(Searchline) In the annals of love-hate relationships, search marketers and affiliates are right up there with the classic ambivalent couples: Hamlet and Ophelia, Han Solo and Princess Leia, or King Kong and Faye Wray. The realization that each partner can be useful to the other often isn’t enough to dispel the suspicion that the partnership is unfairly skewed.

In the early days of Internet marketing, affiliates were primarily seen as productive partners. They carried some of the marketing load, getting an advertiser’s name out on the Web, driving customers either to the brand’s site or to partner landing pages; they increased exposure and in some cases helped to drive conversions. In return they asked to be paid when they delivered the traffic or the sale. It was a symbiotic relationship with relatively little downside for the advertiser.

But the rise of search marketing threw a twist into that romance. Now some search marketers began to complain that affiliates were bidding against them on their most productive keywords, driving up prices and pushing their pay-per-click search ads down in the ranks, or even off the search results page entirely.

The big search engines made some moves that have added some frost to the advertiser-affiliate partnership. Most notably, Google introduced a policy in January 2005 that limited AdWords ads on a search results page to one listing per URL. The rationale was that delivering a search page on which as many as half the ads pointed to the same landing page—most with an “AFF” (for affiliate) designation—produced an inferior user experience. But many affiliates took the change as a direct swipe at their business model. The same was true, to some extent, with the introduction of landing-page quality scores last year and the Google test of a cost-per-action business model on its content network. Many affiliates took umbrage. Many marketers decided they didn’t need to risk dealing with unruly affiliates now that they were getting the hang of pay-per-click ads and organic optimization.

The reasons to fear affiliate marketing were laid out and then promptly defused in a panel discussion at Search Engine Strategies New York on “Dealing with Affiliates” last March. The arguments were enlightening. Not final, perhaps, or even totally persuasive, since all the panelists represented either affiliate networks or agencies that used them. But they at least constituted a good first look at the disputes that can come up between marketers and their affiliate partners, together with some suggested remedies to patch up those differences.

Anton Konikoff, founder/CEO of search marketing agency Acronym Media, began by ticking off all the complaints that marketers have pressed against SEM affiliates over the last few years. In this view, affiliates raise keyword bid levels and increase the cost of acquisition through paid search; they can block advertisers from winning top ad ranks on their search terms; and they can often display off-brand or outdated ads. Their landing pages sometimes provide a less satisfying experience than the pages carefully designed and optimized by the advertiser. Finally, Konikoff pointed out, they can complicate the ad-testing process by taking some step the engines don’t care for, such as putting an unacceptable offer in an ad headline, and get the marketer’s ads bumped down in the rankings.

“One of the big points of frustration with affiliates is that brands spend millions and billions of dollars in creating ‘buzz’, investing in corporate advertising,” he said. “And then the affiliates come along and get a free ride on that publicity.” The common reaction among marketers, he said, is to clamp down with restrictions—to “police and enforce”, disallowing bids on many keyword types, imposing upper limits on bids or ad positions, and restricting the number of affiliates permitted to run PPC ads.

Instead, he argued, marketers should focus on overall goals—brand awareness, customer retention, traffic building—and consider the contribution affiliates can make to those goals and to helping the company “own” its important keywords. For example, letting affiliates bid on branded keywords may mean that marketers wind up paying affiliates for some customers they’ve already won through their own SEM efforts. But that expense may be negligible compared to the impact a ubiquitous presence in search has on branding and customer retention.

Konikoff cited the example of an acronym client, Humana Medicare, that often found itself competing against seven or eight affiliates for high-volume search terms, both branded and non-branded—some with costs per click (CPCS) over 50 cents. Rather than imposing restrictions on those affiliates, however, Acronym and Humana monitored their organic and PPC campaigns to see what bids, coverage, ad copy and landing pages worked best for them. Acronym thus was able to identify underserved keyword niches and rebuilt Humana’s PPC strategy to integrate the highest-performing affiliate ad copy, minimize competition over keywords, and drive down CPCs.

Chris Henger, vice president of affiliate relations for Performics, pointed out that his company classifies affiliates according to the business models of their Web sites and has come up with six main categories: shopping and promotion sites, loyalty/rewards, community and content, comparison shopping, search specialists and networks. A “vast majority” of the affiliates in all these categories do search marketing for their partners, he said, noting that the large comparison shopping engines are among the top 10 SEM spenders on Google and Yahoo!

