Shawn Collins: Thank you for Gene Kavner, joining us today for a little chat. If you're not familiar with Gene, he was formerly of the Worldwide Leader of the Amazon.com Associates program. He's also an experienced entrepreneur and very active in the affiliate business. He's a blogger with the site AffiliateBrand.com. It's great to have you here, Gene.

Gene Kavner: Good morning, Shawn. Thank you. Same here.

Shawn: Great. Just have a handful of questions here. I'd love to hear what you think about them. I'll jump right in. One thing I'm curious How would you define affiliate marketing, and how is it different than a traditional advertising?

Gene: Well, actually, affiliate marketing is not very well understood. We all understand what advertising is basically a merchant or somebody that's got something to sell would typically approach a media, whether it's offline media, such as newspaper or television, or an online website, and purchase some impressions effectively, purchase inventory that they would have and allow their product to be introduced to their viewers or customers or readers of the website. affiliate marketing actually is the same formula for getting traffic, except for it's the other side of the coin. This is when the merchant would come up with a set of tools that would allow websites to come to their site, grab those tools, and display those merchants' products without necessarily the merchant needing to go and establish a relationship with those particular websites. In fact, merchants would not necessarily even need to know all the different websites that are grabbing their tools and displaying those products with the merchant on their site. So effectively it's the same thing it's who needs to approach who. In traditional advertising it is the merchant who approaches websites, and in affiliate marketing it's basically the websites approach the merchant.

Shawn: Ok. Great. That was a nice explanation. Maybe I'll have to crib that once to get a lot of family and friends asking what affiliate marketing is all about. I always have to try to figure out what to tell them there. Also, with your experience on the affiliate management side, what do you consider to be some essential elements for an affiliate program?

Gene: Well, I've made the list. There's actually about seven really important items of any affiliate program that every single program should have. Not too many merchants or affiliates follow all of those steps, but I'll go through them as quickly as I can. I have a little bit more information on my site, but number one is; Affiliate program is a relationship between a merchant and an affiliate or a website. Every single affiliate knows who their merchants are, but merchants typically are not even made aware who all the affiliates who sign up. Certainly merchants do not need to contact every single affiliate, but they should have information as to who these affiliates are. They should have their names. They should have their email addresses. Any affiliate that is performing very well they need to establish a relationship with them and understand what is driving that affiliate.

Number two; every single merchant needs to also understand how, what I call elastic every single affiliate is. There are some affiliates who will make more money for a merchant if a merchant were to pay them more. Then there are certain affiliates that, if you pay them more, they will not necessarily drive additional traffic. For example, affiliates that did, on paper, click inventory out there to drive traffic to a merchant will actually make more money for the merchant if the merchant were to pay them more. So merchants need to be aware who those affiliates are. Affiliates such as bloggers typically depend on the traffic they get over the internet, so if you pay them more, it is not quite likely they will drive additional traffic to the merchants, so merchants need to be aware of the distinction between kinds of affiliates and pay them on a different scale based on the type of an affiliate they are.

Next is; every single merchant needs to be able to offer their affiliates tracking ID's. That's point number three. These affiliates have different ways of driving traffic to the merchant. Some ways work, and some ways don't work. Tracking ID's is what allows affiliates to understand which of their marketing mechanisms works, and which of them don't work, so they can focus just on the marketing efforts that work. Without these tracking ID's, an affiliate, which has some marketing programs work and don't work, they do not know which ones work, which ones don't, so they could be likely to drop the entire program if overall it's not performing, rather than focusing on the performing marketing techniques.

Number four: merchants need to be able to incentivize affiliates to produce more traffic and more sales for them. They need to be able to offer what's called ladder compensation system. As an affiliate, if you sell more of the merchant's products, you should get accumulatively larger percentage of sales than somebody who is not doing too much in sales. This incents affiliates to do more and more and more for the merchant.

Number five; some affiliates are just better at negotiating, so merchants need to have a way to compensate different affiliates differently. Not just based on the kind of an affiliate they are, but simply based on the fact that some affiliates want to make more money, and some affiliates do not, are not as good at negotiating and you can simply pay them less. There are some very big affiliates that simply will not deal with a particular merchant if their pay structure is too low. However, that merchant doesn't necessarily need to raise the fees for everybody. Some affiliates would be happy to make what they make. There needs to be a way for a merchant to select this affiliate will make so much, and this affiliate will make so much.

