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You may have read on Revenews that Overstock was considering terminating its California affiliates and that it likely wouldn’t unless AB1625 passed (that is the bill that changes the definition of nexus, or presence in the State, to include any out-of-state store with online affiliates who are based in California).

Last year, Overstock terminated its relationship with all of us after the Governor vetoed the legislation. The Governor’s office called Overstock’s CEO and issued a statement that he would not let this bill pass. He is still governor. [Note that I think that the bill will become law if Jerry Brown wins the gubernatorial election in November but not if Meg Whitman wins.]

It happened. We just received an e-mail from Commission Junction, Overstock’s affiliate network, informing us that we have been terminated from its affiliate program (see below). Note that CJ’s policies require a one-week notice so I assume that Overstock is sending a message to state legislators that this is what will happen should they enact AB1625 into law. [Note: I cannot find any information that would show that AB1625 was passed by either house of the California Legislature.]

Dear Cashbaq,

We regret to inform you that the Commission Junction advertiser BizFilings has chosen to expire its affiliation with you effective 7-Sep-2010.

If you would like to locate another advertiser in the network to partner with, login to your Account Manager (http://www.cj.com/login.jsp) and visit the Get Links tab.

Best Regards,

Client Services
Commission Junction

It looks like Overstock is playing chicken with the California Senate:

If you are an affiliate manager, please wait until after the bill passes, the Governor vetoes it and the Legislature doesn’t have the votes to override the bill to terminate us. We’d really appreciate it.

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New Flash: Overstock Terminates Its California Affiliates

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Yesterday Overstock announced its intention to terminate California affiliates should AB 1625 pass. In a  letter to all of its affiliates, Overstock urge opposition to AB 1625 stating that:

There is a measure under consideration in California, likely to be voted on tomorrow, which, if it passes, will likely result in the termination of our business connection.

The letter goes on to urge California affiliates to oppose the passage of the legislation and specifically calls out Section 1 as being the point of contention.

In reading AB 1625 (PDF) the measure is essentially a motion by the Budget Committee to allow changes to the Budget Act of 2010. The section Overstock identifies as being problematic, Section 1, reads:

SECTION 1.  It is the intent of the Legislature to enact statutory
changes relating to the Budget Act of 2010.

In the bill itself there are no definitive statements as to the Legislature’s intentions. The only clues to what changes might be enacted are based on the political climate within California. AB 178 was only stopped by a veto from Governor Schwarzenegger. Odds are that proponents of that bill will use AB 1625 to enact measures supported in AB 178 including California’s version of the so-called Amazon Tax.

We queried Overstock as to its specific concerns over AB 1625 and received the following response from their PR department:

It is the end of the California legislative session and the budget isn’t done. We continue to learn that those who seek to impose this tax measure have some new strategy. Yesterday, we learned more new information (in regards to AB 1625) on which we acted. We don’t want to be forced to terminate our affiliates, and we are glad those most affected are responding and their voices are being heard by senators who need to understand the strong counterpoint to this unwise tax legislation.

So it would appear that Overstock is leveraging their affiliates to act as a counterpoint to a bill they see as threatening, even if the actual purpose of the bill is nebulous. Rebecca Madigan, Executive Director of the Performance Marketing Association,  posted an excellent synopsis of the politics of the situation.

Although we don’t necessarily agree with Overstock’s tactics we do feel that any enactment by California of an Affiliate Nexus Tax is a terrible decision. There is still time for California affiliates to contact their representatives. The PMA has a great resource that provides a painless guide on how to find your representative including suggested email templates for you to use.

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News Brief: Statement from Overstock Regarding California Bill AB 1625

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Now that I have your attention, Overstock may terminate its California affiliates tomorrow. The State Legislature is once again considering a bill that would make the Affiliate Nexus Tax law in California. If you are not familiar with this legislation, it defines affiliates as salespeople in order to establish nexus (the legal word for presence in the state) to out of state retailers (namely Amazon and Overstock).

We’ve been through this before. It started out as AB178 a couple of years ago. Kerri Pollard and I went to Sacramento to testify before the Budget and Finance sub-committee. As my cab pulled up at the State Capitol, I received an e-mail that the bill was pulled by its sponsor. It turns out that there weren’t enough votes to get it out of even the sub-committee.

Now its here… again. Last year it was passed under the cover of darkness and the Governor vetoed it. Overstock terminated us last year as part of the process. Only after the Governor vetoed the bill and issued a statement that he would not allow the Affiliate Nexus Tax to become law did Overstock reinstate all of us. Fortunately, CJ’s policies give us all a week before the termination takes effect so we would have time for the Governor to use his veto stamp (can’t you just picture it in slow motion… the stamp dropping onto parchment on the Governator’s desk…. cigar in his mouth (yes, it would be in the tent outside the Capitol)).

If you are a California publisher in the Overstock program, contact your state senator… NOW. Forward Overstock’s letter and explain how AB1625 (the current form of the Affiliate Nexus Tax) will hurt small businesses in your senator’s district. If you need more information or drafts of similar letters, take a look at the Performance Marketing Association’s website.

Also, there was a good op-ed piece by Loren Bendele in today’s LA Business Journal.

If you didn’t get Overstock’s letter, here it is. Remember not to beat up Overstock for this. This is a bad law that will hurt California’s small businesses and will not generate any revenue.

OVERSTOCK.COM, INC.
6350 SOUTH 3000 EAST
SALT LAKE CITY, UT 84121
PHONE: (801) 947-3100
FACSIMILE: (801) 947-3144

August 30, 2010

Dear Cashbaq:

Overstock.com values your advertising efforts, and hopes to be in a position to continue our business connection for years to come. However, as we notified you in February, there is a measure under consideration in California, likely to be voted on tomorrow, which, if it passes, will likely result in the termination of our business connection. We are urging you to contact your Senator in the California Legislature immediately to oppose the affiliate nexus tax.

By tomorrow the California Senate will have to consider the new tax, which appeared in the Assembly’s final budget proposal as AB 1625 (Section 1), or it will die for this year. In order to pass, AB 1625 needs a 2/3 majority vote. Its chances of passage are unclear; consequently, your efforts in opposition will be highly effective.

Last year the Governor vetoed a similar measure, and we are told that the Governor has not altered his position on this new tax; however, despite this, we are concerned about last minute political compromises.

You will find information on how to contact your State Senator at this location on the Performance Marketing Association’s website.

