How Advertisers Get Stuck in the Sub-Affiliate Swamp

Whether it’s a dirty little secret or the elephant in the room, rumor has it some ad networks care more about the quantity than the quality of their affiliate publisher sites. As Yahoo and Google are slapped with affiliate-related click fraud lawsuits, and tales of good ads showing up in all the wrong places abound, questions arise. How and why are such problems occurring, and what are networks doing to alleviate them?

Although ad networks often knowingly bring small groups of contextually-aligned Web sites into the fold, sometimes individual site publishers in those networks decide to boost their click-through clout by secretly forming their own mini-networks. When publisher affiliates outsource ad buys to sub-affiliates, quality control can be greatly diminished, especially when those sub-affiliates serve up spyware or questionable content.

It’s no wonder networks would rather not talk about it. In fact, more than one company representative interviewed for this story did so upon the condition that they would remain anonymous.

The Allure of Arbitrage

“They [take on sub-affiliates] for one purpose and one purpose only,” believes one insider who monitors affiliate publisher sites for networks. They want to make more money, of course. Those familiar with the intricate inner-workings of the ad network business agree that arbitrage opportunities are ripe for networks and their affiliates. Networks can buy inexpensive inventory from publishers or other networks, then optimize it for targeting and sell it at a higher rate.

Affiliate sites realize if they take on sub-affiliates, they can bolster inventory and earn higher commissions from their parent networks. Affiliates still earn more after passing along a cut of that revenue to their sub-affiliates. (Sub-affiliates sometimes even get a bigger cut faster than they would directly from the parent networks.) Forming sub-affiliate networks “can be very lucrative,” despite industry standards, explained Lisa Riolo, SVP of business development for the Commission Junction affiliate network.

Content Volume Is King

The main sales point for ad networks is their ability to attract lots of eyeballs across a wide array of Web sites. Networks take great pains to demonstrate quality assurance to advertisers concerned with where their ads will be seen. But here’s the catch-22: Because they thrive on volume, those networks may be shooting themselves in the proverbial foot by cutting out affiliates that sub-out media buys.

“Ninety percent of the time [undesirable ad placement] is user-developed content related and/or it’s because of a network that’s a sub-affiliate,” said the source who audits affiliate sites for networks. It’s rare, he said, noting that inappropriate content is found 1 in 10,000 times. “Almost every time I’ve heard about it, it’s been the fault of the network” that didn’t screen its affiliates thoroughly, he added.

Some networks will reveal their publisher affiliates to advertisers; however, the bulk of ad networks are black boxes by nature. For that reason, many tend to attract advertisers that care more about reach than they do brand impact. Rather than buying directly and paying higher CPMs on a site-by-site basis, these advertisers are willing to buy on a relatively cheap cost-per-click (CPC) or cost-per-action (CPA) basis on an opaque network where inventory quantity rules over quality.

Such advertisers really only care about volume, observed Jeff Molander, CEO of affiliate marketing consulting firm Molander and Associates. “They love hear no evil, speak no evil marketing.” Because volume-oriented advertisers are the bread-and-butter of most networks, it’s not exactly in the best interest of networks to kick out volume-drivers like affiliates that take on sub-affiliates. “To care is financially a step in the wrong direction…it’s punishing the books,” believes Molander. Molander’s firm provides its multi-channel retailer clients with affiliate network audits to determine if the many layers of affiliate middle men leading to a sale end up costing too much. Some advertisers believe sub-affiliate risks are simply the cost of doing business, he explained.

Jarvis Coffin, CEO of ad network Burst, agrees that an appetite for inventory volume can cause some networks to neglect affiliate quality control. “That doesn’t happen unwittingly,” he contended. “For people to be spinning this as otherwise is a mistruth.”

Good Ads Gone Wrong

No matter how much they may appreciate the broad reach of a network, there are a multitude of occurrences that can turn off advertisers to buying on them. For instance, Dow Jones and Verizon were less than pleased when they discovered their ads running on risqué MySpace pages. Other nefarious network events involve labyrinthine transfers from one network to another to another. Consider the ecommerce site that buys media on one ad network that has purchased inventory from another network that’s bought media from yet another network that’s serving up adware. Then suppose that adware cookies a user so even when the user visits the advertiser’s site directly, the advertiser ends up paying a commission to that first network because it looks like an ad served through that adware drove that click-through.

“When good advertising shows up in bad places it’s not because someone was fundamentally cheated; it’s because the purveyors of that advertising weren’t being careful enough with where they were selling their ads,” commented Burst’s Coffin.

Sub-Affiliate Sentry

“Some people represent themselves one way and put our [ad serving and tracking] tags in another place,” said one source in charge of buying for a large ad network. He noted that such events happen once every couple of months. His network buys media from other small and large networks and has a dedicated staff that manually surfs all sites it serves ads on before they’re approved.

He disagrees that networks don’t mind forsaking publisher quality for inventory volume. After all, he commented, when advertisers discover their ads in places they don’t belong, his network would “feel the pain.”

“In cases when traffic is not quality…we’re going to take action,” insisted Commission Junction’s Terance Kinsky, director of the ad network’s 8-person network quality group. The policing division monitors traffic to advertiser sites, noting abnormal fluctuations in the amount of click-through being delivered in a given period of time that can indicate the presence of clandestine sub-affiliates. If affiliate publishers don’t cease their outsourcing activities, Commission Junction may lock them out of their account until they behave, or boot them out of the network entirely. Such activity occurs a “very small percentage” of the time, and legal action is rarely taken, said Kinsky.

If ad networks are so committed to quality, why the reluctance to discuss the issue of sub-affiliate risk? “It’s not necessarily reluctance,” responded Commission Junction’s Riolo. “It’s a fairly complex issue, and it’s difficult to convey all of the subtleties that go with it.”