by Jeff Molander
Lost revenue from eBay was greater than expected over at Valueclick and its Commission Junction unit may be losing another large customer according to the rumormill, LowerMyBills.com.
“The decrease in eBay (revenue) was larger than we expected...”
This according to Valueclick (NASDAQ: VCLK) and from its second quarter earnings call. That stated, the company decided to remove eBay’s numbers completely when reporting its affiliate marketing numbers, up 16% overall worldwide. One can only conclude that this was done to prevent either a loss or a remarkably small gain.
..."the remaining 1500 clients in affiliate marketing were growing quite nicely,” according to the company which puts affiliate marketing growth at somewhere just below 20% this year (target 2006).
But how nicely? That remains a mystery but in revealing its eBay surprise it needed to do some ‘splainin’. What’s interesting here is that Valueclick’s admission (the key trend behind it) extends beyond eBay and into retail affiliate marketing, a revenue segment that it seems to be caring less and less about. According to Valueclick…
“The three primary reasons for the eBay reduction were lower negotiated prices effective in January, different payouts to publishers, which are now being paid for performance post-sign-up, and eBay’s decision to buy more of their own keywords themselves versus through our affiliates.”
Source: Shop.org / National Retail Federation (2006)
Like retailers, eBay has decided to take back search. Big deal? Indeed, big deal… we’re talking about eBay here—a company that has historically boasted about the big checks it cuts to search-based affiliates.
Valueclick CEO, James Zarley additionally put all the speculation to rest with regard to Commission Junction’s Link Management Initiative. Why? Zarley states it plainly, as I have…
Zarley goes on to recognize that “more data for us” disguised as “advertisers want more control” isn’t a big winner with publishers so far…
“We got a response loud and clear from our publisher that they are not willing to do this on a wholesale basis, but we believe that over time, maybe it takes a year or two, that this will be the way that the market will go. So we are going to be patient with it. Right now, we are just working with our publisher on a one-to-one basis, and eventually I would anticipate that we will get there over time.”
Switching gears, Valueclick seems to be probing new territory—search services expansion (interesting in that advertisers are switching off of affiliates and onto agencies, Valueclick wants to be one of those agencies) among other agency-like products.
“We expanded our search engine marketing services department based on our own proprietary technology, and believe that it will produce additional revenue growth for us in the second-half of the year. We are also adding services in the area of website development and creative services bureau-related products, which in the past has been referred to outside vendors.”
News to me. I wonder how Pepperjam Management and netExponent feel about these services.
Although the company’s affiliate manager job listing is still posted live at Monster.com the job may go un-filled. According to my sources, the company’s largest lenders are fed up with LMB’s generating leads through affiliate marketing techniques. Why I’m not sure but if I had to bet my life I’d bet lead quality has something to do with it. Alternatively (or in addition) the high cost for media is only driven upward by affiliates when a lender is dealing with multiple sources for leads. Translation: The more media cost associated in generating leads the more expensive the leads are—no matter who’s brokering them.
Keep an eye on ventures like Seth Goldstein’s Root.net and marketplaces or “lead exchanges” like LeadPoint.com (founded by Commission Junction’s founding CTO, Per Pettersen). Don’t miss Seth’s brilliant Gesture Economy rants at his blog, TransparentBundles. These companies are looking to revolutionize lead generation in some interesting ways.Close
August 03, 2006
by Jeff Molander
So many people have jumped all over David Jackson’s shorting of (Valueclick) VCLK stock and predicting the doom of its Commission Junction unit… so many that you just have to believe that Jackson is onto something. In fact, he is; Google (GOOG) will, indeed, be a CPA (cost per acquisition) advertising force to be reckoned with and it could literally happen overnight if Google plays its cards right. The company recently announced that it is giving consumers a new, remarkably convenient, powerful choice of payment and is tying this to the merchant’s advertising costs / business profitability. That’s hot… huge… powerful and, in the end, will likely motivate merchants into action.
It also announced its ”Content Referral Network“—a move generating much speculation about where Google’s ad business is off to next.
Google Checkout: Consumers
Consider Google Checkout—a tool that allows users to give their charge card and “ship to” details to Google once, never needing to fill out another shop cart form again. They just click Google Checkout—perhaps using a coupon provided to Google (exclusively of course). Call it a universal wallet or not, Google Checkout has serious appeal that extends beyond one-click checkout processes such as charge card privacy (share with Google and nobody else yet shop everywhere), e-mail controls (turn on and off email coming from stores within your account) and more. Control, centralization of transaction history, merchant review ratings, zero liability for un-authorized use of your account… aaah. Heaven on Earth!