The growing strength of search marketing undercut the value of affiliate marketing for a few years beginning around 2003, Henger said. But in recent years, the affiliate channel has seen a resurgence and will probably be around for a long while. One reason for the revived popularity is the wide variety of advertiser business models. A company like Performics client Bose (“a fantastic direct marketer”) also sells through retail channels and can’t dictate to retailer partners like Sears and Best Buy what they—or their affiliate marketing partners– can and can’t do on Bose-related keywords.

Kris Jones, president and CEO of Web marketing firm Pepperjam, pointed out that his company began as one of the largest affiliate marketing networks before transitioning into a full-service interactive agency in 2002. Pepperjam includes affiliate program management among its current offerings, and on the question of affiliates as friend or foe, Jones identified himself firmly in the “friend” camp.

“It’s a land grab as it relates to search engines, both in organic and paid results,” he said. “The available real estate is out there, both for your competitors and your affiliates.” The more space marketers’ brands occupy among, for example, Google’s 10 organic listings and up to 10 paid listings on a first results page, the more sales or leads they can generate. And cooperating strategically with a few carefully selected search marketing affiliates can help them achieve that page dominance at a manageable cost.

Jones advocated the 95-5 rule that says 5% of affiliates produce 95% of the affiliate revenue. Identifying and working well with a small number of “super-affiliates” can actually mean allying with partners who know search marketing better than most advertisers, and at a cost that’s below many professional SEM agencies.

Jones recommended starting with a list of five potential affiliate partners, and then defining a list of keywords from the head and the long tail that those partners can bid against. Most potential affiliate partners are sophisticated enough to realize that if they’re only allowed to bid on generic terms from the head of the keyword list, the resulting high costs and slim profit margins won’t let them thrive.

Once the partners are chosen and the search marketing guidelines laid down, marketers need to “broker the deal,” Jones said. “You need to agree to provide some internal conversion data about what’s working for you. The relationship won’t work optimally unless you share information.” Pepperjam signed agreements not to disclose those metrics back when it ran an affiliate network and now asks the affiliate partners in the programs it manages for its clients to sign similar NDAs.

As for other steps to retain control of affiliates, Jones admits that minimum and maximum bid settings worked more effectively before the large search engines instituted quality scores for ad placements, but says they’re still useful.

On whether affiliates should be permitted to bid on trademarked keywords, Jones said he’s a strong believer in giving that permission to at least the selected super-affiliates in a marketer’s program. “You should—and that’s based on eight years of experience and data,” he told the audience.

Lisa Crossley Hunter, director of CJ Search, the search marketing arm of Commission Junction, opted to apply some data to the questions under discussion, and particularly to the problem of whether running both affiliate marketing and search marketing programs side-by-side will inevitably lead to channel conflicts and increase a marketer’s cost per acquisition (CPA).

She highlighted an unnamed multi-million dollar retail client of CJ Search that began search marketing in January 2004 with a CPA of $9.80. When that client opened up an affiliate channel in July 2005, Hunter said, its CPA went down to $9.62. And by the end of 2006, with both channels running, the client’s CPA was down to $6.71 and had dropped for six consecutive quarters. Meanwhile, revenue from search went from $1.2 million in 2005 to $2.9 million in 2006, while additional revenue from affiliates reached $2.7 million last year, for a total increase in annual revenue of $5.6 million.

“They saw more than four times revenue growth between 2005 and 2006,” she said. “So if they had dropped one of those channels, they would have lost millions of dollars in revenue.”

The key to this client’s success in blending search and affiliate marketing was a set of well-defined guidelines, Hunter said. Affiliates were not allowed to use the advertiser’s display URL in their ads, and only certain affiliates were allowed to bid on trademark terms.

Hunter provided an case study of another multichannel marketer client using both search and affiliate marketing—but this time with no restrictions on either trademark bidding or use of the brand’s display URL. In 2005, this marketer’s CPA from search was $14.37, while the affiliate CPA was (for some reason) much lower at $6.90, for an average CPA of $10.64 across the channels. In 2006, the marketer was paying $15.22 per acquisition, and the affiliate CPA rose to $7.58, for an average of $11.40. So from 2005 to 2006, this client’s average CPA increased 76 cents.

