Case Study January, 2011

THE AFFILIATE BRAND ABUSE EXPLOSION IN THE SEM CHANNEL

A Case Study of Abuse: What are the consequences? How do you detect it? How do you perform a lockdown on your brand? Overview
It is no secret to any digital marketer that affiliate marketing is exploding and continues to, when used correctly, represent one of the best, most costeffective, performance-based marketing strategies available. In 2009, Forrester forecast that the affiliate marketing industry would grow to $4 billion by 2014 a doubling of spend in just five years from $1.9 billion in 2009. Meanwhile, SEM spend in 2011 is expected to reach $19.8 billion.* Along with this rapid acceleration in spend has come an increasingly dangerous environment for brands that are at a greater risk than ever before of having their SEM brand campaigns hijacked, their brand equity diluted, and of falsely paying out valuable advertising dollars in what is increasingly a lawless anything goes marketing universe.

An average of 40% misattribution per advertiser is not unusual and for some advertisers, it can hit 90%.

There are no hard and fast industry numbers to quantify the dollars misattributed or lost by hijacked brands but, based on analysis by Atrinsic Interactive of literally hundreds of advertisers, an average of 40% misattribution per advertiser is not unusualand for some advertisers, it can hit 90%. Applied to projected advertiser spend on affiliate marketing, that could represent revenue misattributions of as much as $1.6 billion (40% x $4 billion) for advertisers using the channel by 2014. None of this is particularly surprising as the performance-based nature of affiliate marketing, along with the minimal investment required to enter the channel, can lull brands into a false sense of security with the natural friction between SEM and affiliate divisions within advertising units contributing to the challenge. Whatever the cause, one thing is clear: the potential dollar losses are significant. The good news is that as hijacking techniques become more and more sophisticated and prevalent, so do the tracking techniques, technologies, and strategies for locking out what is becoming chronic brand abuse. This case study uses the experience of a typical advertiser to demonstrate not only the perils of brand abuse in the affiliate channel, but also how it can be detected and prevented. And to help ensure the continued credibility of the affiliate channel and the health of the advertisers who use it, this case study also provides some key best practices to help advertisers prepare and to lock down their brands.

2011 Atrinsic, Inc. All Rights Reserved

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The Affiliate Brand Abuse Explosion in the SEM Channel

Client X

The advertiser used in this case study (Client X) is an established and leading online consumer-facing brand. Client X is one of the top brands in its vertical, generating upwards of $44.1mm in revenue and 630k visitors a month. Client X had been running comprehensive online search campaigns, but their ads were constantly hijacked and Client X was consistently outbid and outranked by affiliates with serious impact to its bottom line. In effect, Client Xs brand was consistently and successfully being hijacked to the tune of an estimated $600k annually.

How it is Done

In order to understand how brand abuse happens, it is important to be familiar with the most common techniques used by affiliates in Pay-Per-Click advertising. o Trademark Bidding an affiliate bids on an advertisers trademark terms and/or concatenations, using different ad copy than that used by the advertiser. o Direct Linking an affiliate directs their traffic from the search engine directly to an advertisers landing page in an attempt to increase conversion rate by bypassing their own landing page. o URL Hijacking an affiliate utilizes the same ad copy and display URL as the advertiser they are hijacking. Search engines have a rule that only one ad per display URL will show at any given time, so the affiliate ad competes with the advertisers ad, often winning the display. o Geographic and Day-parting Blackouts affiliates set up their ad-serving to block out certain times of the day or geographic areas (i.e. where the brand or agency is located) in an attempt to keep their ads from displaying in areas or times where they may get caught.