Google Checkout: Store Owners & Advertisers
What retailers are playing so far? Many large, medium and small brands. Why will more retailers flock to Google Checkout? Because Google Checkout (who’s $0.20 + 2% of ticket are less than PayPal’s) will pay every advertiser $10 for every $1 spent on Google advertising buys (AdWords, AdSense). Google will literally offer Google Checkout at no cost to many, if not all of, its advertisers (as a reminder, numbering far more than traditional affiliate networks Linkshare, Commission Junction and Performics combined).
Google charges forward, according to Chris Sherman of SearchEngineWatch and is “also working with shopping cart providers to integrate Checkout into their systems.”
Sherman points out that
“Google Checkout is simply an extension of technology the company has developed internally for its AdWords, Base, Picasa and other services.”
Checkout + AdWords = Free, More Prominent Ads
But wait… there’s more—significant elevation of a participating advertiser/store owner’s advertisements among Google Checkout-lovin’ consumers.
Google has tightly integrated Checkout with AdWords. Any advertiser offering a Google Checkout option will now see their ads displaying with a Google Checkout “badge” icon next to the ad in search results. This visual cue lets searchers know they have the option of using Google Checkout if they click through and buy from that advertiser.
The Trojan Horse
What’s behind Google Checkout if it’s a break-even for Google? The answer is clear: Google Checkout must be a trojan horse—a means to move Adwords into CPA-based advertising. CPC is under heavy fire and not by advertisers or their asleep-at-the-wheel agencies who are still trying to grasp elementary operational pay-per-click search concepts (so that they might define—let alone do battle with—click fraud). Lawyers are moving and 2 class action lawsuits are one too many for Google (even if they settled and got away with murder!).
Google is likely not planning on converting its cost-per-click (CPC) ad network into a cost-per-acquisition (CPA) model but it sure is planning on offering the option to advertisers and publishers in its AdSense network.
Silencing the Skeptics
Jackson’s critics have been quick to point out that he doesn’t understand fundamental intricacies involved in cost per action advertising and suggesting that Google has a big challenge: getting advertisers to let them into the transaction event itself. Silence critics! Google Checkout is the transaction event. Adoption of Google Checkout is racing forward and shows few signs of slowing down given numerous benefits that store owners/advertisers are having a hard time saying no to.
What about fraud? I say, what about it!? “How will Google deal with fraud—a ‘relationship based phenomenon?’” ask the skeptics. I dunno—how do traditional affiliate (or even worse) CPA networks deal with fraud? That’s right, in reality they don’t deal with it… to the delight of advertisers who fund it... they pay it some lip service when needed otherwise they ignore it and keep ringing the cash register.
How Much is Too Much?
Too much data in Google’s control you say? Perhaps… but there are plenty of sellers/advertisers who don’t give Google all the goods or who are willing to trade off some rather important data (transactions, search and Web site analytics) in return for what amounts to free advertising that is tied directly to transactions—pure performance based advertising.
I find it ironic that affiliate networks like that owned by Valueclick were largely responsible for building Google and Yahoo Search’s entire paid search business (via affiliates who were willing to experiment with “media/traffic arbitrage") before advertisers would even consider paying for a visitor on a per click basis. Today, Google turns against such networks as it makes a grab for direct relationships with those who sell on the Web. At least they’re sharing with affiliates!
LATE ENTRY: This just in…
... this is a dangerous and most brilliant assault on the “cost per click” (CPC) plans of Microsoft, Yahoo and everyone else who is coming to the party… late. This move is about cost-per-action advertising. It is about kicking up the online advertising business a notch!
Although… shame on Om for suggesting that with CPA, “As an advertiser, you have no risk.” Not true but let’s face it most advertisers have shown us for years now that they’re willing to stomach the risk so long as they can get enough of the good with the bad. Burying head in sand never hurts. So does that make Om’s statement true? If an advertiser gets screwed by an adware affiliate and nobody knows does it does the advertiser really get screwed?
June 29, 2006
by Jeff Molander
Are you curious about these small performance advertising networks featuring sports car give-aways and huge cash prizes? Today I aim to take the lid off of affiliate marketing’s secret underworld of “affiliates that are affiliates of affiliates” (read: layers of middle-men). I’ll give you the real story behind so-called CPA (pay-for-performance Cost Per Acquisition) networks—what they are, how they operate and why advertisers lose when working with them.
I’ll also explain why every marketer with an affiliate program can learn a lesson from an affiliate-focused brawl between two affiliate solution vendors, aZoogleads and Valueclick’s Commission Junction, as it relates to eBay’s affiliate program (one of the largest).
Behind the scenes traditional affiliate networks are duking it out with their own affiliates who look to compete. What does this translate to for marketers? Whether you’re looking for sales or leads affiliate networks have become, in varying degrees, inefficient. I endeavor to explain how: Adware has played a role as has affiliate marketing’s intersection with search and, finally, CPA networks—miniature affiliate networks.
