File-Sharing Issues Reach E-Commerce

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If you think the peer-to-peer (P2P) file-sharing debate raging in the entertainment industry has nothing to do with e-commerce, guess again.

Companies that make file-sharing tools, allowing consumers to swap music and graphical images, are seeking sustainable revenue streams. Companies such as Morpheus, Limewire and Kazaa now offer shopping services. They are making a splash in e-commerce, largely through leveraging affiliate programs, a strategy where marketers pay a commission to an affiliate partner for referred sales or desired consumer actions.

So where's the problem? The tactics of some P2P players - as well as other large affiliate players distributing downloadable "shopping assistant" applications - are questionable, perhaps unethical and certainly troublesome for marketers.

The situation has forced the otherwise competitive affiliate networks to hold joint discussions for the first time. Most recently, BeFree, Performics and Commission Junction issued a joint affiliate Code of Conduct aimed at leveling the playing field and creating a fair working environment for all players.

Since generating revenue from their user base has been problematic, P2P companies increasingly are turning to affiliate programs that let them tap into e-commerce without actually becoming a seller. This is done by adding an online-shopping component to the file-swapping applications that reside on consumers' PCs. A few clicks of the mouse and financial relationships can be established between a P2P company and large multichannel retailers via their affiliate programs.

Many smaller players in the affiliate community contend that some larger affiliates are hijacking commissions that belong to others. What has been occurring is complex and extends beyond the world of file-swapping.

As consumers make their way from an affiliate's site to a marketer's site, links track referrals. Each affiliate has a unique link ID and, therefore, can earn commissions for sales being referred.

A few of the larger affiliates that distribute downloadable applications, such as P2P tools, have been accused of programming their software to inappropriately insert their affiliate link ID in place of other affiliates' IDs. This negates referrals being made by the smaller affiliate sites and awards any commissions earned to themselves.

These tactics also may create problems among consumers who use rewards shopping Web sites. Since rewards and cash-back sites use affiliate networks as their primary means to track and process rewards, it is critical that the true referring affiliate link is used for each consumer's purchase.

Some cash-back and loyalty properties have begun using downloadable applications to make shopping through their portal (clicking their affiliate link) more convenient. They have interest in making it easy for their members to earn a reward when shopping on the Web. The trouble arises when some of these digital shopping assistants have been programmed to insert or overwrite affiliate IDs in a controversial manner - similar to how some of the P2Ps have operated.

Set aside the rewards portal's headache for a moment and consider the damage to a marketer's brand when one affiliate steps on another's toes. Consider a family PC scenario where a teen-ager downloads and installs a P2P program to share music files with friends.

This P2P program has a resident shopping application that may not be evident to the user but runs constantly in the background. A parent decides to shop at a rewards portal to send cash directly into her child's college savings account. The parent surfs to the rewards portal, clicks through to shop at the merchant site, makes a purchase and logs off assuming that the purchase was tracked and recorded by the rewards portal.

However, the P2P application inserted its own link, overwriting the rewards portal's link. The parent's unique ID was not part of that link; hence, the reward is not credited to the appropriate account.

Surprisingly, marketers have played little of a role in all of this - allowing the affiliate networks to mediate on their behalf. So far, the industry's new Code of Conduct is being widely adopted by affiliates of all colors with Linkshare Corp. sticking to its original policy that has been in place since April 2002. Time will tell whether rules provided by the networks will benefit the online marketing community.


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