Sunday, March 27, 2011

Affiliate Marketing via Third Party Cookies is completely Broken.

Today, I want to rant a little about how poorly affiliate marketing works with modern day browsers. I'll use HotNameList.com as an example, but this post applies to any online business that uses affiliate marketing. It's likely you're not getting credit for all the sales you should, and I'll explain why.

NOTE: I'm not picking on Godaddy or Commission Junction in this article -- everything below applies to many online advertisers and advertising platforms.

How does HotNameList.com make money?

The difference between a hobby and a business is the business model. The business model is how a business makes money. So what's the business model for HotNameList? Put another way: Why do I bother with HotNameList.com since it is not a hobby?

Well, over the years I have tried three different business models for HotNameList.com
  • Lead generation for a different service that HotNameList provides -- in this case, custom lists for about $100.
  • Pay-per-click advertising via Google Adwords, etc.
  • Affliate marketing (click-per-action), mostly sending leads to Go Daddy via Commission Junction (CJ.COM)

Today, I want to write about #3: Affiliate Marketing.

How Much Money should Affiliate marketing generate?
Just to put things in perspective, I'll discuss the goal I'm trying to reach with Affiliate marketing. For each domain listed on HotNameList.com that gets a click to Godaddy, I'd hope to receive a commission for registering the domain, and for any other products the user buys such as hosting, SSL certificates, etc.

How much money can I make this way?

Here are my estimates. About 40% of all domains registered on HotNameList.com are registered through GoDaddy. This turns out to be about 1500 a year from GoDaddy alone. Clearly not all of these are registered because I listed them -- many are probably registered just because someone else thought of them. However, when domain is registered within hours of being listed on HotNameList and I see a click thru to GoDaddy in my analytics logs, then I have high confidence that it was my listing that led to the sale. In this case, I think about 80% of the 1500 yearly domains are attributable to HotNameList.com. Let's call that about 1200 domains per year. Or 100 sales leads to Godaddy per month. This is not a lot -- Godaddy sells millions of domain registrations per year.

But what is that small traffic worth? If a user only registers the domain, GoDaddy pays me about $2. If the user buys a lot of upsells (SSL cert, hosting, etc) from Godaddy, that number can go up to several hundred dollars per sale. Go Daddy loves HotNameList.com traffic because the buyer arrives at Godaddy.com ready to buy a particular domain!

But let's be conservative and do the math: 100 sales/mo x $2 = $200/mo. Based on real-world traffic, I know the upsells raise the commission by another factor of 10. This ends up being to $2000/mo -- or they would if sales were tracked correctly.

Another important thing to note: Domain names are unique. This means domains are different from real-world objects like mass-produced chairs or sofas. Only one person can register a domain, so if a lead goes from HotNameList.com and it gets registered, then we have a high confidence that a specific lead sold that particular domain. If we were talking about chairs, it's not alway clear that a lead sells a particular chair and harder to determine that the sale is tracked correctly. So, for domains it's much easier to track a lead through to a particular sale.

Let's dive in and see what actually happens...

How Does Affiliate Marketing work?

The way affiliate marketing is supposed to work is this:
1) User visits HotNameList.com with their web browser. HotNameList has ads for Godaddy.
2) User clicks on a link to register a domain that sends them to Godaddy.com
3) User registers a domain.
4) Godaddy sends HotNameList.com a check for the commission.

Third-Party Cookies

Turns out the above is just a little too simplistic. For a variety of reasons discussed below, the actual process is more complex.

The first thing to understand is that there is a third-party involved (well, really two): Commission Junction and Go Dodaddy itself. Commission Junction is a service that GoDaddy uses to help them advertise and manage advertisers like HotNameList.com.

The second thing to understand is that normal affiliate marketing seems to have the goal of giving the "credit" for a sale to the "last" web site (or recent site) that a user may have visited. An example:
1) User goes to HotNameList.com, clicks a BUY link and then goes to Godaddy.
2) User pokes around on Godaddy, but doesn't buy immediately.
3) User leaves Godaddy and visits a few other sites -- perhaps looking for a better deal at a registrar.
4) User returns to Godaddy and registers the domain.

Go Daddy would like to be "nice" under these conditions and give "credit" to HotNameList.com for the domain. The way they do that is the first visit to HotNameList.com puts a "cookie" into the user's browser. Not just any cookie, but a third-party cookie (one from CJ.COM, for example).

However, if the user visited some other site that advertised Godaddy, they might have different cookies in their browser.

When the user finally registers a domain, GoDaddy looks for that cookie before giving credit for the sale.

What's wrong with that? Seems fair enough. Well, it is fair but it all comes from a by-gone era in the internet that no longer makes sense. It turns out that modern browsers (newer version of Firefox, Chrome, Safari) and tools like ad blockers, virus checkers and personal firewalls really don't like third party cookies. In fact, for security reasons, these programs actively delete them or hide third party cookies. Some estimates say that 30-50% of site visitors have blocked third-party cookies. I personally think it's higher.

Therefore, when the buyer arrives at GoDaddy, they are very likely NOT to have any cookie related to that sale.

Now, GoDaddy Makes Things More Complicated

Let's assume GoDaddy receives a click from HotNameList.com -- the link is unique, so they know it came from my site. But, now they add a few more rules:

(1) The third-party cookie has to be there, or no commission. This means: If the user has a modern browser or any kind of security tool running, no commission. Even though GoDaddy's system KNOWS that the link came from HotNameList.com. We already know that more than 30% of traffic won't ever have a cookie. CJ and GD probably think of this as a fraud-reduction technique.

(2) If the user enters a coupon code that was given to them by some other site, no commission for me. The distributor of the coupon gets the commission (which is probably usually Godaddy, itself). Even though the lead came from HotNameList.com. Fair enough -- that's just a rule, and GD can make any rule they want.

The above facts are very convenient for Godaddy, a bit less convenient for Commission Junction, and horrible for HotNameList. Why?

  • GoDaddy pays a lot fewer commissions with these rules. A win for them.
  • CJ doesn't much care, because they have so many advertisers that they still make a lot of commissions across all of them, even if they sales are quite tracked correctly. Moreover they have no way to track how many sales they're missing. Not a win, but a "don't care" for CJ.
  • But, unfortunately, HotNameList.com only gets commissions from about 10% of sales and this number keeps going down as users move to newer browsers that hide third-party cookies

How Can Affiliate Marketing Be Fixed?
I propose that if a buyer arrives at an affiliate site, like GoDaddy, thru a unique advertiser link, e.g. from HotNameList.com, but with NO cookies, then that advertisers should get credit for the sale if it happens in that browser session. If the buyer closes their browser, and then comes back to the affiliate later, then that is tough love for the advertiser -- and I got live with that. I think advertisers could implement this if they wanted.

Do I think this will happen? No. Too many reasons for it not to happen, but mostly because the advertisers and the advertising networks (CJ, etc) hold all the cards.

Happy Domain Hunting!

Jorge

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