by Dana Blankenhorn
Volume IV, No. IV
For the Week of January 24, 2000

This Week's Clue: Can Affiliate Marketing Succeed?

This Week's Clue: Can Affiliate Marketing Succeed?

SSP (Shameless Self Promotion)

DMA Declares War on Privacy

A Useful Tool From the Post Office

Tracking AOL-Time

Clued-in, Clueless

Affiliate marketing works great for sites seeking to lower their marketing costs, and often works fine for the companies building the affiliate networks. It has not worked, to date, for the affiliates.

There are some big exceptions, of course. When a site gains enough power and traffic (driven by heavy spending on content and advertising) it can sign a more lucrative affiliate deal. The commerce plays of AOL, Yahoo, Excite and (more recently) major content sites are basically affiliate marketing deals, but with a difference. 

For "promotional considerations" or "placement," the sites take cash up-front and a good hunk of the stores' cash flow. The cash forces the store to put resources into its effort for the site, like an advance on royalties for a book. The deal can work for the store, too - instead of paying out a third of its revenue for advertising and marketing materials, it's paying 15%, plus development costs, plus some unspecified up-front payment. 

The difference between these deals and common affiliate agreements lies in who is doing the work. When a store goes on AOL it does the work. When you put up an "affiliate page" on your site you do the work. Let me give you an example.

Over the last six months I've been experimenting with affiliate marketing here at a-clue.com, using Amazon's affiliate scheme. I cashed a $100 check in the third quarter of the year, and I'm expecting a second one.

I've found that when a text link relates to a point I'm making, a link makes good sense. When a link isn't in context it's just an ad. I've also found that the success of an affiliate link owes a lot to serendipity. The best-selling link I've done here wasn't to some e-commerce tome, but to the movie "Monty Python and the Holy Grail."

Most affiliates, even Amazon affiliates, don't do nearly as well as I have, and here's why. You have to be reading a page intently - you must give it enormous credibility - before taking a content link to a buy button. To earn that credibility I must work very hard. The time spent on creating credible content links is out of proportion to the buy rate. It just takes an enormous amount of traffic to make the thing work. AOL, Yahoo, and Excite have a tremendous amount of traffic.

The best affiliate program I've come across (and one of the most articulate advocates of careful affiliate marketing) is that of Art.Com under Bill Lederer. Bill admitted back in late 1998 that 95% of his sales came from 5% of his affiliates, so he put his staff to work on those 5%. His program had fewer sites per affiliate manager than others, allowing managers to customize offers. But again, we're illustrating the same problem as before. He brought the benefits to a wider audience of sites, but only a slightly wider audience.

New affiliate operators like Affinia, Vstore and Nexchange  have appeared in the last year, claiming they're working for the sites, not the merchants, by offering complete lines of merchandise built around the theme of each affiliate site. They say the problem is sites can't figure out exactly what to offer, and don't have the expertise to create attractive pages around affiliate offers. By building stores around the sites' trade dress, and using the data they collect to fine-tune the offers, the new affiliate operators claim to increase sales for the sites, making the game more even. 

But is it more even, or are the new affiliate arrangements merely more sophisticated ways to grab a site's traffic without really paying for it? Writing in Online Ads  for January 3, Joel Gehman of iRant.com said it's the latter. Affinia's cost-per-click model got him just $30 for 500 referrals to merchants, although the system was easy to use. Vstore, on the other hand, can't really be customized to a site "in terms of look & feel, or product selection." He dumped it before getting any results.

An official of Nexchange, which is based in Atlanta, has invited me in for a visit, and I hope to get there soon. In any case, Nexchange too seems to have concluded that concentrating on small sites is a sucker's game. At the beginning of the year, Nexchange signed a deal with nFront, which sells Internet banking services to 210 small banks. 

Under the terms of the "partnership," as Nexchange's press release calls it, Nexchange will put retail malls into each of nFront's virtual branches - the banks become Nexchange affiliates, and nFront is their agent. The banks will earn commissions of 5-30 percent, depending on how much business they bring in, but will be able to customize their online malls with their own trade dress. Among the stores that now work with Nexchange are Just for Feet, Proflowers, eBags, and Ashford.com. (Getting stores, as we've noted, is the easy part.) 