Please waste no time in contacting your Senator today to oppose the affiliate nexus tax.

Respectfully,

Jonathan E. Johnson III
President Overstock.com, Inc.

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Overstock to Terminate California Affiliates Again Tomorrow

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Brands and marketers are always looking for the magic bullet that turns a normal campaign into an overnight success. So it’s no surprise that $11 million in revenue from a single merchandise promotion generates a lot of interest in a company. It’s the kind of success story that gets marketers talking.

That success story belongs to Groupon whose national promotion for Gap last week resulted in income of $11 million from sales of a $25 coupon worth $50 of store merchandise to over 440,000 shoppers, according to AdAge. While Gap has yet to see how many coupons are actually redeemed, Rob Solomon, Groupon’s president said,

“I’m pretty sure if they ran a national TV campaign, they wouldn’t have gotten nearly 500,000 paying buyers in the store.”

Less than two years old Groupon began as a locally-oriented service offering a “deal a day” to subscribers in particular cities who give Groupon their email addresses. The twist is that an offer is only redeemable if enough people express interest in it. With redemption rates exceeding 80 percent on average, Groupon’s growth is easy to understand since it often splits the value of the offer as part of its revenue. It is the local focus that got Groupon to where it is today. The company is obviously unafraid to think beyond localization. “There’s a lot of room to remain hyper-local,” Solomon tells Reuters, “but to introduce super-specials, like for the Gap. Gap is a testament to demand for the big guys.”

Such success is necessary for Groupon to show its model cannot only attract large brands, but that it can retain its position of dominance within its own model now that a slew of copycats have followed on the heels of its success.

Groupon has already spawned several look-alikes – LivingSocial and ScoutMob are competitors. Yelp just launched a similar service, as did Travelzoo. But as with Facebook in social networking and Foursquare in location-based services, Groupon has first-mover status – something it will clearly take advantage of as it grows.

In the last five months, according to AdAge, Groupon has grown from 3 million to more than 15 million subscribers, has gone from 300 to more than 1,500 employees, and has expanded from the U.S. to 28 other countries. The week following the Gap promotion, an additional 750,000 subscribers signed on. Solomon says Groupon expects to have over 20 million subscribers by the end of this year and generate some $400 million in gross sales. The company is well funded by venture capital and shares in the revenue it generates for retailers.

Groupon currently makes localized offers in 29 countries in Europe, Japan, Latin America, North America, and Russia. According to Reuters, Groupon expects to expand from 85 markets to 200 in North America by the end of 2011.

There is no question that Groupon’s model can generate a successful crowd effect driving a glut of conversions based on a coupon. However even though the model is obviously a hit among advertisers, there is legitimate concern among brands that are worried about “training” consumers to only wait for, or buy with, an offer. Not all case studies of the model have had positive results.

1. Advertisers have experienced product shortages that have created customer service nightmares.
2. When examining the buyers often it was discovered that Groupon did not generate new-to-file customers.
3. Poor customer service from Groupon itself.

As Augustine Fou, the chief digital officer at Omnicom’s Healthcare Consultancy Group, is quoted by Mashable in saying that stores like The Gap are exactly the type of advertiser who shouldn’t be using Groupon. He estimates that their loss on such a campaign $7.5 million revenue which is a hefty expense for publicity.

Groupon is, of course, all about driving traffic – and what it did in terms of traffic generation for Gap is now generating a lot of interest among retailers. Advertisers seem enamored with Groupon and many will be lining up to try the service this holiday season. The experience with Gap has proven that Groupon can sustain its business model with a national as well as a local audience. Solomon tells AdAge that he expects Groupon to hold another national promotion “pretty soon,” and that there will be more to come in the last quarter of this year.

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As city and state governments scramble to make up for growing budget shortfalls we’ve seen the passing of some fairly ludicrous legislation. From the Amazon Tax passed by New York, Rhode Island, and North Carolina to Colorado Governor Bill Ritter’s “Dirty Dozen” which included a tax on bull semen, we’ve seen a lot of ridiculous legislation in 2010.

Enter the city of Philadelphia whose government seems to think that blogging is the next big untapped treasure trove of tax revenue. Philadelphia has imposed a privilege license on all bloggers who reside in the city limits. Cost of the tax, $300.

According to tax attorney Michael Mandale as long as a blog is engaged in an “activity for profit” for example taking any advertisement including Google AdSense, the city of Philadelphia’s “blogging tax” applies to them. By such a definition blogs or sites on communities like Squidoo, Livejournal and platforms like WordPress and TypePad would be subject to such a tax.

The thing is a lot of people who blog do so as a hobby or a form of self expression. They may put up an occasional link to Amazon or to Fandango because of a book or movie they have seen but most are not making a living off of blogging. In fact both local bloggers interviewed by the Philadelphia City Paper made less than $50 over two years. But as Michael Mandale points out the law applies whether or not the blogger “earned a profit during the preceding year.”

Interestingly the way the law is written it would exempt most corporate blogs from being taxed separately because most corporations do not display advertising on their blog.

Now, I don’t fault the Philadelphia city government for searching for new tax revenue resources especially when faced with the crisis of a budget shortfall. In fact, I would classify myself as generally pro tax. But this law is just misguided for many reasons.

1. Jurisdiction: The law is targeting the blogger who hopes to earn a profit through advertising. Fine. But what if a blogger living in Philly blogs on a third party site, say they setup a Squidoo Lens, but chooses not to run their own advertising. Let’s say the third part site then decides to run advertising triggered by the blogger’s content. Seems wrong that the small blogger would be taxed but the larger business (the site) would be allowed to make a profit untouched.  Philadelphia having no jurisdiction over matters outside of its city limits could never impose the tax on a site outside of its city limits. Yet, in the scenario above it could not tax the site for the very same content and potential profits that it is trying to tax the blogger for.
2. Enforcement:By the city’s own admission they do not keep track of how many bloggers reside in their city limits. In fact it might be an impossible task at least from a resource standpoint, not just for Philly but for any city, to actively enforce such a law. So the only people this law taxes (punishes) are those honest enough to come forward and pay it.
3. What Content is Taxable?: The supposition here is that the blogger is seeking out advertisers and the revenue from ads should be taxed. But I’m sure that the city officials are thinking about traditional display style ads. What about in-text ads or outright advertorial? Are those taxable? If so, how will the city enforce? What about, as mentioned earlier, blog content from a large business or corporate entity? Such a blog isn’t likely to have advertising but essentially does serve a marketing/advertising purpose for the company that created it. Is that taxable? Will companies then be required to pay two taxes: one for their business license and one for the privilege of having a blog?
4. Small Business Growth: In a city that is trying to encourage small business growth, as Philadelphia claims to, aren’t such tax measures a great way to hamper such growth? Bloggers who become successful enough through their writing will naturally evolve into businesses that bring in new tax revenue. Government should be cultivating business growth not burying it before it has a chance to flourish.

