The Affiliate Conundrum – Partner vs. Pilferer
There is a topic for which I am unusually passionate. It is a distinction that to many even inside the world of internet advertising means little, yet it explains the difference between so much of what we see online today – that of affiliate vs. arbitrager. As I wrote previously, “At its most essential, the affiliate has an audience they try to which they cater, where as the arbitrager has only traffic. The true affiliate has their own site, their own brand in which they’ve invested time, money, and ego. They have something to lose if they mess-up. They can’t just fold-up shop and start again. The arbitrager on the other hand is the day trader who at the extreme is ephemeral, defined by his appearing and then disappearing act.” The fake blog fiasco which has culminated in lawsuits against 500 individuals and companies and will result in countless more when the FTC investigations become public has seen its fair share of blame thrown at affiliates, but the true culprit is the arbitrage. When people take financial risk and make decisions purely based on the need to recover costs and then some, that leads to behavioral detrimental to advertisers and the marketers.
Arbitrage isn’t all bad and those who perform arbitrage, from a small search affiliate up to the venture-back technology powerhouse Adchemy, can do it such a way that it adds value throughout the entire value chain – from end user to end buyer of the lead. Arbitrage in lead generation is such a tricky topic, though, that the turning on the affiliate tap must happen with great care. While it should be the traffic driver’s responsibility to ensure that the advertiser’s best interest are kept in mind, what we continue to see is that self-interest takes precedence and that means the advertiser must do the same. The buyer must be an informed buyer and understand the traffic side of the equation.
Let’s look at particularly interesting example that highlights:
- The affiliate challenge – how do you find third-parties that will drive quality consumers. How do you find a partner that understands your business objectives and do not just what they say they will but in good judgment.
- The need for informed buyers – one who enters with an understanding of what they will and won’t accept along with a target cost per acquisition. It also means a buyer that has in place the means to follow-up with leads, the ability to track the performance of leads, and communicates back to the affiliate the performance on as granular level as possible.
- The difference between those a partner and liability – everyone in the value chain wants to make money, but when it gets of alignment, no one wins; unlike a car, where it’s easy to tell when alignment isn’t there, it’s not always as easy when profit is involved.
This example comes from a recent post from famed affiliate-marketing rabble-rouser Jeremy “Shoemoney” Shoemaker, titled “Cashing in on Cash For Clunker With MySpace.” The reader of his very well trafficked blog (and quasi-online community) readers contain a large number of those hoping to glean the secrets to making money online. It’s a very different audience than one would find at LeadCon, for instance. This example caught my attention because it dealt 100% with lead generation. In short, Jeremy knew a local Omaha Nebraska Chevrolet dealer who already had a sales team handling internet leads and crafted an agreement to sell them leads at $10 a piece. As he writes, “I told them I would charge them $10 per internet lead (a small fraction of what they are currently paying) but with the condition I could publish a lot of the data on my case study (what your reading). I also told them I wanted to exclusively use MySpace for this test because in past ones we mainly focused on Facebook for driving social network traffic. ”
So far so good. Enterprising guy crafts own opportunity. Where things get interesting are the results. Jeremy writes (emphasis added), “Our average CPC for this ad was AMAZINGLY low. 13 cents per click on average for over 800 clicks which converted to about 600+ total leads. Now at $10 per internet lead coming to us its not hard to see how crazy profitable this is.”
Below is the screenshot he shared in the post.
It goes without saying that the 74% conversion rate is rather unheard of. It helped that his landing page contained only 4 fields and paid an above market premium for that number of fields. What’s implied from the post though is that you too could make $6000 from a spend of barely over $100. Go to it.
Naturally there is a spread that comes from identifying opportunity from market inefficiencies. The big question is how much. In typical online lead generation opportunities, the answer is – not that much. This is a rare mix of overpriced leads ($10 auto for four fields), low value inventory (with questionable geo-targeting at the hyper local level), a high market demand (cash for clunkers), and a savvy marketer (Jeremy), no to mention the years of leg work by other companies in the lead gen world who made selling leads to a local dealer possible.
This rare mix makes from highly charged conversations, which played themselves out in the comments highlighting a new issue with third-party partners.
Partner vs. Pilferer
The comments from the Cash for Clunkers Lead Gen experiment are among the most elucidating possible when describing the distinction between the two and what we call the Affiliate Conundrum. (Those below have been shortened where needed and bad spelling fixed, not grammar though.)
Partner Persona
I don’t believe the numbers… 600 leads out of 800 clicks is extremely high. Also, How many of those leads gave fake information. short term profits, but ruining a long term relationship
Pilferer Persona
Good to know there’s people like you out there that have no interest in being profitable. When you go to a restaurant, do you ask for 80% off becuase it REALLY doesn’t cost that much to make the food? How about the computer you’re on , did you ask for 95% off because there’s only $20 worth of materials in it? If it’s not profitable for a commission based company, they won’t do it. $6000 is a drop in a bucket for many car companies, and they already are paying way more than that for online leads (about $20 for full reg info).
Partner Persona
do you think they are asking for the $10 for that fake lead back, or do they just let go, because according to you, that $10 is just a drop in the bucket. I doubt 100% of these leads are real, and that adds up…
leads from cars.com, autobytel, vehix are easily worth $20 for full reg… those are people looking for a car and serious… $10 for a phone number from myspace???
everything aside… do you really believe 100% of the leads are valid??? what percent do you guys think are fake? 40%, 50%, 60%…
Pilferer Persona
I never thought one could earn from such a scheme. You really think out of the box.
Partner Persona
800 clicks which converted to about 600+ total leads >>> NOT POSSIBLE, no one gets this conversion rate on any website. This is a joke and flat out fabrication. Never in the history of doing this for 11 years can you get this type of conversion of a quality lead. Garbage yes, quality, not way.
What matters is cost per sale and based on MySpace demographics today, it doesn’t add up. In the off chance this worked for Cash for Clunkers, it isn’t a model that will work long term. Where is the info on the dealers actual close rate on these leads?
Pilferer Persona
Excellent case study, and a meaningful recipe to make some decent cash.
ShoeMoney
This is also why we started doing the leads for only $10 which was a small fraction of what they were paying another company for internet leads. They asked me not to reveal exact specifics but in general car dealerships make about 1-1.5k per car on the low end that they sell. On 600 people if they sold 10 cars then this was profitable for them. Again they asked me not to reveal exact stats (believe me I would love to) but there is a reason they are calling me every day to see if I know anyone who can do this for them full time for 100k/year or so.
Summing it up
Luckily, it seems that in this example, the only true fail was the dealer’s prior online lead generation campaigns. That this example didn’t result in a complete meltdown makes it at least easier to objectively analyze the types of players involved. What we see are definitely those that seem aware of the end buyer’s needs and genuinely interested in seeing those goal hit. We also see a vocal contingent more interested with the profit available to them, independent of how their results transalte upstream. The defining metric seems relative profitability. Jeremy writes, “I know to a lot of people out there would think 6k/profit per month was a lot of money.”
For legitimate partners, several thousand dollars doesn’t mean much, but for individuals it can make a big difference. And, more often than not individuals comprise the pilferers. They are the hungry souls who hang on to every word that a guru writes, the group that acts like they have nothing to lose because more often than not they do. They are the ones that give the notion of third-party partners a bad name and make arbitrage seem the culprit as opposed to human nature being the culprit. They want quick results, and wary be the advertiser who like those affiliates doesn’t want to put in the time to see lasting results. They will instead see results that last, but they won’t be the desired ones.
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