The interesting element was what happened to the client’s revenue. In 2005, the advertiser earned $1.1 million in revenue from search, while its affiliates brought in $4.8 million; in 2006, the client earned $1.2 million in revenue and the affiliates $5.5 million.

Hunter said the client did not have a large enough SEM budget to be able to do a thorough job of marketing on its trademarked keywords all year round. In this case, giving the affiliates free rein to bid on those terms actually served to cover the trademark marketing the client itself couldn’t afford to do.

“Instead of just saying they weren’t going to let anyone bid on those trademarks and giving them over to the competition, this client thought strategically and said, ‘Let’s give it to our affiliates and see if we can generate something from them,’” she said. “And it’s worked for them.”

Performics’ Henger offered up an affiliate “wish list” designed to help advertisers strike the right balance of control and permission in their affiliate relationships. Suited to differing business models, these items included:

* Authorization to bid on trademarks and brand names, along with guidelines for doing so

* Ability to link directly to an advertiser’s display URL

* Permission to send traffic to domains that use the advertiser’s brand, for example to “www.eddiebaueroffers.com”, which consumers are more likely to click on

* Permission to lead-generation programs to host forms on their own domains and not make them send registrants off-site

* Authorization letters to search engines authorizing the affiliates to use the advertiser’s brand in their ad titles and copy.

Above all, Henger said, a marketer’s approach to and communication with affiliate partners matter. If the advertiser really makes an effort to partner with well-chosen affiliates, sharing performance data and recognizing that they’re working with slim margins to turn a profit, the match-up will be a positive one.

But he added that marketers who come in determined to offer affiliates nothing but the chance to bid on expensive generic keywords, or terms from the long tail that historically haven’t converted well, will find they’re stuck in a very unsatisfactory relationship.

What’s your experience been with affiliate marketing? Have you made it part of your regular marketing toolkit? Have you been burned by rogue affiliates or runaway acquisition costs? Send your affiliate stories to [email protected].

In the annals of love-hate relationships, search marketers and affiliates are right up there with the classic ambivalent couples: Hamlet and Ophelia, Han Solo and Princess Leia, or King Kong and Faye Wray. The realization that each partner can be useful to the other often isn’t enough to dispel the suspicion that the partnership is unfairly skewed.

In the early days of Internet marketing, affiliates were primarily seen as productive partners. They carried some of the marketing load, getting an advertiser’s name out on the Web, driving customers either to the brand’s site or to partner landing pages; they increased exposure and in some cases helped to drive conversions. In return they asked to be paid when they delivered the traffic or the sale. It was a symbiotic relationship with relatively little downside for the advertiser.

But the rise of search marketing threw a twist into that romance. Now some search marketers began to complain that affiliates were bidding against them on their most productive keywords, driving up prices and pushing their pay-per-click search ads down in the ranks, or even off the search results page entirely.

The big search engines made some moves that have added some frost to the advertiser-affiliate partnership. Most notably, Google introduced a policy in January 2005 that limited AdWords ads on a search results page to one listing per URL. The rationale was that delivering a search page on which as many as half the ads pointed to the same landing page—most with an “AFF” (for affiliate) designation—produced an inferior user experience. But many affiliates took the change as a direct swipe at their business model. The same was true, to some extent, with the introduction of landing-page quality scores last year and the Google test of a cost-per-action business model on its content network. Many affiliates took umbrage. Many marketers decided they didn’t need to risk dealing with unruly affiliates now that they were getting the hang of pay-per-click ads and organic optimization.

The reasons to fear affiliate marketing were laid out and then promptly defused in a panel discussion at Search Engine Strategies New York on “Dealing with Affiliates” last March. The arguments were enlightening. Not final, perhaps, or even totally persuasive, since all the panelists represented either affiliate networks or agencies that used them. But they at least constituted a good first look at the disputes that can come up between marketers and their affiliate partners, together with some suggested remedies to patch up those differences.

