By Jeff Molander, President Molander & Associates Inc

If you think that the peer-to-peer (P2P) file sharing debate that rages within the entertainment industry has nothing to do with e-commerce, guess again. Not surprisingly, companies that make file-sharing tools (allowing consumers to swap music and graphical images) are looking for sustainable revenue streams.

Flying largely under the radar, P2P players like Morpheus, Limewire, Kazaa and others have begun offering shopping services to their users.

In fact, they are making a big splash in the world of e-commerce, largely through leveraging affiliate programs, a strategy wherein marketers pay a commission or bounty to an affiliate partner for referred sales or desired consumer actions.

Where is the problem for direct marketers?

It has recently come to light that tactics being used by some P2P, and other large affiliate players distributing downloadable “shopping assistant” applications, are questionable, perhaps unethical and absolutely troublesome for marketers.

“P2P applications are providing new functionality for their users in hopes of maintaining loyalty for their core service. This is an evolutionary step,” says Greg Kerber, CEO of WURLD Media, an e-commerce tech provider to financial and P2P software companies.

-> Why This "Evolution" is Problematic

In order to generate revenue from their user bases, P2P players are turning to affiliate programs that allow them to tap into e-commerce without actually becoming a seller of goods or services.

They do this by simply adding an online shopping component to their popular file-swapping applications that reside on a consumer’s PC.

As consumers make their way from an affiliate’s site to a marketer’s Web site, links are used to track referrals, among other pieces of data. Each affiliate has its unique link ID and can, therefore, earn credit (commissions) for sales being referred.

Essentially, a handful of the larger affiliates that distribute downloadable applications (such as P2P tools) have been accused of programming their software to inappropriately insert their affiliate link ID in place of other affiliate ID’s. In effect, they are being accused of over-writing the links of other affiliates in order to gain commissions.

-> Real trouble for "Rewards" marketers

These tactics are the source of potential headaches loyalty, philanthropic or cash-back shopping services such as uPromise.com, iGive.com, eBates.com and Northwest Airlines Online WorldPerks Mall.

Since rewards and cash-back Web sites use affiliate networks as their primary means to track and process rewards earned by consumers, it is critical that the true referring affiliate link is used for each consumer’s purchase, mainly as unique “member identifying” codes are passed along inside that link as a shopper clicks through to a marketer’s Web site.

A good number of cash-back and loyalty properties have begun to use downloadable applications in an effort to make shopping “through” their portal (clicking their affiliate link) to be more convenient. They have interest in making it easy for their members to earn a reward when shopping on the Web. Giving a consumer the option to download and install a shopping assistant makes sense.

However, the trouble arises when some of these digital shopping assistants have been programmed to insert or over-write affiliate ID’s in a controversial manner, similar to how some of the P2P’s have operated.

Let us set aside the rewards portal’s headache for a moment and consider the damage to a marketer’s brand a when one affiliate steps on another’s toes.

Consider a “family PC” scenario wherein a teenager downloads and installs a P2P program to share music files with friends. This P2P program has a resident shopping application that may or may not be overly evident to the user but is constantly running in the background.

What if the teen's parent decides to shop at a rewards portal, in an effort to send cash directly into his/her child’s college savings account or to fund a retirement portfolio. The parent surfs to the rewards portal, clicks through to shop at the merchant site, makes a purchase and logs off (assuming that all is well and that the purchase was tracked and recorded by the rewards portal); however, the teen's P2P application has inserted its own link, overwriting the rewards portal’s link.

The parent’s unique ID was not part of that link; hence the reward, which may be sizable, is not credited to the appropriate account.

The consumer’s experience with the brand purchased is now at risk.

-> The Two Risks of eretail Fraud

Additionally, and more disturbing to e-retailers, some large affiliates have been accused of distributing consumer-side applications that insert affiliate links when no referral was made, as in the case of a consumer surfing directly to a marketer’s Web site.

This hurts e-retailers in two ways:

1. If affiliates take a percentage of each and every sale made at a marketer’s Web site without having made a referral, the site's profits plummet.

2. Sales resulting directly from other promotions (catalogs, email, TV, etc.) will not be counted properly. Therefore marketers relying on inaccurate sales data to make promotional and budgeting decisions for future campaigns, could make costly mistakes.

