9 steps to a successful online affiliate program

February 22, 2011 § Leave a comment

Affiliate programs, where you generate incremental traffic to your site through third-party publishers who are compensated on a performance basis, can be a highly effective and efficient way to extend the reach of your brand.  Unlike with paid search or display advertising, affiliate marketing transaction costs can be relatively stable, and after scaling up to cover the initial program infrastructure – team, technology, tracking, etc. – the leads that come through can be highly profitable.  It’s no wonder that many brands have grown affiliate networks to 10 – 50% of their total sales volume.

Here’s a summary of what it takes to operate a successful online affiliate program, gleaned from years of running one myself.  It’s not entirely comprehensive (it assumes, for example, that you have a product or service that customers demand, and still requires the hard work of getting the word out), but if you can check off each of these items in the affirmative, you’ll be well on your way:

  1. Pay affiliates well – they’re doing the hard and sometimes costly work of generating leads, so compensate them appropriately. Make sure you’re in line with competitors’ programs. If your brand is comparatively weak or unknown, expect to pay more.
  2. Provide growth incentives – reward strong volume performance with higher commission tiers, bonus payments, or other incentives, to further motivate your affiliates to reach their full potential.  No doubt, this can be difficult to track.  Some affiliate platforms offer tools to manage this.  If you plan to manage commission tiers in house, make sure your accounting is right.
  3. Pay affiliates quickly – there can be quality/control issues with immediate payments, but generally speaking, the shorter the time between lead generation and payment, the more motivated your affiliates will be to drive new sales.  The most aggressive policy you can have is to pay for every lead (as opposed to a converted sale or even further out, a service installation).  But if you pay this way, expect an inverse relationship between volume and activations – higher volume but lower conversion.  Make sure your economics support your decision.
  4. Pay accurately – one of the most common criticisms of affiliate programs is that they lack the necessary tracking to ensure that affiliates get paid for everything they are owed. Once you get poor reputation in this regard, it’s very challenging to reverse it.
  5. Convert well – if you pay based on converted leads, a high commission alone will only get you so far. Regardless, you’ll need to achieve strong conversion rates for the long term viability of your business. Make continuous improvement a company priority.  Maximizing order flow conversion (or minimizing cart fall-out, if you prefer), is a topic in and of itself.  For now, let’s just agree that it’s a never ending process.
  6. Provide tangible support – no matter how well designed your program is, your affiliates will inevitably need support in one way or another … custom creative, program approvals, reporting, troubleshooting, etc. FAQs and Wikis alone won’t suffice.  Make sure you have the appropriate number of staff allocated to the program.
  7. Along with providing tangible support, you have to be responsive to your affiliates. Troubleshoot quickly, and they’ll be back on their way to generating sales for your brand.
  8. Help your affiliates to be successful — provide them with tools they need to close sales, such as a wide array of creative elements, content management, compelling acquisition offers and promotions, and so on.
  9. Establish clear guidelines – you will no doubt be concerned with issues such as channel conflicts, brand protection and so on. Provide your affiliates with guidelines that you expect them to follow. Then police aggressively by conducting keyword searches and at least sampling a set of affiliate pages on a regular basis.  Let your affiliates know that non-compliance will not be tolerated. Keep in mind that most affiliates want to do the right thing, but often times, programs are unclear, or don’t make it easy to comply.  The ones who follow the rules (or who mean to) will thank you for ridding the program of those who don’t.

Don’t launch your program until you’re in a position to provide the above. Once you are, promote aggressively. At a minimum, post a sign-up link in the footer of all your web sites. You may also test paid search, and certainly organic search and free directories. You may also want to participate in the large affiliate marketplaces, such as CommissionJunction and/or Linkshare, but note that you will be asked to pay a significant sum to do so. But you may find it worthwhile, especially if you don’t have the resources to build a support platform in-house, and can benefit from their reporting, payment and communication tools.

