How are networks going bust?

matty281k · Jul 19, 2010

Can anyone give a little more insight on how the networks are going bust? with DGM going into administration this is very interesting.

If sales are being made by the affiliate and the networks are taking a slice, where are they loosing money?

I know they have general bills which every company has such as tax, office space, water, electric, phone, broadband, staff wages, office supplies etc.

This might seem like a dumb question but i really dont know

fresh79 · Jul 19, 2010

Its a good question & one that i dont know the answer to, but i would imagine cashflow is a big factor as many networks work on a 90 day period.
one low month will have a knock on affect?

Lucky Luke · Jul 19, 2010

Too large a fixed overhead for the gross profit they retain on the sales (net of cancelled sales).

What is the overhead? Well, there must be lots of account management (ie, staff) to win the business from the merchants, lots of techies writing and fixing code (ie, more staff), lots of accounts staff sorting out account problems, cancellations, payment queries, etc (so more staff), an HR department (yet more staff), general admin and property stuff (yeah, you get it...)

And all the time they are having to take a smaller slice of the pie as commissions shrink in the online world and other networks cuts each others' throats to win the business.

And then the big merchants dump the networks and go direct.

Ouch.

I doubt if DGM will be the last to go bust.

Luke

doodlebug · Jul 19, 2010

I hope AWIN sticks around

mat · Jul 19, 2010

I would guess AWin will be fine! Obviously whats happened to DGM is a warning for the rest to shape up or it could be them next!

fresh79 · Jul 19, 2010

Any views on webgains sticking around?

Edwin · Jul 20, 2010

What happens is that (unfortunately) the merchant's money is typically not ring-fenced. In other words, it goes into a big "bucket" at the network end, and they then spend it on salaries, rent, advertising etc. as well as on paying affiliates. That works if everything's going well, but when the network runs short of money it starts eating into the cash ultimately destined to be paid out to affiliates.

That probably works for a little while as there's always still money coming in, but it is unsustainable.

fraser · Jul 20, 2010

fresh79 said:
Any views on webgains sticking around?

Webgains are part of a larger European group http://www.adpepper.com/ so I would say they are more secure and I've seen or heard nothing that would make me doubt Webgains.

herogrig · Jul 20, 2010

fresh79 said:
Any views on webgains sticking around?

I assure you that Webgains UK has no financial problems whatsoever and we are here to stay. It's also worth noting that WG UK is profitable and has been for many months now, whilst maintaining a very healthy 20% y-o-y growth, and our parent company adpepper media has 20m euros in cash reserves. The APM H1 results have been announced, if you want to have a look: http://www.adpepper.com/public-rela...the-financial-year-2010/9eb961ad06/?tx_ttnews[backPid]=2938

Events such as this one are most saddening and affiliates should rightfully scrutinise the networks, agencies and merchants they work with for their financial stability and make decisions accordingly.

You can contact me directly for any questions on the Webgains network at hero[at]webgains.com

Many thanks
Hero Grigoraki
Client Services Director

jasman · Jul 20, 2010

Sometimes companies go bust even when they are making a profit because they have taken out a large bank loan or overdraft and in the small print the bank reserves the right to call in the loan in full immediately at any time. I suspect this happened to Woolworths because they went bust right after Christmas, their most profitable and highest cach-flow quarter, when they would have taken in around 40% of annual sales. Always read the small print, and avoid bank loans if you can!

Some of the largest banks used this ploy in the Great Depression to bankrupt farms right across the USA, thereby seizing huge portions of land for pennies on the pound.

The owners of the Federal Reserve used the same ploy to collapse thousands of smaller banks across the US and acquire them, increasing their holdings. And if you look at what happened a couple of years ago, you will see that the largest banks again used the "bail-out" money, not to relend and free up liquidity which it was intended for, but to buy out their competitors at a time when their share prices had collapsed to around 10% of their former value. Pennies on the pound.

fresh79 · Jul 20, 2010

herogrig said:
I assure you that Webgains UK has no financial problems whatsoever and we are here to stay. It's also worth noting that WG UK is profitable and has been for many months now, whilst maintaining a very healthy 20% y-o-y growth, and our parent company adpepper media has 20m euros in cash reserves. The APM H1 results have been announced, if you want to have a look: http://www.adpepper.com/public-rela...the-financial-year-2010/9eb961ad06/?tx_ttnews[backPid]=2938

Events such as this one are most saddening and affiliates should rightfully scrutinise the networks, agencies and merchants they work with for their financial stability and make decisions accordingly.

