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The Competitive Web and Affiliate Marketing – doomed?

At Pubcon I got into a conversation about affiliate marketing. I hold the position that affiliate marketing is a temporary opportunity, and not one for long-term investment. By my read, an affiliate is useful for only as long as the more traditional sales process is unable to satisfy consumer demand. As soon as a more traditional sales model catches up and is able to satisfy demand, the affiliate is an unnecessary middleman and should be “disintermediated”.

The attraction of affiliate marketing to buyers is largely based on convenience. I can sell without handling product, and do it using technology that I happen to control rather easily. The attraction of affiliate marketing to  sellers has largely been based on technology. An affiliate is able to use technology to reach customers (such as through SEO tactics) at a lower cost than the seller or her traditional distributors.

I also don’t enjoy getting ripped off, and I believe (based on experience) that the affiliate game is ripe with rip offs. Affiliate networks and upstream affiliates running sub-affiliate programs can “skim” with little if any accountability. Much like traditional industry turns to “monetize the channel” when end-user profits get squeezed (to make money off of the distribution and sales channel…often at higher profit rates that the product sale itself), the affiliate programs are monetizing affiliates as well as vendors. As vendor profits get squeezed by the market, the affiliates represent an opportunity for additional profits.

Those of us who run test purchases through vendors and affiliate programs know they often fail to track, thus failing to pay commission. We usually can’t know exactly why that happens.

So when I read of yet another cookie washing scheme by an affiliate system seller, I was reminded of that conversation. Here’s the summary of it (discussed in detail at abestweb forum):

First you, as affiliate, signed a contract with the seller regarding terms of the business partnership. You will refer traffic to their ecommerce solution, and they will provide a means for tracking that referral (by a browser cookie) and crediting you with the sale. The cookie term is very important, because the longer the cookie term, the longer you have to capture a sale that may take time to close. If a visitor takes a look today but doesn’t buy, your cookie persists in their browser. If they return to buy at a later date, and it is within your cookie term, you still get the sales commission.

In the case reported at abestweb, the selling company also contracted another business (besides you) to work on “abandoned shopping carts”. When a shopper carts an item and then doesn’t buy it, the ecommerce website knows (by the cookie) enough information to follow up with that potential customer if desired. This third-party to your affiliate arrangement sends a follow up e-mail to the potential customer and tries to induce them to come back and actually buy. In this case, free shipping was offered as an inducement. As you can imagine, it has a high success rate. They are able to “convert” a large percentage of abandoned shopping carts.

And they provide this service to the seller for “free”.

How can that be? Well, they overwrite the existing cookie (yours) with their own (they, too act as an affiliate) and thus get the commission on the sale. And since abandoned carts can really only be converted right away (at the buying opportunity) this is done within YOUR contracted cookie term. In effect, the seller has contracted out the same commission twice, and you will lose. Twice. Here’s why.

First, you spent the cost of acquiring the customer. The cookie-washing company was handed the customer’s data for free as part of the shopping cart abandonment process. Second, you don’t get the commission. So that’s a double whammy on your bottom line.

Think this  is outright theft? Well, I doubt the intent is there. I doubt the seller actually knows what is going on, because the cookie washing is integrated into the shopping cart software. Legally, however, of course it is a problem for the seller who has violated her contract with you (and probably her contract with that cookie-washing system vendor). But it’s only a problem if the affiliate pursues it.

I think the affiliate game is a mess in progress or a mess about to happen, depending on where you sit. It exists as an industry because of a technology opportunity, but that technology has now advanced considerably. If your technology has not similarly advanced, so that you can detect, counter, or avoid additional threats like the one mentioned, then you will be the target of the “channel monetization”. Your productivity will be funding the system, as it sells product for minimal margin and the other players live off the profits drawn from your contributed “free” efforts.  That’s not my idea of a winning business strategy. How about you?

If I had to project forward and make predictions about the online ecommerce affiliate future (and of course I have to do that because I am an affiliate) I would expect that the affiliate model would now become much more HIGH PROFILE, promoted more heavily by vendors and affiliate networks. You will see more “make money as an affiliate” activity than ever before as this problem increases and affiliate profits are trimmed back. Networks and vendors will provide more advanced (and thus simple) programs, with javascript links and “easy” accounting. The reason is simple – as it gets easier to be an affiliate (have a computer? Work from home!), and harder to keep savvy affiliate marketers in the program (who wants to lose money to cookie washing?) the sellers/networks will need many more, less-savvy affiliate marketers to maintain sales.

The vendors/networks can say “let those who understand the process choose to work elsewhere”, with no need to apologize, and then induce an army of naive affiliate marketers to join and refer traffic. I expect it to get to the point where those who understand the game will consider it “ridiculous” to be an affiliate, and yet still the sellers will enjoy a steady stream of new affiliates signing up looking for the chance to make money the easy way. It won’t change until the system crashes under the weight of maintenance of that large volume of low-producing affiliates. Everybody knows it’s the Super Affiliates who drive sales, and Super Affiliates won’t suffer the cookie-washing and other cheats. They will find another way to earn their commissions.

Looking back on the Pubcon conversation, is this the wrong time to become an affiliate marketer? Not at all. But as has always been the case, things are not as they seem. You will have to innovate and work hard and pay attention. You will have to ptimize your business before someone else optimizes the profits they pay you. In general, it is not easy money, and won’t be getting any easier. But while the opportunity that comes to you is not likely to be a good one, it may be what you need to get into the game. But if you are just joining the game, I do think you need to achieve Super Affiliate status as fast as you can, so you can achieve a position of influence with vendors, and avoid getting eaten alive by the scams.

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4 Responses to “The Competitive Web and Affiliate Marketing – doomed?”

  1. Aaron Pratt Says:

    Great article!

    I see affiliates as duplicate content, you can only have so much duplicate content until it is dropped down into supplemental. :)

    BUT there is still a HUGE amount of money to be made in this area fo’ sure.

  2. Alex Goad Says:

    Have to lightly disagree here. It may get harder, but the logistics of online affiliate marketing make it a unique market where it is viable for individuals to “represent” huge brands, something that could never be done offline.

    To say that the mainstream will get all the pie only has solid foundation if you think there is a finite number of buyers, otherwise, why impose these limitations?

    John replies: That’s a good point about representation. I don’t disagree that affiliate marketing can work for the vendor, but I don’t see it continuing to pay off for the affiliate. Take a look closely at who runs those cookie-washing middle companies….they are likely to be former SEOs/Super Affiliates who know the game very, very well.

  3. Jason Rodriguez Says:

    Hey John,

    Nice write-up, although I wouldn’t go as far as “doomed”. From my perspective, I’m seeing many affiliate marketers migrate from traditional sales programs to CPA models (pay per download/lead/email/etc.) Programs which otherwise don’t rely on cookies or repeat visitors. Hence, the exponential growth of CPA networks such as Azoogle.

    I think this is a trend we’ll continue to see. Although, there is the other side of the coin… where Google is rapidly making it more difficult for these programs to be promoted through PPC, which is a huge traffic driver for these programs.

    John replies: Good point about CPA. Too bad Azoogle is one of the few (only?) available CPA options, and even then, not very available yet to many who want to participate. Funny how a company can get a reputation for paying out/playing fair, and get swamped with applications.

  4. Darren McLaughlin Says:

    Very good post. It’s really hard not to feel cheated when you read something like this. Maybe someone should consider building a blacklist of companies that wash your cookies like this.