Affiliate programs, once a nice electronic commerce add-on, are suddenly critical to a Web merchant's arsenal. As a result, business is simmering for LinkShare Corp. and Be Free, the two major affiliate service companies.
LinkShare, which claims more than 150 merchants and 65,000 affiliate members, today names Jerome H. Kern its new CEO. The former vice chairman of Tele-Communications Inc. recently helped broker AT&T Corp.'s acquisition of TCI.
With Mr. Kern, LinkShare, whose clients include Avon Products, Dell Computer Corp. and Borders, hopes to expand its model to TV. Mr. Kern said LinkShare's talking to three major cable operators about using its technology.
"We're going to try to convince them to track
e-commerce through the Internet," he said, adding that it was too early to discuss details because the cable companies are still wrestling with how to implement interactive TV.
Affiliate programs allow Web merchants to put up mini storefronts on approved sites, usually on another small or midsize business Web site or an individual's home page. LinkShare and Be Free manage the traffic, transactions and tracking between the merchants and the site owners, taking a small percentage of sales, click-throughs or any other action agreed upon in the affiliate contract. Site owners can earn cash or credit.
Aside from affiliate programs, Mr. Kern said he also would be integral in helping LinkShare obtain additional financing, whether public or private. An initial public offering is in its future, he said. "The question is when."
James McQuivey, senior analyst at Forrester Research, said LinkShare's hiring of Mr. Kern recognizes e-commerce will not be limited to the Web.
CREDIBILITY WITH CABLE COMPANIES
"You're going to need someone who manages affiliate relationships in cable commerce just like you do on the World Wide Web," Mr. McQuivey said.
Mr. Kern will lend LinkShare credibility as it begins courting cable access providers.
"I think with him behind this effort, a lot of companies that might have said [affiliate programs are] five to eight years away are going to say, maybe we should look at them in a shorter time frame," Mr. McQuivey said.
With the hiring of Mr. Kern, LinkShare founder and former CEO Stephen Messer remains chairman. Heidi Messer will continue as president, working with Mr. Kern on sales and marketing.
Analysts agree that affiliates are a mandatory customer retention tool for all segments of online commerce.
In a recent report, Jupiter Communications estimated that if online merchants could increase their affiliate sales to 20%, they could cut sales and marketing costs by 10%.
Mr. McQuivey, who says Forrester is finishing a report on affiliates, said anecdotal evidence shows affiliates contribute as much as 30% of a site's total sales.
While two of the biggest affiliate programs--Amazon.com and CDnow, which each have more than 200,000 affiliates--are run in-house, more sites are outsourcing tracking and payment systems, which LinkShare and Be Free automate.
LinkShare allows affiliate sites to easily download virtual storefronts and limited offers created by the merchant.
While LinkShare has five times as many merchants, Be Free, which last week secured $25 million in financing, has more affiliates.
Gordon Hoffstein, president-CEO of Be Free, said more than 450,000 sites use its affiliate technology. Unlike LinkShare, Be Free doesn't own the relationship with the sites, the merchant does, he said. Be Free client barnesandnoble.com recently announced it now has 100,000 affiliates. Be Free also runs the recently launched Pages that Pay program on GeoCities.
Michael Barrett, senior VP-sales and strategic partnerships at GeoCities, said within the first 30 days it's signed up 250,000 affiliates, exceeding its six-month goal.
"It's going beyond our expectations," Mr. Barrett said.
By mid-April, Mr. Barrett said GeoCities hopes to expand the program to sites not on GeoCities, such as new acquisition WebRing , a community of affinity sites, and even users who have sites on rival services, such as Tripod and theglobe.com. Tripod said it's in talks to enhance its affiliate program.
GeoCities has more than 22 merchants in its program, including Egghead.com and barnesandnoble.
com. Mr. Barrett also said when Yahoo! finishes its acquisition of GeoCities, it'll integrate Pages that Pay into the Yahoo! Store service.
Mr. Barrett acknowledges that personal home pages, which populate most of GeoCities, generate a small percentage of affiliate sales. Jupiter says the top 15% affiliates generate 85% of all affiliate sales.
"We're into the next phase of affiliate marketing: loyalty," he said.
GeoCities is focusing on organizations that can benefit from affiliate sales. He said it's working on a back-to-school deal with Staples that would target parents of school-age children as a way to raise funds for local schools. Parents could be encouraged to buy their children's supplies from Staples via their local school's Web site.
"It's taking your virtual bake sale or Girl Scout cookies to a whole new level," Mr. Barrett said.
Copyright April 1999, Crain Communications Inc.