Is California Killing Affiliate Marketing?

As email marketers scramble to understand California’s new spam law and prepare for its taking effect on January 1, affiliate marketers are bracing themselves for what could be a profound change to their businesses.

The new legislation stipulates that to send commercial email, one must either have a prior business relationship with the recipient or have obtained direct consent to mail. What has companies in the affiliate space worried is the definition of “direct consent.” If a merchant’s affiliate partner sends commercial email on its behalf, even presuming he uses an opt-in list, could that be construed as violating the new rules?

“The question is, what is the definition of direct consent? Our definition is the consumer has voluntarily or expressly given permission,” said ValueClick VP of Corporate Strategy John Ardis.

It remains to be seen whether a lawsuit could succeed in holding a company responsible for the email practices of its affiliate advertisers. It seems likely that this idea will soon be tested, though, since the new law gives individuals the right to sue, and the brand-name companies, rather than the often-tiny affiliates, are the ones with the money worth suing for.

The problem stems from the fact that affiliate programs are arguably the most chaotic form of legitimized marketing on the Web. With so many affiliates out there deputized to market companies’ products, it’s difficult for the companies, or even affiliate networks, to keep track of all of their activities. It’s no wonder that many companies in the pay-for-performance arena are nervous about the potential liability issues of the new spam law.

“With affiliates, it’s a little bit scary, because you don’t always know what they’re doing,” said Paul Simmons, program manager for Performics’ i-Direct email marketing division. “That was scary before. It becomes doubly so after January 1.”

Performics says it has set up technical barriers that make it difficult for affiliate marketers to spam using its clients’ affiliate links, but the company admits it’s possible to foil the safeguards, if affiliates really want to. Because, technically, a link is a link whether it appears in email or on a Web site, there’s no way for affiliate networks to know how the links are being used.

The size of the affiliate spamming problem is up for debate. Performics reports it has received few complaints about spam sent by its affiliates, suggesting the problem of affiliate spam may not be a large one.

Commission Junction’s senior VP of marketing and product development Elizabeth Cholawsky said she believes the incidents of spamming among members to be negligible. “The newsletters our publishers send are ones that are most desirable to consumers,” she said.

ValueClick , which owns BeFree and has agreed to acquire Commission Junction, expressed a similar view.

ValueClick’s Ardis said, “I think it could potentially cause a shake out, but the affiliate partners we deal with through BeFree are the kind of properties consumers view as valuable and readily give consent to. The incidents of non-registered, non-permissioned email will be low.”

Ardis said ValueClick expects California courts will smile upon its practices, even in light of the new law. According to Ardis, the vast majority of email BeFree’s members send is to recipients who have given permission.

Despite the apparent unconcern of ValueClick and Commission Junction over their liability under the law, some in the affiliate space are jittery, expressing confusion and uneasiness about the implications for their businesses.

Ryan Phelan, CEO of pay for performance marketing firm KowaBunga Technologies, expects some companies will get more proactive in managing their affiliate partner relationships.

“I think you’re going to see changes in the ways companies have agreements with their affiliates,” Phelan said. “The liability issues are huge.”

Affiliate marketing expert and author Declan Dunn concurs. “Affiliate marketers may have to update their privacy policies to let people know they’re opting in,” he said.

Performics’ Simmons expects to spend more time educating both clients and affiliates about the risks and obligations inherent in email marketing.

“[Affiliates] have signed something [saying they won’t spam]. It’s part of their agreement,” he said. With the uncertain implications of the new law, he added, “we’re going to tell them again and again.”

Dunn added the law will likely hurt legitimate marketers while doing little to stop the real bad actors in the affiliate space. “The people doing the redirecting — it’s not going to affect them in the least,” he said, referring to one of the shadier affiliate tactics.

It seems farfetched that, say, Pfizer could be held liable for the billions of spam messages pushing its notorious erectile dysfunction drug, but the language in the new law may open the way for it.

Some affiliate marketing insiders, such as Commission Junction’s Cholawsky, have argued a strict interpretation of the law ignores the realities of the marketplace.

“The law’s not practical in terms of getting info out to consumers,” Cholawsky said. “It will be hard for courts to enforce. Basically, they’re going to have to say, you can’t use this business model. And it’s a business model that works.”

However, she acknowledges the law would have disturbing implications for that very business model, were it carried out to the letter. “There are some odd nuances in the law. What happens when someone sends something that has an ad in it, it’s affiliate and it’s reported as spam? That could mean trouble,” she said.