Web Merchants Offer Incentives To Affiliates

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February 17, 1998 (8:14 AM EST)

Web Merchants Offer Incentives To Affiliates

By Richard Karpinski,

A growing number of Web merchants are ready to give away the store -- or at least a healthy cut of sales -- to affiliates that deliver traffic and transactions.

Several developments on tap will drive suddenly red-hot revenue-sharing affiliate programs to new heights.

Online retailer eToys will reveal as early as this week plans to give affiliates a full 25 percent, up from 12 percent, of all sales they drive, leapfrogging the single-digit shares offered by the better-known programs of Amazon.com, BarnesandNoble.com, and other Web retailers.

According to eToys, the numbers behind affiliate programs give commerce sites compelling rationale to embrace them. Even the most successful Web advertising campaigns can't come close to beating revenue-sharing deals for driving visitors through to a successful online transaction, eToys executives said.

"From a store perspective, nothing beats a back-end deal. It's really a beautiful thing," said Phil Polishook, vice president of marketing at eToys.

IT managers will face significant technology challenges in implementing affiliate programs. Homegrown systems -- often lacking in significant back-end automation -- are being forced to scale to manage an exponentially growing number of Web sessions, while integrated links to accounting and payment systems are becoming a prerequisite to running a successful affiliate program.

"From a store perspective, nothing beats a back-end deal. It's really a beautiful thing."

-- Phil Polishook
eToys

Commerce vendors have caught wind of the affiliate trend in a big way. Several smaller companies, most notably LinkShare, Be Free, and i-traffic, offer software and managed network services specifically designed to handle these kinds of programs.

LinkShare, for instance, will release a new version of its Synergy affiliate software later this month that will let stores share anonymous user profiles across its network, enabling merchants and their partners to launch more targeted commerce campaigns. That network carries the transactions of 80 merchants and their 4,000 affiliates.

Elsewhere, Open Market is including support for affiliate programs as part of the official release of its Transact 4.0 commerce server this spring. Specifically, the commerce server now lets retailers treat affiliates as satellite storefronts or franchises that handle sales within their own sites and send transaction data back to the source.

Microsoft, in Redmond, Wash., also is supporting more sophisticated affiliate-selling support, dubbed Buy Now, in its Site Server 3.0 Commerce Edition, now in beta.

Why all the hype? "This really represents a maturing of the Internet," said Boston-based The Aberdeen Group analyst Chris Stevens. "As large commerce players begin to make a substantial portion of their revenue on the Web, they are interested in revenue performance and ROI. These programs are performance-oriented."

Technology Needs Some TLC
Despite the promise, the technology needs to improve. "No one is merchandising well across these sites and there's very little analysis going on. This is a complicated network that gets created, but the technology is still a little primitive," said Bill Doyle, an analyst at Cambridge, Mass.-based Forrester Research, which recently published a report that touts the benefits of Web-based affiliate programs.

In the survey of large commerce sites, 35 percent of the respondents said context-sensitive syndicated selling was their most effective way to drive traffic and sales, compared with just 16 percent for ad banners.

So what is an affiliate program? The best example may be Amazon.com, which, with more than 30,000 affiliates, has one of the oldest and largest networks on the Internet. Amazon.com lets any qualifying business create a mini-bookstore on its site. The affiliate is provided with a unique account code embedded into a URL. Visitors click on those links and are fed directly to Amazon.com.

Any books purchased are traced back to the referring site, and a share of the revenue -- anywhere from 5 percent to 15 percent in Amazon.com's case -- is split with the affiliate.

From a technology perspective, affiliate programs can be boiled down to a few key elements: real-time session management, user identification and profiling, and back-end application integration, said The Aberdeen Group's Stevens.

EToys is a good example of a company that has built a unique homegrown affiliate platform, yet continues to look for even more robust technologies.

In a new deployment slated for the end of the month, the site will use a two-tier approach to identify affiliate users. If a user will accept a cookie, eToys will use that approach to track user behavior. Otherwise, account-code strings will be embedded within referring URLs, said Robert Ferber, eToys' vice president of technology.

Integration with eToys' back-end systems is limited at this point, and most transactions are still handled manually.