Feature: The advertising alternatives

While the rest of the world worried about the VCR going on the fritz and national defense systems asking, “Would you like to play Global Thermonuclear War?”, the internet marked its own millennial milestone a full three months before the Y2K celebrations when online advertising revenues broke the billion dollar barrier.

According to a recent report from Forrester Research, although total ad spend will continue to increase, retailers will increasingly look to advertise on vertical portals and niche sites. The report adds that broad-based portals like Excite and Lycos will suffer losses in revenue as retailers turn to syndicated selling formats, such as affiliate programmes and advertising networks.

The message is clear - advertisers will pursue lower costs and sharper focus for their money. So, what are the options?

Link exchanges

Link exchanges are made up of a network of client sites and a provider site that runs the exchange. Link exchanges promote a website by placing a banner or text link on sites in the network, and in return, clients display banners for other sites in the network on one or more of their web pages. On the simplest models, a client site hosts two guest banners for every one of their own displayed in the network, and the residual 50% unused banner space is sold to paying advertisers. Advertisers who pay typically need to target specific types of site or sector, and receive comprehensive reporting or analysis of results.

Case study: UKBanners.co.uk and Names-online.co.uk

UKBanners.co.uk

Founded: January 2000

Main business: Link Exchange Provider. UKBanners have 7,000 customers, and its sister site UKButtons, around 2,000. UKBanners offers statistics showing page impressions, banner exposures, and clickthroughs by page, by hour, by day, by week, as well as trends. Paying customers can buy banner ads rather than earning them.

UKBanners client:

Names Online

Founded: 1997

Main business: Names Online was set up to provide low cost domain name registration and web hosting. The company now also provides website design, search engine optimisation, and website marketing advice.

Until recently, there were few exchanges catering specifically to UK users - ZDNet, for example, offers a comprehensive exchange service on its US site, but ZDNetUK has nothing similar. UK Banners Ltd, a link exchange based in the UK and pitched at UK sites aims to capitalise on this.

Nikki Pilkington, MD of Names Online, points out that while link exchanges are a cheap alternative, the results can be exceptional; “I looked for cheap and free ways to promote the site, as well as spending big bucks with search engines and portals that brought me next to nothing. I signed up to Link Exchange, which turned out to be far too international for me - even when filtering it down to UK only, most traffic from there was coming from other countries, no good for me.”

There is, of course, a perception that link exchanges do not sit well with the professional image business sites must retain, as they are most often found on personal homepages - after all, you won't see an LE banner on Yahoo or CNN. And small sites that start off using exchanges often remove them once their traffic begins to grow. Pilkington, however, counters; “About a month ago someone told me they thought having a free exchange on my site was an unprofessional thing to do and may discourage some people from buying - I took the banner link off as a test, and sales that week were down by almost 60% - I soon put the banners back on”

Affiliate and Associate agreements

Affiliate agreements had an unlikely, some might say unpromising start - a conversation at a cocktail party. A guest who wanted to sell books about divorce on her website asked Amazon founder and CEO, Jeff Bezos for advice. Bezos offered her a link to the Amazon.com site with commission paid for every sale. In 1996, Bezos launched the prototype affiliate programme, a marketing tool that became an industry standard.

Nearly all affiliate deals operate on the same premise: affiliates - or associates as they are sometimes called - place graphics and code from the provider somewhere on their website. When visitors click that link and buy a product - or, in some cases, complete a questionnaire - the affiliate gets a percentage of the sale, or, in the case of the questionnaire, a flat fee. Some software programs track repeat customers and pay affiliates accordingly.

In general, affiliates receive from 10% to 25% commission for low-cost items, with percentages decreasing for higher-priced products.

Case study: Amazon.co.uk and Wedseek.co.uk

Amazon.co.uk

Founded: Amazon.co.uk has its origins in independent online store, Bookpages, which was launched in 1996, and subsequently acquired by Amazon.com in early 1998. Amazon.co.uk offers a catalogue of CD music albums, videos and DVDs and more than 1.5m books.

The company has 20,000 associates.

Amazon affiliate: Wedseek.co.uk

Founded: 1998

Main business: A 'gateway' to online UK wedding services in 90 categories. Recently named ‘associate of the week' by Amazon.co.uk.

Given that Amazon was a prime mover in the early development of affiliate programmes, their assessment of the marketing value of affiliates is especially interesting. Judith Catton, spokesperson for Amazon.co.uk says: “These are extremely important links for us, as not only do they bring new customers and sales, they are also creating a community of people who spread the word. Word of mouth is the most important factor in marketing Amazon.co.uk.”

While affiliate deals tend to rely on how proactive the clients are, Catton points out that the relationship is extremely symbiotic, and involves a fair degree of involvement; “We have a very closely managed relationship with our associates, and we will continue to provide them with tips on how to improve their links, what works best and send them reports on how their sites are performing. We will be listening to our associates to see if there are ways in which we can develop the scheme that will be beneficial. Whilst we don't reveal specific future plans we will always be looking for ways to improve and develop the programme.”

