Digitrends Affliate Programs: A Win-Win Situation? by Brett Bush (Winter 1999 edition) A number of online commerce players today are leveraging the democratic nature of the Internet to expand their sales promotion exposure through the use of affiliate programs. It can be wild and woolly retailing, and there can be many variations, from the huge systems such as Amazon.com's 140,000 Associates Program, to much smaller versions selling everything from cigars to lobsters. But the concept of online "parent" Web merchants and their "affiliate" offspring selling wares within the context of appropriate web environments, is a natural extension of the continual development of formal and informal communities of all kinds within the Internet. Computer product vendor Cyberian Outpost has had much success with the "Buy It Now" program and CDnow has a notable business with its "Cosmic Credit" affiliate program. Heavyweights Amazon.com, Reel.com, and Bige.com are also using affiliate programs, as is nearly every notable online retailer. And the participating affiliates are also reaping the benefits, ranging from the guy in Albuquerque with the David Bowie fan Web site to BatNet, an online network of business associations. Affiliate programs work like this: A merchant such as CDnow offers on its site the "Cosmic Credit" program to visitors who operate Web sites or pages. Music fan sites or community homesteaders are offered the deal of placing a CDnow link on their sites, and a percentage of all the sales that result from the attributable click-throughs. Other affiliate programs offer an array of placement and commission structures. Enabling the Major Players LinkShare Corporation is one of the leaders of the pack enabling Web sites to undertake affiliate programs. Clients include Cyberian Outpost, Avon, and Omaha Steaks. According to Steve Messer, CEO and founder of LinkShare, the key these days to making an affiliate program work is to determine how to help your affiliate partners sell. "You have to inform the customer," says Messer. "The sites that do well by participating in affiliate programs are offering a true value-added element. They can't push products, or just put an icon or banner up." Messer adds that the audience quality of the site for its sales affiliate is more important than the volume of traffic. "A site that has a core base of 50 graphic designers is very important to a company like Cyberian Outpost," he says. "They might sell several Mac systems a month through that relationship." Commission structures in affiliate programs vary from a straight cash commission on sales, usually 5% to 10%, to "bounties" on click-throughs, to per lead, or per-inquiry. Some merchants, including Cyberian Outpost, offer a higher commission rate if the affiliate chooses store credit over cash. Going After the Little Guy CDnow has a 130,000 member affiliate program, Cosmic Credit, which accounts for approximately 15% of the company's overall sales, according to affiliate manager Nyles Lannon. The company keeps their program in-house, and was developed by Lannon. "Because the system is maintained in-house, we benefit from flexibility and total control," he says. "We can upgrade it, tweak it, or integrate with offers that are going on the site." Certain artists sell an "outrageous amount" through the affiliate fan sites, said Lannon, including bands with cult followings such as Dream Theater. But also notable, said Lannon, are major label groups with huge fan followings and multiple Web sites such as Hanson and Metallica. CDnow currently has a staff of seven dedicated to running the Cosmic Credit program, which launched in March, 1997. "It's purposefully catered towards smaller sites; almost anyone can join," said Lannon. "We redesigned the Cosmic Credit site in April of last year, and it's geared for a younger, personal feel. There are no words that sound too business-like. We use the word 'cool' about 500 times. We also offer a lot of personal artist-oriented incentives and contests for our affiliate members." The company has struck deals with community sites including GeoCities. Cyberian Outpost has used that same tactic to gather large numbers of affiliates in one fell swoop its relationship with Host America, for example, opened up the affiliate opportunity to that network's 13,000 small business sites. In-House vs. Ootsourcing Cyberian Outpost launched its affiliate program in December 1997. After a few months of trying to handle the program in-house, the company shopped for outsource companies to handle it, and settled on LinkShare. "Maintaining the program in-house was manually intensive. We were looking for a way to automate the process, and LinkShare gave us the most automated option," says Alissa Perry, manager of Cyberian Outpost's affiliate program. "It allows us to continue to build the membership, while also keeping an eye on existing members. Maintaining a good relationship