January 30, 2003, 12:00 AM

Whose customer is it, anyway?

(Page 2 of 4)

“These applications started out as pretty straightforward,” says Sam Gerace, CTO and founder of affiliate provider BeFree. “They made use of affiliate marketing technology, but they inserted a useful rebate search engine. Then they evolved. Just like Internet ads went from banners to pop-ups to windows that now overwrite the whole page until you click to make them go away, they became more aggressive over time.”

How aggressive is too aggressive? That’s something the industry is still thrashing out. The answer revolves largely around whether use of the applications is permission-based, and whether the consumer fully realizes he’s granting that permission. Consumers have a right to want loyalty program rebates, and to download automated reminder services that make sure they get them. And it’s no surprise that affiliates who’ve worked hard to get shoppers to their site and engage them with the right offers once they are there feel robbed when competing offers pop up in the shopper’s browser, potentially drawing away sales and commissions, or when their links are overwritten outright.

A retailer’s dilemma

But there are affiliates and there are affiliates. A whole spectrum of companies that use the plug-ins, ranging from those with business models that provide consumers with added value such as loyalty points to those that redirect sales and collect commissions while seeming to offer little else-and many business models in between-participate in a variety of affiliate programs with retailers. Many different types of programs are capable of driving big numbers to retail sites, which leaves online retailers on the horns of a dilemma.

“It’s one of the more contentious issues,” says one retailer who declines to be named. “It touches ethics and the fact that you’ve got relationships in place - it’s a tough one.”

Though some retailers are laying low while they evaluate options and figure out a position, others have been much more vocal. With some 15,000 affiliates, for instance, Overstock.com makes big use of affiliate marketing, and Overstock’s affiliate manager Shawn Schwegman was an organizer of the industry meeting in November.

“If you are an uneducated merchant, or an affiliate manager that doesn’t understand the issues, affiliates that use parasiteware look like they do a phenomenal job because you’ll see revenue that’s higher than any of your other affiliates,” Schwegman says. “If you sort it out only by total sales, you’ll see a handful of places like Gator and WhenU have great numbers, and you might want to see how much more they can do. The reality is a large percentage of their sales would have been credited to other affiliates, but because of the way their software works, they get credit for it.”

Gator Corp. and WhenU.com Inc. take issue with such statements. Both say their software doesn’t overwrite other affiliates’ links when their own offers pop up on a page, and they differentiate themselves from programs that do. They say consumers choose to download their applications, and that the choice to act on any offers that appear as a result rest with the consumer.

“WhenU gets a commission only when the software displays a clearly-labeled WhenU offer, the consumer chooses to click on the offer, and then transacts at the partner site,” says CEO Avi Naider. “We’ve never engaged in the practice of automatically redirecting links. Our offers benefit consumers, send more traffic to merchant partners and increase conversions for them.”

Gator chief marketing officer Scott Eagle says that consumers who download any of Gator’s free browser enhancements, such as an e-wallet that will fill out the consumer’s stored shipping and billing information at retail sites with one click, agree to view Gator’s pop-up ads in exchange for the enhancements. Eagle adds that Gator’s software does not direct consumers back to sites they’re already on to collect a commission, and that shoppers can uninstall the application if they want to.

“I disagree that I’m at fault for offering the consumer a different retailer, a different deal, that he found more value in,” says Eagle. “I understand that someone is angry if they feel they’ve lost a sale, but that’s competition. It doesn’t make it illegal or immoral.”

So how much should a retailer care which affiliate gets credit for it as long as the retailer gets the sale? According to Schwegman and others on various sides of the issue, plenty.

Anything that upsets the balance of the affiliate marketplace could eventually backfire on retailers that depend on affiliate marketing to acquire new customers, they contend. For many retailers, affiliate relationships are an entrenched part of the marketing program.

“Any marketer would tell you that the largest share of their margin contribution comes from affiliate marketing,” says Steve Messer, CEO of LinkShare, the largest of the four major affiliate services providers. “They may make 10% to 30% of sales through the affiliate channel. But from a margin perspective it’s the most cost-effective thing they do because it’s pay-for-performance. Because of that, you will see retailers that have up to 50% of their margin come through affiliate programs.”

A rich base

Retailers’ successful affiliate programs usually have a rich base that ranges from smaller niche sites to content sites to shopping aggregators, says Porter, who adds that it’s risky for retailers to concentrate affiliate relationships only among a smaller number of larger affiliates.

But aggressive shopping applications could alter the diversity of that mix, because affiliates that don’t use the applications could drop retailers who are working with affiliate sites that do use them. The applications depend on other affiliate sites to generate traffic where they can pop up. If enough affiliates drop a retailer, overall traffic can diminish over time, and so would the numbers delivered by other affiliates that use the applications to feed on them.

Then there’s the issue of fair play. “I don’t want the affiliates that are out there working hard for us to have their commissions stolen by somebody else. I don’t want them to have bad feelings,” Schwegman says.

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