Resources:

Affiliate Network Rankings

Affiliate Program Directory Ex 1

Affiliate Program Directory Ex 2

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Beyond the politicking, the 30% “Apple Tax” is good for subscription publishers

February 16, 2011 § 4 Comments

In a story picked up by the Wall Street Journal and many other media outlets today, Apple clarified the new ground rules that publishers who wish to offer subscription services through its iTunes interface must abide by.  Starting this summer, publishers who promote subscription services via link-outs from their iPhone or iPad apps will be required to integrate the sign-up within the app itself, using Apple’s new payment platform.  Apple will levy a 30% fee for each sign-up.  Other details include:

  • Companies can continue to sell through their own Sites, but must then offer the same service and pricing within the Apple application
  • Companies can continue to link to their own subscription registration pages from the app, but must then offer the in-app registration option as well
  • Apple won’t automatically forward new customer name and email information to the publisher; the customer must opt-in for this to occur.  Apple claims this is to protect customer privacy
  • Compliance is expected no later than June 30

Predictably, the initial reaction from publishers is that the sky has fallen.  One publisher, representing the sentiment of many, I’m sure, was quoted as saying that the Apple Tax is “economically untenable” with its business model.  Another has said that the customer data opt-in provision gets in the way of its ability to forge a relationship with its users.  But let’s look at this issue from a different perspective.

As Apple is acting as a performance based channel (publishers pay no fees for listing their apps in the iTunes Store), the “tax”, as it’s been called, is no different from an affiliate commission.  Sales affiliates routinely command fees of 30% or more.   I’ve seen as high as 70%.  With benchmarks like these, 30% seems rather fair.  Until now, publishers have been getting a free ride.

Another important factor is customer lifetime value (CLV).  Any company publishing content worth its weight in salt is going to (1) be able to charge a premium relative to its cost to produce, and (2) retain the subscriber beyond the initial subscription period.  Its fully-loaded monthly margin, multiplied by its average subscriber months, is its CLV, which is offset by its initial Customer Acquisition Cost (CAC).  Assuming the Apple charge is one-time only, many publishers will more than recover the fee over the lifetime of the subscriber.  And let’s not forget that had it not been for Apple, the publisher would have incurred a CAC through its other channels.  And the cost to acquire a new sub – we’re talking about for paid services now – is typically non-trivial.  If your service commands a $100 annual subscription price, resulting in a $30 fee to Apple, you’re probably pretty happy.  Many publishers invest $100 or more to acquire a new sub.

I also expect that savvy publishers will identify ways to circumvent the system.  Apple seems to be saying that pricing (and let’s assume special offers as well) inside the app must mirror those available on linked pages outside the app.  But what about pricing and offers on marketing pages that aren’t linked to the app?  If the rules don’t apply there, publishers will be able to craft strategies that make it advantageous for customers to register outside the app, then download the app only for consumption purposes.  If, on the other hand, Apple has already closed this loophole, the fair-payment-for-services-performed and CLV arguments still apply.

Lastly, while this will certainly burden publishers, and especially those whose analog businesses are in heavy decline, as well as those who were 100% digital from the get-go, these new terms don’t amount to Armageddon for most.  Consider that for the time being, digital is a smaller segment than offline for traditional businesses, and within digital, Apple commands only one, albeit important, channel.  The magnitude will obviously vary by publisher.  But consider the example of the Financial Times, which reports that only 10% of its subs come through the iPad.

The bigger issue than the tax, I think, is that Apple has said that publishers will not receive customer names or email addresses unless opted-in by the new subs.  If they don’t, as will often be the case, it will make renewal marketing a bit more challenging (see the CLV argument), but not nearly impossible.  For instance, publishers could promote renewals through their service interfaces directly – as users log-in to access their content, the publishers will know who they are and the status of their billing relationships, even if not by specific name.  I suspect that smart, customer-minded publishers will make it worthwhile for users to opt-in, perhaps by offering something of incremental value, such as additional subscription months, exclusive content, or entry into a prize drawing.

Understandably, publishers need to make a lot of noise up front, and to vocalize their discontent with the new Apple terms.  After all, any charge that didn’t exist before is now going to negatively impact their margins.  But in the end, Apple is entitled to receive a commission for the channel it provides, and the more integrated purchasing experience is good for the consumer.  And a new channel with a relatively low customer acquisition cost is certainly good for the publisher.

