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Putting a Price on Online Friendships

September 30, 2008

By Clawson, Trevor

Advertisers have so far struggled to make money from social networks, but affiliate marketing could provide an unexpected revenue source, discovers Trevor Clawson As the online marketing manager of web retailer Firebox.com, Naomi Brown remains wary of investing too much time, energy and money in targeting consumers via the big social networks. “Social networks seem attractive because they offer a massive captive audience, but tapping into that is very difficult. It’s not easy to get an effective marketing message out, because it is primarily a social space,” she adds.

Brown’s is by no means a unique view. The truth is that social networks have been notoriously difficult to make money from. Yes, the likes of Bebo, MySpace and Facebook enjoy brand recognition to die for, and collectively ring up active user figures running to hundreds of millions every month. Equally important, those users can be tracked, traced, sliced and diced according to age, gender, interests and preferences. It should be a marketer’s dream, but while the revenues they generate can hardly be described as insignificant, the high-profile social networks have yet to fulfil their potential as commercial platforms.

Similar Interests

The reasons are well documented. Social networks exist to enable their users to manage friendships and engage people who share similar interests. And while the same people undoubtedly also buy goods and services online, that’s not why they are logging on to their social hubs. The received wisdom is that too much overtly commercial messaging in the social space alienates the audience. As Richard Clarke, marketing manager of DSG International (DSGi), observes: “You have to be careful you don’t appear to be pushing people into buying things.”

It is a conundrum that marketers and social network operators would dearly love to resolve. In an ideal world, the web 2.0 audience should both be shopping and building communities online. However, the challenge is to find a business model that fits with the ethos and culture of the social space.

On the face of it, affiliate marketing, a strategy already important to both Firebox and DSGi, could provide at least part of the answer. Whether swapping videos on YouTube, talking to friends via MySpace or simply reading a blog, social internet users may not be particularly receptive to marketing messages. But if you allow them to act as affiliates through their personal pages and thus earn commission or cash back on sales, then, in theory at least, you are offering members of the community something of value. Add elements, such as product ‘wish lists’ shared with other members of the community and updates of products recently bought (disseminated in friendship groups), and the potential is there to make online shopping a social and interactive experience.

But what does all this mean in practice? Well, over the past few months we’ve seen a number of UK affiliate marketing companies setting up shop on social networks, with schemes based around so- called wish lists. These include Fund it Frogand Affiliate Window, both of which have a presence on Facebook, and AOL-owned Buy.at, which has recently partnered with the WAYN (Where Are You Now) travellers’ network.

The wish list concept is simple. If you see a product you like anywhere on the web, you can add it to the list and it will then be visible to friends, relatives or anyone else who happens to be part of your online social circle. By hitching this to a price- comparison or shopping engine, you can enable anyone looking at the list to click through to a merchant site and make a purchase.

According to David Hall, communications manager at Affiliate Window, it is a model that neatly sidesteps the perennial social networking problem; namely, that users don’t like to be sold to. “As a social network user, you’ll go to buy stuff somewhere else,” he says. “However, if you see something you like somewhere else on the web, you can put it on your wish list and your friends can see what you want and buy it for you.”

That is assuming you have nice, generous friends. In the case of the Affiliate Window application, commissio n is payable on all purchases, with the money split between the owner of the list and the actual purchaser via a PayPal account, so there’s an incentive for members to buy goods for themselves and others.

Elsewhere on Facebook, Fund it Frog is offering a slightly different variation on the theme. Again, the system allows Facebook users to establish a wish list on their personal pages, from which they can make purchases direct from merchants. However, users don’t earn money, instead the motivator is a donation to charity. “Every time someone makes a purchase, we take a commission,” says founder Geoff Hughes. “Half that money is then donated to a charity chosen by the purchaser”

Hughes says everybody gains: “The user gets the cheapest price, the retailer gets traffic that wouldn’t otherwise have been generated, we get a commission and charities also benefit.”

And Hughes sees an additional spur to action in the fact that details of all transactions and the consequent charitable donations are made public. “You can see what your friends have done and they can look at what you are doing. This encourages everyone to do more, both as purchasers and givers.”