The year 2000 may be the last chance for affiliate marketing. Previous failures (for small sites) have this form of marketing flying under the news radar. If and when it crashes, the question is, will it make a sound?

SSP (Shameless Self-Promotion)

I hereby shamelessly announce a promotion. Intellectual Capital  has seen fit, after a year of taking my stuff, to name me a "contributing editor." There's no money in that, but it does put me on a masthead alongside such fine writers on politics (and other things) as Pete duPont, Nadine Strossen, and Jerry Pournelle (among many others). A note here to all journalists - if it's money that motivates you, you're in the wrong business.

I have begun my adventure at Voxcap.Com, discussing how next year's elections might impact the future of the Internet. I had two features in a recent special section of the Chicago Tribune  as well.

I write daily for ClickZ, and appear on TechEdge Radio. I write monthly columns for  NetMarketing, Boardwatch, and  Intellectual Capital. Once every other month I'm in CLEC Magazine. The lead item here is also the Monday e-commerce column of Andover.News. You can still buy my book . Subscription instructions are at the bottom of each issue.

Remember that it's still journalism that keeps the Clues coming. Give me a call at 404-373-7634. (Yes, I do some commercial writing.) Now back to the show...

Takes on the News

DMA Declares War on Privacy

Recently I urged that members of the Association of Interactive Media leave the group because of its links to the Direct Marketing Association. For that I drew a stern call from one of its officials, who said that AIM is fighting hard to reconcile the DMA's clueless stand on "opt-out" e-mail marketing with the reality AIM members like ClickZ live with each day.

Unfortunately the DMA's problems go deeper than that. Following a Supreme Court decision stating the federal government has the right to control states' selling of drivers' license data to marketers, , the group has in effect declared war on privacy.

As Melissa Campanelli wrote in DM News, an industry magazine, the DMA will put its lobbyists to work in Congress immediately trying to overturn the Driver's Privacy Protection Act, a proposal first pushed by Alabama Republican Richard Shelby. Do not underestimate the DMA's ability to convince even Shelby himself that he must reverse course. And if that's not a direct assault on the idea of privacy, I don't know what is.

A Useful Tool From the Post Office

Every e-commerce site manager knows how UPS and FedEx can track packages from their Web sites. It seems the U.S. Postal Service is putting in a similar capability called the USPS Planet Code.

So far, according to Zona Research, Planet Code is mainly being used by outfits like Experian (formerly TRW's credit reporting service), which is using it to create Postal Information Network Plus (ePIN+), a service to track bills and other mass-mailed, bar-coded documents. According to Zona Research, since responses are also bar-coded, ePIN+ can also track the status of responses from the time they are first scanned. Other users of this system include Harte Hanks and Moore Response Graphics, which use Planet Code for basic tracking.

Word-up to the DMA. What the government takes, technology can give. Get with the program.

Tracking AOL-Time

The AOL-Time merger still dominates the punditry, and it likely will for some time. (It's too easy to write about, and draws too strong a response, for it to be otherwise.)

Rather than just nattering about it, I'm going to spend some time tracking the news threads running alongside it. Here are two. The Washington Post reported that Steve Case got his continued control over AOL written into the merger document itself. Apparently he saw what the Time suits did to Ted Turner and resolved it wouldn't happen in Virginia. This is clued-in thinking, but the fact he had to do it should disquiet anyone who thinks this will be an easy company to run.

Second, the assumption that "big media" will inevitably dominate all thought got a stiff challenge from a story in USA Today that the rot at Disney is extending higher up the executive ladder. The head of the Disney studio is leaving for a Web start-up. Even if you can guarantee people will stay with a contract, you can't guarantee their passion. That last is also a Clue for Case.

Clued-in, Clueless

Clued-in is Network Associates  for announcing it will break itself into four to six pieces . Mergers and conglomeration don't always work - the fact is they often don't work.

Clueless are all analysts (including partners Accel Partners) who think Wal-Mart will have an easy time overtaking Amazon or anyone else . They're big hat and no cattle. Wal-Mart must build new infrastructure and prove themselves to a skeptical audience. It's do-able, but awesomely expensive and difficult.

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