After ValueClick disclosed an inquiry into their lead generation practices by the FTC announcement stemming from the company’s incentive marketing campaigns, it was only a matter of time before changes would start to make their way through the space. And, if you read some recent posts that might seem to be the case. Take 5StarAffiliatePrograms who reports, "It appears several CPA networks are cracking down and no longer accepting incentivized traffic. Sources rumble that Hydramedia, Clickbooth, PerfectPayCheck, Netblue and others have recently started pulling their incentive offers." It’s a big statement that is both right in that changes are afoot but wrong in that some of this round of changes does not involve the FTC inquiry. Although, it will probably play out this way over time. Regardless, the first step towards change is happening, and that makes this a good time for a check up on the state of incentive marketing as we understand it.
Let’s back up for a second and look at the world of incentive marketing. What we often don’t highlight in our coverage is that there exists two major forms of incentive marketing. The first, made famous by companies like The Useful and now infamous by the Valueclick inquiry goes by several names, but we use incentive promotion the most. These type of offers have in some ways changed the way performance marketers do business. You can call them the adult marketers of direct response, and we don’t mean this negatively. Comparing incentive promotion to adult refers to the fact that those in the incentive promotion space often work the hardest. They innovate and build systems for making money on inventory that, without them, would often run public service announcements or no ads at all. They are the monetizers of intent, taking a user’s interest in a commercial good and making money for a variety of advertisers. For better or worse, they have become a victim of their own success, and more than one article will certainly cover how it changes in response to outside legislative pressures.
This article though refers to the other form of incentive marketing, the precursor to incentive promotion, and the originator of all incentive marketing. For lack of a better word, let’s call it direct incentive marketing. At the core, all incentive marketing involves doing something for something else. In the case of incentive promotion the user completes offers to receive some good, e.g. an iPhone. With straight incentive marketing, the user receives cash. The marketing company does a revenue share with the user. For example, if the marketing company receives $40 for an action that occurs; they credit the user some percentage. In the beginning, the marketing company kept the lion’s share, but markets mature, margins compress, and now, the users receive the majority. Users often earned straight cash back, i.e., receive $10 when you sign up for X, or they earned points that translated into dollars eventually, where instead of $10 the user earned 200 points. Netflip pioneered the straight incentive model, as they, I believe, were the first to tie a particular action back to a specific user and credit them for completing offers.
Once Netflip, and eventually others, had the mechanism for tracking a specific action to users in place, they had the ability to leverage that platform as a form of virtual payment, something which enabled incentive promotion. With the offer gateway in place, Your Free DVDs (the precursor to Connexus) could offer users the chance to earn their way to virtually any title on DVD. Get a FREE DVD is a much more powerful marketing pitch than saying get $5 free (the typical bounty offered by Netflip for new users.) Like any offer, the direct incentive marketers needed to advertise to hit scale, but as inventory in general went up in price and the incentive promotion companies became even more sophisticated in their product offering, that left less and less obvious inventory for the direct incentive marketers. Compound that with a general maturing of the Internet population, and that brings us to the issue today.
Think back to 1999 or even 2003, before social networks and before Google dominance, the chance to earn $10 or $20 for completing an offer you were about to partake in anyway was unique. Today, though, the novelty of earning $10 cash for completing an offer doesn’t do it for a user. It worked well in the beginning because both the concept had newness and the offers did too. With neither incredibly compelling offers to complete or a new model, you stop attracting who you want and start attracting more of who you don’t want, people who will take advantage of the business. Throw in competition among direct incentive guys, where now instead of a user having to earn $25 or $50 cumulative before payment, they can earn $10, and you only invite further those you don’t want. In the end, information is the catalyst that causes this mixture to combust, and hurt those offering direct incentives. Now, instead of sites praising the model, you have many educating on scamming the model. And, it’s the scamming that brings us to where we are today.
Direct incentive marketing, and incentive promotion for that matter, acts like a rebate. It needs some breakage. It needs users who complete offers, equivalent to a purchase, not claiming their rebate, the cash back. For many offers, a consumer might seem valid only to turn out invalid. Offer fraud, as a percentage, certainly existed but it has reached levels today that have many advertisers questioning the viability of such sites. Instead of being a win-win for consumers and advertisers, the direct incentive sites have turned into quasi-work from home models. With so many out there, a user can complete a few offers here, a few there; do this week-in and week-out in moderation and they will have made a few thousand dollars. And, there are a lot of people for whom a few thousand of "easy money" makes a big difference…or for whom the thought of easy money will get them started down the path. That said, users do not deserve all the blame. Site owners have the same greed. They will incentivize offers that shouldn’t be, say “Sorry,” then do it again with someone else. And, again, maturation of the vertical makes it easy to learn how to start along with sites offering the platforms to get you started. Direct incentive started first, so in some way it almost makes sense that it will undergo changes first. The FTC didn’t cause this, but it probably made the tolerance for bad behavior much stricter, more much quickly.
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