Affiliate Buying of Keywords in Paid Search

Affiliate marketing programs no doubt play an important role in driving traffic to companies‰Ûª websites and generating sales, generating 6% of e-commerce sales according to the e-tailing group‰Ûªs 2010 survey of over 150 online merchants. Affiliate marketing programs are only expected to get bigger; Forrester Research projects the US affiliate marketing spend will double between 2009 and 2014, reaching $4 billion by 2014.

Not surprisingly, a popular tactic used by affiliates to drive traffic is paid search, with 55% of affiliates leveraging pay-per-click advertising via search engines to promote their sites, according to a 2009 survey of over 450 affiliates by AffStat.

Brands today have mixed feelings about affiliates buying keywords containing their trademarks in paid search (such as when an affiliate bids on the Marriott hotels keyword rather than the more generic “hotels keyword.) On the positive side affiliate ads can take up valuable “real estate i.e. the top ad positions on the Search Engine Results Page (SERP) while pushing down competitive and other undesirable ads. Some SEM experts correctly argue that it is better to be followed by partner ads than by unrelated or competitive ads.

On the other hand some brands believe they are competing with their affiliates for their own keywords and that in effect their affiliates are intercepting traffic intended for their brands. Not only are affiliates intercepting their traffic but brands are also paying them a commission on the traffic they‰Ûªve intercepted and redirected back to them (at least on the traffic that results in a sale or lead). Some brands are of the belief that if a user already has a brand preference in mind when conducting a search then that user should be sent to the brand owner‰Ûªs site directly. They also believe that affiliates should bring new incremental traffic to the brand not traffic that brands would have likely received if the affiliate had not inserted itself as an intermediary.

As a result of these affiliate practices brands often experience:

  • Higher Costs-Per-Click (CPCs) as more advertisers (sometimes in the hundreds or thousands) are bidding on their keywords and driving up their per-click advertising cost as well as their total online marketing spend.
  • Potentially lower ad positions as sometimes affiliates will outbid the brand owner for their own branded keywords and consequently the affiliates‰Ûª ads will have a higher ad position on the SERP.
  • Paying unnecessary affiliate commissions as many commissions are being paid out on traffic the brand owner would have received anyway. The web hosting company Bluehost estimated it saved $30 000 per month in ‰Û÷bogus‰Ûª affiliate fees by not paying commissions to affiliates who leveraged their trademarks in keywords. That amounts to roughly 7% of its total affiliate commissions paid last year.

So what are brands to do? Practices employed by companies with large affiliate programs provide some insight:

  • Carefully craft a paid search strategy: Brands should develop a paid search strategy that optimizes their own marketing investments while providing incentives for their affiliates. Brands may want to permit a small group of affiliates to bid on their keywords to own key ad positions on SERPs while restricting most affiliates from bidding on core trademarked terms (but still allowing them to bid on non-trademarked keywords). Brands may also want to consider allowing their regular affiliates to bid on long-tail trademarked terms that is terms that are less frequently searched less costly and less competitive (such as “pet friendly Marriott hotels in continuing the example above). Such an approach would push the management of an almost endless number of keyword combinations to affiliates while providing the brand greater online exposure.
  • Clearly communicate affiliate terms and conditions: Brands should inform its regular affiliates of its terms and conditions so there is no misunderstanding of what is permitted or not. 1-800 CONTACTS for example provides a good overview of its Web affiliate program as well as a list of restricted search terms its affiliates are not allowed to bid on.
  • Monitor for affiliate compliance: despite the desire to trust affiliates brands need to monitor for affiliate compliance with their terms and conditions. In the case of 1-800 CONTACTS for example we found a handful of affiliates consistently bidding on its restricted keywords. One affiliate for example not only bid on a restricted keyword combination and placed an ad for a 1-800 CONTACTS coupon but also leveraged a restricted keyword combination to place an ad for a competitor coupon.

Unfortunately there are no hard and fast rules on how to best manage affiliate behavior in paid search. However a well-planned and -executed strategy will produce a better ROI for online marketing efforts while providing affiliates ample opportunity to earn commissions by delivering new traffic to brands‰Ûª sites.”