Client Xs brand was consistently and successfully being hijacked to the tune of an estimated $600k annually.
The Consequences
The dollars at risk are significant and demonstrable. But the fact is, it is hard to fully measure the broad impact that brand abuse has on an online marketing program, or the advertiser brand itself, because misattribution impacts the metrics advertisers use to determine their online strategies. For example, if a campaign tracking report shows 6 clicks, but the last click gets stolen, that info is not shown in the report. And when this happens a) the advertiser spends unnecessary dollars building a relationship with the consumer and/or b) the CPA is inflated, resulting in inappropriate management of the search account. In Client Xs case, $50,000 a month was recovered when brand abuse was detected, but the overall impact measurement went well beyond the recapturing of fraudulent payouts. And it can extend to others in the market. Affiliates bidding on keywords drive additional competition for those keywords into the marketplace, driving up click/advertising costs and not just for the targeted advertiser. In one clients case, CPCs for brand terms more than doubled and the brand conversion rate fell from 23% to just over 1%.
A Case Study of Abuse: What are the Consequences? How do you detect it? How do you perform a lockdown on your brand?

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The Affiliate Brand Abuse Explosion in the SEM Channel

Affiliate Bidding Issue

How it is Detected
Client X knew there was a problem. They were experiencing a 150% increase in average CPAs on their branded terms. Crawls of terms from random IP addresses at random times of the day (at least four times a day) shone a sharp light on the cause of the behavior. Affiliate bidding had increased significantly. For example, in the month of February, affiliates were bidding on branded terms 97% of the time, with an overall increase of 1,000% from February 10th to March 30th of 2010. Not only were they bidding on terms that they shouldnt be bidding on, but they were also using unauthorized copy, i.e. Save 50-60%!, and similar violations, making the affiliate offers seem more attractive than the brands -- inspiring consumers to go through the affiliate channel. Since these offers did not actually exist, the affiliates were not only driving up cost and reducing conversion rates in PPC, but they were also devaluing the brand through bad user experience. URL Hijacks

How it was Prevented

With the launch of new tracking technologies, advertisers are now capable of understanding the consumer path to conversion. In Client Xs case, reporting and screen shots with the incriminating information painted a very clear picture of the abuse and Client X immediately terminated the relationships with the violating publishers.
A Case Study of Abuse: What are the Consequences? How do you detect it? How do you perform a lockdown on your brand?

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The Affiliate Brand Abuse Explosion in the SEM Channel The Results Client X
August
Affiliates violated trademark terms and conditions 97% of the time $50k in fraudulent affiliate fees

September
Affiliate violations reduced by 50% in the first two weeks $50k in affiliate fees reversed

Long Term Analyzed Results

Estimated Savings in Affiliate payout: $600,000 per year!

Top Three Things to Consider / Put in Place Before Locking Down Your Brand
This case study demonstrates that instituting best practices to lock down your brand to prevent abuse is probably the wise choice, but it should not be done without consideration of the ramifications and clear messaging to your team.

1. Understand and Avert the Possible Financial Implications

Prepare your team for a substantial drop in current affiliate revenue. While it is hard to see any revenue decrease, if the proper steps are taken, the decrease should be more than balanced with a substantial uptick in paid search revenue and an overall decrease in marketing costs, because trademark conversions are usually much more cost effective than affiliate commissions. Avoid drops in revenue by changing your search campaigns to take advantage of the increased impression share on your brand terms. Affiliates will no longer be taking that impression share so grab it! If you dont, your competitors will, yielding a substantial loss in revenue. Manage your search campaigns with multi-click conversion tracking technology to reap the benefits of this additional impression share. You can determine the true value of those clicks by associating them back to the other clicks in the consumer engagement funnel, thereby associating revenue back to other keywords. The overall effect will be increased sales and market share through the paid search channel. Be prepared for the costs associated with fixing these issues, including the crawling technology to police the search engines and the proper personnel to handle the removal of the offending affiliate partners. Keep in mind, the more affiliate networks that you work with, the larger the project. This is especially true when you work with CPA Networks, which tend to be more blind. These networks are less transparent about your affiliates identity, making it more difficult to track them down and prevent from re-appearing in other programs once you have terminated them.
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A Case Study of Abuse: What are the Consequences? How do you detect it? How do you perform a lockdown on your brand?

