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Affiliate Programs Then and Now

Affiliate Programs Then and Now

September 20, 2008
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" affiliate fraud has evolved over the years "

You've heard the stories about the "good old days," the storied era of the mid to late 1990's, when conversion ratios were low and profits high. Affiliate programs were few and far between, competition for search engine placement was relatively light and DVD was a young medium just getting its foothold in the adult market.

As someone who experienced the much-celebrated glory days of the adult Internet's rise to prominence, I can tell you that the ease of building a successful affiliate program has been exaggerated somewhat in the retelling — but there's no doubt that the going is much tougher in '08 than it was in '98 — and it's clear that the affiliate program game is significantly more challenging now than it was even three or four years ago, much less 10 years ago.

Affiliate Fraud on the Rise
In the old days, while most talk of fraud in the market revolved around the issue of shaving by affiliate programs and abusive billing practices (both of which were plenty common), there was less discussion of affiliate fraud and the challenge of combating it.

Like every other aspect of the adult Internet business, affiliate fraud has evolved over the years. The two most common forms of fraud I encountered back in the day were the use of click bots to create fake clicks on PPC programs and webmasters signing up for sales under their own account to inflate their PPS sales commissions. Fortunately, most of the cheaters were not particularly sophisticated, and there were abundant clues that tipped us off to the fact that we had a scammer on our hands.

TopBucks is naturally an attractive target for those in search of a quick, dishonest buck. As such, I've had to rapidly get up to speed on the latest tricks of the trade where webmaster fraud is concerned, and what I've seen is a marked increase in the sophistication of many cheaters compared to years past.

While there are still those who attempt the simplest forms of cheating — for example, using their own credit cards to sign up for trials, then cancelling and pocketing the difference between the PPS payment and the cost of the trial — there's been a substantial increase in the number of cheaters that put far more thought into their scams.

These "modern cheaters" may well have developed their approach over time, after being caught and terminated repeatedly, with each instance giving them a little more insight into how to avoid detection. These cheaters have taken to ghosting their IP address to obscure the fact that the sales they refer are not coming from real individuals and some clearly have obtained lists of compromised and distributed credit card numbers, further enhancing the verisimilitude of the fake sales they refer.

Catching the modern cheater is not easy, and it is as much an art as a science. For obvious reasons, I'm not going to describe in detail how I catch them — it's likely that some of them read XBIZ World — and providing details would merely serve to educate them further. Suffice to say that like many poker players, cheaters often have a "tell," something about their approach that gives them away, and makes it possible for program operators and transaction processors to catch them — unfortunately, sometimes only after the scammer has managed to get himself paid once or twice.

Profit margins for affiliate programs in the current market are thin enough as it is; the last thing you need is to be paying out on fake signups that later return as refunds and chargebacks. Educating yourself about effective fraud control measures and investing a few hours per pay period digging through stats to catch cheaters among your affiliate base is a small price to avoid unnecessary revenue bleed.

The Free Content Glut
Like most other aspects of the current market, the effect of the widespread availability of free content, particularly via "tube" sites, has been subject to extensive debate among webmasters and program operators alike. Those that have been around the block a few times will often observe that dire predictions have been made for years concerning the detrimental effect of TGPs, MGPs and other manner of "traditional" free sites, and they argue that the concern over tube sites will eventually die down as the market adjusts and figures out how best to monetize tube site traffic.

Others argue that there is a substantial difference between tube sites and their free site predecessors, noting that while visitors to any TGP, MGP or other manner of "traditional" free site can get what they need from the galleries presented to them, the content on those galleries is often limited in scope and quality compared to the content available on the pay sites advertised by those galleries, and even the longest video clips offered in the typical MGP gallery were a minute or two long.

By contrast, the videos offered on tube sites are typically far longer and generally more competitive with the content offered by subscription adult sites. Tube site content also is often offered up completely absent any advertising for the company, site, or DVD associated with the content.

If You Can't Beat Them…
The subject of the free content glut brings us to a central dilemma currently being faced by affiliate programs across the industry; if tube sites are where traffic is, can you afford to ignore that segment of the market?

Industry attorney Larry Walters told me not long ago that most of his adult Internet clients have talked to him about the legal issues surrounding tube sites and they are fairly evenly divided between clients that want to sue a tube site and clients who want to start their own tube. This division among Walters' clients is a microcosm of the dilemma that is playing out across the industry, as companies weigh the pros and cons of viral marketing via the tubes.

Increasingly, affiliate programs are testing tube site waters, and several prominent programs have even launched their own tubes — although typically their tube sites do not permit user uploads and follow a stricter use protocol than do the wide open tubes. Operators of such "legitimate" tubes are understandably reluctant to openly discuss the performance of their projects, but speaking off the record, several such operators have told me that profit margins on their tubes are razor thin. Their results have fueled speculation that the same might be true of the free for all tubes that do allow user uploads.

Opinions vary as to the revenue potential of tube traffic; some program managers that I've spoken to say that they are monetizing tube traffic effectively, while others have declared their tube-related efforts an ineffective use of time and resources. If the advertising on the tube sites is any indication, it would appear that dating and social networking sites and live feed services are most effectively exploiting tube traffic at the moment — which stands to reason, given that their products are substantially different from the content that is being published by the tubes, and therefore more likely to produce sales than are ads for subscription sites that in some cases offer less content than is available on the tube where the ad is displayed.

In short, the jury is still out on whether tube traffic (or tube site operation) is a viable long term profit producer in the adult space. In the months to come, some predict that many of the major tubes currently stacked at the top of the Alexa charts will change hands or perhaps fail due to lack of profitability, while others believe the tubes are here to stay. In the end, each program operator will have to make their own evaluation of the tube sector, and determine through their own testing and tracking whether promoting via the tubes makes sense for their business.

The Road Ahead
In this ever more competitive and challenging market, many program operators are quietly reconsidering their business models, and making shifts, subtle and otherwise, in their strategic thinking.

Speaking to other affiliate program operators at recent industry trade events, I'm hearing more and more frequently that companies are exploring means to produce their own traffic directly. They do not intend to get out of the affiliate marketing business, but they are aiming to increase the percentage of their traffic produced internally and possibly scale back on how aggressive they are in their efforts to acquire new affiliates going forward.

All this belt tightening and strategic realignment is reflective of the ever more challenging adult Internet market, as well as the general economic downturn being experienced globally. It's no time to panic, but any affiliate program that wants to successfully negotiate the ebb and flow in the current marketplace would be wise to dig deep into the details of their marketing strategy and reevaluate the assumptions and tactics that guide their business model.

In a sense, the challenges of the current market represent an excellent opportunity for affiliate program operators. As the old cliché goes, necessity is the mother of invention — and right now, our collective mom is screaming "Innovate!!" at the top of her lungs.


LEGAL PERSPECTIVES

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