Whether or not merchants allow trademark bidding on their terms is a complex and important issue for the entire performance marketing space. Veteran affiliate Joe Sousa does a great job of looking at this complicated problem and synthesizing it in a way that’s easy to understand.

He was kind enough to share with us a recent blog post, which ran on September 17, 2009 – so that networks, affiliates, and merchants can gain more understanding of trademark bidding from the perspective of a successful affiliate.


If you’d like to read more of Joe’s insightful postings, check out his blog http://www.whatdoesjoethink.com.

Merchant Restrictions on their Affiliates

By Joe Sousa

Throughout my years as an affiliate marketer I have seen all sorts of different terms of service, marketing restrictions, prohibited keywords, etc. from the merchants I work with. Some of these restrictions are good for both the affiliate and the merchant and some are just outright stupid for one or both parties.  Let me break down a few different restrictions and see how the affect both the merchant and the affiliate.  I will mainly be focused on PPC restrictions, trademark bidding, and stuff like that.

Level 1:  No restrictions. When an affiliate sees this, it is like they just found an ATM, especially if it is a large, well established, well known merchant. With no restrictions the affiliates can bid on any keywords they want and many times the most profitable keywords are the brand names and trademarks of the merchant. Also the affiliate can link directly to the merchant’s site off their PPC ads.  In many cases this is a gold mine for the affiliates.

Let me give you a couple examples:

Back in the early days of the CPA networks most campaigns didn’t have any restrictions.  There were two in particular I remember making me a lot of money: NutriSystem and eBay. If I remember correctly NutriSystem paid out $60 for a sign up and the conversion rate on keywords like “NutriSystem” and “NutriSystem diet” and other trademark terms like that was somewhere around 10-20 percent.  That would be an EPC of $6-12 and when I could get the traffic for around well under $1?  That campaign alone made me and a friend of mine many, many thousands of dollars a month.  It was a similar situation with eBay.  The payout was around $35 for a new signup and I could get traffic for keywords like “eBay” and “eBay auctions” for around a quarter.  The EPC on that one was $4-5 or so.  It was like printing money.

Why would a merchant allow this?  Two reasons.  First, they don’t know.  There are a lot of clueless merchants out there.  They just see the bottom line numbers and don’t care how they get there and in many cases don’t want to know. They just see “wow, this affiliate sent me a ton of sales this month.  That is awesome”.  They don’t run their own PPC stuff so they have no idea the affiliate is bidding their keywords.  Second, they don’t care.  The smart merchants know what the lifetime value of a customer is. If they make $200 for every customer and pay out $50 in commissions they are making $150 for every new customer.  Yeah, maybe they could have got that customer for $5 if they did their own PPC and kept affiliates from bidding on their trademarks but it isn’t worth the hassle for them.  They are still making money so they aren’t too concerned.

The affiliate is making money and a good merchant is making money but still leaving a lot of money on the table (and other affiliates are potentially getting screwed. More on this later)

Level 2: No trademark bidding. This is one of the more common restrictions placed forth by merchants. A smart merchant that has good name recognition will realize that people who are searching for their store name are most likely buyers.  Maybe they visited the store in the past and want to find it again; maybe a friend told them to shop at a certain website, or whatever.  When someone searches for your stores name they are ready to buy.

A smart merchant will realize that they can make more money if they restrict affiliates from bidding on their keywords. Why pay out 10 percent to an affiliate when the customer acquisition cost can be 5 percent or something like that?

Also, this keeps affiliates from creating ads like “Amazon sucks!  Don’t shop at Amazon until you read this” and having them show up when someone searches for Amazon.

There is a downside to this though. If you let affiliates bid on your trademark you can knock your competition who is bidding on your trademark off of the first page of ads.

Level 3: No direct linking. Most smart merchants who realize the value of PPC will not allow direct linking because they are probably doing PPC themselves.  A few years ago it didn’t really matter because you could have 5 or 6 different ads out there from your affiliates all using your domain as the landing page URL but Google stopped letting that happen and there can only be one ad for any particular domain. So if a merchant is doing their own PPC and they have affiliates bidding on the same words there is a good chance that the affiliate will take that ad spot from the merchant.

But if a merchant doesn’t know what they are doing with PPC they should just let their affiliates direct link because the 10 percent commission (or whatever they are paying out) is probably less than the merchant would spend on PPC. It is also less risk for the merchant because they know they only pay on sales if they let their affiliates handle the PPC stuff and don’t have to risk sending a ton of clicks with no sales.