In Philadelphia there is already an effort to reform the current business privilege tax put forward by local City Council members Bill Green and Maria Quiñones-Sánchez so that the law wouldn’t apply to business that had not generated over $100,000 in revenue. While I applaud that effort, government tends to be a bit of “monkey see, monkey do.”

Among the repercussions of New York’s passing of the Amazon Tax, was that various states lined up to follow New York’s lead without really looking at the impact of the legislation. Don’t be surprised if a city near you follows in Philly’s footsteps.

Here is the original:
Blogging Tax Coming To A City Near You

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The title of this post is the name of a classic book by Dr. Seuss, but it also refers to the introduction by Facebook of its newest service, Places.

Places is Facebook’s long-awaited entry into the location-based services marketplace. As I’ve discussed previously, this area is an outgrowth of the social networking/smartphone connection and it’s quickly becoming the next major growth sector. Facebook’s Places is an attempt to counter the momentum of such services as Foursquare and Gowalla, if not crush it altogether, as well as capitalize on user activity in local over the long term.

As with Foursquare and Gowalla, Places enables users to “check in” at places and tell their friends where they are. The difference, of course, is Places users can seamlessly alert their friends on Facebook. Attempting to distinguish Places from competitors, Michael Sharon, the Places product manager, tells The New York Times:

“This is not a service to broadcast your location at all times, but rather one to share where you are, who you are with, when you want to. It lets you find friends that are nearby and help you discover nearby places.”

Not surprisingly, Foursquare and Gowalla told The Times that they see Places “as a complement to their own services and as an opportunity to gain additional distribution.” Foursquare actually was present at Facebook’s headquarters for the news conference announcing Places – so at least for the present time, the two companies are playing nice.

Facebook’s move comes at a time when it is increasingly positioning itself against Google in what could be the mother of all Internet battles. With its 500-million user base, anything new Facebook offers could have widespread adoption. “Facebook’s long-term goal with Places appears to be to capture the largely untapped advertising opportunity that local and small businesses offer,” says The Times, although Facebook says it currently has no advertising products for Places. Google, of course, generates most of its income from ads; in fact, AdWords is responsible for over 90 percent of Google’s revenues.

Walter Mossberg, the renowned technology reviewer for The Wall Street Journal, said his test of Places showed that it was “easy to use and reliable, with mostly logical privacy controls, an issue on which Facebook has been bruised in the past.” He does mention, however, that Places is “more stripped down and leaves out some attractive features others [like Foursquare and Gowalla] include.”

But it isn’t really the features that matter, as much as the fact that Facebook is now squarely in the location-based game. That could be good or bad for services like Foursquare. However, Places is definitely one more piece of evidence that Facebook intends to face off with Google head on. Google is making the inevitable move towards social networking features and trying to attract small businesses through location-based initiatives. Places is clearly focused on the small business market as well, because it is expected to help drive consumers to local businesses and will likely take advantage of developing options like pushing coupons or offers to users as they check in.

At the moment, Places is in early stage availability in the U.S. and available only on the iPhone. That will surely change as Places rolls out. And Places will just as surely add fuel to the fire in the Facebook-Google battle.

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Editor’s Note: The following post is an excerpt from material Jim Kukral, former Managing Editor of ReveNews and author of Attention! This Book Will Make You Money, used during his keynote at Affiliate Summit East 2010. It is published here with Jim’s permission. Rumor has it the Affiliate Super Friends appeared during the keynote, that indeed is all Jim’s fault. Enjoy.

Did you know that 4.6 million bottles of 5 Hour Energy Drink are sold each week in the USA alone? According to The New York Times, Bill Pecoriello, chief executive of Consumer Edge Research, estimated that energy shot sales could reach $700 million this year, nearly double last year’s $370 million. Today, 5-Hour Energy accounts for about 80 percent of the rapidly expanding market.

The question is how did a relatively new product gain such traction with the US consumer? Here are five valuable lessons you can take away from this product and their marketing.

#1 Reason – “Energy” Is In The Product Name

I’m a huge fan of saying what you do. If you are a plumber and your name is Angel, your business name should be Angel’s Plumbing. If you are the world’s best expert at databases, then you should be calling yourself The Database Diva, not “Aviva, LLC” which was her original name. If you are an amazing resource of tax information for small businesses owners, you should be calling yourself TaxMama, not Eva Rosenberg Tax Services.

Lesson: Say What You Do

#2 Reason – It Helps You Get Energy

You’re tired,  you’re down. You need energy. You can go and drink coffee all day long, but then your breath smells and you have to pee every five minutes. In other words, it solves problems which is what every successful product does.

Lesson: Solve Problems For Your Customer

#3 Reason – It Helps You For Five Hours

Not one hour, not 12 hours, not a half hour. Five hours. When you think about it that number is of significant importance to their marketing because people find it believable. A product with a claim that sounds outrageous, no matter how true, won’t sell. Consumers have to believe it to buy it. If it was 12 hours, nobody would buy it, they’d think it was fake or like a speed pill. If it was one hour, again, people wouldn’t buy it, they’d say “Who needs one hour of energy only?”

Five hours is exactly what you need, and want, and they know it. Need a pick me up after lunch to get you through the rest of the day? Drink 5 Hour Energy Drink. Need to hit the clubs at Midnight in Vegas and dance the night away? Drink 5 Hour Energy Drink.

Lesson: Think About What Your Customers Really Need

#4 Reason – It’s Very Portable

You can drink it in seconds. Not like a giant Monster energy drink that you have to chug-a-lug around with you all day. Not like a big coffee mug you have to carry around. You don’t feel bloated after drinking it. While all their competitors went big, five hour energy was smart enough to go small.

Lesson: Be The Alternative

#5 Reason – It’s Convenient

You can stick it in your gym bag or your work backpack. You can leave it in your glove compartment or put it in your coat pocket. Since it’s small, it’s convenient.

