Minutes of the 10 July 2007 meeting, "Affiliate Marketing: Making
Money Selling Other People's Stuff Online"

About 60 people attended tonight's meeting. Josh Zapin facilitated and
Bette Frick recorded the minutes.
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Meeting Sponsors

Microstaff (www.microstaff.com) provides refreshments, Copy Diva
(www.copydiva.com) provides the audio-visual equipment, NCAR
(www.ncar.ucar.edu) provides the facility, and ONEWARE
(www.oneware.com) sponsors these minutes. NCAR lets us use their
space. We thank all of them for their support.
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Upcoming Meetings (2nd Tuesday of every other month
September 11: TBD
November 13: TBD
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Announcements
World Usability Day: November 8 will focus on healthcare.
Worldusabilityday.org.
Texturemedia.com is looking for technical employees

Introduction (Josh Zapin)
As legend has it, Jeff Bezos, CEO and founder of Amazon.com, chatted
with a woman at a cocktail party about how she wanted to sell books
about divorce on her web site. After that exchange, Bezos thought
about having the woman link her site to Amazon.com and receive a
commission on the book sales. This was the impetus for creating the
"first on the Web" Amazon.com Associates Program.

That was 1996 and, if you believe the legend, the Affiliate Marketing
industry was born.

10 years later, Affiliate Marketing has grown, according to Marketing
Sherpa, into a $6.5 Billion industry. Thousands of people, known as
affiliates, literally earn their livings (or, as in yours truly, some
extra coffee money), selling other people's stuff online. Stuff that
they never have to touch, ship, or handle in anyway.

Our speakers were:

Bob Dunlap, director of marketing for ClickBank, one of the world's
largest online retailer for buyers and sellers of digitally delivered
products and services, has a long and successful career in the area of
planning, developing, launching, and marketing high tech products for
global markets. He came to ClickBank nearly two years ago and since
that time has worked closely with the company's nearly 11,000 product
vendors and 100,000 active affiliates. Bob will be addressing the
functionality of online networks and what the future holds for those
engaged with affiliate marketing.

Dan Murray (Dan@...) is Internet Marketing
Strategist at Ravenwood Marketing, a performance-based search engine
marketing firm in Boulder, and has spent the last five years as an
affiliate. He will be speaking from the affiliate perspective,
discussing various affiliate business models, networks and how
affiliate marketing works. Dan will also cover some economic
realities of the field as well as "a day in the life of an affiliate"
and some additional resources for affiliates.
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About the meeting topic:

The format was 20 minutes talk per person/10 minutes questions per
person and then open for general questions.

Bob Dunlap
ClickBank was founded in 1998. The model combines e-retailing with
affiliate network for downloadable goods. 2006 revenue was $200
million. ClickBank processes over 20,000 transactions per day. 70% of
sales are affiliate-assisted. Definition of affiliate marketing: A
method of promoting web buinesses (merchants/advertisers) in which an
affiliate (publisher) is rewarded for every visitor, subscriber,
customer, and/or sale provided through his/her efforts." (Source:
Wikipedia)

The affiliate creates sales and gets a commission for the sale. Who
uses affiliate marketing? Not just Amazon and WalMart; it's REI and
Blinds.com, and golfballs.com and other very small businesses. The
attraction is that you can be an entrepreneur with freedom to do your
own thing. This has created a new class of entrepreneurs.

Affiliate networks:

o Third party providing services to both merchants and affiliates
o Tools to match merchants and affiliates
o "Manage" affiliates on behalf of merchants
o Handle tracking of clicks and sales
o Make commission payments to affiliates
o Provide analytics and reporting interface
o Enforce terms of service

Top tier networks
o Linkshare
o Commission junction (CJ)
o Adsmarket.com
o Clickbank
o Shareasale
o Double click performics

Merchants' perspective
Pros/benefits
o Incremental channel
o Complimentary initiative
o Pay for performance
o Can start quickly
o Extend reach into new market segments significantly
o Target new segments
o Easy to measure results

Cons/challenges
o Internal buy-in
o 80/20 rule applies (more like 90/10: 10% of affiliates will produce
90% of your revenue), so focus on the 10%
o Program management
o Recruiting new affiliates
o Monitoring affiliate activity
o Brand protection (tricky topic)
o "Rogue" affiliates

Hot topics in affiliate marketing
o Confusion on what affiliate marketing is
o Competing with affiliates on search
o Bidding on brand and trademark terms
o Tracking and awarding correct affiliate credit
o Fraud and unlawful activity
o Privacy vs. monitoring (affiliates want to be left alone to do their
job; merchants want to know what their affiliates are doing); there's
a fine line between the two.

The future:

o Micro-niche marketing/merchandising (Hammocks.com, birdcages.com,
binoculars.com)
o Further development and exploitation of the "long tail"of products
and services
o Merchants working even more closely with key affiliates as business
partners
o Improved tracking, analytics, and reporting
o Monetizing Web 2.0
o
Questions:
The stigma of affiliate marketing is the e-mail delivery of messages;
another problem is that the merchant is unable to see where the lead
is coming from. Bob said these were valid points (10% and 90% rule);
monitoring is a big issue. Make sure you have the right terms of
service and enforce them. The more restrictions on the affiliates, the
more they will resist working with you.