Direct links; number six. Direct links are also extremely important. In the days of Google, where we all depend on free search traffic coming to our site, a merchant should get a second benefit of an affiliate program, which an increase in it's page rank to the site. If affiliates offer direct links, linking directly to a merchant's site, that causes a merchant's site to go up in its page rank. If an affiliate program redirects these links through the program, the merchant does not get the same benefit. It is really important for an affiliate program to allow a direct link from an affiliate to the merchant.

Number seven; and this is the last point, but it's not any less important than any of the other ones: Every merchant program should have a two tier affiliate program, meaning if an affiliate finds another affiliate for that merchant, the merchant should compensate that first referring affiliate for that find, based on sales that second merchant makes. Effectively the two tier structure incentivizes people not only to sell merchant product but also find other people, other affiliates, who sell the same merchant's product. It effectively serves this double benefit to the merchants.

So these, Shawn, are the seven really important parts of affiliate programs. There are some affiliate programs that actually do all seven; some that barely touch on a couple of them. For us to be successful in the affiliate program and for merchants to be successful, this is what I see the world moving towards, is everybody getting those really important features into their programs.

Shawn: That's some great insight. I've often wondered, from your seventh point, why the big affiliate networks don't offer two tiers, and maybe with some prodding they'll do it in the future.

Gene: Amazon, for example is one of those big main programs that does not offer a second tier. Google, on the other hand, does. You definitely see some really big names that do offer it and some big names that don't. Overall, it's about how much traffic those merchants get, and as they see a lot more and more affiliates displaying advertising for programs that have two tiers, they will all move in that direction as well.

Shawn: Sure. What do you think is the biggest challenge for an affiliate manager?

Gene: Well, I think the biggest challenge obviously is for many people, if you're an affiliate manage, is how do you get above the noise level of all the different affiliate programs out there. If you are a brand new manager on the scene, there is probably already 20 or 30 other affiliate managers trying to push a different merchant that sells somewhat similar products. Getting above noise level is really, really tough. One of the most important things that an affiliate manager would need to do is figure out how to incent certain affiliates more than their competitors, going after certain big name affiliates and being able to offer a higher commission structure. Effectively, I know it is kind of buying traffic, and you can only pay so much, but many affiliate programs will in fact build their program around some affiliates on which they do not make any money, but these are the affiliates that bring the name, that bring the traffic, and bring the recognition to that merchant. The merchant will then make money on other affiliates who they did not necessarily need to pay as much. Getting that traffic and getting above the noise level is one of the biggest challenges in today's internet, which is full of many opportunities for many different affiliates to make money.

Shawn: Sure. I saw in your blog that you stated that widgets are the future with affiliate marketing. Could you share some examples of widgets that maybe affiliates could leverage?

Gene: Sure. Widgets are actually a reasonably new phenomenon in the world of online marketing. Basically a widget is a piece of code, a little component, somebody could easily place their website and it displays something for a consumer or reader of the site. It is also something that somebody who's reading the site should be able to easily grab, copy, and paste right from the site they're watching and put it on their site. We've seen YouTube, for example they've done a phenomenal job at allowing people to grab videos from each other's site and putting them on their site. This has been not a big thing in the affiliate marketing, and I really do believe this is about to change.

One of the biggest challenges that I just mentioned for an affiliate manager is to get traffic and get affiliates to come and display their products. What any program should be able to have going forward is allowing an affiliate to not only display advertising to a particular merchant, but to allow any reader of that website to easily grab a piece of code from that website and quickly put it on their site to display the same ad. In this case there should be a compensation incentive for that originating website as well as to the merchant. So let's say your site, Shawn, displays an Amazon ad, for example, to something, and I come to your site and grab it and put it on my site, you should get some compensation from Amazon based on the sales I make off of this ad as well, because I noticed it on your site. It's not yet something that people implement; this is what I believe many, many merchants will be moving to in 2007 and 2008 and in the next number of years because it allows people to break through a lot of that clutter and allows them to display some very interesting content. We've seen that happen already in non affiliate space, and I think it will expand greatly into the affiliate space as well.

Shawn: Sure. Yeah. And Amazon has certainly done quite a bit of innovation with their affiliate program. What would you consider to be some of the best tools that Amazon has provided to affiliates over the years?