The Affiliate Brand Abuse Explosion in the SEM Channel

Top Three Things to Consider/Put in Place Before Locking Down Your Brand (continued)
2. Review Internal and External Dynamics

Internal Staff SEM, Affiliate, Marketing and Brand Managers Most established companies that have significant brand term search volume have both an internal team member who oversees the paid search efforts and another who manages the affiliate channel. More often than not, their livelihoods are tied to the performance of their respective channels, potentially generating an internal conflict on which channel to attribute brand term revenue. For example, it may be in the affiliate managers personal best interest to allow cannibalization of the brand terms because of financial incentives. On the other hand, the search manager is incentivized to capture revenue associated with those same brand terms. It is critical that all marketing channels roll up to a manager who is not susceptible to these conflicts and who is looking out for the overall performance of the company. External Relationships Agencies, Consultants and Affiliate Networks External relationships can bring dangerous conflicts of interest to the table. For example, a major conflict of interest arises when separate entities manage the paid search campaigns and the affiliate initiatives. Most advertisers include performance riders in search agency and affiliate networks contracts. Changes in volume of sales running through either channel may cause these riders to kick in, without reflecting incremental revenue, resulting in a costly bill from the agency or network. More often than not, the affiliate network will be negatively affected by these changes, which could put your relationship in jeopardy. You need to be fully prepared to migrate your program from your current provider if they are not willing to do whats in your best interest.

It is critical that all marketing channels roll up to a manager who is looking out for the overall performance of the company.
3. Consider Hiring an Independent 3rd Party for an Audit

It often makes sense for the advertiser to work with an independent 3rd party. This resource needs to be one step removed and be able to give key decision makers a true picture of whats occurring with their brand. It is imperative that this resource have deep expertise in paid search management, affiliate marketing, analytics, and revenue attribution as well as access to search engine crawling technology. The advertiser should also be willing to share sensitive data including paid search and affiliate data, analytics access and other relevant sales/revenue data so the third party can accurately assess problem scope, as well as develop a proper strategy to realign the advertisers marketing initiatives.
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A Case Study of Abuse: What are the Consequences? How do you detect it? How do you perform a lockdown on your brand?

The Affiliate Brand Abuse Explosion in the SEM Channel

Top Five Best Tips for Locking Down Your Brand

You have considered the implications and prepared the team; now you are ready to do it. Here are five tips to keep in mind:
1. Know Thyself: It is critical to understand what is going on with your campaigns. Track your brand activity. Keep an eye on your CPCs, conversion and click through rates, on your rank fluctuations over time, your market share deviation as compared to a control group, and your market share as compared to your hot competitors. 2. Know thy Enemyand thy Friends! Track what your competitors are doing compared to you including the top 10 biggest competitive threats, top 10 new competitors, and top 5 gainers and losers in terms of market share. Know who your publishers are and how they are driving traffic. Manually approve everyone who comes into your program and understand all your traffic sources.

Track your brand activity. Keep an eye on your CPCs, conversion and click through rates.

3. Set the Rules and Make them Stick: Make sure you have strict publisher and affiliate guidelines, such as: no trademark bidding, or trademark bidding with specific bid policies and guidelines; no direct linking except in very unique situations, and absolutely no trademark hijacking. 4. Integrate Search and Affiliate: Your affiliate program should be managed by the same division/ person that manages your paid search campaigns so that they can correctly interpret and act on a drop in the affiliate revenue channel and a consequent uptick in SEM revenue. Because there is often a natural friction between search and affiliate divisions that relates to the way commissions are paid out, smart online marketing decisions can be negatively impacted. But if you unify the two strategies, this can be avoided. 5. Work with a Trusted Provider: One who has sophisticated tracking technology, a solid monitoring service - including trademark, competitor and affiliate monitoring - as well as a deep understanding of the way Search and affiliate marketing interact. Your provider should be able to detect URL hijacks in real time, direct linking and compliance abuses, how affiliates are using landing pages, analysis of hops and redirects, etc.
*(http://www.amnavigator.com/blog/2009/09/28/forrester-us-affiliate-marketing-spend-to-double-in-5-years/) (http://www.marketingcharts.com/print/sem-spend-to-top-26b-by-2011-cannibalizes-print-media-8272/)

For More Information on this Case Study, Contact sales@atrinsic.com, or Call (212) 716-1977 ext. 247
A Case Study of Abuse: What are the Consequences? How do you detect it? How do you perform a lockdown on your brand?

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