Arguably, this transparency introduces an element of competitive consumerism into the affiliate marketing mix. In an age where identity is, in part, defined by the products we consume, wish list- based applications allow everyone to share their favourite brands with the rest of the community.

Clarke says retailers also stand to gain in terms of their online reputation. DSGi has a page on Facebook to reinforce its brands and is also participating in the Affiliate Window Wishlist scheme. “Ideally, we’ll benefit not only from sales, but from our products appearing on wish lists,” he says. “It’s a way of demonstrating that you have fans.”

All well and good, but before any of this really takes off, merchants and affiliate marketing companies have to persuade the social networking audience to set aside its collective antipathy towards commercial activity and actually use the services.To date, the results are mixed.

For instance,Top Cashback, a company that operates its own shopping portal site, offers incentives to the consumer with cash back on all purchases, has also created a Facebook application. Top Cashback director Oliver Wragg is relatively downbeat about the progress made by the venture thus far. “It was an experiment for us,” he says. “We thought it would be nice to have an application on Facebook, but it has been a small add-on. It has not revolutionised our business.”

Fund it Frog’s Hughes is more bullish. While admitting that the company is still working towards the magic number of 2,000 active members – generally seen as the tipping point at which applications on Facebook achieve critical mass and begin to pile on users exponentially – he says growth has been steady and the target is in reach.

Fund it Frog’s user update has been driven by a multi-headed marketing strategy that does not include any direct support from Facebook itself. “We are increasing the affiliate numbers through existing users inviting friends,” says Hughes. “In addition, when affiliates sign up it appears on the Facebook newsfeed, raising our profile. We are also paying for advertising to promote the service.” Meanwhile, Fund it Frog is approaching businesses and offering its services as a purchasing portal. “We are talking to a number of big companies, asking them to commit a certain spend in one year,” he adds.

Affiliate Window is also wrestling with the knotty issue of how to build a user base, and Hall argues that much of the impetus should come from merchants. “We can’t rely on users to go onto Facebook to find the application,” says Hall. “The key to growth is merchants carrying a Wishlist button on their own websites. The ideal is that if you go to an online retailer, you will be able to sign up for Wishlist there and then.”

This is work in progress. “It can take the big players up to six months to decide on whether to carry the button and implement the change,” adds Hall. “But we have a number of merchants, such as Gadgets.co.uk and Electrical Discounts UK, who are already doing it.”

Whatever the strategy, the name of the game is attracting active users in large enough numbers to make the business model viable, and there’s plenty of scope for things to go wrong. Word travels fast within social networks, and if an affiliate programme is too pushy or the shopping experience is less than optimal, the resulting backlash from users could hit both the application operator and the reputations of the merchants it serves. Louise Green, client services director of Buy.at, acknowledges this risk but argues that it engenders a good discipline. “There’s a strong element of self governance on the social networks,” she says. “If a product isn’t used, it could get slated. That does create a risk, but it also means that what you offer has to be good.”

Despite some very real scepticism about the commercial potential of social networks, there is also genuine interest on the part of merchants. Affiliate Window’s list of Wishlist retailers already includes Play.com, Woolworths and DSGi, while Buy. at’s line-up boasts John Lewis, Sky, The Carphone Warehouse and Marks & Spencer.

It’s not just the big names. Chris Conwell, founder of Gadgets. co.uk, is also an early adopter, having seen a synergy between the wish-list concept and the way in which Facebook users were already sharing product information. “Almost everyone I know is on Facebook, and they all seem to spend most of their time sending ‘you really must look at this’ type of messages and applications to their friends. So the basic principle of Wishlist seemed perfect when we first heard about it,” he says. Although Brown still has to be convinced that social networks will deliver, she is also prepared to experiment with community sites as part of Firebox’s affiliate strategy. “It is something we are interested in and we are talking to Affiliate Window,” she says. There are some questions about the degree to which merchants are prepared to endorse or support the social networking experiment. For instance, Clarke acknowledges there might be some merit in putting the Wishlist button on DSGi’s main sites, but in the short term, at least, that’s not on the cards. “It’s more likely that we start by promoting Wishlist on our own Facebook page,” he says.

