Affiliate Marketing Threatdown: Disclosure vs. Compliance

This is part one in a two part series examining the requirements of disclosure and compliance management on the world of affiliate marketing.

I’ve been following the talk in the blogosphere lately regarding the recent FTC ruling that people engaging in “word of mouth marketing” practices must disclose the the relationships that they are compensated to promote.

One of the first reactions to this announcement was the controversial PayPerPost who announced that they now officially require disclosure by bloggers who write posts promoting their clients that they are being compensated to do so. This definitely moves PayPerPost closer to legitimacy in the eyes of many of their critics.

But how does the FTC’s announcement about the affiliate marketing world.

Scott Karp writes that if something is not crystal clear its an ad, then it is deceptive marketing. This cuts to the point of the FTC’s announcement. The difference between an advertisement and word of mouth marketing or paid promotion is in essence whether the consumer knows that they are being marketed to. I think the gist of Scott’s argument, and the FTC announcement is that if you are marketing something you need to let the consumer know you are marketing to them, and without that disclosure it is deceptive.

So, clearly, this does have ramifications in the world of affiliate marketing. The business model for affiliate marketers is to drive traffic to advertisers and to be paid for that traffic and often that consideration is based on the consumer making an purchase. But how does affiliate marketing differ from other forms of advertising?

  • When watching television at night, you don’t see a disclaimer prior to each commercial break, stating “what is about to appear on your television is intended to make you buy stuff.” The reason you don’t see that disclaimer is that consumers are savvy enough to realize they are being marketed to in that circumstance.
  • When a consumer visits an affiliate marketing website, do they know that there is a financial relationship between the website and the products or services that are promoted or reviewed on that website? If you think the consumer does not, then a disclaimer is necessary.

So, assuming you agree that some sort of disclosure is necessary, what kind of disclosure should be provided? Should we include:

  • Disclosure in the Terms of Service of the website
  • Disclosure on every page of the website in the footer
  • Disclosure next to every link that is an affiliate marketing link

The answer to this remains to be seen. Ultimately it depends on the sophistication level of consumers to understand that they are being marketed to. There are some great interpretations of the new ruling as it applies to affiliate marketing here, here, and here.

I believe that the disclosure requirement (however it eventually is applied) is a good thing for affiliate marketing. It enables affiliate marketers to engage their website visitors on the level, and it encourages affiliate marketers to add value to the conversation, which is what we advocate through siteMighty. The affiliate marketing business model works best when you add value to your users by enabling them to make the best purchase decisions. This is done in many ways, through presenting products in categories, editors reviews, user reviews, and aggregating information that may otherwise be difficult to collect on the web.

I believe most successful affiliate marketers are already doing this and the FTC disclosure requirement will be a non-issue for them as they are succeeding by providing value to their users, not deceiving them.

Part two of this series examining threats to affiliate marketing and affiliate compliance will be presented next week.

What Time’s “5 Things” Can Teach Us About About Web 2.0

I saw this story from Time Magazine via Techmeme today. The story, titled “5 Things That Went From Buzz To Bust,” is basically an apology from the publication for getting it so wrong. As I read each item on the list, keywords would pop in my mind. Here’s the list, with the first word that came to my mind next to it:

  1. SNAKES ON A PLANE, AUDIENCE DISEMBARKS – Catchy name
  2. IF HE DID IT (OJ Simpson) – Controversy
  3. STUDIO SCHMUDIO – A sure thing
  4. TO PLAY’S THE THING (PS3) – Expensive
  5. IT ALL WENT DOWNHILL SO FAST – Again, a sure thing

I think there are some lessons to be learned here that we can use in our Web 2.0 world.

Build buzz with a catchy name, but deliver

I have believed that it’s 10% what you say, 90% how you say it, so branding is very important to me. We spend a lot of time, energy and resources into branding our ideas and projects, but no matter how perfect we get the brand, none of that matters if we don’t deliver with a killer product or service. Plus, no matter how right you think you have it, you can never account for the shifting tides of the public’s demeanor. In short, your audience is fickle.

Stay nimble and open to change, have a Plan B
You never know when the world will change dramatically. You should always leave room to grow/change. In much the same way that Studio60 and Bode Miller have failed to meet expectations, it just makes sense to me that we run the risk of failing when we top load an idea with a ton of hype, release it and find its reception flat. Public relations and brand building takes some throttling. Build some buzz, but first among early adopters who can give you valuable feedback, then to a broader audience who are less willing catch what you’re pitching.

Controversy can be good, but don’t be evil

I’m glad the OJ interview got canceled, because that type of gratuitous controversy is bad for the world. But there’s a type of controversy that gets people talking and debating. Being controversial will get you feedback faster than beta testing, but be prepared to listen and make changes. No matter how far you go down the wrong path, it will always be the wrong path.

Listen to Chris, freemium works

Now, of course Sony can’t offer the PS3 for free, but for a moment, imagine if they could or were forced to. How different would the product be if people had to try it out before they made the decision to buy? Sony would probably invest a lot of time into making the product incredibly user friendly and widely adoptable. Or maybe Sony knows exactly what it’s doing, and is catering a select group of gamers.

In the Web 2.0 context, pricing is very important, and it wouldn’t matter how amazing something was if it were too expensive. The reason, I think, is because there are tons of smart people in Web 2.0 that can undercut just about anything. This is why the freemium model is so popular among Web 2.0 startups, and it really addresses why all of the things on Time’s list went bust. A freemium model:

  1. Forces a catchy name (Snakes on a Plane) to deliver, or else it would come as no surprise went it fails;
  2. Checks controversy because no one will support (pay for) an idea that is evil;
  3. Will tell you how much of a sure thing you have by how many people convert to paying users or abandon your service;
  4. Allows everyone to at least get a taste of what you’re selling without being put off by the price.

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