• by Ross Fadner , December 20, 2004

Affiliate marketers generally take an optimistic view of their business, but a recent report from MarketingSherpa suggests that affiliate marketers should pay more attention to the potential pitfalls.

The report--"Affiliate Marketing 2005--Do Merchants & Affiliates Have Unrealistic Expectations?"--reveals that a whopping 91 percent of merchants and 82 percent of affiliates said they expect revenue growth in 2005.

But, despite the marketers' rosy view, challenges loom for 2005. For one thing, the industry has not yet resolved several of the high-profile hiccups that appeared in 2004--widespread reports of illegal cookie stuffing, adware and spyware companies' use of duplicate pages and invisible redirect tags, compliance problems with the Can-Spam Act, and click-fraud, to name a few.

Another potential problem area for affiliate marketers is paid search, especially if Google decides to crack down on affiliate marketers for bidding on trademarked terms in 2005, as has been widely rumored. Last week, Google won a closely watched trademark infringement trial against insurance company Geico, which had sued over Google's practice of allowing advertisers to bid on their rivals' trademarks.

The report states that between 30 and 40 percent of affiliates depend almost entirely on search engine marketing to drive referral commissions. Half of MarketingSherpa's survey respondents said they wouldn't work with a merchant that banned paid search in its affiliate agreement; 27 percent said they wouldn't work with a merchant that banned trademarked ads.

JupiterResearch analyst Gary Stein noted that, for many affiliates, "the biggest challenge is that the practice is really dependent on both paid and algorithmic search." He said that should Google decide to restrict affiliate marketers from bidding on the same merchant search terms, it would affect a handful of people who totally depend on that tactic, but not the majority.

Another potential problem area for merchants is e-mail. Only 13 percent of merchants said they proactively police affiliate e-mail marketing campaigns, and only 11 percent of merchants require affiliates to run their "do not e-mail" lists against theirs. Nearly half the merchants surveyed (45 percent) said they passively police affiliates' e-mail activities--meaning that they wait for spam complaints to cut affiliates.

Sixty-five percent of merchants expressed concerns over cookie stuffing and adware/spyware programs. These are practices involving affiliates who receive commissions for traffic they didn't actually drive to a merchant's site.

"How can it be that merchants pay thousands--tens of thousands, hundreds of thousands--of dollars to affiliates, without serious, rigorous monitoring of what those affiliates are doing?" said Ben Edelman, a law student at Harvard and an Internet fraud specialist. He said it's a mistake for merchants to leave affiliate policing up to the affiliate network providers, which he said have no monetary incentive for policing affiliate fraud, because they too make a cut from all merchant-affiliate transactions.

Earlier this year, LinkShare Corporation, one of the Web's largest affiliate network providers, on three separate occasions gave out and then revoked its quarterly affiliate award for driving merchant sales to affiliates who were later found to be guilty of cookie stuffing.

Jupiter's Stein, who is preparing a new JupiterResearch report on affiliate marketing for next year, said he doesn't think any of the problems raised in the MarketingSherpa report will curtail revenue by that much in 2005. In fact, according to new figures from the upcoming Jupiter report, 78 percent of merchants with affiliate marketing programs expect to increase their total number of affiliates in 2005--and 38 percent plan to increase the number by 25 percent or more.