The missing half of Mary Meeker’s Internet Trends presentation

February 11, 2011 § 3 Comments

Mary Meeker, formerly with Morgan Stanley, and now a partner at Kleiner Perkins, enjoys heavy praise each time she puts out one of her “state of the digital economy” Powerpoint decks.  I’m not quite ready to jump on that bandwagon.  Don’t get me wrong … I love having access to all that rich information in one, convenient place.  But these presentations (often 50+ pages) are heavy on charts that illustrate the past, and light on analysis that anticipates the future.   In her latest deck, you have to wade through 22 slides before arriving at one with original content (from KP’s portfolio companies) — all the prior slides, and most of those that follow, regurgitate data from 3rd party sources.

Mary Meeker, Internet trends (February, 2011)

Ms. Meeker compiles tons of interesting data to tell an articulate story of what’s already happening out there, but what I’d really like to see from her and her obviously talented team, are the implications.  How will these trends, such as the rapid rise in smartphone penetration, impact our economy, how we do business, or how we function in our daily lives?  Based on the trends she reports, here are some of the questions that need answering:

  • Will closed systems (like Apple’s) and open systems (like Google/Android’s and Microsoft’s) continue to co-exist, or will Apple eventually fall, like it did in the first PC era?
  • Are the people who buy iOS devices vs. Android vs. Windows Phone really that different?  And what does this mean for development and marketing strategies?
  • Will yesterday’s deal between Microsoft and Nokia be enough to save either company’s mobile business?
  • Will there be a shift in focus from app quantity to app quality?  In a market with 100s of thousands of choices (and counting), how will new publishers and developers break in?  Will the discouraging odds of getting noticed drive would-be app developers to other platforms?
  • Will the emerging dominance of mobile computing cause new businesses and business models to optimize first for mobile (rather than first for PC, which is typical now)?  What are these businesses likely to be?
  • How can domestic companies compete with international competitors, particularly in markets with greater long term upside than in the U.S. (Brazil, China, India)?
  • Is Facebook becoming like AIG … getting too big and central to fail?
  • Is the social aspect of social networking just a fad?  Will the focus of social platforms be entirely different 5 to 10 years from now, i.e., a bigger, broader purpose?
  • Is the longevity of today’s stars such as Groupon and Zynga determined mainly by their latest innovations, or have they created sustainable, defensible models worthy of continued investment?  Will these companies become platforms on which entire ecosystems can be built, creating opportunities for new businesses and consumer benefit?
  • What will be the next significant consumer or B2B behaviors to be disintermediated by mobile?
  • Will mobile users tolerate mobile advertising, and does it depend on format?  Will mobile advertising be effective?  If the answer to either of these questions is “no”, what business models will justify additional investment?
  • Are there any limits to what people will purchase on a mobile device (mcommerce)?

Of course there are countless other questions one could ask.  Now that Meeker has broadened her scope from market analyst to business builder, I hope she will see fit to take her presentations to the next level.  But Mary, if you’re listening, can you try to keep it under 60 or 70 pages? 😉

Social media ROI still a black-box for most companies

February 9, 2011 § Leave a comment

According to data compiled by eMarketer, and shared late last night by Mashable, most companies struggle to measure the ROI of their social media efforts, and many have yet to even initiate programs that leverage Facebook, Twitter, blogs, YouTube, or other top social platforms.  Of those who do participate, 84% said they didn’t even bother to measure ROI back in 2009, although the level of accountability increased sharply in 2010.  But for the great majority, ROI corresponded with “soft” measures, such as site traffic, fan counts, and “favorable” impressions.  These are primarily branding metrics, which isn’t necessarily a bad thing.  As I pointed out in my last post, there’s more upside for online media in brand advertising than in direct response.  But to realize the potential, advertisers will have to overcome the unpredictability and other challenges associated with online.  For now, direct response spending beats brand 3:1 online.  So, as it relates to social media, the question is: will it be the force that unlocks the potential of brand spending online, or will measurement tools continue to evolve to the point where CMOs can justify allocating a greater portion of their customer acquisition dollars?  My opinion is that measurement tools will continue to advance, and that social media have the ability to tap into both budget types.  The divsion will depend on the nature of the product or service being offered, with socially influenced and impulse products attracting direct response (fashion, games, low-cost), and high-inolvement products (autos, health, B2B) attracting brand dollars.  Let me know what you think in your comments below.

