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What the Muses Deign: How organized affiliate marketing is destroying small web publications

By Porruka (porruka@macedition.com) July 25, 2003

Businesses have always relied on special deals, revenue sharing and other barter arrangements to help bootstrap, whether it’s an employee-discount program with partners or special deals for vendors that come at the expense of some of the advertising costs. This is nothing new and can, in fact, lead to a solid and profitable business partnership when the stakes are spread equitably. However, Web marketing has formalized this process into something much uglier -- the organized affiliate marketing program.

With affiliate marketing, the story goes, vendors can ”pay for performance” and publications (be they formal or individual) can ”participate in the success” and “earn higher commissions” by providing an outlet for the vendor. This all sounds good, and surely it has been couched in attractive terms intentionally. The bald truth is that most affiliate marketers are making a bold power grab for free advertising. The sad thing is that most small Web publishers not only buy into this scam, they don’t even seem to realize the damage they’re doing to the overall small-publisher advertising market.

The economics of spam vs. the economics of affiliate marketing

Why would vendors want to do affiliate marketing? Obviously, it must provide some return. It does, and that return costs them nothing. What about the commissions? Mostly, the cost of commissions are far below the fair market value (depressed as it might be in an ad slump) of the ads that are presented to potential customers.

Consider the possibilities. The vendor could make an ad that has your name and perhaps references a product. This goes onto one of the major affiliate collections (such as Commission Junction). That ad will be shown thousands (perhaps millions) of times. If no one buys a product from the ad, it costs the vendor nothing. Nada. Zip. Zilch. (Except perhaps for a listing fee to the affiliate aggregator.)

No sales at no cost means the vendor gained nothing as well, right? Wrong. The vendor gains exposure, getting its name out in front of thousands or millions of potential customers, increasing the recall chances when the time comes to actually purchase. Two weeks later, said customers can come to the vendor site (or see the banner on a different site, click and buy -- otherwise known as a deferred purchase). It’s a clear win for the vendor. All the sites that displayed that ad (except for the one where the click actually happens) lose. Even the target of the click loses; the value of showing that ad has been substantially diminished considering how many times that ad has likely been shown. Add in the number of other underperforming ads from the affiliate aggregator and the price of any given ad rapidly approaches zero, even though it might actually have value if it were not being given away.

Basically, the publishers are allowing the vendors to advertise for free in the hopes that some money will come their way. When the ads are effectively free, what’s the incentive for the vendors to improve their marketing materials or improve the system so that publishers get a larger cut? There is none. Since advertising such as this is usually incremental to whatever primary ad vehicles the vendor uses, there’s little incentive for efficiency there, too. Whatever comes in is gravy, all the while improving the vendor’s brand recognition and reach with no risk.

It’s a free lunch for the vendors. Who wouldn’t want that to continue?

Getting chum-y with the sharks

As bad as many vendors are for propagating this scheme, sites that rely heavily (or exclusively) on affiliate marketing are just as bad. They enable this sort of behavior, and they allow and encourage the abuse. Yes, selling advertising, especially in a down market, is damned hard, and many sites don’t have the time nor the resources to dedicate to the sales effort. Affiliate aggregators would appear to make an attractive alternative in that case. For less effort than selling ads directly, a site gets access to hundreds (or thousands) of “name-brand” advertisers. By taking the easy way out, these sites are not only hurting themselves, they’re killing the market for small sites that are still trying to do legitimate ad sales. By glutting the market with often poorly targeted ad inventory, these sites falsely deflate the value of access. If a vendor can access 10 or 100 times the people with a free scattershot than it can with a paid ad, where’s the compelling case for the small Web site that charges for access?

This is not a problem that will go away, but it won’t get any better, either, until a better solution comes up. Right now, the vendors have all the power; it’s a buyers’ market (if you can call it that when most of the insertions are free) for small site ads.

Another way sites lose out

Let’s assume for a minute that your site actually generates enough commissions to warrant continued participation. When do you get your money? Quite a bit later, usually. You see, as an affiliate, you’re on the short end of the stick here, too. The aggregator (or the vendor, if you’re going direct) has to make sure it gets its money first. That’s not a bad business practice in and of itself, but it is one more chink in the benefit these programs supposedly provide. A 60-day wait for returns is not unusual before that money becomes “yours”. At that point, you have to make sure you hit whatever minimum amount the provider requires for the time period. If you don’t, that money stays with the vendor until you hit the minimum or a longer time elapses (sometimes as much as a year). Again, there are certain costs involved with disbursement, so a minimum amount isn’t bad by itself. It sure takes the shine off some of these programs, though.

Is there such a thing as a “good” affiliate program?

Individually negotiated agreements can always lead to good things between dedicated partners. These sorts of agreements that are in the best interest of both parties have long been a part of business and aren’t really included in this screed. The vast majority of programs out there today, though, are non-negotiable, one-sided behemoths. Some sites have reported good luck with Amazon’s affiliate program -- I think that’s because it is likely that if someone wants to make a purchase, Amazon is likely to have the item available. While the same damage is being done (free branding, etc.), the likelihood of return to the site is higher the more compelling the vendor is. Google’s new AdSense program is a form of affiliate marketing (that MacEdition is currently testing as well) that pays per click (PPC). The PPC model is better than the commission model in that vendors have a greater interest in making sales, but branding and other inordinately high benefits still accrue to the vendor regardless of the effectiveness of the given ad creative.

Stand up and be ... insolvent?

What is the answer? More and more Mac sites are starting to move to subscription models. This is a good thing, in my opinion, as even though it will shake out many weaker sites, the foundation will be much stronger for it. Also, the demarcation between sites that are hobbyist (no negative aspersions intended) and sites that are aiming to be successful businesses should be much clearer after the implosion. The number of sites (not just Mac sites) that are soliciting donations is also markedly rising.

Look at these sites; some of them are covered with ads. What gives? Those ads are likely affiliate ads. It’s been clear for a while that affiliate ads don’t work for publishers, but sites will not stand up for their rights, will not stand up and claim the value that is present in those assets. Why not? Some sites (especially the hobbyist sites that have no real plan to make money) simply don’t care. To them, any income is incremental. Others may be afraid of closing down. It can be a frightful consideration when something you’ve poured heart, soul, time and money into may cease to be. In some cases, any alternative may seem better, even if that’s just delaying the inevitable. As long as advertisers can go elsewhere and continue to get the free lunch, the pressure on ad sales will stay strong. One site can’t change this situation. Two sites can’t change it. To make substantive revisions in the payment structure and bring equity back, a large number of prominent sites in a category will have to brave the market forces and stand up for what’s right, turn away the “easy” money (which is almost none) and reassert control over the assets so carefully built. The vendors don’t own those content pages -- the publishers do, and it’s high time that sites realized that.

It’s a hard choice to make until you really look at it. If you’re paying the bills and making a nice salary off the affiliate ads, you might have some time before you have to really decide what to do. Everyone else should look long and hard at the performance of the ads on their sites. Look at the click-throughs. Are they high and you’re still not getting paid? That’s an indicator that you have an interested audience that should be worth paid access and that you’re giving away valuable access. Are you getting no click-throughs on certain advertisers? Drop them! Are you shelling out two-thirds of your ad inventory to affiliate marketers for little to no return? Dump those vendor ads and put house ads or public service announcements in there instead.

The reality is that as long as you give away ads for free, vendors will not have any need to pay you for them. Get rid of a few ads that aren’t performing and your readers might even be happier, making the ads that are there even more valuable. If you’re not getting paid anyway, why not?

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