You can contact me directly for any questions on the Webgains network at hero[at]webgains.com

Many thanks
Hero Grigoraki
Client Services Director

Thanks Hero
Its good of you to come on here and assure people.
It shows Webgains are on the ball about reputation and public opinions.

julian · Jul 20, 2010

look at the average crappy merchants that aff networks like affiliatefuture, DGM, paidonresults, webgains, tradedoubler are raping.

Not only are the merchants crap in these programs and not even worth the bother promoting but the interface, tracking and affiliate tools they provide you with are shocking.

- i'd say buy.at, AWIN and CJ are bit better but still loads of tat.

You've basically got pre-failed online business joining these networks sold a dream under the misaprhension they will be able to break into a highly cometitive market with their trustly little WP blog and limited shopping cart range etc (no disprect to wp), who then take them for good money for however long they last (normally around a year its seems).

You can see the big players leaving and joining across networks. the whole aff marketing thing will end in few years just a few players in it.

Price comparison sites 3 years left max.

fraser · Jul 20, 2010

julian said:
look at the average crappy merchants that aff networks like affiliatefuture, DGM, paidonresults, webgains, tradedoubler are raping.

Not only are the merchants crap in these programs and not even worth the bother promoting but the interface, tracking and affiliate tools they provide you with are shocking.

Personally I think it's a mistake to group all those companies together and working with most of them I'd agree about interface, tools etc on some and strongly disagree on others.

For example Paid on Results: interface, tracking and tools are about as good as it gets and certainly better than CJ or buy.at

Quite a lot of difference in that list.

julian · Jul 21, 2010

ok I grant you Paidonresults interface is a bit better - but ever heard the term 'polishing shit'?

Look at the merchant trash that joins - not a chance i'm gunna stick a 468x60 anywhere advertising those sites, even if I did the chance of getting a conversion OMFG

- I just wondered? - Who the hell is wasting their time advertising this crock of shite?

fraser said:
Personally I think it's a mistake to group all those companies together and working with most of them I'd agree about interface, tools etc on some and strongly disagree on others.

For example Paid on Results: interface, tracking and tools are about as good as it gets and certainly better than CJ or buy.at

Quite a lot of difference in that list.

fraser · Jul 21, 2010

It's just the nature of the business for any of the networks. They get approached by people wanting an affiliate program so that's the business they are in. Obviously there are poor programs on all the networks but there are gems on them all too.

Supercod · Jul 21, 2010

Lots of interesting comments. I can understand the panic because let’s face it when someone runs around telling the world how great they are and sponsoring “big” events you think,” feck, how did that happen to them?” I simply don’t know what happened in this case, but I can clear things up a little from the Paid On Results point of view.

I am a co-founder of Paid On Results and currently a director as well as shareholder in the business.

We have no debts, are cash rich, have no loans or overdrafts and we spend within our means. Now this sadly means that we can’t sponsor every event, or send our directors on jollies to Las Vegas in the name of “work”. Seriously, I am gutted about that one ;-)

As far as I know, we are the only Affiliate Network in the world that “Pays On Request”. Effectively this means you raise as many invoices with Paid On Results as you like during the month and all are paid within 7 days max of being submitted. Now for this to apply you need to have a UK based bank account and accept BACS payment. Otherwise its monthly payments for Cheques and PayPal .

How we work with the majority of our Merchants is on a vastly different basis from most of the other Networks. Merchants pay a small monthly fee and 99% of them pay commission in advance. This is kept in a separate account and as sales are validated our override becomes available to us at the same time commission is available to Affiliates. It’s totally in our interest to get Merchants to validate quickly and to keep paying their invoices in advance of running out of funds. If a Merchant runs out of funds Affiliates on the program are warned, we cover the commission up to the point we alerted the Affiliates of the problem. If a Merchant will only work with us on an invoice basis we look very hard at them to see if they are worth the punt but everyone is told up front if that Merchant is not working in funds, as it simply becomes a risk for everyone involved. If you know in advance you can avoid the risk.