For Aol, The Huffington Post is a piece of a larger puzzle

February 7, 2011 § 3 Comments

Aol is making bold bets again.  It announced this morning that it will purchase the Web’s #1 blog, The Huffington Post, for $315M in cash and stock, and make its founder, Arianna Huffington, the editor-in-chief over all its content properties.  The deal comes on the heels of Aol’s acquisition of Michael Arrington’s popular TechCrunch blog, which became part of the Aol family last December.  In adding The Huffington Post’s 25-30M monthly readers to its stable, Aol advances its audience strategy, but is still dependent on a number of elements coming together before it can return to the days of meaningful revenue and profit growth.

The underlying assumption of Aol’s strategy is that the online ad spending market will continue to ramp aggressively because while ~40% of media time is spent online, still only ~15% of U.S. ad spending is on digital media.  This certainly seems to be playing out, as online advertising growth rates continue to hit double-digits, while overall ad spending is lumbering away at 1-4%.

               

Search is the leading format by far, but Google’s 76%+ share precludes all but the strongest of wills and deepest of pockets from participating.  Microsoft’s takeover of Yahoo’s search business was an outlier.  In November 2010, Ask.com announced that it would cease investing in its search business, and Aol outsourced its search business to Google years ago.  Even the famously determined Jason Calacanis, the serial entrepreneur and founder of search upstart, Mahalo, recently determined that he would pivot his business away from search and towards video how-to content. 

Under these circumstances, Aol has prudently chosen to focus its efforts on the display market, and in particular, online brand advertising, which at only 5-6% of the total brand advertising market — which itself is 165% larger than the direct response market – would seem to offer significant upside.

But there are reasons why brand spending lags in online media.  One is fragmentation.  Unlike in paid search, where most ad dollars flow through Google, display and brand advertising can be allocated across a dizzying array of portals and networks, each claiming unique reach and targeting capabilities.  Another barrier is the uneven content quality that serves as the anchor for brand advertising.  Advertisers know that their brands will be affected positively or negatively based on the quality of the content they’re associated with.  The fear of a negative “halo” is why YouTube’s 100% advertising-supported model is just now turning a profit, even though it nearly controls the user-generated video space, with 117M unique monthly visitors, and counting.  A third reason is that brand advertising, long the exclusive domain of broadcast TV and glossy print, have until now depended on the passive characteristics of those media to capture brief moments of consumer interest (and even then, is dependent on great creative to avoid being diluted by the thousands of marketing messages targeting us daily).  But online is a traditionally more active medium that plays right into the sweet spot of direct response advertising in general, and paid search in particular.  Establishing a brand connection with a consumer while she’s on a mission to check her Facebook page or to research where her favorite local band is playing on Saturday night, is immensely more challenging.  So now let’s take a look at Aol’s approach and progress with regards to these issues:

  • Fragmentation – this is where the recent acquisitions come in.  Aol had already reported growing audiences, but with The Huffington Post, its overall reach in the U.S. will be about 117M UVs.  Not a dominant position, but a meaningful number, to be sure.
  • Content Quality –Aol recognizes that its content must be home grown and exclusive if it is to differentiate itself and offer a “safe” platform on which to invest in brand advertising.  Its Patch (hyper-local content) and Seed (editorial platform) projects are an attempt at this, but neither has translated into revenue growth for the company as of yet.  Of course, the story is still being written, and Aol hasn’t been shy about posting some pretty lofty goals – in a recently released strategy doc, dubbed “The AOL Way”, it was revealed that Aol intends to ramp from 31,500 pieces of editorial content per month today, to 40,000 by the end of Q1.  Some have criticized Aol’s approach as “content farming”, a practice that Google said it plans to demote in its rankings in the near future.  Aol’s acquisitions of highly successful, branded blogs may be a safer approach.
  • Engagement – last year, Aol announced Project Devil; an attempt to drive premium ad rates and to make display advertising more engaging through larger formatting, cleaner design, and more interactivity.   It may prove to be a smart move, but by itself, doesn’t do enough to convert an “active” medium into one in which brand messages will be seen or heard.  For that, Aol needs online video into which it can place pre-roll advertising.  Aol’s strategy document indicates that its ambitions here, to embed video in 70% of its owned and operated pages from only 4% at the end of last year, are even greater than that for its content growth.  And it’s off to a good start.  In a letter explaining the HuffPo deal to employees, Tim Armstrong indicated that Aol’s video UVs are up 400% Y/Y for 2010, which wouldn’t be so impressive if he didn’t also mention that they already exceed those of Hulu.