Alternatives

It has to be said that social networks aren’t the only game in town. Just as we are likely to see more e-commerce opportunities embedded in web 2.0 sites, dedicated shopping portals and comparison sites – the major players in the affiliates market – are themselves deploying social functions.

The strategy is also proving attractive to retailers. For instance, House of Fraser, a company with an active affiliate programme, isn’t involved in any direct initiatives involving social networking. “But what we are doing is partnering with some of the social shopping sites such as Shopstyle, Massive and Oh So You,” says online acquisitions manager Chris Bishop.

And many within the affiliate marketing community see this as a more effective means of connecting with customers than setting up Facebook applications.

“Social networks are primarily suited for branding exercises rather than direct commerce,” says James Little, head of affiliate development at Affiliate Future. “Where I see the real opportunities are affiliate sites and merchants developing social elements to attract and retain consumers,”

Paul Nikkel, founder of Quidco, a shopping hub with a cashback incentive to the consumer, agrees. In July this year, his company officially launched Quidclans, a community feature designed to create discussion groups around brands and topics. To date, it has about 500 members. “There is an appetite for this,” says Nikkel. “The idea for Quidclans came from a ‘Christmas Cup’ initiative we ran last year, in which our members formed teams around brands. We had around 1,200 teams, which showed there really was a desire to connect with other members.”

Nikkel isn’t tempted to retool Quidco in the form of a Facebook application, because he feels the benefits in terms of new users wouldn’t justify the effort. “If you look at the affiliate initiatives on social networks at the moment, you can see that the active user numbers are very small,” he says.

So there are two very different visions. In one corner, we have a number of affiliate marketing companies attempting to tap into the massive user base of the social networks. In the other, shopping hubs such as Quidco are building in community features. But it remains to be seen whether either group will make a killing from the social web.

Marketing via social networks

Look tor an application that adds value. Social networking might be just a few years old, but it is already written in stone that users of the big networks will only respond to applications that somehow enhance their experience of the community or add value to their lives.

Embrace the ethos of the community.This is at the core of the value-add proposition. Social network users aren’t there to shop, so any e-commerce element must fit in with existing activity on the network in question. Arguably, wish list technologies that enable members of the networks to share lists of favourite products with friends ties in with the community ethos.

Offer incentives. The incentives should be appropriate to the community. This can be as simple as offering cash back or commission on all purchases, but Fund it Frog has introduced an altruistic element to its affiliate application by donating to a charity specified by the consumer whenever a purchase is made.

Market the service. Active user numbers can be small on affiliate programmes, so any successful scheme will have to market the initiative actively. Strategies include encouraging active users to invite friends, advertising-, PR and wish list-joining buttons on retailers’ sites.

Wistilist: application makes its mark on Facebook

You have to be careful you dont appear to be pushing people into buying things

Richard Clarke, marketing manager, D8G International

Littlewoods enters the video age

Affiliate marketing creatives come in many shapes and forms, from simple links and banners through to price comparison applications. Most of it is functional rather than visually inspiring, but affiliate marketing company Buy.at, in association with video platform operator Coull, has set about changing the game with the launch of an application that enables merchants to deploy video content on affiliate sites.

Clothing retailer Littlewoods is the first to go live with the system, which allows consumers to click on any item within the video shoes, dresses, accessories – and purchase the product in question. The key to the application is that the customer links directly to a page containing the item, without having to navigate from a home page or microsite landing page.

“The application is available to any affiliate,” says Louise Green, client services director at Buy.at. “But we are focusing on content-rich sites.”

According to Green, video should generate more clickthroughs, meaning more sales for Littlewoods and higher income for the participating affiliates. “I do think that video is more engaging,” she says. “It draws you in more and captures the attention. We expect that to lead to higher conversion rates.”

As things stand, there are no plans to drop video into the choppy waters of YouTube or comparable web 2.0 video-sharing sites. “That would require very creative execution,” says Green. “However, it is an option for the future.”

Littlewoods: pioneering use of Buy.at video system

There’s a strong element of self-governance on the social networks. If a product isn’t used, it could get slated

Louise Green, client services director, Buy.at

Copyright Haymarket Business Publications Ltd. Sep 2008

(c) 2008 Revolution. Provided by ProQuest LLC. All rights Reserved.




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