This is part one in a two part series examining the requirements of disclosure and compliance management on the world of affiliate marketing.

I’ve been following the talk in the blogosphere lately regarding the recent FTC ruling that people engaging in “word of mouth marketing” practices must disclose the the relationships that they are compensated to promote.

One of the first reactions to this announcement was the controversial PayPerPost who announced that they now officially require disclosure by bloggers who write posts promoting their clients that they are being compensated to do so. This definitely moves PayPerPost closer to legitimacy in the eyes of many of their critics.

But how does the FTC’s announcement about the affiliate marketing world.

Scott Karp writes that if something is not crystal clear its an ad, then it is deceptive marketing. This cuts to the point of the FTC’s announcement. The difference between an advertisement and word of mouth marketing or paid promotion is in essence whether the consumer knows that they are being marketed to. I think the gist of Scott’s argument, and the FTC announcement is that if you are marketing something you need to let the consumer know you are marketing to them, and without that disclosure it is deceptive.

So, clearly, this does have ramifications in the world of affiliate marketing. The business model for affiliate marketers is to drive traffic to advertisers and to be paid for that traffic and often that consideration is based on the consumer making an purchase. But how does affiliate marketing differ from other forms of advertising?

• When watching television at night, you don’t see a disclaimer prior to each commercial break, stating “what is about to appear on your television is intended to make you buy stuff.” The reason you don’t see that disclaimer is that consumers are savvy enough to realize they are being marketed to in that circumstance.
• When a consumer visits an affiliate marketing website, do they know that there is a financial relationship between the website and the products or services that are promoted or reviewed on that website? If you think the consumer does not, then a disclaimer is necessary.

So, assuming you agree that some sort of disclosure is necessary, what kind of disclosure should be provided? Should we include:

• Disclosure in the Terms of Service of the website
• Disclosure on every page of the website in the footer
• Disclosure next to every link that is an affiliate marketing link

The answer to this remains to be seen. Ultimately it depends on the sophistication level of consumers to understand that they are being marketed to. There are some great interpretations of the new ruling as it applies to affiliate marketing here, here, and here.

I believe that the disclosure requirement (however it eventually is applied) is a good thing for affiliate marketing. It enables affiliate marketers to engage their website visitors on the level, and it encourages affiliate marketers to add value to the conversation, which is what we advocate through siteMighty. The affiliate marketing business model works best when you add value to your users by enabling them to make the best purchase decisions. This is done in many ways, through presenting products in categories, editors reviews, user reviews, and aggregating information that may otherwise be difficult to collect on the web.

I believe most successful affiliate marketers are already doing this and the FTC disclosure requirement will be a non-issue for them as they are succeeding by providing value to their users, not deceiving them.

Part two of this series examining threats to affiliate marketing and affiliate compliance will be presented next week.

I saw this story from Time Magazine via Techmeme today. The story, titled “5 Things That Went From Buzz To Bust,” is basically an apology from the publication for getting it so wrong. As I read each item on the list, keywords would pop in my mind. Here’s the list, with the first word that came to my mind next to it:

1. SNAKES ON A PLANE, AUDIENCE DISEMBARKS - Catchy name
2. IF HE DID IT (OJ Simpson) - Controversy
3. STUDIO SCHMUDIO - A sure thing
4. TO PLAY’S THE THING (PS3) - Expensive
5. IT ALL WENT DOWNHILL SO FAST - Again, a sure thing

I think there are some lessons to be learned here that we can use in our Web 2.0 world.

Build buzz with a catchy name, but deliver

I have believed that it’s 10% what you say, 90% how you say it, so branding is very important to me. We spend a lot of time, energy and resources into branding our ideas and projects, but no matter how perfect we get the brand, none of that matters if we don’t deliver with a killer product or service. Plus, no matter how right you think you have it, you can never account for the shifting tides of the public’s demeanor. In short, your audience is fickle.

Stay nimble and open to change, have a Plan B
You never know when the world will change dramatically. You should always leave room to grow/change. In much the same way that Studio60 and Bode Miller have failed to meet expectations, it just makes sense to me that we run the risk of failing when we top load an idea with a ton of hype, release it and find its reception flat. Public relations and brand building takes some throttling. Build some buzz, but first among early adopters who can give you valuable feedback, then to a broader audience who are less willing catch what you’re pitching.

