eCommerce Rule #7: Affiliates are risky. Don’t let them pick your pocket.

Affiliates are third parties that charge a commission when a user clicks through a link on one of their sites to a merchant and subsequently completes a transaction (usually a purchase). On the face of it, affiliates look like a no-brainer—the more of them you can get, the better. But don’t be fooled. It’s the Wild West out there, and certain evil affiliates are looking to pick your pocket. You are better served having a very tightly controlled affiliate program, and you need to keep a close eye on affiliates for suspicious behavior. Here are three things to watch out for:

Everyone claims credit. As we discussed in Rule #6, consumers often visit a site multiple times before completing a purchase. The larger your affiliate program, the higher the chance that your average customer clicks on the links of more than one affiliate before converting (perhaps they visit the site of a traditional affiliate, and then an online-coupon site). Because affiliates get credit for a conversion even if it occurred several days, or weeks, after the user first clicked through the affiliate’s link, this means you might find yourself with multiple parties all claiming credit for the same conversion. A 5% commission for one affiliate is fine. But if you need to pay two or more affiliates the same commission rate, your costs can add up very quickly. To minimize this, you’re better off sticking with just one affiliate program (e.g., Commission Junction, Performix, etc).

Watch out for spyware and other scams. The most insidious affiliate ploys are scams like spyware or cookie-stuffing. Ben Edelman of Harvard Business School has a great report describing how some affiliates use pop-ups, pop-unders, IFRAMEs and other little-known industry mechanisms to trick a user’s browser into downloading an affiliate’s cookie for multiple merchants—even when the user hasn’t clicked on an actual affiliate link. When the user then goes to one of the soon-to-be-defrauded merchants and makes a purchase, the affiliate scammer’s cookie claims credit for the conversion.

Other affiliates deploy good old-fashioned spyware. One of our portfolio-company executives recently was combing through his Web logs and noticed that the codes for some of his affiliates were being entered into users’ clickstreams milliseconds before transactions were finalized, thereby tricking the merchant into thinking that the affiliate had acquired those customers. The executive soon realized some of his users’ computers were infected with spyware. The spyware tracks a user’s behavior and, in the first millisecond it sees a shopping cart activated, refreshes the user’s browser and slips in the affiliate’s code. Our executive notified Commission Junction, the leading affiliate program provider, of the ruse and the affiliates were quickly terminated. But remember: no one else is looking out for you, so you need to monitor your affiliates yourself.

Don’t let them bid against you. Left unchecked, affiliates may bid on your trademark search terms, effectively fighting you for keyword ads and driving up your acquisition costs. Whats worse, often, affiliates try to take of the navigational-search phenomenon we touched on in Rule #6. If a user types your brand name into Google, he almost always already knows what he wants—he just wants to get there quickly. But if he ends up clicking on an affiliate’s link instead of your own, you’ll have to pay the affiliate for the conversion even though you did all the hard (and expensive) work to lure in the user in the first place.  Talk about a free ride!

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