Level 4: No PPC at all. There are quite a few merchants I work with that don’t allow their affiliates to promote their products via PPC at all. To me this is just kind of stupid.

If I want to spend my money for ads that are directing traffic to my site that is something I should be able to do.

One merchant in particular has a team of people doing their own PPC which is very smart, but part of their job is also to check ads to see if they are for their affiliates. I can understand no trademark bidding, no direct linking, and stuff like that but restricting affiliates from sending traffic to their own sites?  That is a bit over the top. But it gets worse.

Level 5: “You can’t use our trademark names in your meta tags”. Ok, now we are to the point of idiocy. I recently got an updated terms of service from a certain merchant (who will remain nameless). This was a merchant I used to promote a few years ago and I did very well with them. The conversion rate was good, the profits were good, and I really liked the product. Then the company got sold and I can’t remember if they dropped their affiliate program for a while or just restricted what I was doing with PPC but I stopped promoting them. A couple months later I realized that I was missing a check from LinkShare. They were the only merchant I was promoting on LinkShare at the time so I started to try to figure out why they didn’t pay me. They said that those payments were the liability of the previous owner and not them — which is ridiculous.  So basically the fat headed new owners screwed me out of a couple grand. I quickly put them on my blacklist and decided never to promote them again.

But the problem is they are a very popular merchant with a totally unique product that fits perfectly on many of my sites.  So when they reopened their affiliate program at CJ I signed up. I still haven’t done anything in the way of driving traffic to them but I wanted to keep the option open if I changed my mind in the future.

One thing unique about this merchant that you don’t always see with others is for the most part the only keywords people would search for when looking for their products are their trademarks. So this new terms of service comes out and says “you can’t use our trademarks in your meta tags on your websites or searchable keywords“.  First of all this shows me that this merchant is fairly clueless about SEO. Second, it shows me that they aren’t confident in their own SEO efforts. If they need to restrict affiliates from using their keywords in meta tags that shows me they really aren’t confident in their ability to rank for their own name.

So what should a merchant do?

Well, there isn’t a cut and dry answer for every merchant. Each merchant’s situation is different and if I were to advise a merchant I would have to look at things like how strong their brand is, how good their own PPC efforts are, and other stuff like that.

Here is where I would start as a general rule of thumb:

Don’t allow affiliates to bid on your trademark and don’t allow affiliates to direct link.

Now if every merchant adopted these policies that would suck for me since I have made a decent amount of money bidding on trademarks and direct linking (assuming it was allowed by the terms of service). But I know how those things can be profitable and I would suggest a merchant do their own PPC and take care of their own trademark bidding and direct linking.

Another good option is to find a handful of affiliates who really know their PPC stuff and allow them to bid on trademarks and direct links and stuff like that — but restrict everyone else.

If a merchant can get 2 or 3 good PPC affiliates doing “their thing” they will most likely be able to do better than if they tried it on their own.

But like I said, it can be different for each merchant. So, I would also suggest hiring a qualified affiliate manager to take care of stuff like this.

A good affiliate manager will be able to advise a merchant on what would be best in their particular situation and properly explain the benefits and downsides to different policies.

If it is a big company they can probably hire someone or a team of people full time but for most merchants their best bet will be to hire an OPM (Outsourced Program Manager).

Here are a few OPMs I would highly recommend:

ARC Consulting:  Andy, Emelio, Steph, and the rest of the crew really know their stuff and manage successful affiliate programs for many merchants.

JEB Commerce:  Jamie Birch and his crew manage many large programs and can help you with all facets of online marketing.

GTO Management: Wade, Joel, and Karen work with a wide variety of merchants and won’t steer you wrong.

Suluta: Mike Nunez and his team have many years experience in affiliate program management and can help tailor a program to a specific merchant’s needs.

Schaafco: Brook and Forrest Schaaf and their crew manage programs for a wide variety of merchants

There are many more OPMs out there and this is just a partial list. If you are a merchant check them out and see what they can do for your program.

Obviously, there are many more restrictions a merchant can employ and this is by no means an all inclusive list but it is some of the more popular restrictions I have seen. Am I missing something as far as the terms of service? Any other restrictions you commonly see? Any reasons why a merchant should restrict their affiliates?