Mobile accounted for 25% of Ulta's e-commerce revenue during Q2.
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Indeed, the applications can generate negative fallout even for retailers that don’t depend to a great extent on affiliate marketing. At Tower Records, for instance, director of Internet operations Kevin Ertell says he gets frequent complaints from customers annoyed by large pop-up ads for other products that they see on Tower’s site. But the reality is Tower and others don’t place the ads on their sites. The ads are created by triggering software, keyed to recognize specific words or URLs, that resides on the user’s browser. How did it get there? The user downloaded the application, sometimes without realizing it, to get a utility he or she wanted.
“We have to explain to them that we didn’t put the pops-up there and that they downloaded something somewhere along the line that is causing it to happen,” says Ertell. “It becomes a customer issue because they blame us.”
The debate on PR and ethical grounds goes on, but beyond that, the bottom line in retail is sales. Michael Zaya, founder and CEO of 123Inkjets.com, which sells reconditioned printer cartridges, has 60,000 affiliates through several affiliate service providers, which drive 50% or more of his sales. Concerned about the impact of the use of aggressive shopping technologies by some of his affiliates on others, he recently dropped affiliates that use it in ways he believes are unfair. That decision has cost him $200,000 in sales from those affiliates in a single month, he says-not to mention sales lost when browser plug-ins pop up competing offers on the screens of shoppers visiting his site. “This doesn’t make perfect business sense, but I did it for other reasons. We are being strong-armed by these companies,” he says.
Each marketer will have to weigh the pros and cons of any potential market advantage including technology. Meanwhile, with both upside and downside at stake, the industry isn’t speaking with one voice about how to handle this Hydra-headed problem.
While there’s agreement that the outright theft of commissions is wrong, LinkShare’s contract addendum and the Code of Conduct backed by the other three major affiliate service providers represent different approaches to enforcement. LinkShare’s effort, the more aggressive, stems from research on the issues that Messer says stretches back more than a year. An internal procedure at LinkShare that flags unusual patterns of inquiries noticed a shift in traffic that LinkShare eventually tracked to the new browser plug-ins.
Messer’s first concern was that LinkShare merchants were complaining that the technology was stealing sales off their sites; the second was that the problem had the potential to grow much worse. “This software was doing things inside the browser,” he says. “What if, for example, you typed in Dell.com on your browser and it never let you go there, but always sent you to Gateway, or IBM, or somewhere else instead?”
Messer says he spent months investigating the new phenomenon including meetings with makers and users of the shopping applications to understand their business models. He also set LinkShare’s attorneys the task of finding a body of law that covered these instances. They determined that while the activity had more to do with copyright law than anything else, laws written to cover the print medium could prove challenging to enforce when applied to Internet communication.
Contract vs. law
And so rather than attempt to weed out misuse of the applications initially via the legal route, LinkShare early last year created an addendum to its affiliate contracts that spells out how browser plug-ins cannot be used by affiliate members. “We don’t want to stifle the technology because there are some valuable uses. We just want to be covered against the bad uses,” Messer says. Affiliates found to be in violation can be dropped from the network and if necessary, LinkShare believes legal claims could be more easily pursued on the basis of contractual violations than copyright violation. LinkShare’s addendum “commits affiliates to terms that prohibit them from activities such as blocking, altering, substituting, redirecting, etc. any click-through that originates from any LinkShare Network affiliate site,” the company says.
Performics, BeFree and Commission Junction have come to the issue more recently, saying they became aware of the problem last year. The three providers’ published Code of Conduct spells out guidelines on use of the shopping applications. “When these tools started to appear we wanted to make our retailers aware they could enhance the conversion process for the merchant, but we wanted to make sure the use of these shopping applications was fair,” says Performics’ senior vice president of sales and marketing Chris Henger. But, he adds, “Some of these technologies are taking a pretty aggressive position, especially in terms of how the applications ended up on software that the consumer was really downloading for another use.”
The Code, adds Henger, seeks to balance the aggressive stance taken by some of the makers and users of the applications against legitimate use of a utility the consumer clearly wants and fully realizes he or she has downloaded. The Code bars interfering with and “improperly influencing” customer referrals and altering software in any way that will reduce commissions earned by another affiliate. It also bans software that modifies the content or appearance of another affiliate’s pages and prohibits the bundling of downloadable software shopping applications that can’t easily be recognized and uninstalled by the consumer.
While the Code addresses the misuse of plug-ins in this way, it doesn’t prohibit other uses of the applications by affiliates. And while the three providers say they will drop affiliates found to be in violation from their programs, they are not asking affiliate members to sign the Code. That in essence leaves it up to retailers to decide whether, beyond the provisions on misuse stated in the Code, they see benefit in working with affiliates who use the applications in other ways. “It’s important for retailers to understand these marketing techniques for the purposes of understanding who they want to do business with,” says Jeff Pullen, CEO of Commission Junction. “Ultimately, a retailer’s willingness to do business with affiliate A, who may be using a technique that is not in the eyes of others on a level playing field, may mean that he is not in a position to do business with others who don’t want to drive traffic to his site precisely because he is doing business with affiliate A. Understanding the business practices of his affiliates will help the retailer maximize the benefit of the affiliate marketing channel.”