Merchants are growing increasingly concerned that affiliates engaging in direct-link PPC (define) search and even buying clicks to their own sites are inflating overall CPCs (define) within the Google, Yahoo, and Microsoft search marketplaces.
Affiliates, on the other hand, love finding keywords that allow for arbitrage of the CPC against the commission paid by merchants or lead-gen partners. Unlike a few years ago, the intersection between affiliate PPC search arbitrage and the marketers’ direct PPC search activity is looking less like the Wild West and more like a set of ongoing experiments for which give and take will ultimately create a sustainable business model.
In the early days of PPC search and affiliate marketing, managing this problem was like herding cats. I’m not sure if things have gotten any easier for merchants, yet. The level of policing required is significant. I’ll discuss why opening the door even a crack may encourage creative cheaters.
I like to keep tabs on what’s going on in affiliate marketing. There’s a lot of overlap with some affiliates buying clicks using direct links to merchants (even breaking engines’ rules about display URLs being the same as destination URLs) and affiliates using PPC to supplement organic search and other inbound traffic.
At the recent Affiliate Summit in Las Vegas, there was the usual talk about how merchants that formerly allowed affiliates to practice PPC search arbitrage are now cracking down by placing significant restrictions on affiliates’ bidding activities. These merchants are justifiably concerned that affiliates are raising the cost of traffic merchants must pay directly through their PPC accounts.
I have some old sites that still get traffic, so I signed up for a bunch of affiliate programs to learn how affiliate marketing managers communicated policies about PPC search and affiliates. The most common policies I’ve noticed over the last six months are:
- Merchants are restricting brand, domain, and product name bidding, which amounts to a policy of total prohibition. In some cases, however, the merchant provides some guidelines regarding ways the affiliate can bid on restricted terms.
- Merchants are restricting bidding on selected keyword sets (excluded keywords beyond the trademarks and domains).
- Merchants are setting maximum bids on allowable non-trademark, non-restricted keywords. The huge problem with this is all the engines have moved to an opaque marketplace. Consequently, merchants can’t see what their affiliates are bidding.
- Only selected power affiliates are chosen to participate in a controlled PPC marketing environment. The thinking is that by reducing the number of cats you try to herd, you can control them better.
Obviously, there’s an incentive for affiliates to cheat, even on brand keywords, and some of the cheating methods are quite creative. Let’s just say the methods most often employed aren’t all that different from the power segmentation methods I discuss when evaluating how to best structure a search campaign. (I hate to say more because it will give affiliate marketing managers an additional boatload of compliance work. If you want to know the cheating techniques, e-mail me.)
Another reason I heard from marketers favoring affiliate use to get search-originated conversions/sales pertains to internal budgeting policies. In some cases, PPC search spending has a budgetary cap, whereas affiliate budgets are treated as a cost of goods sold (COGS) with no spending cap. This situation is fascinating. Most marketers engaging in PPC search manage their campaigns (either directly or through an agency) to a strict ROI (define) allowable. In some cases, this allowable is similar to the all-in cost for affiliate marketing on a commission or return-on-advertising-spend (ROAS) basis.
Marketers are treating the two modes of customer acquisition differently from an accounting perspective. In reality, the two are identical, except for the burden or risk. Affiliates who engage in PPC search are taking the risk the campaign will fail to generate a profit (that’s why they tend to be conservative and focus on low-hanging fruit, or cheat and use trademarked terms). Marketers’ spending budgets in Google, Yahoo, and Microsoft shoulder the risk, even if a highly competent SEM (define) agency, technology, or both is used to nearly eliminate the risk of poor ROI.
I’d be interested in hearing from marketers who treat PPC search budgeting or accounting differently based on the above scenario. I’ve heard some marketers consider the commissions paid to the affiliates (as well as the fees paid to the affiliate networks, such as Commission Junction and LinkShare) to be a COGS or cost of sales. Others seem to consider affiliate payments to be part of the traditional marketing budget: an indirect expense that’s budgeted for and capped. What’s your method of accounting for affiliate payments and why?
There are lots of factors to consider when determining how much power to give to affiliates in regard to PPC search bidding, including market competitiveness, budgeting, internal search competence, and agency use. It’s key to also consider affiliates’ motivations. Affiliates don’t like to risk their own money unless the return is worth the risk. This tends to limit the affiliate-driven PPC aggressiveness to the easy stuff, the low-hanging fruit. This also means you need a highly competent in-house team or agency to access the unpicked fruit at the top of the search tree.
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