Anton Konikoff, founder and CEO of search marketing agency Acronym Media, began by ticking off all the complaints that marketers have pressed against SEM affiliates over the last few years. In this view, affiliates raise keyword bid levels and increase the cost of acquisition through paid search; they can block advertisers from winning top ad ranks on their search terms; and they can often display off-brand or outdated ads. Their landing pages sometimes provide a less satisfying experience than the pages carefully designed and optimized by the advertiser. Finally, Konikoff pointed out, they can complicate the ad-testing process by taking some step the engines don’t care for, such as putting an unacceptable offer in an ad headline, and get the marketer’s ads bumped down in the rankings.

“One of the big points of frustration with affiliates is that brands spend millions and billions of dollars in creating ‘buzz’, investing in corporate advertising,” he said. “And then the affiliates come along and get a free ride on that publicity.” The common reaction among marketers, he said, is to clamp down with restrictions—to “police and enforce”, disallowing bids on many keyword types, imposing upper limits on bids or ad positions, and restricting the number of affiliates permitted to run PPC ads.

Instead, he argued, marketers should focus on overall goals—brand awareness, customer retention, traffic building—and consider the contribution affiliates can make to those goals and to helping the company “own” its important keywords. For example, letting affiliates bid on branded keywords may mean that marketers wind up paying affiliates for some customers they’ve already won through their own SEM efforts. But that expense may be negligible compared to the impact a ubiquitous presence in search has on branding and customer retention.

Konikoff cited the example of an acronym client, Humana Medicare, that often found itself competing against seven or eight affiliates for high-volume search terms, both branded and non-branded—some with costs per click (CPCS) over 50 cents. Rather than imposing restrictions on those affiliates, however, Acronym and Humana monitored their organic and PPC campaigns to see what bids, coverage, ad copy and landing pages worked best for them. Acronym thus was able to identify underserved keyword niches and rebuilt Humana’s PPC strategy to integrate the highest-performing affiliate ad copy, minimize competition over keywords, and drive down CPCs.

Chris Henger, vice president of affiliate relations for Performics, pointed out that his company classifies affiliates according to the business models of their Web sites and has come up with six main categories: shopping and promotion sites, loyalty/rewards, community and content, comparison shopping, search specialists and networks. A “vast majority” of the affiliates in all these categories do search marketing for their partners, he said, noting that the large comparison shopping engines are among the top 10 SEM spenders on Google and Yahoo!

The growing strength of search marketing undercut the value of affiliate marketing for a few years beginning around 2003, Henger said. But in recent years, the affiliate channel has seen a resurgence and will probably be around for a long while. One reason for the revived popularity is the wide variety of advertiser business models. A company like Performics client Bose (“a fantastic direct marketer”) also sells through retail channels and can’t dictate to retailer partners like Sears and Best Buy what they—or their affiliate marketing partners– can and can’t do on Bose-related keywords.

Kris Jones, president and CEO of Web marketing firm Pepperjam, pointed out that his company began as one of the largest affiliate marketing networks before transitioning into a full-service interactive agency in 2002. Pepperjam includes affiliate program management among its current offerings, and on the question of affiliates as friend or foe, Jones identified himself firmly in the “friend” camp.

“It’s a land grab as it relates to search engines, both in organic and paid results,” he said. “The available real estate is out there, both for your competitors and your affiliates.” The more space marketers’ brands occupy among, for example, Google’s 10 organic listings and up to 10 paid listings on a first results page, the more sales or leads they can generate. And cooperating strategically with a few carefully selected search marketing affiliates can help them achieve that page dominance at a manageable cost.

Jones advocated the 95-5 rule that says 5% of affiliates produce 95% of the affiliate revenue. Identifying and working well with a small number of “super-affiliates” can actually mean allying with partners who know search marketing better than most advertisers, and at a cost that’s below many professional SEM agencies.

Jones recommended starting with a list of five potential affiliate partners, and then defining a list of keywords from the head and the long tail that those partners can bid against. Most potential affiliate partners are sophisticated enough to realize that if they’re only allowed to bid on generic terms from the head of the keyword list, the resulting high costs and slim profit margins won’t let them thrive.

Once the partners are chosen and the search marketing guidelines laid down, marketers need to “broker the deal,” Jones said. “You need to agree to provide some internal conversion data about what’s working for you. The relationship won’t work optimally unless you share information.” Pepperjam signed agreements not to disclose those metrics back when it ran an affiliate network and now asks the affiliate partners in the programs it manages for its clients to sign similar NDAs.

