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The ugly underbelly of affiliate marketing
May 31st, 2007
OK - it has been awhile since my last post. Not sure if I plan on being a regular blogger again, but I had something I wanted to get off my chest so here goes….
Affiliate marketing has a dark side. Sure lots of people, myself included make a very nice living from driving traffic to merchants, lead providers etc. But it is not always wine and roses.
As part of what I do, I am consistently looking for new lines of business for both my personal marketing and the super affiliate firm I am a partner in. I talk to lots and lots of people and have what I think of as pretty good insight into the industry.
Over the weekend, I attended a dinner party with about 15 couples and in the course of the conversation I came across someone who ended up being the CEO at a major name off-line corporation (you have heard of this company!) with a huge affiliate program. Thinking I might have hit pay dirt, I steered the conversation to the affiliate program which the CEO replied something that has really been bugging me. (before you ask, we were traveling in my wifes social circle not mine…CEO’s at dinner parties is pretty common)
He basically stated that they had spent millions optimizing the website with multi-variate testing, spent millions testing banners, paid search and other traffic generation tools. Basically they had not been cheap about their website. Then he told me that the affiliate program was designed to lose money for the affiliates. He basically said that although margins were about 4x what the payout was, that unless an affiliate was generating free traffic that they were not supposed to make money.
The company does zero PPC on their own (except on brand name) but knows exactly what it costs to generate a sale. They pay about 90% of that level and it is one of their most profitable divisions. I asked him how he kept affiliates long term. His response was he did not care about them long term. They have been part of many different affiliate programs, they have worked with many super affiliates, and gotten ringing endorsements from name-brand affiliate marketers but they don’t care that these people are spending money to drive essentially risk free traffic. They only care that the brand name is strong enough that every “sucker” in affiliate marketing(the CEO’s words) is willing to throw a $100 or so at their program because it is such a strong brand.
His statement was basically they get $75 back, we earn $300 and then hope they throw another $100 at it and see if they can make a go at it. These suckers are making our affiliate program a gold mine $100 at a time. A few hundred new suckers every single day.
Now I recognize that not every affiliate program is like this. It was just very disheartening to hear a CEO of a major online and offline company think of affiliates as a one-way meal ticket. As an affiliate, just realize that not all affiliate programs are everything they are cracked up to be.
Before you ask - I thought about posting the name of the company, but after looking at the angles, I have decided that the general warning was enough. I spoke with a lawyer friend and he said I would open up a huge can of worms if I said anything other than very vague information that could not identify the company. It would essentially be my word against the CEO and his lawyers. Just not worth the hassle. Take this as a cautionary tale rather than XYZ company is a bad affiliate partner.
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