Better Watch Out
An FTC ruling raises the stakes in monitoring affilates` behavior
By Linda Punch
A recent Federal Trade Commission settlement with the operators of several porn sites sets out stringent affiliate-monitoring requirements. And while the settlement applies only to the companies named in the complaint, many see it as the FTC’s way of putting online retailers and others on notice that they will be held responsible for the actions of affiliates.
“It’s the first shot across the bow from the top consumer agency in the United States that the affiliate marketing world needs better controls and better answers to consumer protection issues,” says Trevor Hughes, executive director of the Email Sender and Provider Coalition, a trade group that was formed in 2002 to fight spam and protect the interests of e-mail services companies.
Best practices
Stephen Cohen, an FTC staff attorney, characterizes the affiliate-monitoring provisions as “best practices, some good guidelines” for the industry. But he also warns that online retailers would be considered initiators of e-mail sent out by their affiliates and thus would be liable for any violations under the CAN-SPAM Act.
In the case of the porn sites, the FTC claimed those sites’ affiliate marketers violated the CAN-SPAM Act and other FTC rules by sending out sexually explicit e-mail messages using prohibited practices, such as misleading subject lines and header information. The FTC considers the porn site operators—not the affiliates themselves—as the initiators of the e-mail and held them liable for the violations.
In the settlement, the FTC ordered the operators of the porn sites to collect detailed information on affiliates, including name, address and telephone number and, in cases where affiliates are corporate entities, names, addresses, and telephone numbers of persons owning, managing or controlling the company.
In addition, prior to an e-mail campaign, the site operators must collect from affiliates certification as to how each affiliate obtained the e-mail addresses to be used in the campaign as well as myriad other data (see box). Once the e-mails are sent, the companies are required to sample new subscribers to their web sites to make sure the affiliates are complying with the settlement order. They also must set up a system to gather, review and respond to consumer complaints. On top of that, they were hit with a $621,000 penalty.
Time-consuming
Such close supervision of affiliates could be time-consuming and costly for retailers, especially those with affiliate programs numbering in the thousands. But the alternative could be just as costly, says Cohen, the FTC attorney. “They have to make a business decision as to whether they want to take that risk or not,” he says.
The need to keep close watch on affiliates has increased over the past few years, as the use of affiliates—sites that market other web sites—has exploded, creating an industry that is largely unregulated, experts say. As a result, there are widespread abuses, some participants say, many stemming from “daisy chaining,” in which affiliates subcontract with other affiliates that then subcontract with yet more affiliates.
That practice results in what Hughes terms “the serious problem of cascading trust. Before you know it, you are six steps removed from the original marketing company,” he says. “It’s very easy for marketers to find their offers are being presented on web sites with questionable content or being delivered through e-mail affiliate relationships that are akin to spam.”
That means retailers must be vigilant about how affiliate marketers are portraying their products, services and brands in the marketplace, Hughes says. “The FTC is giving us some guidance,” he says. “Know who you are dealing with.”
Retailers need to do research on prospective affiliates—know their company names, where they do business, where they’re going to place the content, Hughes says. They also should make sure contracts and ad and insertion orders with affiliates clearly outline where the retailers’ content can be placed, what types of content it can and cannot be associated with, and the way in which it can be delivered. “You don’t want it to be delivered through a spam net or through spyware,” he says.
The right questions
In screening affiliate networks, retailers should ask such questions as whether they have compliance controls or a privacy professional or compliance officer on staff. They also should find out how many and what types of sites are in the network; whether they daisy chain; whether they have been sued or investigated by any enforcement agency. “These types of questions are reasonable questions to be asking in today’s world,” he says.
Hughes also recommends that retailers check whether affiliates are members of industry groups, such as the Email Sender and Provider Coalition, that promote ethical standards.
The ruling is sure to increase the complexity of managing affiliates, participants say. The way major affiliate network management companies screen prospective affiliates can serve as a model for retailers, says Chris Henger, vice president of marketing and product development at Performics Inc.
Performics, for instance, uses a list of ten criteria to screen prospective affiliates, Henger says. The company declines an applicant if a site can’t be accessed or reviewed based on the URL provided; the site is under construction; the information provided doesn’t match registered domain information; the affiliate submits unsolicited commercial e-mail or there is evidence of trademark infringement; or the site contains gambling information.
In addition, Performics, a division of DoubleClick Inc., will turn down an applicant whose site content is libelous or defamatory; promotes illegal substances; uses violence or hate-oriented speech; features extensive religious commentary or attempts to preach or solicit members for a particular church or faith; or contains adult, obscene or offensive content.
The look
Retailers should also check out what other companies or brands are featured on an affiliate’s site, Henger says. “If they don’t look like a big time operator, they’re probably not,” he says.
Performics and Commission Junction, a division of ValueClick Inc., also have developed a code of conduct by which their affiliates must abide.
However, undertaking such an extensive review and monitoring can be a heavy burden for individual retailers. As a result, one of the beneficiaries of the ruling will be affiliate management companies, which are geared up to deal with many affiliates and who understand how affiliates operate, industry observers say. “It’s one of the reasons retailers choose to work with a network rather than having an in-house affiliate program,” says Elizabeth Cholawsky, vice president of marketing for Commission Junction.
At Commission Junction, more than a dozen people monitor affiliate activities on a daily basis and many of those functions are automated, Cholawsky says.
But it is possible for retailers to run their own affiliate marketing program as long as they do appropriate reviews and constantly monitor affiliates’ activities, she says.
Despite these efforts by the major affiliate networks and industry groups such as the Email Sender and Provider Coalition, there will continue to be unscrupulous affiliate marketers. And this FTC action by itself may not be enough to persuade retailers to keep a closer eye on their affiliates, says Jeff Molander, CEO, Molander & Associates Inc., an affiliate marketing consulting company.
Long-term changes
“There’s a lot of revenue and sales leads tied up in affiliate programs so massive change isn’t likely overnight,” he says. “Based entirely on their past behavior regarding adware and spyware-related issues, I believe most retailers will completely ignore this ruling—that is, until the FTC makes an example out of someone.”
Some retailers argue that the FTC requirements don’t apply to them because they don’t allow their affiliates to engage in e-mail marketing on their behalf, Molander says. Yet many of the same retailers admit that they don’t have any reliable means to ensure their affiliates don’t use e-mail, he adds.
But there already are moves by many retailers to downsize affiliate programs, which would make it easier for them to keep tabs on their affiliates, Molander says. “In an environment where affiliate relationships are fewer and quality driven, these FTC mandates become simpler to adhere to,” he says.
linda@verticalwebmedia.com
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