Controversy can be good, but don’t be evil

I’m glad the OJ interview got canceled, because that type of gratuitous controversy is bad for the world. But there’s a type of controversy that gets people talking and debating. Being controversial will get you feedback faster than beta testing, but be prepared to listen and make changes. No matter how far you go down the wrong path, it will always be the wrong path.

Listen to Chris, freemium works

Now, of course Sony can’t offer the PS3 for free, but for a moment, imagine if they could or were forced to. How different would the product be if people had to try it out before they made the decision to buy? Sony would probably invest a lot of time into making the product incredibly user friendly and widely adoptable. Or maybe Sony knows exactly what it’s doing, and is catering a select group of gamers.

In the Web 2.0 context, pricing is very important, and it wouldn’t matter how amazing something was if it were too expensive. The reason, I think, is because there are tons of smart people in Web 2.0 that can undercut just about anything. This is why the freemium model is so popular among Web 2.0 startups, and it really addresses why all of the things on Time’s list went bust. A freemium model:

1. Forces a catchy name (Snakes on a Plane) to deliver, or else it would come as no surprise went it fails;
2. Checks controversy because no one will support (pay for) an idea that is evil;
3. Will tell you how much of a sure thing you have by how many people convert to paying users or abandon your service;
4. Allows everyone to at least get a taste of what you’re selling without being put off by the price.

Two recent articles about Russia caught my attention as our Flatsourcing development team is based in Kazan, Russia. Last week’s Business Week featured an article on the current oil fueled economic boom in Russia by Jason Bush, Russia: How Long Can the Fun Last?. In it he points to the software industry as a showcase example of Russia can and is moving from natural resource-based economic success into knowledge-based growth.

And Russia is well ahead of most other resource-rich countries in its economic development, with a long tradition of education, science, and industry. Now, its tech companies are starting to give India’s outsourcing sector a run for the money. Software exports will top $1.5 billion this year, vs. just $128 million in 2001. “We really can compete on a global scale,” says Dmitry A. Loschinin, chief executive of Russia’s largest software developer, Luxoft.

This is really interesting to us as we continue to build our partnership with our Russian team. I have tremendous respect for their education system after traveling to Kazan last spring. I believe in that because of the strength of their education system in science and engineering disciplines that Russia is becoming a world leader in software development very quickly. And we plan to be part of that through Flatsourcing.

Speaking of Russian developers, the New York Times featured an article today by Eric Pfanner titled New To Russia: Google Struggles to Find Its Footing about Google’s struggles in competing in the Russian search engine market. My take on it is that the challenge has been issued and Google will continue to climb in market share in Russia.

The company’s difficulties in Russia probably have more to do with the complexities of the language than with politics.

“Our understanding of Russian was not as good as we wanted it to be,” said Kannan Pashupathy, head of international engineering at Google. Google revamped its Russian site last week, Mr. Pashupathy said, improving its ability to deal with Russian, a complex language in which nouns may be one of three genders and be declined in up to six cases.

This article also is great read. It’s fun for us to see this focus on technology and software development in Russia, and it is clear that our little secret won’t be such for long.

My shopping wish list is live over at Crowdstorm, the social shopping site. Philip Wilkerson launched a list of the items that various web entrepreneurs from all over the world are hoping to receive this holiday season:

The Mutado boys seemed obsessed with Zoo Animals, Rob Loch wants to fly in a Mig 29 with a girl from the Ukraine while drinking cocktails, and Walid & Sokratis look like they shot their video down some dodgy London back alley! All good fun.

For more on Crowdstorm, check our our review here. Thanks to Philip for inviting us to take part. Head on over to Crowdstorm and check out the great ideas and fun videos.

This morning, a foggy winter morning here in New Orleans, I caught a glimpse of the future, and it warmed my soul. OK, that is definitely overwrought, but as a tech geek and a music lover I experienced a convergence of technology that really was a revelation, because it was what it is going to be like in the future, and its here today.

