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Talks About Online Commissions
By BOB TEDESCHI
ARLY next month, leaders from the Internet's "affiliate marketing" community plan to meet with merchants and vendors of online shopping technology to seek peace after months of sniping. But given the remarks of various parties recently, the negotiations could be bitter and, perhaps, fruitless.
Affiliate marketers are Web site publishers who direct their readers to merchants and earn a commission on sales. The smaller affiliates are irate at merchants who are doing business with a new breed of software companies. These software companies, whose technology the affiliates refer to as "parasite
-ware," have created systems that sometimes hijack the affiliates' referrals. Because the software is often bundled with popular music-trading systems like KaZaA, Morpheus and LimeWire, it is on tens of millions of users' computers.
Small affiliates, who number in the millions and include established companies, as well as individuals with their own Web sites, accuse some of these software companies of stealing commissions by using an impostor approach that allows the software company to pretend to be the affiliate when a customer arrives at a merchant's site. Affiliates are also angry over a related technique in which a customer referral gets interrupted by a pop-up advertisement or some other inducement that offers a better deal. If the user takes advantage of the better deal, the software companies earn the commission, not the original referring site.
Put another way, the controversial software has turned KaZaA, Morpheus and Limewire into über-affiliates. And whether or not their users arrive at a merchant's site via a smaller affiliate's site, the music services can get a cut of the deal. That is because many merchants, like Overstock.com, Travelocity and eToys have agreed to pay the music swapping companies the usual affiliate bounty of 5 percent to 10 percent every time one of their users makes a purchase — regardless of the original source of the referral.
Because many merchants are handed a greater number of paying customers by the music companies than the small affiliates, merchants tend to like the new approach. But the retailers have also endured heavy criticism from those smaller affiliates in recent weeks, potentially threatening the whole system of Internet sales referrals.
"I'm in hell, to speak candidly," said Shawn Schwegman, director of affiliate marketing for Overstock.com, which sells discount consumer electronics and other goods online. Mr. Schwegman said he had been threatened with boycotts, and had been repeatedly chastised on affiliate message boards on the World Wide Web for not banishing music services from his affiliate program.
Mr. Schwegman is spearheading the effort to convene an industry meeting next month that would bring together affiliates, the music software companies, merchants and the companies that supply technology and services to merchants and their affiliates. A date and location has not yet been determined. But the goal, he said, is to get the parties to agree on the conditions under which the music swapping services could offer their deals to consumers.
There are major sticking points. For one, the companies that supply the shopping software to the music services say they are doing nothing illegal or unethical. WURLD Media, which provides software to the Morpheus music service, and TopMoxie, which works with LimeWire, are the companies most often accused of stealing commissions. Despite their assertions that they are doing nothing wrong, both WURLD Media and TopMoxie say they are retooling their software to avoid the disputed practices. WURLD Media, for example, has agreed that when a customer comes from an affiliate site, the customer will not be shown pop-up ads enticing the customer to use WURLD's shopping service for the same purchase. Instead, if the customer configures the WURLD-Morpheus software a certain way, the service flashes a red or green light on the computer's toolbar, signaling whether the customer could earn a WURLD-Morpheus rebate by clicking directly to the merchant. The signal would also offer a link to instructions on how to earn a rebate if the customer chooses.
Many merchants and their technology providers say such changes are sufficient. Take Stephen Messer, chief executive of Link Share, an affiliate services network for about 600 merchants and more than 1 million affiliate sites. Mr. Messer said his company's user agreement stipulated that no affiliate may try to trump another affiliate's offer with a last-minute pop-up ad.
"If there's an alert of some kind in the toolbar, though, that seems fair," he said.
"But the affiliates have taken the position that you can't interfere in any way, and to me, that doesn't work," Mr. Messer said. "It's almost as if you go down that line and say any competition could be parasitic."
According to Sasha Miles, who publishes buy-discount-cosmetics.com, a site based in London that directs customers to online retailers like Strawberry Net and SkinStore, the music services are wrongfully using the information on her Web site to trigger other offers to their customers — whether through pop-up ads or tool-bar alerts.
"There are costs associated with providing this `free information,' " Ms. Miles wrote in an e-mail message. "Costs that I bear. Not WURLD Media and not the shopper. If the law requires me to work for the benefit of an economic parasite
, how long do you suppose I will decide to do so?"
Haiko De Poel Jr., who publishes ABestWeb.com, an affiliate discussion forum, has been mentioned by industry executives as a logical person to represent small affiliates at next month's industry meeting. But he said he would not participate unless the parties consider curbing the shopping software companies more strictly.
"My position is simple: no toolbars or plug-ins or other parasite
-ware is allowed," Mr. De Poel said. "If that is not implemented, I think the anger will shift from the merchants and parasites to the ad networks, and then the affiliate anger would be even worse."
Given the smaller affiliates' vehement opposition to the music services, one industry executive, speaking on condition of anonymity, said the prospects for a quick resolution to the problem were not good. Moreover, this executive said, some of the affiliate network service providers might want to drag out the negotiations, because if the discussions somehow led to the ouster of some of the music companies, the service providers would lose commissions.
Executives of the largest affiliate networks and service providers disputed the idea that they might drag their heels during the negotiations. Sam Gerace, chief technical officer of Be Free, which provides affiliate-network technology and services to merchants like Gap, said: "We want to see a speedy resolution of this. If the merchant's happy, I'm happy. In order for them to be happy, their affiliates have to be happy."
There are many details to be worked out, beyond simply arriving at a code of conduct. Parties must also agree on how to review the practices of shopping software companies — no small feat, given that there are 20 or so software companies in the market, each frequently releasing new software. The parties may also need to devise penalties and other enforcement policies, should a software company violate the code.
Carrie A. Johnson, an analyst with the technology consultancy Forrester Research, predicted that the affiliate networks would ultimately have to do more to make peace with the small affiliates. The networks "are still trying to prove this is a good business model," she said. "When something like this happens and enough parties get upset about it, it makes affiliate marketing look suspect, and it's too early for these companies to allow that to happen."
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