CPA Networks Defined
In order to understand what a CPA network is one must understand, first, where they came from. While this month’s Revenue Magazine discusses Cost Per Action networks and attempts to contrast them against “traditional” affiliate networks like Commission Junction and Linkshare, it fails to present the most interesting, useful perspectives that speak to why CPA networks are the work of the devil and what, exactly, they are.
In order to understand what a CPA network is one needs to understand a few facts:
1) Affiliates have grown up to become affiliate networks
2) Many of your biggest affiliates aren’t affiliates; rather, they’re affiliates who have transformed into affiliate ("CPA") networks
3) These affiliates-now-networks are better at motivating affiliates than traditional affiliate networks
Confused? Here’s an example.
An advertiser pays 10% to any affiliate (or “publisher") off the street through their CJ program. It pays 15% to its very best or “super affiliates.” One day, a super affiliate realizes that it could use it’s privileged position and eliminate all the business risk associated with being an affiliate (buying advertising, conducting search optimization, managing product data feeds, testing creatives). The affiliate simply approaches and motivates other affiliates to generate orders and/or leads for the advertiser… offering them 12%. Hey, that’s better than the 10% “street” commission over at CJ. The other 3%? That’s profit for the super affiliate. Indeed, it comes at the rate of 80-90% margin to the “super affiliate now turned network”—even after it has purchased 2 Porsche Boxters as contest prizes to their highest grossing affiliates. Sure beats the little tchotckies advertisers themselves use as contest bait (you can keep your plane tickets Orbitz!).
Dangers for Advertisers, Profits for CPA Networks
The result? From the advertiser’s perspective, transparency is further clouded and affiliate accountability is diminished if not eliminated. At this point advertisers are multiple arms length from the affiliates who present their brand—without access to their names, addresses basic company information, etc. They literally have no idea who is presenting their brand, how or where. Who does? Their affiliate who has “gone network” on them.
Then again many big brands out there don’t care… “it’s a volume game”—the budget waste and lack of control (risk) is accepted as a cost of doing business.
Again, the “super affiliate turned network” takes its 15% and breaks it up. It’s operational costs amount to an ISP / hosting bill as most of these cats are programmers and can easily create a tracking solution - or lease it from Digital River (who recently acquired DirecTrack’s tech solutions division). In short, anyone can be an affiliate network today… so long as there are advertisers willing to pay the various layers.
Advertisers Waking Up
Increasingly, advertisers are being invited to understand the details of this rather scandalous shell game that translates to “serious financial waste” within their affiliate programs. Of course, some marketers are more vulnerable than others based entirely on how much they choose to understand regarding how affiliates send visitors and rack up commissions. Some are happy to not know the details, over-paying affiliates on occasion, while others are more frugal.
Increasingly, larger numbers of advertisers are troubled by this phenomenon and are making change by auditing affiliate programs. As a result, affiliate rules, terms & conditions are being modified to reflect a more balanced financial arrangement.
eBay Offering Retailers A Lesson
eBay knows how to run an affiliate program—paying affiliates based on customers acquired and percentage of actual profit (unlike retailers). Also unlike retailers eBay has announced that it will not participate in Commission Junction’s (CJ) Link Management Initiative. What’s good for the rest of Valueclick’s CJ unit isn’t good enough for eBay, a company that recently found itself in the middle of a spat between CJ and rival Azoogleads—an affiliate turned competitor; indeed, a CPA network that wanted to remain a CJ affiliate and have some direct relationships with advertisers.
In summary, Azoogleads built its business on CJ’s back (as a super affiliate), got funded and then sat up and proclaimed itself a competitor (a CPA network).
If I were eBay I’d be mid-stream on a seven year itch considering the circumstances. Could the AzoogleAds - Commission Junction spat signal eBay’s love affair with Valueclick’s Commission Junction is waning? Might eBay tell them both to kiss off? While some might label this wild speculation I believe that eBay’s technical prowess is significant (read: they could easily build and implement their own tracking and reporting) and affiliate loyalty strong (affiliates are more likely to do what eBay suggests than take orders from a network). Does the third party (network) really play a valued role?
How Super Affiliates Beat Networks
Indeed, the battle is over and in some ways affiliates that are now CPA networks have beaten the networks that helped create them. They maintain much higher profit margins and are flush with cash to the point where they pay their affiliates in advance.
AzoogleAds’ funding, I thought, was remarkable. I suggested in a blog at Revenews that VCLK had better pay it some attention. To summarize, a few years ago large affiliates figured out that they could create a business much more lucrative than being an advertisers’ affiliate… even if they were receiving an elevated commission/bounty from you (the advertiser). In fact, this “super affiliate” level commission would allow them to beat the affiliate network at their own game.
