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Web Affiliate Programs: A Good Deal for Small Biz?
The cachet may rub off on your site -- but little cash

Affiliate marketing on the Web -- a way for online retailers to get thousands of other sites to help sell their products -- may seem a boon to small businesses. Slap the Barnes & Noble logo on mysite.com, for example, link it to the big book seller's online store, and you get the cachet that goes with that name -- plus a cut of the take when your visitors pony up for a book.

Sure, it may work if you're America Online with 15 million subscribers. But if you're among the Web proletariat, you'll likely find that this attempt to make a buck has the same drawback as the theories Karl Marx proposed in his Communist Manifesto: It's supposed to spread the wealth, but in practice the money goes one way -- to the commissars of marketing, the big brand names of E-commerce.

ELECTRONIC PR. It's easy to see why Web retailers like affiliate marketing; it creates a virtual sales force of thousands. And the retailer's logo is permanently, prominently displayed on someone's site, yet it only pays when it makes a sale. By contrast, "banner [ads] are a relatively ineffective way to sell because they don't compel people to [buy] like the affiliate connections" do, says David A. Palmieri, director of new business development for barnesandnoble.com. "Plus, the affiliates are much more compliant [in accepting] different [types of] promotions." Not to mention that your sales pitch often seems more credible if someone else is touting your product.

Palmieri knows. Following in the footsteps of nemesis Amazon.com, Barnes & Noble set up its affiliate-marketing program about 16 months ago. Run by an outside business called Be Free Inc. and 12 book company staffers, the barnesandnoble.com affiliate program has more than 41,000 partners, including such brand-name sites as Microsoft, Disney, ABC, and Oprah. Palmieri won't say how much his affiliate network generates for barnesandnoble.com, but he notes that it's a "significant minority percentage" of the Web site's total annual sales of $60 million to $65 million. The sales commission Barnes & Noble pays varies. However, most affiliate sites get 6% of the price of each book sold.

Therein lies the rub for small participants in affiliate-marketing programs:If mysite.com is wildly successful and boosts a retailer's revenue by, say, $500,000, its reward is an anemic $30,000. The payback is so small that some affiliate network members say it isn't worth having a merchant's link on their pages. "We certainly didn't depend on it for revenue," says MusicVideos.com Chief Technology Officer Peter Gorla, referring to his site's former affiliate relationship with music site CDnow's Cosmic Credit program. MusicVideos.com plays music videos online and claims 8 million page views a month.

Gorla says the problem for his small site and others is this: No matter how many potential customers this marketing method brings to a merchant, the affiliate usually gets commissions only when a buyer has clicked through directly from its site. "In other words, we were providing a lot of signage to CDnow -- about 50,000 click-throughs a month -- but our checks were only about $20 a month, because people would go back to actually buy something without linking through us first," Gorla says

MAKE GOODS. CDnow's affiliate marketing program manager Nyles Lannon concurs that many sites don't get credit for the traffic they bring retailers. "I totally understand the argument, and it's definitely something I want to fix," Lannon says. "What we try to do is make up for it with other incentives." Those can include bonuses for sending new customers to the Web retailer, for signing up as an affiliate, and for remaining an affiliate for a set length of time.

The problem of making sure small member sites get their due is critical for CDnow, Lannon says. That's because its affiliate program, which has 150,000 members (mostly small sites), is responsible for a "significant minority" of CDnow's revenue and is its leading source of new customers.

Still, paltry returns made MusicVideos.com a CDnow affiliate program dropout. After nine months, MusicVideos.com became an affiliate of another music retail site, UBL.com. Now it gets a flat monthly fee for sponsorship, not a percentage of each sale generated. Gorla won't disclose the sponsorship fee but says: "It's so much more, it really can't even be compared." And he still thinks affiliate marketing is valid: "It's a great way to introduce people [to a product] for low cost, and it makes sense for big sites that can cut a deal on top of what is generated through their sites."

In fact, Gorla says MusicVideos.com may set up its own affiliate program and compensate affiliates for click-throughs to the site, since it doesn't sell consumer products on the Web.

POPPING THE CORK. Another site that hopes to play the dual role of affiliate member and program marketer is wine retailer Virtual Vineyards. An associate member of Amazon.com since early last year, Virtual Vineyards launched its own program in December. Virtual Vineyards' Director of Marketing and Advertising Rita Belle confirms that being an associate -- even with a behemoth such as Amazon.com -- "doesn't get us very much" revenue.

So Belle is looking forward to going to the other side of the fence. "We think [being an affiliate marketer] will be a good source of revenue as well as a way to build connections and relationships," she says. Belle hopes that by restricting affiliate membership to sites with upscale traffic, Virtual Vineyards will attract the type of customer who'll buy right away rather than bounce back via bookmark.

If that makes you want to rush out and start your own affiliate program, remember that it can't be done overnight. "It's been a fairly lengthy and labor-intensive process," Belle says of Virtual Vineyard's effort.

Moreover, affiliate marketing requires lots of maintenance. "If you just set up [a program] and go away, it's probably not going to work," says Gordon Hoffstein, CEO of the Internet affiliate-marketing developer Be Free. "Marketers must have access to real-time data that lets them know what's being sold and who's selling it, so that they can efficiently analyze the performance of their affiliates [and] get payments out on time."

Clearly, affiliate marketing isn't a get-rich-quick scheme for either retailers or their partners. But one thing's for sure: There's more in it for those who are getting customers than for those who are sending them over.

By Stefani Eads in New York
stefani_eads@businessweek.com


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