About 3 minutes and 45 seconds into an eight minute interview with AllThingD’s Kara Swisher, Tim Armstrong and Arianna Huffington help justify the deal by citing their shared vision “… to create the future of brand advertising on the Internet …”  To reach that destination, many efforts must go right, including those that extend well beyond this partnership, and especially with regards to its video strategy.  So far, the trends are in its favor.  If they continue this way, Aol could very well pull off one of the great turn arounds in history, and indeed, create the future of online brand advertising.

Video entertainment … the fantasy list

February 3, 2011 § Leave a comment

If you’re in the media industry, you can’t avoid being caught up in the frenzy that is streaming video.  It’s the talk of the town.  Netflix this, and Hulu that.  There’s innovation from every angle, disruption of business models, and even venture dollars streaming in (pun intended).  It’s terrific fodder for the blogosphere.  Judging from the proliferation of products and services over the last few years (Amazon, Vudu, Roku, Boxee, Google TV, Apple TV, and so on), the market’s ready for services that let us access our content when and how we choose.  But for all the new solutions out there, none has fully delivered on the promise, which I’ll summarize as my media, my way.  The ideal is still a figment; leaving one to fantasize how, if given supreme power and influence, he’d design a solution from the ground up that meets all his needs.  My own wish list, which I think probably speaks for many, would include the following:

  • Provide a LOT of programming options, covering a broad range of genres and formats (i.e., short and long form).
  • Live programming, especially news and sports.  I would also have access to the content I want on demand.
  • The menu UI and navigation would be simple to use and easily harness the myriad of content choices.
  • Let me choose what to watch, and when, but also cater to my passive moods (which is most of the time when I’m watching TV) and curate the “must see” programs for me.
  • Deliver much of my content in HD.  And in the near future, HD3D (I’m happy to wait for when the goggles are no longer necessary).
  • Be ultra reliable, resistant to severe weather conditions, and don’t degrade in quality even if everyone in my neighborhood is online at the same time.
  • Push my content instantly.  Little or no time for downloading or buffering.
  • Seamlessly connect with my TVs.  It wouldn’t require another hardware component on the shelf, or if it did, it would be a small footprint.  Setup would be quick and straightforward.
  • Deliver content to my other screens as well – my PC/tablet and my smart phone.

A demanding list, I know.  But wait a second!  Doesn’t a cable subscription and DVR, combined with TV Everywhere deal structuring and authentication, deliver all of the wish list items, at least in part?  For all the hype out there, isn’t cable TV still the single best solution?  One of the last big pieces, streaming live video to our PCs and smart phones, appears to be falling into place with the latest deal announced earlier this week between Comcast and Turner.  VOD windows are shrinking as well.  The other domino is device compatibility, which is in the midst of tipping too (see also Comcast for iOS).  Comcast is obviously ahead of the curve on these initiatives, but is a reasonable proxy for the direction of the industry overall.

Don’t get me wrong – I’m not saying that the cable guys don’t have more work to do.  But with all the hubbub about the online-only challengers, it’s easy to lose sight of just how close the incumbents really are to the goal line.  The fact is that the challengers have a much bigger gap to fill.  Any household that chooses to “cut the cord” as things stand today will do so only with great sacrifice.  This video summarizes it nicely. 

My point is this … the online guys have helped to identify the market need, and in doing so, have been getting much of the attention.  But the buzz around their efforts has sounded the wake-up call for the paid TV incumbents.  Yes, traditional, subscription TV is expensive, and yes, the challengers will continue to work on the large gaps in technology and content (driving up their cost of goods, I might add).  The incumbents, though, have a solid head start, and the technology, the capital, the content relationships, and (maybe most importantly) the incentive, to strike back hard.  Already, they, and especially Comcast, have demonstrated that they can move relatively quickly.  So before you join the pile-on, give the cable guys some credit.  They will not sit idly by.  In fact, we can expect them to come out swinging.

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