“A handful of marketers are exposed to what is going on through their affiliate managers but only a few are beginning to grasp how important this is to their bottom line, at the executive level,” explains Wayne Porter, VP Product Development at AffTrack LLC who helps large affiliates to automate the aggregation of ROI and revenue data across the various networks.

-> The Code of Conduct: A First-Step Solution

In November 2002, Porter moderated a series of meetings that resulted in the recently released affiliate “Code of Conduct” agreed to together by the rival affiliate networks BeFree, Performics and Commission Junction.

The Code is intended to ensure equity and fairness across all affiliates by setting standards and guidance that were previously unavailable. (Link below.)

-> Beyond the Code: Marketers Taking Further Steps

Porter believes that recent focus within the industry on this so-called “parasiteware” threat has cast light on other, equally important economic and strategic issues for marketers to consider.

Marketers must step up to the plate and pro-actively understand more about those who they affiliate or partner with prior to becoming involved. This will help to eliminate what Porter calls “drive-by performance marketing strategies,” or affiliate programs that are run purely on auto pilot (without much hands-on management).

“Historically speaking, most affiliate program managers have invited anyone and everyone to participate, having performed little if any due diligence on their affiliate partners,” Porter explains. “This is dangerous yet alarmingly common. It’s time for the industry to grow up.”

According to Patrick Toland, VP Sales & Marketing at shopping application software developer TopMoxie, “Merchants and their affiliate partners are suddenly at odds over their respective marketing practices because their goals are completely different."

"Most merchants want a consumer to travel through an affiliate link only once, returning directly to the merchant site from that day forward. Affiliate partners want to retain their customers and have them continually travel through their affiliate-tracked links. As a result of this polar opposite perspective, marketing by either party is constantly questioned and the use of software-based direct marketing tools is simply an extension of this ongoing conflict.”

Porter agrees there is a disconnect between marketers and their partners.

“What we are seeing is clear. Many marketers have approached affiliate marketing purely with a customer acquisition mindset,” he explains. “However, affiliate relationships that have risen to the top have done so because they have effectively driven sales, or desired actions, on a large scale."

"Essentially, these affiliate partners send repeat customers to marketers on a frequent basis and expect to be rewarded for this. They go beyond acquisition by helping marketers retain customers and increase purchase frequency, oftentimes through the use of customer-side shopping applications.”

Indeed, marketers are reporting that loyalty, cash back and comparison Web sites are producing most of the sales action now that the industry has matured. At the same time, P2P players have made strides as well, yet not all downloadable applications, or their distributors, are alike.

“The affiliate landscape is a growing and quickly evolving ecosystem of many players of differing sizes, functions and trustworthiness,” said Farhad Mohit, Chairman and Chief Product Officer of BizRate.com. “At each layer there exists an opportunity for fraud and deception; and, at each layer there are many legitimate players pursuing honorable business goals.”

A handful of marketers have gone as far as eliminating relationships that have been in place for years, extending beyond P2P affiliates and into loyalty and cash-back shopping partnerships.

“We have pro-actively decided to discontinue our relationships with all affiliates employing downloadable applications that currently, or in their past versions, over-write other
affiliates’ links and/or inappropriately insert their own affiliate links,” said Rick McGrath, Partner Marketing Manager at JC Whitney, an automotive aftermarket part and accessories marketer.

“We strongly desire to work with partners who can send us quality customers but we have a difficult time partnering with those affiliates who force us to work within the constraints of their customer-side application. When presented with an ‘all or nothing’ deal we have chosen to part company.”

While some are walking away, other marketers continue to try and find common ground with key affiliates.

“With 50 million consumers presently using these applications, retailers now have the opportunity to reach a huge, focused Web audience quickly and easily. But most importantly, we have to keep in mind that it’s the consumer who drives the application and the purchase,” said WURLD's Kerber.

So far, the industry’s new Code of Conduct is being widely adopted. Will the days of “drive-by” affiliate marketing fade away? Hopefully, yes. Should marketers begin to think in terms that serve to move them beyond the limitations of affiliate models, applying traditional concepts that bring them toward more mature, multi-faceted performance marketing strategies? Absolutely.

Useful links:

Molander & Associates: http://www.molanderassoc.com/staff1

A Merchant's Quick Guide to Affiliate Marketing in 2002 (First, Forget the "A" Word)
https://www.marketingsherpa.com/article.html?ident=2304