with affiliates is key to this program." The Outpost currently has a staff of three to run the affiliate program, and Perry notes that the department will grow. Participants in the Outpost program include BatNet (www.batnet1.com), an aggregator of business associations online, which offers its members dozens of benefits, incentives and discounts through affinity or affiliate programs with merchant sites ranging from Avis Rent A Car to Dogtoys and Virtual Vineyards. Despite the large number of affiliate offerings available to BatNet members, Cyberian Outpost noted that the network pulls a significant volume of sales for its products. HOW TO MAKE IT ALL WORK What do users think about this? According to LinkShare's Messer, who tracks usage patterns thoroughly for his clients, "Users respond positively when the vendor isn't portrayed as an advertiser, but as a partner. It really goes back to the grass-roots nature of the Web. A site might have a bulletin board where visitors can rate their laser printer, and discuss printers, and be offered a link to a company like Cyberian Outpost to go buy the printer. It's really personal; it's how commerce worked before superstores." Affiliate Programs Are Smokin' Tom Suhadolnik is the president and founder of TheSmokeShop.com, and has about 2,000 members in his affiliate program. Members include cigar-rating sites, lifestyle sites, golf, wine, and food-related sites. The company also saw business from affiliates who created Monica Lewinsky sites, especially those that included the more salacious parts of the Starr Report. He says affiliates account for about 15% of his business. Smokeshop.com offers a 10% commission, and, unlike some other affiliate programs, will credit an affiliate with a customer who buys within seven days of that customer's initial click-through. "Some of the bigger companies online can strong-arm, and only pay commission if the customer buys on the first visit," observes Suhadolnik. "It isn't fair." And he agrees with LinkShare's Messer that "you can't just throw up a banner," emphasizing the need for the affiliate to embed the link in a contextual way that makes it truly valuable to the visitor. "A lot of people don't want the Internet commercialized," he says. "And on the Internet companies have been trying to extend their brand without knowing what they are doing." Win-Win-Lose? There's also the potential for fraud. Some affiliate programs pay on a "bounty" structure for click-throughs, instead of on actual purchases. "I was seeing high, repetitive traffic originating from an Elton John site," says TheSmokeShop's Suhadolnik, "and there was just no tie-in with cigars." He, and others, emphasizes the need to constantly monitor activity patterns. LinkShare charges $5,000 up-front to get an affiliate program up and running, and then charges a percentage of resulting sales. The company offers a variety of auditing and reporting capabilities. "There's a danger to how fast this is growing," said CEO Messer. "Some sites aren't tracking their affiliate members properly, and there are some inexpensive software packages that just don't work well." Web businesses doing surprising business through affiliate programs include candle vendor Wick's End (www.wicksend.com), Publishers Clearinghouse, and K-Tel. In addition to merchants selling hard goods, several information-related sources take advantage of affiliate programs. "There's a community focused on everything on the Internet," notes Messer. "There's no limit to what type of site can take advantage of an affiliate program." From all sides of the equation, it is considered essential to create a strong, ongoing, relationship with affiliate members and the clients they bring to the business. CDnow has a rich Web site for Cosmic Credit affiliate members, which includes contests that are targeted to that program's fan-based sites. The company also offers special discounts for customers that come via Cosmic Credit. "We go far beyond just a cash commission," says Lannon. "Merchants must create a central place for affiliates to go to," says LinkShare's Messer. "It's worked so well for Cyberian Outpost because they have a dedicated affiliate manager who can help their affiliates effectively sell their products." Expect to see all sorts of variations on the affiliate theme in the future. Emaginet, developer of the "e-centives" online digital couponing and promotions technology (www.ecentives.com) whereby consumers earn benefits in exchange for providing certain basic profile information and shopping interests, plans on developing an affiliate program sometime in 1999. While the affiliate program concept might one day suffer from over-saturation, those who operate theirs with services like the old-fashioned days of merchant relations can continue to thrive. Brett Bush is a writer, editor and Internet industry consultant based in Los Angeles. She can be reached at brettbush@aol.com.