Merchants have to pay to be on a Network or be profitable for the Network, so if you think a Merchant is “crap” then that’s your opinion, but keep in mind, some niche Affiliate is probably making a mint off the back of a little gem of a domain they have and some good SEO skills that the Merchant simply doesn’t understand. Merchants make a lot of money from Affiliate Marketing, even the “crap” ones but believe me, you have not seen crap. We get around 5 Merchants asking to join a day at Paid On Results, most get a polite thanks but no thanks. I am sure I have let the odd Beatles or Take That pass by, oh well ;-)

So I’ll sum up by saying i-level was a huge Agency that went down the tubes, big or small it can happen to anyone, so use your best judgement and hopefully you now understand how important it is not to keep your eggs all in one basket. Spread your risk so that when a company falls you think, “crap, lost a couple of grand and not, crap, my business is following them down the crappier as I was to pig ignorant of using multiple networks” ;-)

Best Wishes,

Clarke Duncan,
Paid On Results Ltd.
http://www.paidonresults.com/

On Twitter follow the company @PaidOnResults or follow me @ClarkeDuncan I am funnier, honest!

julian · Jul 21, 2010

interesting.. so if your doing so well why haven't you got a single decent household name merchant - the only one you did have La Senza left.

I mean don't get me wrong I think what your doing is great but if your rejecting 5 merchants a day for quality then how did 99% of the current fodder get in?

Supercod said:
Lots of interesting comments. I can understand the panic because let’s face it when someone runs around telling the world how great they are and sponsoring “big” events you think,” feck, how did that happen to them?” I simply don’t know what happened in this case, but I can clear things up a little from the Paid On Results point of view.

I am a co-founder of Paid On Results and currently a director as well as shareholder in the business.

We have no debts, are cash rich, have no loans or overdrafts and we spend within our means. Now this sadly means that we can’t sponsor every event, or send our directors on jollies to Las Vegas in the name of “work”. Seriously, I am gutted about that one ;-)

As far as I know, we are the only Affiliate Network in the world that “Pays On Request”. Effectively this means you raise as many invoices with Paid On Results as you like during the month and all are paid within 7 days max of being submitted. Now for this to apply you need to have a UK based bank account and accept BACS payment. Otherwise its monthly payments for Cheques and PayPal .

How we work with the majority of our Merchants is on a vastly different basis from most of the other Networks. Merchants pay a small monthly fee and 99% of them pay commission in advance. This is kept in a separate account and as sales are validated our override becomes available to us at the same time commission is available to Affiliates. It’s totally in our interest to get Merchants to validate quickly and to keep paying their invoices in advance of running out of funds. If a Merchant runs out of funds Affiliates on the program are warned, we cover the commission up to the point we alerted the Affiliates of the problem. If a Merchant will only work with us on an invoice basis we look very hard at them to see if they are worth the punt but everyone is told up front if that Merchant is not working in funds, as it simply becomes a risk for everyone involved. If you know in advance you can avoid the risk.

Merchants have to pay to be on a Network or be profitable for the Network, so if you think a Merchant is “crap” then that’s your opinion, but keep in mind, some niche Affiliate is probably making a mint off the back of a little gem of a domain they have and some good SEO skills that the Merchant simply doesn’t understand. Merchants make a lot of money from Affiliate Marketing, even the “crap” ones but believe me, you have not seen crap. We get around 5 Merchants asking to join a day at Paid On Results, most get a polite thanks but no thanks. I am sure I have let the odd Beatles or Take That pass by, oh well ;-)

So I’ll sum up by saying i-level was a huge Agency that went down the tubes, big or small it can happen to anyone, so use your best judgement and hopefully you now understand how important it is not to keep your eggs all in one basket. Spread your risk so that when a company falls you think, “crap, lost a couple of grand and not, crap, my business is following them down the crappier as I was to pig ignorant of using multiple networks” ;-)

Best Wishes,

Clarke Duncan,
Paid On Results Ltd.
http://www.paidonresults.com/

On Twitter follow the company @PaidOnResults or follow me @ClarkeDuncan I am funnier, honest!