As for other steps to retain control of affiliates, Jones admits that minimum and maximum bid settings worked more effectively before the large search engines instituted quality scores for ad placements, but says they’re still useful.

On whether affiliates should be permitted to bid on trademarked keywords, Jones said he’s a strong believer in giving that permission to at least the selected super-affiliates in a marketer’s program. “You should—and that’s based on eight years of experience and data,” he told the audience.

Lisa Crossley Hunter, director of CJ Search, the search marketing arm of Commission Junction, opted to apply some data to the questions under discussion, and particularly to the problem of whether running both affiliate marketing and search marketing programs side-by-side will inevitably lead to channel conflicts and increase a marketer’s cost per acquisition (CPA).

She highlighted an unnamed multi-million dollar retail client of CJ Search that began search marketing in January 2004 with a CPA of $9.80. When that client opened up an affiliate channel in July 2005, Hunter said, its CPA went down to $9.62. And by the end of 2006, with both channels running, the client’s CPA was down to $6.71 and had dropped for six consecutive quarters. Meanwhile, revenue from search went from $1.2 million in 2005 to $2.9 million in 2006, while additional revenue from affiliates reached $2.7 million last year, for a total increase in annual revenue of $5.6 million.

“They saw more than four times revenue growth between 2005 and 2006,” she said. “So if they had dropped one of those channels, they would have lost millions of dollars in revenue.”

The key to this client’s success in blending search and affiliate marketing was a set of well-defined guidelines, Hunter said. Affiliates were not allowed to use the advertiser’s display URL in their ads, and only certain affiliates were allowed to bid on trademark terms.

Hunter provided an case study of another multichannel marketer client using both search and affiliate marketing—but this time with no restrictions on either trademark bidding or use of the brand’s display URL. In 2005, this marketer’s CPA from search was $14.37, while the affiliate CPA was (for some reason) much lower at $6.90, for an average CPA of $10.64 across the channels. In 2006, the marketer was paying $15.22 per acquisition, and the affiliate CPA rose to $7.58, for an average of $11.40. So from 2005 to 2006, this client’s average CPA increased 76 cents.

The interesting element was what happened to the client’s revenue. In 2005, the advertiser earned $1.1 million in revenue from search, while its affiliates brought in $4.8 million; in 2006, the client earned $1.2 million in revenue and the affiliates $5.5 million.

Hunter said the client did not have a large enough SEM budget to be able to do a thorough job of marketing on its trademarked keywords all year round. In this case, giving the affiliates free rein to bid on those terms actually served to cover the trademark marketing the client itself couldn’t afford to do.

“Instead of just saying they weren’t going to let anyone bid on those trademarks and giving them over to the competition, this client thought strategically and said, ‘Let’s give it to our affiliates and see if we can generate something from them,’” she said. “And it’s worked for them.”

Performics’ Henger offered up an affiliate “wish list” designed to help advertisers strike the right balance of control and permission in their affiliate relationships. Suited to differing business models, these items included:

* Authorization to bid on trademarks and brand names, along with guidelines for doing so

* Ability to link directly to an advertiser’s display URL

* Permission to send traffic to domains that use the advertiser’s brand, for example to “www.eddiebaueroffers.com”, which consumers are more likely to click on

* Permission to lead-generation programs to host forms on their own domains and not make them send registrants off-site

* Authorization letters to search engines authorizing the affiliates to use the advertiser’s brand in their ad titles and copy.

Above all, Henger said, a marketer’s approach to and communication with affiliate partners matter. If the advertiser really makes an effort to partner with well-chosen affiliates, sharing performance data and recognizing that they’re working with slim margins to turn a profit, the match-up will be a positive one.

But he added that marketers who come in determined to offer affiliates nothing but the chance to bid on expensive generic keywords, or terms from the long tail that historically haven’t converted well, will find they’re stuck in a very unsatisfactory relationship.

What’s your experience been with affiliate marketing? Have you made it part of your regular marketing toolkit? Have you been burned by rogue affiliates or runaway acquisition costs? Send your affiliate stories to [email protected].