Lesson: Make It Easy

Whether you are a business or a brand, or you sell a product or a service, you can learn quite a bit from 5 Hour Energy. People look for new things all the time. Are you creating them for them? Not everyone loves coffee you know.

Now is your chance to take these important lessons and work them into your own strategy. Pretty soon you might just find yourself owning the majority share of customers in your industry.

Source:
Five Marketing Lessons You Can Learn From 5 Hour Energy Drink

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2.2 billion dollars in revenue and 11 percent growth seem like strong earnings. That is, unless your eBay. The strength of eBay’s Q2 earnings, driven mostly by PayPal, were undermined as eBay cut its fiscal forecast by $250 million. Such earnings adjustments are enough to make $20 million in fraudulent affiliate commissions seem like a small matter.

Due to Amazon’s growing strength and marketplace shifts, eBay’s market relevancy has slipped over the years. They just seem to be out of mind. As consumers adopt social media, eBay has become less exciting.

So how do you bring the excitement back? eBay hopes money will help.

Resorting to bribes, eBay has launched eBay Bucks a loyalty program that will offer consumers 2 percent back on items purchased on the site through PayPal. Once the Bucks are rewarded, consumers can use them towards additional eBay purchases. The program excludes all purchases from Business & Industrial Capital Equipment, Real Estate, and eBay Motors categories.

Loyalty programs are historically healthy models with companies as large of Discover using them to great success. Although the model is proven, success is often dependent on how well consumers click with the company itself. Microsoft Bing’s shuttering of their cashback program is a clear example of what happens when a program doesn’t click.

Interestingly, one of the primary methods people did use Bing’s Cashback was on eBay. How this bodes for eBay’s program remains to be seen.

As a side note, eBay implementing such a loyalty program may have an impact on affiliate relationships especially those in the loyalty space. Will consumers get to double-dip on awards from eBay and its affiliates? Will eBay count sales referred by an affiliate if the consumer was previously enrolled in eBay Bucks? It will interesting to whether eBay will play fair with its own affiliates.

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eBay Hopes Shoppers Will Cash In On eBay Bucks

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Editor’s Note: The following is an analysis of a set of claims made by Shawn Hogan regarding his time as an affiliate of eBay. The claims made by Hogan are serious in nature but are made in an unstructured fashion, delivered without evidence, and seem to be an attempt at salvaging his image. Such claims thus fall into the realm of rumor and innuendo meant to damage eBay’s reputation. It should be noted that eBay was always in good standing while  a Commission Junction merchant and that they are not currently, nor ever have been,  under investigation for such activities as claimed by Hogan.

Last week I posted about criminal charges being filed by the Justice Department against Shawn Hogan of Digital Point Solutions and Brian Dunning of Kessler’s Flying Circus related to allegations of cookie stuffing in the Ebay affiliate program. These were separate charges following a civil suit filed by Ebay in 2008 for the same activity.

Digital Point Solutions Responds

There are always at least two sides to every story. Yesterday evening I received a ping via Twitter linking to a blog post by Digital Point Solutions, written by Shawn Hogan, responding to these allegations. The post is rather long, rambling, and sensational, to say the least. In the post, Hogan defends himself against the charges of cookie stuffing and makes a few rather serious allegations against eBay.

Cookie Stuffing Timeline According to Hogan

I’ll try to summarize the claims made by Hogan, beginning with those aspects related to cookie stuffing activity. The following are facts according to Shawn Hogan:

• Hogan began working with the eBay affiliate program in the fall of 2004, at which time he began an SEO campaign to rank the term “eBay”. By the end of 2004 he held Google SERPs in the top 5 for “eBay” and maintained those until April 2006.

• The rankings were achieved, in part, through Hogan’s Co-op Ad Network. In early 2005, Hogan’s affiliate account came to the attention of eBay because of activity levels and he was assigned a direct eBay representative.

• In the spring of 2005, eBay suggested that Hogan’s Co-op Ad Network be used as a traditional ad network for delivering ads instead of a mechanism to only increase SERPs. Hogan began displaying a small percentage of the ad inventory with eBay ads (“tens of millions” of ads daily) which were ultimately affiliate links. This grew his affiliate account by “300%”.

• In the summer of 2005, eBay approached Hogan wanting more traffic at the same time suggesting he “experiment” with “gray area” techniques that were technically in violation of eBay’s TOS.  One of those techniques described was cookie stuffing, although Hogan does not specifically call it cookie stuffing in his post.

• Towards the end of the summer of 2005, Hogan’s eBay affiliate account showed up on a compliance report performed for eBay by Ben Edelman, an independent third-party compliance expert. [Author’s Note: At this point in time Edelman’s monthly compliance consulting typically focused on testing for cookie stuffing via adware. It is unclear as to whether Hogan was experimenting with this form of traffic generation or not. The Justice Department’s charges only indicate cookie stuffing via web pages.]

• Hogan was told by eBay that he was free to experiment as long as he didn’t show up in outside compliance reports. Hogan further states that eBay recommended he use geo-targeting to remain outside of areas that Ben Edelman was likely to be testing from. At an unidentified point eBay contacted Hogan to request the Digital Point Geo Visitor tool, which was installed on “millions” of web pages, to direct to eBay’s site when clicked instead of to the expected map. Hogan states this was being done some, but not all, of the time.He also states he informed eBay this violated their TOS, but that after consultation with their legal department, eBay requested that the Geo Visitor icon be occasionally replaced with an eBay icon. Hogan claims he considered this a “bait and switch” tactic and wanted to stop it altogether. However, the “pressure from eBay” ultimately won out and tactic was implemented, resulting in a doubling of his affiliate revenues.

• During a private dinner at eBay Live! in the summer of 2006, eBay again asked Hogan for more traffic. Hogan stated there was no way to drive more traffic without using non-compliant means. Hogan claims that the eBay rep responded: “As long as you don’t show up on compliance reports, it’s compliant as far as we are concerned.”

• Sometime in the fall of 2006, Hogan showed up on Edelman’s compliance report for the second time. eBay told Hogan to change his PID so that Edelman could not connect the accounts in any further testing.

• In the fall of 2006, eBay implemented their Rover links. Hogan was pressured by eBay to change his links over, but repeatedly resisted the change, asking them why they wanted the change. Hogan claims eBay finally responded, after months of questioning, that traffic coming through Rover had no compliance check.