Robert Ault, managing director of Wedseek agrees that the affiliate scheme can be beneficial to both the big name provider and SME that become involved as clients; “I think the scheme works well - Amazon get the referrals, free advertising and increased sales, and we get a bit of pocket money, increased site content, and the user identifies our site with a big brand name.”

Ault adds that affiliate schemes aren't purely beneficial from a financial standpoint, but also imbue the client with a credibility and source of traffic that would otherwise take a lot longer to achieve; “The associate scheme for us is only partly about creating revenue. Having an association with an established company such as Amazon definitely adds credibility to our web site, particularly as their angle is on 'partnership' rather than simply referrals and recommendations. It makes our site more comprehensive and hopefully helps to encourage return visits. The associate scheme has helped to spread the word about WedSeek and has brought us a lot of new visitors.”

Syndication

Syndication deals are all pervasive in the broadcasting, cable and newspaper industries. Content providers license their product to distributors who integrate it with their own and other offerings. Several major internet companies adopted the syndication approach early on, though the market has remained fairly limited.

On the web, the concept applies to commerce as well as content, and is expected to extend to dynamic applications. Without syndication, any content originator must also find a way to distribute their product to end users, or face tying themselves exclusively to a distributor. At the distribution end, user interfaces must invest time and money to generate high-quality original content.

Case study: Uproar.co.uk and Loquax.co.uk

Uproar.co.uk

Founded: 1995, as Uproar Limited.

Main Business: Uproar is now a global producer of internet entertainment, including online game shows. It operates sites tailored for the US (uproar.com), United Kingdom (uproar.co.uk) and European markets (uproar.de amongst others).

As a whole, the business has approximately 7m registered users globally, and more than 35,000 websites run syndicated versions of Uproar's game show formats. Uproar is structured as a media business with its primary source of revenue being the sale of advertising and sponsorships. Uproar has around 2000 syndication schemes in operation, and garners around 7.5m ad impressions per month globally.

Under the terms of their syndication agreements, Uproar-branded games are delivered to affiliates and made available on their websites free of charge. Games, for example, are offered in categories including entertainment, sports and can incorporate rotating, seasonal themes. The games can be integrated into host sites through a cut-and-paste process, or specifically tailored to the requirements of a host site.

Uproar affiliate: Loquax.co.uk

Founded: 1998 - originally as a homepage site.

Main business: Loquax is a UK Online Competition Portal providing daily news and information about websites that run competitions for UK residents. Loquax also has its own games and a postcard service, and receives 500,000 page impressions per month.

According to Naomi Davis, syndication and distribution manager of Uproar.co.uk, syndication is a strong model, offering cheap customer acquisition as well as sticky content; “Uproar offers clients acquisition and retention content for their sites. It's important not just to attract customers, but also to keep them at the site, and keep them coming back. That's why Uproar changes the content of its games weekly. Syndication is the future, because the customer acquisition costs are negligible.”

For Jason Dale, content and marketing director of Loquax, the relationship with Uproar has been much more sink or swim; “Uproar have kept us afloat basically - we couldn't have afforded to run the site otherwise. Uproar has been part of the Loquax site from the word go. From our personal standpoint, we've been impressed that a company like Uproar had time and vision to build a relationship with Loquax, which at the time was still developing Their Trivia Blitz games added content to our site, and offered our visitors a fun quiz with the chance to win cash prizes every week. The service with Uproar has always been excellent, from technical problems to payment. The applets are easy to include, are updated weekly, and make visitors return regularly.

The road ahead?

There will continue to be a place for link exchanges as a low-cost marketing tool, provided they can reach a target audience accurately. A natural consequence would be the emergence of regionally targeted exchanges or exchanges with vertical reach within a sector. An important feature that link exchanges have in common with affiliate and syndication networks is the potential for aggregation. Link exchanges offer small businesses a framework for alliances that enable them to punch above their individual weight.

Affiliate agreements are the established model for an e-commerce relationship between big and small players. They are attractive to market leaders, like Yahoo! or Amazon, with a strong brand identity or goods and services - like search engines - that perform well across a range of sites. Affiliates in turn, benefit from the revenue stream and the added value to their sites. Aside from a huge drop in banner ad CPMs, brand identity is the most likely brake on the spread of affiliate agreements. The basic philosophy behind many affiliate agreements is ‘all welcome'. For some sites, this will run counter to their aim of exclusivity and leadership.

From a business perspective, syndication allows originators and syndicators to aggregate a large number of small-value transactions into profitable businesses. Originators can generate incremental revenue from subscription fees or advertising at low cost by syndicating materials across a larger number of sites. Syndication allows originators to increase the reach and speed of their marketing initiatives, both critical elements for success in a web business. It also becomes possible for smaller, or less commercially oriented sites, to share the benefits of the internet economy.