Clickbank's main products are software products, ebooks, games,
ringtones, music files.

Using managed services may allow you to scale your business.

Good example of a brand that got hurt by affiliate marketing was
Vonage. Also, Victoria's Secret (both issues happened a few years ago).

Hard to characterize the 90% of sales; usually, these are not people
doing it as a hobby, but rather, they do it for a living.

Can it work for more complicated sales cycles? Yes, although most of
those want instant gratification.

The last click gets all the credit and it's hard to track correlation
v. causation when there's a lot of clicks in more and more complex
products (complex, multi-channel marketing).


Dan Murray: Life as an affiliate marketer.

Ravenwood does not have outside funding; it's profitable but not
taking on new customers. He's a big fan of affiliate marketing.
Ravenwood started 5 years ago and has 3 employees in the Boulder location.

What is affiliate marketing? "The use of third party specialists who
are capable of targeting audiences on behalf of advertisers/merchants
and who are also willing to take financial risks in the delivery and
performance of the traffic, in the form of no/low upfront fees and
instead higher backend/success payments (commission)." (VinnyLingham.com)

How does affiliate marketing differ from other marketing?

o You only get paid on performance (it's not about traffic,
clicks…only sales)
o You don't commit to any volume levels.
o You can easily drop a client.
o Affiliates can share in risk and upside.
o There is trust involved.
o More independence.
o There are rules, though! (terms of service; contractual legal
agreements)

Affiliate business models
o Organic search engine optimization
o Paid search engine marketing
o e-mail marketing
o Social networking
o Review sites
o Aggregation sites
o Widgets

Economics of affiliate marketing
o Click cost = 24 cents a click
o It takes 25 clicks for affiliate to land order (4% conversion rate)
o Average order = $30
o Merchant pays 12% ($3.60)
o Made 4 sales x $3.60 per sale=$14.40
o Profit: $14.40-$24 = $-9.60)
o (Upside down means you lost money)
o Smaller affiliates may get $150-200 in payments on $100 in clicks
o Clicks are priced on supply and demand; you can dial that up and down.

A day in the life

o Analyze results from recent campaigns
o Respond to email inquiry on new offers
o Conference call w/merchant on rate card
o Remove prohibited keyword from account
o Staying current on latest blogs and newsletters
o Pay credit cards online
o Find out why conversion rate dropped on one campaign
o Ask new merchant about PPC rules
o Build experimental campaign

Controversy in the field
o Trademark bidding
o Adware/spyware/malware
o "Rogue" affiliates
o Turf war with internal marketing teams
o Agency conflict
o Branding concerns (read the brand manual)

Future directions
o Affiliates migrating to agencies
o "Select few" affiliates get special perks
o Affiliate-developed widgets (software to promote the merchant's
products)
o Marketing $ going to affiliates from other channels

Questions of Dan:

Do you or others specialize in certain product lines? Yes, definitely;
some focus on hosting or insurance, for example. Dan is more broadly
oriented.

Dan does direct linking through Google and MSN.

Do you get to control the landing page? In general, they give you the
landing page and that's what you use. If you have a good relationship,
you can request a landing page.

If you want to add a new merchant, how to search for them? One thing
you look at is earnings per click. He recommends always keeping a
"bull pen" of possible new merchants to add when you have time.

A lot of affiliates are doing mobile clicks, but Dan is not.

Open Q & A with Both Dan and Bob

Can you use affiliate marketing for a startup? You can do it as long
as you can get affiliates interested.

Dan often gives merchants usability suggestions.

What is your attitude toward geography? Dan: local search, geo
targeting is going to be big; maps will be big. DashLocal, founded by
Dennis Yu in the audience, is doing local SEM.

Audience member comment: Google has unpublished policy that there is
only one affiliate per company on page one in organic results.

As an affiliate using PPC, how much of a problem is fraud? Dan: can't
really monitor it. Some affiliates have gotten refunds based on
documented click fraud. Dan thinks it's a cost of doing business.

Movement toward affiliates using landing pages? At various times,
there have been trends that pushed affiliates towards or away from
building their own landing pages. It can be hard at times to create
landing pages that Google deems quality pages.

Is it more attractive to promote a merchant who has its own tracking
program? Dan: We grow that relationship slowly. Top tier affiliate
networks are a known quantity, totally bombproof but they take their cut.

Are consumers getting more sophisticated in pursuing a check back,
like Ebates? Dan doesn't think it's growing; Audience comment: it was
bigger five years ago. It's against terms of service.

If you can sell it online, you can use an affiliate.

Talk about the writing the ad copy itself: Testing is required! Try to
get a lot of different trials going. Dan says he's not a copywriting
expert. So try several ideas on a small scale and you'll find out what
works.

Meeting closed at 8:55.

Links:
http://www.clickbank.com
http://www.ravenwoodmarketing.com
Abestweb.com (affiliate discussions)
QuitYourDayJob.com—Jeremy Palmer (Dan highly recommends)
AffiliateTip.com
Affiliate Summit conference
VinnyLingham blog—VinnyLingham.com