As with previous gold rushes, the story of the Internet is gilded by fables of fabulous fortunes, heroic failures and ghost towns. We can trace the short history of the Internet from its birth in 1992 to the early successes of Yahoo and Amazon, prior to the seismic dot.com crash of the late nineties. This was merely a prelude to the resurgence of E-commerce and the rise of global giants such as Google and FaceBook. Although the Internet is still only a teenager, its tale has all the elements of a mighty era, a time of astronomical investments, great inspiration and breathtaking change. On the other hand, like the Wild West, the mass migration of eager prospectors to the servers and silicon valleys of the Internet has produced its own generation of outlaws and sheriffs. However, unlike the desperados of the 19th Century, it will require more than bullets and a vast (and as yet largely unwritten) legislation to cope with the unforeseen criminality which our new virtual world has brought with it. While the outlaws of the wild west were generally lone wolves or motley gangs, much of the cyber-crime that afflicts today's Internet is perpetrated by meticulous organizations rather than by rogue individuals. Cyber-crime takes many forms, from the hacking of databases to piracy, phishing, Trojans, fraud, money laundering and of course the publication of prohibited content. In this feature we shall focus upon that most lucrative and corporate aspect of cyber-crime - the affiliate scheme. The Internet business model is essentially very simple, even if its delivery is fraught with complexity. Essentially an Internet business either sells a product online or provides content which is paid for through subscriptions or Internet advertising. Although some Internet business models incorporate all of these elements, over the past decade online advertising has largely evolved to take the form of affiliate schemes in which hosted advertisements are paid for on the basis of page impressions (i.e. how many visitors have clicked on a page) or click-throughs from the content provider's page to that of the advertiser, an accounting process that is usually mediated by a specialist affiliate scheme. Although superficially appearing to be fair and reasonable, affiliate schemes are essentially based on trust, as the traffic data of the content provider and the advertiser rarely appear to tally. All parties have a financial interest in 'biasing' their traffic data, whether to maximize income or reduce pay outs, and given that many companies like Amazon and Google have become fabulously rich through the affiliate advertising model, there is plenty of scope for suspicion. The problem is not so much one of reasonable doubt, as there are scripts which reliably inform the content provider precisely who clicked on what and went where, but rather the burden of proof. When corporations earn millions, or even billions, from online advertising and pay out small sums to millions of individual web hosts, it becomes virtually impossible to calculate the exact proportion of revenues that are actually paid out to each content provider relative to the income stream that is received. Put more simply, it is quite possible for affiliate schemes to reap rich rewards and offer the content providers upon which they 'depend' very little in return... |
In July 1996 Amazon.com launched their affiliate program after, at least according to popular cocktail party mythology, CEO Jeff Bezos chatted to a guest about how she could best sell her books on the Internet. Bezos had a sudden epiphany, imagining the woman linking her site to Amazon.com and receiving a (5%) commission on all referrals from her site leading to book sales. Whether it was actually Amazon or the adult industry that devised the affiliate scheme is neither here nor there, but certainly this ingenious idea made Amazon a veritable fortune. The problem for the Amazon affiliate was not determining how many visitors clicked through to Amazon from their web site, but rather in proving that their referrals actually bought any books...
CyberFoxes introduced the 'cost-per-click' model of affiliate advertising in 1996, although this simple concept was eventually replaced by a 'cost-per-acquisition' model due to the volume of 'click fraud' encountered. Using a 'CC Bill' system for tracking and metering pay outs, a 'CyberFox' affiliate could expect to earn some 50% of any 'converted' lead plus a 50% 'residual' every time a sale renewed their monthly subscription. In the late nineties affiliates of adult programs claimed to earn six figure sums from their web sites, and this would certainly help to explain the meteoric early growth of the adult Internet.
The root of a 'viable' affiliate scheme is of course a reliable tracking system. It was Epage, Alexa and ValueClick who pioneered the technology that ultimately led to the genesis of such affiliate solution providers as LinkShare (1996) and the Commission Junction (1998). It may however not come as a complete surprise to some that in January 2009 the Commission Junction agreed to pay a settlement of $1m following a class action lawsuit by a collective of publishers & advertisers for its failure to prevent 'losses' to its commission program partners. Whether this occurred through negligence or tacit consent, it is abundantly clear that the embezzlement of affiliate earnings has grown in both scope and scale.
The popularity of the affiliate scheme has clearly passed its zenith, and even Amazon has retreated from the idea that made its fortune. As of May 1st 2009, Amazon announced that it will no longer pay its North American associates referral fees for paid search traffic, leaving many of those who once hosted Amazon search ads wondering...
On the 28th October 2008, Google proposed a settlement agreement with the Authors Guild & the Association of American Publishers ('AAP') to the tune of $125m. This settlement resolved a lawsuit brought against its Google Book Search initiative that was intended to enable authors and publishers alike to receive compensation in return for Google providing online access to their works. This settlement brings unwelcome attention to Google's Adsense program, raising the question of whether it too is unfair and inequitable to its affiliates. The scale of any potential class action lawsuit against Google's flagship affiliate scheme could potentially be vast given that Google earned some $21.8bn in advertising revenues in 2008, around a third of all global spending on Internet advertising.
Doubtless there are other questions and grievances lingering over affiliate schemes across all sectors of the Internet. Of the millions of web sites which abandoned the subscription model in search of affiliate gold, many have since expired, others have returned to the fidelity of the subscription model encouraged by new payment technologies, while some have been left waiting for class action settlements to materialize. Whether the reputable affiliate schemes still outnumber the disreputable ones is an opaque issue, but many affiliates have certainly had their confidence badly scarred. As the Internet comes of age it will be interesting to see whether the affiliate scheme will survive the test of time and all of its broken promises...