Supercod · Jul 21, 2010

Yeah lots of people never heard of Warner Leisure Hotels, LoveHoney, Dobbies, Econsultancy, Daily Express, Babyworld, PrezzyBox etc ;-)

You know smart people do work in brands and some look beyond the hype and smoke and mirrors, we had ASOS for a long time, Kwik-Fit, travel companies, catalogue companies, but people come and go. Agency's that don't like you win accounts, people who work for networks get jobs at Merchants and give the work to their friends, these things happen, such is the way of the world.

So Julian you are clearly an Affiliate Marketing expert, no matter what I say and good on you, its entertainment for us all.

So one question, if brand names are the only thing that sell online, why on earth bother selling generic domain names, if people only buy from brands. Bit odd you would do that, ah!

julian · Jul 21, 2010

Well if you could read between the lines you'd realise that was the 1% of decent affiliates.

But actually imho only about 4 of those are any good anyway - and forgive my ignorance for not using the household brand 'lovehoney' buying my weekly supply of vibrators.

As for being an affiliate marketing expert, as it happens i've been in this filthy affiliate marketing game for 10 years and used all the main networks to make good income. I've sold everything from Viagra to Fishing gear, to Flower delivery and online Divorces.

I've also been a merchant for 4 of the main networks so I know it both sides inside out.

Anyway, I know it this thread hurts as your a merchant of paidonresults.. yes?

In retrospect, I think the reason why the bigger players are not with some of the smaller well managed networks like PaidOnResults is becuase of the quality of the affiliate promotion - but that is another can of worms and we already off topic..

And now your thinking wtf is this twat (me) on about.

Supercod said:
Yeah lots of people never heard of Warner Leisure Hotels, LoveHoney, Dobbies, Econsultancy, Daily Express, Babyworld, PrezzyBox etc ;-)

You know smart people do work in brands and some look beyond the hype and smoke and mirrors, we had ASOS for a long time, Kwik-Fit, travel companies, catalogue companies, but people come and go. Agency's that don't like you win accounts, people who work for networks get jobs at Merchants and give the work to their friends, these things happen, such is the way of the world.

So Julian you are clearly an Affiliate Marketing expert, no matter what I say and good on you, its entertainment for us all.

So one question, if brand names are the only thing that sell online, why on earth bother selling generic domain names, if people only buy from brands. Bit odd you would do that, ah!

khalid · Jul 21, 2010

Julian I think you have to commend Paid on Results as they're one of the smaller networks but are doing well in the midst of uncertain times in every economic environment.

Just because you don't have Argos or Tesco on your client list doesn't mean to say you're not "decent" for a better word.

I've actually made more money promoting the likes of Love Honey than I've ever done elsewhere with the exception to my previous ownership of crosstrainers.co.uk - but then again that was a big investment for me.

Having a fancy big office, an impressive client list and hundreds of staff sounds fantastic but it doesn't mean your business is a worthy contender in this game.

I actually respect Paid on Results for their honesty, they knocked back my employer's site because they explained it didn't fit their business model. They spent time exploring it and gave good feedback where as the bigger networks were happy to sign me up for a hefty joining fee - I couldn't give a rats ass who they promoted (as in big clients), the point is Paid on Results was right*and*we*have*reviewed*our*strategy to take that into consideration.

I specialise in SEO and the big fish out there, who I have employed and have the attractive client base, produced SHIT. I've even shown some reapected forum members and they were shocked.

It was a learning tool for me and simply highlights my point that big and shiny doesn't equal "amazing".

I went back to the saying "If you want a job done..." so after finishing that experiment I focused on what works, ignored what doesnt and produced results that attracted attention.

I am now frequently receiving enquiries and working as a ghost seo for bigger companies...yet you don't see Asda on my client list.

I guess in a nutshell i'm stating the obvious / my opinion without the need to read between any lines.