• In June of 2007, eBay ended the affiliate relationship.

Hogan’s Allegations Against eBay

• Hogan speculates that the management staff of eBay’s affiliate program was compensated based on commissions paid to affiliates which caused them to turn a blind eye to his activities.

• Hogan further speculates that when Meg Whitman, eBay’s former CEO, left the new management began looking closely into how eBay was being run, including the affiliate program. The new management decided to “clean house” and he was ultimately used to set an example to all affiliates via the civil suit.

• Finally, Hogan contends that the criminal charges amount to a political favour since one of eBay’s civil lawyers has worked for the District Attorney’s office.

The Digital Point Solutions post might be a peek into the defense strategies which may be used in both the criminal and civil suits still pending before the courts. I am somewhat surprised to see the post at all since most defense attorneys usually aren’t keen on their clients making any kind of statement while litigation is ongoing.

Hogan seems to basically admit to cookie stuffing, along with some other tactics not covered in the indictment, and to knowing that such tactics violated eBay’s TOS. His defense appears to hinge on his claims that he was not only being given permission by staff on eBay’s affiliate team but pressured to use such tactics. However, admitting knowledge of the illegality of his actions does not make him any less culpable for them, regardless of whether or not his behavior was endorsed by an outside party.

Further Allegations Against eBay

Hogan makes further allegations of wrong doing by eBay that are not directly related to cookie stuffing, some of which are pretty serious.  These claims are outlined below:

• Early on during the spring of 2005, Hogan became tired of hearing his eBay contact talk about his “crappy” car. In order not to have to hear the repeated complaints, Hogan made a deal that if he ever made more than $1 million a month with eBay he would buy the rep a new car. Around the time he implemented the Geo Visitors switch and his affiliate commissions doubled, he began earning the $1 million a month. Hogan claims he gave his eBay contact $50,000 so he could buy the car himself.While Hogan admits it wasn’t “extortion” because he made the offer himself, he felt like it was due to continued pressure from the rep. Subsequently, he claims he was “coerced” into buying other items for his contact, including a plasma TV and laptop, and was told that “all the affiliates buy their contacts stuff like this”.

• Hogan claims that eBay admitted to him that their TOS were a “façade” allowing them to engage in any activity they wanted, such as spamming search engines, while providing eBay with deniability to major partners like Google. This way eBay could blame the bad behaviour on affiliates.

• Hogan further claims that during the private dinner at eBay Live! eBay employees informed him of a “black budget” that entailed a large dollar amount to be used at their discretion. This was not reported on the balance sheets or to shareholders. In conjunction with this black budget, Hogan reports being solicited by eBay to spam the web with eBay ads while eBay bought hardware off-shore to run the campaign so that the ads could not be traced back to Digital Point Solutions by Google.He continues by saying eBay expressed their dislike for Google and wanted to pay Hogan out of this black budget to hurt Google anyway he could and to “take down Google datacenters somehow”. Hogan claims that eBay went as far as to fly down an executive from the pay per click division to discuss the possibility.

While most of Hogan’s allegations are serious and involve charges of possible criminal activity on the part of eBay, he posted nothing to substantiate any of his claims. While I know that some companies engage in the kind of activities described by Hogan, it also strikes me that if claims cannot be backed up with proof then they are merely hearsay in the eyes of the Court.

Affiliate Dirty Laundry

While affiliate fraud has been getting increased attention within our industry lately, I am aware that bad behavior isn’t limited just to affiliates. Over the years, I’ve seen questionable tactics and activity coming from networks, affiliate managers, and outsourced program managers. Greed is an equal opportunity corruptor.

Cookie stuffing has been a dirty side of our industry for years and continues to be present today. Indeed there are still numerous posts on Digital Point Solutions forum promoting ebooks and scripts for cookie stuffing (screens shots available).

There is plenty of “dirty laundry” to go around in the business. This includes managers who encourage affiliates to break a programs’ TOS. I know firsthand of such incidents. It is an unseemly side of the business that unfortunately happens. It appears that if either of the cases against Hogan goes to trial, the dirty laundry of affiliate marketing may be paraded across the courtroom, and not just as it relates to cookie stuffing. I wonder what impression of our industry this will leave on jury members.

We Have Choices

When I step back from Hogan’s post and put aside the sensational elements, a few things strike me. First, Hogan admits to engaging in cookie stuffing tactics, albeit with the alleged blessing of eBay. Second, he admits to using Digit Point Solutions tools (the Ad Network and Geo Visitors) to implement some of his tactics. These were tools installed on others’ web sites, undoubtedly with some degree of trust that they weren’t being used by the provider to engage in questionable affiliate tactics.

Hogan further admits knowing these tactics were against eBay’s TOS. His justification for engaging in the tactics seems to be eBay’s condoning and encouragement of the tactics.

We all have choices in our business dealings. No one could force Hogan to remain in the eBay program. No one could force him to engage in activities he knew to be in violation of their TOS (and indeed CJ’s TOS, although he never mentions CJ at all in his post). Even if any part of Hogan’s claims regarding eBay’s conduct is proven to be true, I do not subscribe to a “two wrongs make a right” mentality. And, frankly, neither does our legal system. Any wrongdoing on eBay’s part in no way justifies knowingly engaging in wrongdoing by Digital Point Solutions.

Regardless of what a representative of a merchant or network may tell an affiliate privately, affiliates should keep in mind that there may be someone further up the company food chain who disagrees. Ultimately, Terms of Service are legally binding documents between an affiliate and the merchant/network. It is prudent to abide by those TOS. If you choose not to follow those terms your are legally bound by, it can land you in court, regardless of how honorable or not others around you have behaved.

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The defendants in the following cases are considered innocent until proven guilty in a court of law. Additionally, the general schemes alleged in the cases are practices I have personally observed of numerous affiliates over the years.

Background

On August 28, 2008, eBay filed a civil suit against Shawn Hogan, Brian Dunning and Todd Dunning, along with their respective company entities Digital Point Solutions, Kessler’s Flying Circus, Thunderwood Holdings and BrianDunning.com. The suit alleges numerous actions including fraud, racketeering activity under RICO (Racketeer Influenced and Corrupt Organizations), wire fraud and unauthorized access of eBay’s servers. See full complaint (pdf).