Could Affiliate Networks Implode?
Almost like a cherry on top of a poison-laced sundae, the realization of this shell game might just send retail-based advertisers over the top. Realization of the above described economics could be the straw that breaks their back and forces large, multi-channel advertisers - and even some smaller brands - to bring affiliate marketing in house—out of the hands of affiliate networks that have, in many ways, failed them. Retailers have already realized:
- Affiliate marketing doesn’t scale well
- The promise of a “virtual sales force of teeming thousands” offers little value and increased risks
- As their own search efforts increase, affiliates offer decreased value (as affiliate search marketing tactics clash with the advertisers’ tactics)
When you realize how simple affiliate marketing tracking and reporting technology really is you start to see how a techno-Goliath like eBay (who should already formed tight bonds with its affiliates) might just take a pass on not only the shell game but the inflated costs that come with it. I’m left wondering if the entire affiliate services industry loses here.
As a side note, in September 2002 “auctions” made up 15% of CJ’s business according to publicly circulated documents defining “Vertical Market Strength.”
June 09, 2006
by Jeff Molander
I’ve said it for years now and it seems that some are in agreement… one very large segment of “affiliate creativity” is capitalizing on advertisers’ other BIG media spends by leveraging their ignorance of (and non-participation in) paid search. It can be summed up as:
Advertisers spend millions on media buys (TV ads). Consumers navigate to the advertiser brand using Google (not their browser address bar). Affiliates pay pennies for Google ads so as to shuttle consumers onward to advertisers’ site, pocketing a commission with HUGE margins (considering the low cost of ads targeting your brand and high shopper conversion). I’ve been watching this since 1999, y’all and today we see an outstanding article in Electronic Retailer Magazine focusing on direct TV (DRTV) advertisers.
I’m giving a shout out to Paul Soltoff today, CEO of SendTec who tries playing nicey-nice in the onset of his piece, ”Should You Be Employing an Affiliate Program“ but in the end tells it like it really is without much sugar coating. Soltoff goes as far as giving examples of typical affiliate behavior.
Just what is that behavior? His very pointed piece is broken into two bits “Branding and Marketing Communications Risks.” Sounds familiar to me. The second chunk is entitled “Paying a Premium for Your Brand.”
Says Soltoff, “While manipulative marketing communications are a significant risk an even bigger risk can show up in your P&L statements should you let your affiliates go unchecked.” I’ve also discussed this here at Thoughtshapers in that our affiliate program audit clients are, increasingly, the CFO.
To be blunt, Soltoff is relentless in his clear illustration of what’s going on and how it’s BAD for DRTV advertisers.
An example from Soltoff’s article, “Should You Be Employing An Affiliate Program.”
March 31, 2006
by Jeff Molander
As you may know, eComxpo lives on for those of you who were able to snag a 90 day pass. Myself, I couldn’t help but notice some of the outstanding information the conference continues to provide our industry.
This year, Shawn Collins of ShawnCollins Consulting (and, of course, The Affiliate Summit) asked the following questions to his session attendees:
How do you recruit most of your affiliates?
To my continued amazement, nobody has taken Collins up on his dynamite best practice - that of using direct mail to recruit affiliates. That stated, getting an actual mailing address on these characters can prove to be difficult… but perhaps not if given the right tools. That stated, in today’s day and age, affiliates who hide (do not provide their contact details with Whois registrars and/or use Domains By Proxy to evade detection) should probably earn less consideration by marketers. After all, what’s to hide when doing business together?
Of course, I also know a place where you can find 200 top producing affiliates complete with names, address, email addresses and most of the time phone numbers… all of them eager to hear from potential marketing partners.
Which affiliate directories list your program?
Once a popular way to promote your affiliate program, directories have fallen out of fashion… probably given that there is no clear leading index and the data within them goes stale pretty quickly. Combine this with the fact that affiliates know where to find marketers with affiliate programs—inside affiliate networks—and its no wonder directories have collected so much dust.
What is the strongest affiliate vertical for your program?
Here’s a great question that doesn’t focus on recruitment and responses are all over the board but, once again, look at how search stands out as the leader. Is it any wonder? Not to me as I just got done reading MarketingSherpa’s Search Benchmarking Guide book.
What are affiliates suggesting is the biggest challenge for them looking forward? Nearly SIXTY percent report their inability to control the search environment (paid and natural/algorithmic) as their biggest headache.
eComxpo is already promoting its 2006 event and with 5200 registrants this October (and a solid line of sponsors) they’ve got a serious head of steam.Close
November 14, 2005
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