Whether you call it CPA advertising, pay-for-performance or affiliate marketing, according to the organizers of last week's Affiliate Summit in NYC, it's a $14 billion industry.

Here's what we learned at the show:

-> Who are the top affiliates these days?
-> Fears: Adware, email, search, and brand management
-> How can you get the most from your affiliates?


-> Who are top affiliates these days?

They may be high-traffic sites, targeted list owners and newsletter publishers, loyalty adware program users, or simply mom-and-pops who happen to be great at search optimization.

The key thing is: there are not many of them in this world. Even the biggest eretailers report fewer than 100 of their affiliates provide significant revenues. Most sites say they have a couple of dozen top affiliates at most.

And only a handful of these probably bring in 50% of your program's total revenues. You have to dance carefully with that handful to keep them producing:

o Call top ones master resellers, marketing partners, whatever you want, just don't use the word "affiliate" with its lower valued connotations.

o Be ultra-aware that, like mercenaries, they are in this for the money - not the glory or glamour of your brand. They don't have to impress anyone, in fact the shoe is on the other foot -- you have to impress them.

o They probably know more about your competitor's affiliate program than you do. And many will switch programs in a heartbeat if it looks like they'll do better elsewhere.

o Make them feel special with better commissions, regular personal communication (bag the email newsletter in favor of a one-to-one phone call), and if they are interested, promotions created for them only.

(One marketer we talked to said she would even create new products for top affiliates if they thought something different would sell.)

o Don't even consider asking them to test creative or an offer that you haven't already tested, tweaked, measured and tested some more already. While affiliate's tactics and results can be a wonderful source of market research for you, they are not interested in taking financial risks with unproven campaigns.

In fact many of the Summit speakers agreed, don't even try to approach possible top affiliates until you've got loads of tests and metrics under your belt. You need data to show them that your program is a scientifically-proven winner.

o Once you've set up rules of engagement (such as rules about the use of email, and trademark names in paid search), make sure you have a proactive system to track - and boot out - offenders, so affiliates who play by the rules aren't annoyed. Don't count on a third party system that's paid on commissions to handle this for you.

Also, don't switch rules unless your changes will stick for the long-term. You can't say "nobody do paid search" one fiscal quarter and then change back again the next.


-> Fears: Adware, email, search, and brand management

"To answer your biggest question, yes, my real name is Bob Regular and I have my parents to thank for that." Cydoor Desktop Media's Bob Regular got the only laugh at the Summit's panel on adware programs.

Wherever there are big revenues, there are also big problems. Some affiliates are unscrupulous and others are overeager, conducting campaigns that may ultimately hurt your brand and sales even though the short-term gains rock.

Fears include:

o Adware -- "I don't worry about Gator, I worry about the guys in the garage," one panelist said.

Adware programs, such as Gator that consumers download to their desktops which drive affiliate sales, are here to stay and going legitimate. (In fact, Gator, in preparation for possibly going public, changed its name to Claria Corporation on Oct 30th.)

Programmers at the Summit who build these loyalty-marketing applications were united on two fronts -- they believe the known players in the industry are "extremely self-regulating" in terms of not hijacking traffic or misrepresenting themselves to consumers or merchants.

They also fear that anyone with the right programming knowledge can build and distribute an adware (or spyware) program without the merchant or the consumer being aware of it. You think you're downloading a pretty screensaver or fun videogame, but a Trojan Horse program rides along sucking up affiliate commissions from as many merchants as possible.

When programmers themselves are scared, it's time for merchants to be scared too.

If an little-known affiliate starts sending you lots of sales, consider, is this traffic that was coming your way anyway? Could your customers be infected with a Trojan Horse program?

o Email -- Do you really, really know where your affiliates get their names from? Is anyone mailing a grossly un-targeted list on your behalf? (No matter the "permission" given, your brand still looks like a junk mailer.)

Do you make a do-not-email file available to affiliates so they don't send offers with your brand name in the subject and/or from line to irate consumers who you've promised to never email again?

(For that matter, do you have rules about what can appear in the "from" line?)