The short version is that eBay alleges that the affiliates named engaged in “cookie stuffing”, specifically generating hidden forced clicks of their Ebay affiliate links. Hidden forced clicks are when an affiliate link is invoked without a physical click by the end user. Various forms of technology and/or coding are used so that the merchant’s site is not actually seen by the end user. The alleged activities in question occurred between 2003 and mid 2007.  eBay claims measures were taken to hide the activity and that the defendants denied any wrong doing when questioned by CJ, which at the time was still running  eBay’s program, regarding suspicious traffic.

While this case should be of significant interest to affiliates, networks and merchants, it is a civil matter. Currently the case is unresolved with the outcome pending before the courts.

Criminal Charges Filed

On June 24, 2010, two separate indictments were handed down by a grand jury in California against Shawn Hogan (pdf) and Brian Dunning (pdf) following an FBI investigation by the Cyber Crimes Department.. The indictments charge Hogan and Dunning with wire fraud and criminal forfeiture. Hogan was charged with ten counts of wire fraud and Dunning with five counts of wire fraud.

On July 22, 2010, Hogan and Dunning appeared before the court. Both were released under a $100,000 property bond and surrendering their passports. Both Hogan and Dunning entered not guilty pleas. Hogan’s next court date is September 9, 2010 and Dunning’s is August 19, 2010.

According to court documents, the maximum penalty in both cases is:

• Imprisonment of 20 years
• Maximum fine of $250,000 or twice the gross gain/loss (whichever is greater)
• 3 years of supervised release
• $100 special assessment (per count)

The indictments parallel the eBay civil suit, accusing the affiliates of engaging in hidden forced clicks within the eBay affiliate program.

For years cookie stuffing techniques have been discussed and debated in the affiliate marketing world. I’ve seen a rather casual attitude taken by some regarding the practice. I’ve seen long debates about what constitutes a physical click by the end user. I’ve seen black hat techniques for cookie stuffing and hiding the behavior discussed publicly. For me, one striking point with the indictments is that the FBI and a grand jury were evidently able to grasp technical aspects of affiliate marketing and tracking, and ultimately arrived at the conclusion that the tactics were criminal in nature.

Indictment Specifics

Several interesting specifics were outlined in both of the indictments:

• Between 2006 and June 2007, Shawn Hogan (Digital Point Solutions) earned approximately $15.5 million in commissions from eBay. Hogan was eBay’s number one affiliate.
• Between 2006 and June 2007, Dunning (Kessler’s Flying Circus) earned approximately $5.3 million in commissions from eBay. Dunning was eBay’s number two affiliate.
• Hogan and Dunning are accused of generating hidden forced clicks on both their own web sites as well as sites not connected with the defendants in order to increase the number of computers storing the eBay affiliate tracking cookie.
• The legal criteria for wire fraud was established not on money (commissions) being transferred over the wires, but because of transmission of the tracking cookie between states and internationally.
• The affiliates attempted to hide the activity from eBay and CJ by not engaging in the cookie stuffing on computers located in San Jose (eBay headquarters) or Santa Barbara (CJ’s headquarters). This is geo-targeting and is readily known to be used by affiliates engaging in questionable activity. Of course, not all geo-targeting activity in nefarious.
• Both Hogan (2005) and Dunning (2006) denied any cookie stuffing behavior when questioned by CJ.
• Each individual wire fraud account is related to a particular incident on an IP address outside California (location of eBay servers) where an affiliate cookie for the defendants was set.

Implications

Hogan and Dunning face serious repercussions if found guilty of the charges handed down by the grand jury. This is in addition to a pending civil suit which potentially carries stiff penalties of its own.

Regardless of the innocence or guilt of Hogan and Dunning, the fact that the U.S. Attorney deems cookie stuffing criminal should be a wake-up call for our industry.

As Linda Buquet stated when she first talked about the case, “For the blackhatters out there that say, ‘cookie stuffing isn’t illegal and all is fair in love and affiliate marketing’ – I say you better take a very close look at this case!”

The behavior outlined by the indictment is behavior, with some minor technical variation, I witnessed only yesterday by some affiliates. Nor is it difficult to find resources on how to engage in these types of activities, whether through web pages, adware, widgets, email or any other vehicle. Maybe now that the practice has been deemed illegal, the higher stakes will deter potential abusers.

Affiliates Indicted For Cookie Stuffing

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Last week, Missy Ward, co-founder of Affiliate Summit, reignited the age-old discussion about what we call our industry. Is it affiliate marketing or performance marketing? Are we affiliates or publishers? Are they merchants or advertisers? Either you think this is important or you are thinking What?! Who cares?!? Still I think the topic is worth a few minutes of your reading time.

What’s in a name?

In years past, I didn’t want to be called an affiliate for two reasons. I don’t really care much about one reason anymore. That one is that there are so many people who give Affiliate Marketing a bad name. There are bad actors everywhere. We’ve come a long way to marginalize these guys… yes, but we still have a long way to go. Either we clean it up or someone else will do it for us.

The more important issue then, and HUGELY important today has to do with what the term affiliate means and how it is being used against us. I am not an affiliate because affiliate links are just one way that we monetize our sites. Why focus on that reason? Of course, the last time I brought this up, Shawn Collins, co-founder of Affiliate Summit, expanded Affiliate Marketing to include just about everything that we could include for monetization. I don’t think that AdSense is an affiliate program but Shawn does (or at least did). I don’t think that we’ll ever agree and entering into a cyclical argument is pointless.

Enter the California State Legislature… and many other states as well

When we went to Sacramento to lobby against AB178 (aka the Advertising Tax) we were told by our advisers not to focus on monetization types or compensation. It seems that to create nexus under the Advertising Tax, an affiliate needs to be compensated on a percentage of sales basis (aka cost per acquisition or CPA). So if we have a link on Cashbaq to a product being sold at Overstock and Overstock pays us a percentage of sales for that product, Overstock would have nexus in California and would be required to collect California sales tax if the Advertising Tax were to pass.

If you drive two three miles down the road to Shopzilla, you would see their nice offices. They too are located in the city of Los Angeles, but they won’t create nexus for Overstock with a link to that same product at Overstock for the same price. Why? Because a link to that same product at the same store for the same price would be compensated on a Cost Per Click (CPC) basis. Shopzilla isn’t an affiliate because of the way it gets paid. That’s advertising.

