Update: Exclusivity Still Sucks

It’s been more than a year since we last talked about the perils of exclusivity. And while a great deal has changed with affiliate marketing since then, exclusivity remains a nagging issue — and, in my opinion, one of several factors holding back the entire affiliate marketing industry.

Of course, the U.S. affiliate marketing business is still basically a three-horse race, though a few promising new entrants have emerged, including KowaBunga and QuinStreet. Also, of course, the field has tightened considerably. Depending on your metric, you can find a way for any of the big three — Be Free, Commission Junction (CJ), and LinkShare — to come out ahead. But what hasn’t changed is the rigid stance that Be Free and LinkShare have taken regarding exclusivity. Meanwhile, CJ, Performics — and now KowaBunga and QuinStreet — continue to follow a policy of affiliate marketing glasnost.

To get some perspective, think of exclusivity as analogous to tariffs imposed on imported goods. Tariffs protect domestic producers in the short term by raising the relative cost of imported goods. However, in the end, Adam Smith always prevails. Economic rationality returns, and previously “protected” producers find they have lost the ability to truly compete without the prop provided by tariffs. The result is often a precipitous drop in market share.

Besides being just plain un-American, exclusivity in the affiliate marketing business has played out in some very ugly ways. So far, for the most part, it has affected merchants. To a lesser extent it has meant that affiliates don’t have a choice of network providers. Ultimately, the entire affiliate marketing ecosystem suffers from the economic impact of exclusivity.

Be Free Changes Its Tune… or Not

At first, it seemed Be Free was changing its stance. After low-level rumblings in the industry for several months, a Be Free spokesperson let it slip during the London Affiliate Solutions conference that the company’s exclusivity clauses were not “being enforced with select Be Free merchant partners.”

Separately, several affiliate managers with Be Free programs have confided, off the record, that they were even being offered the ability to “pay their way out of exclusivity.” But then, all of a sudden, Be Free reversed course and went back into its protective shell.

Still, there are plenty of sites that apparently escaped. Hello Direct gives affiliates an option to join either its Be Free or its CJ program. LowerMyBills.com has seen success with its Be Free program for more than a year, but just last week it launched at CJ anyway. Recently, Be Free even snagged the Dell Small Business account, whereas the Dell Home Systems account stayed at LinkShare.

LinkShare Stands Rigid

At LinkShare, exclusivity is almost religion. CEO Stephen Messer commented, “We do believe that exclusivity is the best way. You wouldn’t put two engines in a car?” Maybe not. But you might put ads at Yahoo and AOL or be indexed at Google and Inktomi or stock the shelves at Kroger and Safeway or sell to Wal-Mart and Target, right? And isn’t that what affiliate marketing is all about — meeting customers at the point of purchase?

Still, LinkShare has its share of defectors. In addition to Dell Small Business having left the fold, Financial Services Direct (FSD) has set up two programs — one at LinkShare and one at CJ.

Of course, it doesn’t always work out so well. Things turned ugly when LinkShare merchant Office.com acquired AtYourOffice.com (AYO), a Performics (formerly Dynamic Trade) merchant. In a letter to affiliates, AYO wrote, “While AtYourOffice.com has enjoyed a very successful partnership with Dynamic Trade… we are obligated to take this step as a result of our having joined forces with Office.com who [sic] has an exclusive relationship with LinkShare.”

What About Performance Marketing?

Of course it’s bad enough that Be Free and LinkShare want to build walls around their affiliate marketing kingdoms. But these days, affiliate marketing is just a piece of the performance marketing puzzle. Forrester estimates that by 2003, 83 percent of online marketing expenditures will be pure cost-per-action deals or a hybrid of cost per thousand impressions (CPM) and performance.

As a result, companies like GoTo, ValueClick, and Advertising.com are all part of the performance-marketing mix. Unfortunately, some marketers may be signing away their futures without realizing it.

In summary: If you’re a merchant, don’t sign an exclusive deal. If a service provider (of any service, not just affiliate marketing) is really that good, why would it insist on an exclusivity clause? If it’s that good, why would you look anywhere else? You wouldn’t. You’d be all too happy to send even more business its way. The truth is, exclusivity clauses prop up the weak and hinder the natural-selection process.

Fight back by checking out providers like (in alphabetical order) Commission Junction, KowaBunga, Performics, and QuinStreet that are more than happy to earn your business — and then keep you coming back for more — not because of a clause in a contract, but because you like the results.

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