads.

Finally, a history add-on feature allows affiliates to evaluate when a sale was made, who purchased the item, the amount of the sale, when and if it was returned and whether the sale still is pending.

With My Affiliate Program, e-marketers must recruit their own affiliates and bill them, but Wilson says the marketing company provides plenty of help.

Wilson also says in his own e-commerce experience — and others with whom he interviewed for his research — only a few percent of affiliates actually drive sales. Consequently, the administrative work is not that time-intensive, he says. Although he concedes the percentage can be much higher depending on much emphasis a merchant places on an affiliate program.

Honoway says her company’s biggest improvement has been in training merchants to use the new software. “We realized though that adding all of the features we could to our software did nothing if we continued to hand it over to merchants that weren’t familiar with how to use the tools,” she says.

KowaBunga! Technologies provides articles and questions and answers on affiliate marketing, guides on setting up an affiliate program and links to pertinent web sites among other tools. The company also hired consultant Linda Woods to help merchants get started.

Woods argues no correlation exists between how much money a company spends on an affiliate program, how many affiliates join a program through a network and how much money a merchant earns.

“You don’t have to spend a lot of money on the technology,” she says. “Where you need to put your effort into is the resources needed to properly manage the program.”

Traditionally two percent to five percent of a company’s affiliates drive 95 percent to

98 percent of revenue, Woods says.

However, she is confident companies can squeeze a lot more revenue out of their affiliates. Woods believes if companies spend time to identify, recruit, motivate and give

affiliates incentives, they can generate business through about 20 percent of their affiliates, representing a percentage much higher than the norm.

Wilson agrees that affiliate marketing takes work. He advises e-marketers to seek only quality affiliates and to keep them motivated through e-mail newsletters and other means of communication. (He also says banners are a “horrible” way to promote an affiliate program.)

“I have to work hard to stay in touch [with] affiliates,” he says. “This is not a magic

silver bullet.”