Are you following this? Neither are our state legislators, such nuances are beyond them. While there is no logic to the taxation we can follow the consequences of such actions to their logical conclusion.

The Logical Conclusion

Ultimately, I don’t care what as an industry we are called. Legislators will define us in their own terms regardless of whether we call ourselves performance marketers or affiliates. The threats to our industry are more important than a debate about what shingle we hang out. Should the Advertising Tax pass and become law in California, many Web-only stores will terminate their relationships with their affiliates. Pure and simple.

The largest ones will be able to switch to a CPC compensation and keep their relationships with their advertisers (Note that loyalty sites will have great difficulty under this scenario and will have to have fewer stores, move out of state or shut down). That means smaller companies will bear the brunt of the burden of such a tax. Many will be forced to shut their doors. Of course, the irony is that small business are generally the ones that lead the economies out of recessions; and California is so heavily tech dependent.

A Personal Note on Dinner

Oh and Missy, dinner is at 7:00. Don’t be late!

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You probably haven’t heard about my state’s referendum on the Advertising Tax. It’s not a ballot proposition. It’s the gubernatorial election.

Politics are complex. Many readers will bristle at my boiling down California’s election between Democrat Jerry Brown and Republican Meg Whitman to a single issue.

[To set aside all other issues I'll just say that politics in the United States today (and California for sure) are not working they way they should. Personally, I don't want to see the State Legislature and the governor's mansion controlled by a single party. Neither has shown the responsibility in governing to deserve it.]

AB178 / AB2078 / etc…

The Advertising Tax began in California as AB178 a couple of years ago. It was co-sponsored by Assm. Charles Calderon, a Sacramento veteran who has many years of fighting for good causes and effecting change, and new-comer Assm. Nancy Skinner. Unfortunately, they were sold a bad bill by a lobbyist for many of the trade unions. What do the trade unions know about online sales? Just the false promise of increased sales tax revenue.

No one bothered to evaluate the negative effect the legislation would have on California’s small businesses such as mine. AB178 couldn’t make it out of the Revenue and Tax sub-committee and was snuck into the State’s budget in a trailer bill at the eleventh hour. Governor Schwarzenegger vetoed it and made a strong statement about it after Overstock terminated 100% of its California affiliates. We were reinstated into the program the next day.

The State Legislature is consider both New York and Colorado versions of the bill. There is a coalition of large and small businesses fighting these bills. We’ll see what happens with it.

The Advertising Tax, Jerry Brown and Meg Whitman

I haven’t seen any statements from either candidate about the Advertising Tax so you might be wondering why I boil the election down to this one issue. Simply put, if Jerry Brown wins, I predict that the Legislature will pass the most encompassing version of this bill in the first 90 days of its session and Governor Brown will sign it. It will be hailed as significant legislation to generate revenue and level the playing field for brick-and-mortar and online stores. The next day California’s affiliates will see significant portions of their revenues disappear as stores that do not have nexus in California terminate their California affiliates (Amazon and Overstock probably will do so prior to the legislation taking effect).

Other stores might decide to go the route of Drs. Foster and Smith and simply close down their affiliate programs in total.

In the end, there will be few stores that start to collect sales tax from California residents and the State will see its income tax revenue decline as affiliate move out of state, sell to out-of-state companies, go bankrupt or simply just have their revenues decrease. I don’t see this as a good solution for California… and I think that Meg Whitman will veto every version of the bill, not to help eBay which is opposed to the legislation but because she understands the harm the bill will do to California’s tech industry and that it won’t help the State or brick-and-mortar stores.

I’m voting against the Advertising Tax!

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So Facebook is no stranger to privacy criticism. But between trying to become the default social web and Mark Zuckerberg declaring the end of privacy, the social network is coming under more fire than ever. In fact, accusing Facebook of being drunk on dreams of world domination, Wired’s own Ryan Singel recently put out a call for an open alternative.

But the pitiful reality is that Facebook isn’t evil (well, at least not categorically). They’re behaving just as “responsibly” as we’d expect any private enterprise to: they’re trying their darndest to establish a monopoly in their marketplace.

It just so happens that they’re in the business of trading/selling our data. But there’s nothing forcing us to give it to them, so we should stop sniveling about consequences of our own reckless whims and accept that there’s no such thing as a free lunch.

Freedoms, Privacy, and the Media

If you live in a Western liberal-democracy, then you enjoy a whole bunch of rights that are protected under the law. And chances are that those rights include some degree of privacy, and freedom of speech and freedom of expression, and so on. But even though they’re protected under the law, those rights and freedoms have their limits.

Take your privacy rights, for example. Once you leave the privacy of our own home, so many of them go out the window.

For instance, once you’re in a public space, a journalist can snaps photos and shoot stock footage of you without your permission because (1) you’re in a public space, and (2) they have freedoms of the press that allow them to document the world around them. Similarly, if you enter onto private property, such as a shopping mall, it is perfectly legal for you to be subject to CCTV or other surveillance systems.

So when you’re not in the privacy of your own home, your privacy rights are limited.

And take freedom of speech and freedom of expression. In a liberal-democracy, we all have the right to express ourselves. But that doesn’t entitle us to access to broadcast media.

We are all entitled to share our thoughts with our friends, family, and colleagues. But if we want to broadcast those thoughts in print or over the airways, we need to raise the financing ourselves – just like any other private media enterprise.

The point is that the rights and freedoms that we have as private individuals are limited to the privacy of our individuality. Once we leave the confines of our homes or try to exercise those rights on a wide scale basis, they are seriously limited.

No Free Lunch: Facebook & Privacy

Coming back to Facebook, there are three reasons why we shouldn’t expect complete and utter privacy protections: (1) the Facebook community is a privately owned space beyond the confines of our own home; (2) Facebook is a media platform that we are not entitled to under the law; and (3) Facebook is a service provided by a private enterprise that has to turn a profit.

First, Facebook does not belong to any of us. It belongs to shareholders. And those shareholders can dictate any terms of entry they like. In this case, accessing Facebook requires that we share personal data. If we don’t want to share that data, then we just have to forego using Facebook. That is all.

Second, social networks are just another wide scale media, like television or newspapers. Although they facilitate our freedoms of expression, speech, and assembly, they are not integral to them.

There are still plenty of other ways for us to interact with other people; they’re just not as convenient. So if Facebook wants to make relinquishing our privacy a condition of accessing their platform, they are entitled to do so.

