Affiliate marketing is approaching a crisis point
Last month I did a deep dive on Wirecutter, a product recommendation website purchased by The New York Times a little over a year ago. Since the Times took the reins, Wirecutter has been credited as one of the Gray Lady’s fastest growing revenue streams. As I reported in the piece, the publication saw a 50 percent year-over-year revenue increase, and this was mostly due to Wirecutter’s use of affiliate marketing, a business model that involves the publisher receiving a commission every time a reader clicks on a link and purchases a product.
The New York Times isn’t the only media company to jump into affiliate marketing. Fusion Media. BuzzFeed. Tronc. Vox Media. Nearly every digital news organization is either already engaged in e-commerce or is planning to soon launch a new vertical in the space.
The reason for this sudden shift in business models? There are two. The first is that the vast majority of all growth in digital advertising is flowing toward two companies, Google and Facebook, and media companies are finally recognizing that they can’t simply scale their way to profitability via display advertising.
The second reason is that e-retail is seeing explosive growth, with more and more consumers eschewing brick and mortar stores in favor of shopping online. This had led to a growing need for online recommendations in the form of product reviews. If you review a product and your article appears at the top of Google search results, then there’s a good chance that your recommendation will be the imprimatur that generates a sale. With US affiliate marketing projected to grow from $4.21 billion in 2015 to a predicted $6.82 billion in 2020 (that’s 62 percent growth in a half decade), the space is turning into a gold rush.
And as with all gold rushes, this one is attracting some unseemly characters. Affiliate marketing has always been dogged by shady behavior. Invented in the early 90s by an online flowers company, affiliate marketing came into widespread use with the launch of Amazon’s affiliate program in 1996. Since then, marketers have engaged in all sorts of black hat practices, from website scraping to search engine spam to even installing harmful adware on unsuspecting victims’ computers.
But the recent explosive growth in the industry is propelling us toward a crisis point, one that has massive ramifications for consumers. This is a crisis that the FTC seems ill-equipped to deal with. The agency has issued guidelines on disclosures, writing that “if there’s a connection between an endorser and the marketer that consumers would not expect and it would affect how consumers evaluate the endorsement, that connection should be disclosed.” And to be fair, it has taken a few concrete steps to curb this kind of behavior, sending letters warning of violations and even taking legal action against bad actors.
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But publishers of all shapes and sizes are flouting this rule. A study from Princeton University found that 90 percent of YouTube and Pinterest accounts that use affiliate marketing don’t include a disclosure. Presumably, many of these influencers aren’t even aware they’re engaging in blackhat practices, and would even argue that they would endorse these products regardless if there were affiliate links attached.
But the rise of direct-to-consumer products like Casper mattresses and Blue Apron delivery meals has added a new ethical dilemma to the mix. At least with Amazon affiliates, the rate remains the same regardless of the individual product, so one could argue that you have no incentive to recommend a bad product over a good product. But many direct-to-consumer companies establish their own affiliate rates and can even offer specific publishers their own special rates. An investigation from Recode found that one high profile mattress review site gave a better review to a mattress company that offered a $150 referral fee while most others only offer $50. Casper mattresses has aggressively sued several mattress review sites, and after acquiring one of them the Casper review just magically improved.
What’s worse, the rise of social media advertising and its increasingly sophisticated targeting features has made it incredibly easy for scammy affiliate marketers to locate and advertise to vulnerable victims. Bloomberg recently did a deep dive into this shady underworld and found that Facebook is not only doing little to police these scammers, but it’s often openly courting them to get more of their advertising dollars. Attending a conference for these scammers, the Bloomberg journalist observed that “saleswomen from the [Facebook] held court onstage, introducing speakers and moderating panel discussions. After the show, Facebook representatives flew to Ibiza on a plane rented by Stack That Money to party with some of the top affiliates.”
The scammers made it pretty clear that Facebook’s ad targeting made it so they didn’t have to hunt for victims:
Facebook’s targeting algorithm is so powerful, they said, they don’t need to identify suckers themselves — Facebook does it automatically … Affiliates once had to guess what kind of person might fall for their unsophisticated cons, targeting ads by age, geography, or interests. Now Facebook does that work for them. The social network tracks who clicks on the ad and who buys the pills, then starts targeting others whom its algorithm thinks are likely to buy. Affiliates describe watching their ad campaigns lose money for a few days as Facebook gathers data through trial and error, then seeing the sales take off exponentially. “They go out and find the morons for me,” I was told by an affiliate who sells deceptively priced skin-care creams with fake endorsements from Chelsea Clinton.
These types of scams aren’t just prevalent on Facebook. The podcast Reply All recently dedicated an episode to so-called drop shippers on Instagram who run ads touting luxury goods like coats and watches, only to send the buyer cheap knock-off goods manufactured in China.
That’s not to say all publishers have ill intentions when they engage in affiliate marketing. Folks at Wirecutter and The Penny Hoarder, a personal finance site I profiled last year, stressed to me that they have strict disclosure rules and stated that their revenue teams have no influence over editorial decisions.
But as more and more publishers and influencers get in on the affiliate game, ethical lapses will only permeate, and this growing trend, over time, will erode consumer trust. Tech platforms have already worried about the increased regulatory scrutiny that’s come as a result of Facebook’s Cambridge Analytica scandal, but if the tech community — from platforms to e-retailer sites — doesn’t establish and enforce stricter standards in the future, then nobody can argue that they won’t deserve the consumer and regulatory backlash that’s waiting for them on the horizon.
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As a longtime journalist who’s written for national publications including US News & World Report, The Atlantic…