Does your site have an easy-to-find email complaint form that consumers can use to contact you when they get inappropriate email? Do you have any type of formal program to track and regulate who mails what, beyond relying on customer service to send up a flag now and then?

o Branding -- In some cases your top affiliates may have tested more online campaigns that you have - so they'll have strong opinions about what works. Are you prepared to let them take control of creative? Have you set up strict brand rules for how your logos, trademarks, and offers can be shown?

o Trademarks -- In search, ads with a brand and/or trademarked name in the copy and in the link generally get the best clicks. Are you reserving these for your own use? Have you consulted with your legal team about trademarks and paid search?

o Search -- Are you competing with your affiliates for the same terms? Is this driving up pricing? (Note: This is also rampant in the CPA ad market.)

On the other hand, are you relying on affiliates to "take care of" search optimization (ie. organic listings) for you? Several experts advised that Google and other engines may disallow affiliate links in coming months because affiliates are "cluttering results."

Also, some 35% of search queries contain three-or-more words. Your affiliates may be investing in optimization for the big, easy, obvious terms. If you rely on them alone for optimization, you're missing 35% or more of the traffic you could be getting.

o Return customers -- Are you tracking what percent of your returning customers are coming back from the original affiliate they first heard about you from? Several program managers at the show told us that they'd assumed affiliates would only drive new customers - but now up to 70% of those customers routinely come back through the affiliate link again and again.

Affiliate marketing is now a customer retention tactic, instead of just an acquisition tactic. So, you have to adjust your ROI and commission metrics to reflect this.


-> How can you get the most from your affiliates?

First, be sure you are tracking the lifetime value of each customer an affiliate brings you, and reward affiliates accordingly. Affiliates who bring you lots of customers may be less valuable to you than affiliates who bring you high-quality customers.

Next, if you expect affiliates to contribute more than a tiny percent to your sales, you have to hire an in-house dedicated program manager. This is not a program to shove off on your marketer's already-crowded plate.

According to evidence in MarketingSherpa Case Studies, merchants who take affiliate programs seriously, and hire at least one full-timer to manage the program, wind up with 20% or more of total site revenues coming from the program.

We interviewed Brook Schaaf, Shoes.com Affiliate Manager, who received this year's Commission Junction Horizon People Award for his enthusiasm for integrating best practices. His tips for other managers:

o You have to win good affiliates over. Schaaf carefully copywrote his site's affiliate info page with persuasive data on how big the online shoe buying market is.

o Don't be chintzy about commissions. Affiliates are in this game for the money and they've got plenty of other competing sites to work with besides yours.

Schaaf notes, "We rank in the top 5% of programs in terms of our payout." Plus Shoes.com doesn't reverse commissions on returns, so affiliates don't have to worry the money they're counting on will evaporate if consumers don't like the shipped product.

o Big name affiliates aren't always the best performers. "Top earners are just as likely, or even more likely, to be mom-and- pops than corporations."

o International affiliates do great work. Although Shoes.com only delivers to addresses inside the US, some of Schaaf's best affiliates are not in the US, "We have a lot on Canada, England, Germany, Asia…"

o Monitor your program's reputation in the affiliate community. Schaaf checks heavily-used message boards such as those at ABestWeb daily. He also uses the boards to spread the word about new offers and promotions.

o Watch for junk emailers by noting which affiliates send a lot of clicks with unusually low conversions. Kick them out of the program immediately.

o Offer regular datafeeds with the latest pricing, images, descriptions and links to category and individual product pages. Make sure your datafeed works with a variety of site programming languages. "I get more requests for it every day," notes Schaaf.

If you have a strong brand name, be careful about who you offer the data feed to and what rules you place around its use. Your products appearing with outdated prices on a cheesy-looking site does very little for your image.

o "Text links always perform best. We put up banners with great creative, but when people are serious about buying, they look for a text-link rather than a banner."

o Smaller-sized creatives, such as buttons and tiles, are also fairly popular. "We do very well with products' images or just a logo on things like that."

o Watch out for parasitic adware that overwrites affiliate links without providing unique traffic. "We've gotten rid of people in the network before."

o Ask your best affiliates which communication channel they prefer - some people strongly prefer email, others like an occasional phone call. It's up to you to match their communication style, not the other way around.

Results: Shoes.com's affiliate sales have risen by 150% year-over-year from October 2002 to October 2003.

Useful links:

Affiliate Summit
http://www.affiliatesummit.com

Shoes.com affiliate info page
http://www.shoes.com/offers/affiliate/index.asp

ABestWeb
http://www.abestweb.com

Commission Junction
http://www.cj.com