Finally, Facebook’s is a profit driven enterprise whose revenue model is based on user date. The only reason they can offer their service free of charge is because they can aggregate their users’ data and use it to offer marketing services. If their default was privacy, their business model would collapse, and there’d be no more Facebook.

The Face of Privacy

In the article calling for a open alternative to Facebook, Ryan Singel pointed out how Facebook’s popularity has demonstrated that “We want easier ways to share photos, links and short updates with friends, family, co-workers and even, sometimes, the world.” The only problem is that we are not willing to pay for it.

Facebook is one of those services that hit critical mass because it is free to use. Had there ever been any cost barriers to registering with the site, it would’ve never taken off the way it had.

The catch is that there is no such thing as a free lunch. As with every free online service, we must expect that there are strings attached to our using them. So, just as we have certain privacy rights under the law, we must also waive those rights when we want to enjoy someone else’s private property.

That being said, it seems that if most Facebook users were given the choice, Facebook would have to be a bit more prudent with their personal data. Of course, the only way that Facebook users could be offered the choice would be through an alternative to Facebook.

The question that remains is twofold: (1) is user disenchantment sufficient to justify a viable competitor to Facebook? And (2) how could such a competitor foot the costs of development if they weren’t selling their users’ data?

The likely answer to both questions is “no.” Rather, what we can probably expect to see is Facebook to continuing to probe the privacy limits of its users until they strike that happy balance between lip-service privacy protection and record profits.

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Editor’s Note: With the number of states considering the so-called Amazon tax or some similar tax growing it’s nearly impossible to keep up with all the iterations of the issue.  Traditional affiliate marketing is not the only advertising channel at risk. Peter Figueredo, CEO of NETexponent, posted an excellent blog on their corporate site (reprinted with his permission) posing the question can any network with CPA model afford not to get involved in shaping the outcome of this issue?

Ever since the “affiliate tax” issue appeared I have been wondering how each state will determine nexus. I mean, where do you draw the line? We already know that affiliates clearly constitute nexus because they are viewed as sales commissioned partners of an advertiser. If an affiliate is based in a state that has passed the affiliate tax law then advertisers working with that affiliate must collect sales tax. I get that. This post is not here to debate the pros/cons of the affiliate tax. I am trying to determine where you draw the line.

Lets take CPA ad networks for example. They pay their publishers (or affiliates) a bounty or revenue share for sales they generate to advertiser websites. Yet nobody mentions CPA ad network publishers when they discuss this tax.

What about Google? They now act as an affiliate for many advertisers who run their affiliate program

through the Google Affiliate Network. Google places product ads in search results and gets paid a bounty or revenue share for those sales. Google has offices in NY and many other cities so should working with Google constitute nexus for advertisers?

How about companies like Skimlinks and VigLink? They both work as a master affiliate and allow other affiliates to promote advertisers through their links. The advertiser pays the network like Commission Junction or LinkShare. The network pays VigLink and Skimlinks. They in turn pay affiliates. Some of those affiliates may be in states who have passed the affiliate tax. What happens then? Clearly companies like these think there is no danger to the advertiser. In fact, Vig Link is even promoting the fact that they will shield affiliates who reside in states who have an affiliate tax. Many advertisers are choosing to sever relationships with affiliates in states that have affiliate tax because they do not want to collect sales tax in those states. VigLink negates that decision by advertisers because it works with many affiliates who are in states that have an affiliate tax…yet an advertiser may never know. Could this hurt the advertiser? I don’t mean to pick on VigLink but they are the only site I have found to clearly advertise this practice as a benefit of working with them.

Where do you draw the line? What about CPC deals, aren’t they performance based?

Our agency has been monitoring this situation diligently and we continue to advise our clients to the best of our ability. However, many questions remain unanswered.

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Editor’s Note: Connecticut is quickly going down the destructive path of passing an anti-affiliate Amazon Tax with the passage of SB 5481 by the Joint Finance Committee with a vote of 35-13. Usually we don’t reprint articles from other sites but the following piece was so well written by Affiliate Marketing Legend Pinnacle Award winner Scott Jangro that it sums up the experience perfectly and explains why it is so important for Connecticut affiliates to rally. For more pictures of the experience visit the AffBook blog.

Hartford CT is just 90 short minutes from my house, so I went down there yesterday to support a handful of Connecticut-based affiliates who were also heading over in an effort to put a stop to SB 5481, CT’s version of the advertising tax.

To the uninitiated, this seems like a pretty intimidating thing, to head to a state capital and face state representatives. But it really couldn’t be farther from the truth.

Here’s what it’s like. We hang out in the lobby and hallways outside of the meeting rooms.

The place is swarming with lobbyists. They are there all day long pulling legislators aside and talking to them about the issues. There were at least three lobbyists there working on this issue with us. They made every introduction.

We were among the only non-lobbyist and non-government individuals in the whole place. You don’t think that makes an impact? Think again.

Here’s the crew, with me way in the background as I should be in Connecticut (I’m from Massachusetts). The folks with me are the heroes who are stepping up on behalf of the thousands of affiliates in Connecticut.

In this picture are affiliate marketers (L to R) are John Napoletano, Vincent Villano, Kevin Mardorf and his GF Jennifer, Tom Caporaso, and Scott Jangro (yours truly).

Are You From Connecticut?

If you are an affiliate from Connecticut, your livelihood is at risk. There is something you can do about it immediately.

First, make a call or send an email and get involved. They need a stack of printed emails to wave around.

The bill has passed the finance committee with votes along party lines. This spells trouble as the House and Senate are both majority Democrats and will keep pushing this through barring any reason to do otherwise. You are the reason to do otherwise, so call and send letters and emails. They do make a huge difference.

Here’s a list of the CT Finance Committee members. Just tell them about yourself, where you live, that you oppose the bill, and that you are concerned that your job is in jeopardy because advertisers and merchants will terminate their relationship with you rather than collect sales tax from CT residents.

Second, keep an eye out for the next time folks are gathering at the capitol. The best way to do this is to get yourself onto the Performance Marketing Association email list as a CT affiliate.

I promise you, it is nothing but fun and rewarding. It’s like an affiliate marketing meet up with an occasional discussion with state reps.

Save your own ass by getting off it!

Thank you to Scott Jangro for letting us republish this article. Here at ReveNews we feel that the key to fighting such poorly thought out legislation is to be proactive in any state it occurs.

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