Gene: Well, in the last year, definitely the biggest, the most innovative, improvement has been what they call their e Store. When I ran the program, what I noticed is there are many, many people who were building Amazon storefronts using Amazon Web Services. Web Services is a fairly complicated piece of technology that you have to really understand programming and have a lot of expertise in building. Because we saw so many people going out and building those kinds of stores, what we basically thought is that if we could build a store that you can just point and click and build in five minutes without requiring any expertise, you will have a lot of people adopting them. People who don't have the same expertise that you need to build the web services store, and this is what we did. We build a store that literally takes two minutes to build, and you can have the entire store front of products that you could put on your site out of the Amazon catalog. So you can have a store about affiliate marketing books for example, if let's say you would want to have them on your site. Another site about GPS equipment may want to have various global positioning systems that Amazon sales on their site, and build their own store without any programming whatsoever.

There are a number of other initiatives and innovations there are for example, popover links. You can mouse over some Amazon links and without clicking on them, a little java based pop up will happen that where you can see a little bit more detail about the product that is being sold such as price, availability, customer rating, and so on.

Omakase links is another innovation that Amazon has made recently where you can basically put a little piece of code on your site, and a Amazon ad will appear, and it will base a product on not only the content end out of your website, but also on what the visitors have typically seen on other sites, and what they've bought from Amazon in the past for example. So Amazon makes a decision to put an ad that will generate the most amount of revenue to the affiliate based on who the customer is, and what the website it is that their typically visiting.

There's still a lot more work, it's a very complicated technology. A lot of work for Amazon to do, but they've done a really, really good job to date in getting those products out. There are a number of other products that are in beta right now, but I cannot discuss, but some of them actually my website has. So if you go to my site you can notice some new interesting tools that you may not see on anywhere else from Amazon, but those are the kind of things that they're still working on, and I can't discuss too much.

Shawn: OK, great. Well another thing I wanted to touch base on is, as a blogger the recent decision with the FDC I guess the announcement that people should have to disclose if they're getting compensated in any way, so what is your position on that?

Gene: Well I've followed the discussion pretty closely, and there are a lot of very passionate opinions out there in the internet space. And I respect certainly everybody's perspective, and it's just not an easy one way answer. But you know, I personally believe that we listen to recommendations based on the track record of a particular blogger, or a website that we visit. A website that is not respectable, the website that simply produce an opinion based on whether or not they are compensated, are typically not the sites that people will go to, and listen to, and buy products.

We have off line media that takes advertising for example; you know any magazine will take advertising from potential companies that they will review in an editorial portions of their page. So at the end of the day we live in the world where there are biases, where people are compensated, some people are not compensated.

So my overall perspective is no, I don't believe that, that should be a requirement, because while some people who do get compensated, they may be telling the exact unbiased perspective on their product even though they're being compensated. So it's not automatically that they're somehow affected by that advertising. So I guess my perspective is no, we've done very well in the off line media where people don't necessarily disclose, and I think this should carry itself in the online media as well.

Shawn: OK, great. One last question for you about the futuristic marketing as far as 2007. I was curious what you think about, whether or not video and mobile phones will play prominent roles in the industry this year?

Gene: Well honestly I've seen places where they actually do work. I think video is going to be the first area where we will see some innovation on. It is difficult for an affiliate to produce their own video clips, so they would basically need to grab it from a merchant. And it's again, somewhat expensive for those merchants to produce them. So, we will see I think with the video clips will start getting introduced, it's not necessarily going to catch on fire the same way as other ways of marketing is has gone.

As far as the mobile phones, the interesting part of it, interesting country to watch that has done just an incredibly great job is Japan. In Japan, every cell phone with a video camera is equipped in a way that you can take a photograph of a particular ad in a newspaper or magazine, or even while shopping at a store somewhere, and taking a picture of a bar code, and it will automatically translate the bar code into a particular website that also sells those products, and give you a price of the product, and with a single click you can actually order the product. They've been doing that for a couple of years now.

The U.S. is behind Japan, and I think we will see that innovation take place, if not in '07, probably in 2008 2009 time frame. It's just some technologies are catching on still here while they're certainly ahead in Japan and that space. But as far as mobile technologies, Japan is definitely the country for us to watch and follow what they've been doing. They've done some very exciting things.

Shawn: OK, very interesting. I really appreciate your time Gene. Thanks a lot to Gene Kavner for answering a bunch of questions here, and best of luck in the New Year.

Gene: My pleasure Shawn, the same to you. Look forward to seeing you at the affiliate summit.

Shawn: Great same here, thank you. And don't forget to check out Gene's blog at AffiliateBrand.com.

http://www.affiliatetip.com

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