June 26, 2008, 12:00 AM

Affiliate Marketing

Sales tax woe and social networking on affiliate marketers’ minds

Affiliate marketing continues to grow in e-retailing. It’s a tool that appeals to online retail marketers because it requires minimal investment as it’s based on sales-generating performance.

Online marketers will spend $2.1 billion on affiliate marketing fees in 2008, an increase of 15% over the previous year, according to a new report from JupiterResearch, “U.S. Online Affiliate Marketing Forecast, 2007 to 2012.” Between 2007 and 2012, online affiliate marketing spending will grow at a compound annual growth rate of nearly 13% to reach $3.3 billion. Retailers and financial services providers are the dominant spenders in the affiliate marketing sector, accounting for roughly half of total spending; the strength of these categories will drive growth, the report adds.

“Growth in affiliate marketing spending is increasing at about the same pace as growth in other online marketing spending,” says Patti Freeman Evans, research director and senior retail analyst at JupiterResearch. “And we’re seeing growth in both networked affiliate marketing spending, with networks like Commission Junction and LinkShare, as well as direct affiliate relationship spending, where retailers cultivate relationships with specific online publishers.”

A taxing matter

This year, however, New York threw a monkey wrench into the affiliate marketing works. The state in April amended its sales tax law to cover sales by out-of-state e-retailers that obtain customers through New York-based affiliate sites. The law targets retailers like Amazon.com Inc. and Overstock.com Inc., which, because they maintain no physical presence in the state, have been exempt until now from sales tax.

The two prominent e-retailers were quick to act. Amazon.com filed a lawsuit against New York in May seeking to have the law thrown out. Overstock.com also filed suit. Additionally, Overstock told its more than 3,400 New York-based affiliates that, as of the law’s June 1 effective date, Overstock would no longer place ads on their sites for customer leads unless New York changes the law or the courts declare it unenforceable. The courts have yet to issue a ruling.

On the affiliate side, the move by New York has fueled some organizations to take action. Affiliate Classroom and Schaaf Consulting are spearheading an effort to create an affiliate marketing trade association. The effort, however, is in its infancy. But the organizations have been reaching out to affiliates, affiliate networks and retailers urging them to help form an association that could combat efforts such as the New York sales tax law.

On a positive note, the social networking boom is creating new opportunities for affiliates and new sources of traffic and sales for e-retailers. Affiliate organizations and individuals are using social networking applications, groups and pages, as well as blogs, to promote products that fit their web content and unique personalities.

Social networks

“Some affiliates are beginning to make extensive use of social networks,” says Shawn Collins, CEO of affiliate marketing consulting firm Shawn Collins Consulting Inc. “Affiliates are starting to embrace YouTube, for example, to get a revenue share by tying videos via links on YouTube back to affiliate links on their blogs or social network pages.”

Bloggers and organizations or individuals in social network groups or pages with strong content can be highly effective as affiliates, Freeman Evans says, and the affiliate networks are expanding their base to include these social players.

“People who use social sites for the purposes of research are often very qualified customers once they get to a retail web site,” she adds. “Social destinations offer access to a passionate group of people.”

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