I finally experienced… Pervasive Wireless Broadband Internet

The confluence of factors that lead to this experience were these:

• I purchased a new Cingular 8525 last week that works on the new 3G networks delivering wireless internet at broadband speeds
• At the bus stop this morning I tried out its Wi-Fi capabilities and it connected to the new Earthlink Wi-Fi network
• I browsed to KEXP.org, which recognized my browser as a PDA and served up a streaming music feed tailor made for my connection
• I sat for the 20 minute bus ride listening to uninterrupted music as my 8525 deftly switched back and forth between the Earthlink and Cingular networks as we cruised along

It’s a wonderful thing when technology works like its supposed to, when it enhances life rather than frustrates you. And this morning walking to my office from the bus stop rockin’ out to Los Halos was pure bliss.

I’ll tell you the end of the story first. “There’s a certain amount that advertisers MUST do… (they) should be looking at the data.” John Marshall, ClickTracks president, recently said this in an interview with WebProNews, and although we haven’t made much progress with our click fraud situation, I suppose it means something that we are at least looking at the data. We’re not using John’s ClickTracks, but instead Adwatcher, a company I’m still holding out hope for because they’ve promised me that their next update will help me make some progress with Google.

I wanted to talk about this interview with John. First, I met him at a Webmaster World conference here in New Orleans a couple of years ago and found him to be one of the nicest guys I’ve ever met. However, I would disagree with his analysis of click fraud. He says there are basically 2 types: childish competitors and site owner spammers.

Childish competitors are those that click on your ads until your budget runs out. Site owner spammers are those slippery agents that put up a site, redirect a ton of traffic to it, earn a bunch of money and bring it back down before the search engine can find them. John says that the first type is the rarer of the 2, implying that it’s not as much of a problem as the second, but I would disagree.

While I would agree that overall, on site content ad spamming is a massive problem, I am convinced that we are being plagued by childish competitors. John says that site owner spamming is the bigger problem because spammers will always follow the money, but I think by putting me out of business by clicking on my ad is a form of following the money.

The topic of search engines not having much of an incentive to combat click fraud came up, and John handled it like a pro. He said that it is something that search engines want to get rid of, but is realistic enough to say that “Even though it’s an unpopular theory, Marshall believes that no fully automated system will ever succeed.”

Adwatcher said that I should expect an update right after Christmas. If that doesn’t work, then maybe we’ll try ClickTracks. If that doesn’t work…

This weekend Earthlink came to town. The door hanger you see on the right was hung on my door and my wife thought the sign up price for Earthlink’s Wi-Fi looked great.

We’ve covered Earthlink’s Wi-Fi foray into New Orleans here before, but I have to say, I was really thrilled to see this on my door! They’re here, we have an alternative high speed connection to Cox and Bellsouth, and even more importantly, the company has followed through on it’s pledged commitment to New Orleans.

I’m going to be registering for Wi-Fi access and trying it out. I’ll be sharing this story with the world as an early muni Wi-Fi adopter and also (assuming all goes well) to try to make other New Orleanians aware of the service.

Before I get started, I do have some questions about how it will work.

• Is the access billed on a per-computer basis? Is there a discount for multiple computers?
• Can I reroute the Earthlink Wi-Fi through my current wireless router to let all my computers use the access?
• How is the signal around town? See the coverage map here.

There are a few answers over at Earthlink’s High Speed support page. These are helpful to get started.

So, I look for access through Windows Wireless Manager and lo and behold, its there. Full signal strength too. I double click on it, and I can’t connect. OK, maybe I better call them first for an account. After a second glance at the coverage map, I am in the “coming soon” section at my office, but my house is in the “current coverage” area. I’ll try when I get home tonight.

I’ll be chronicling the experience right here. Stay tuned for more.

There is someone on my shopping list who wants a iPod Nano. I figured this would be a great item to use to compare the proliferation of shopping engines that are out there. I have traditionally been a big Froogle user. It’s simple and straightforward but comprehensive, and I feel like I am finding the lowest prices on things I’m shopping for. But lately, there have been more merchants who are gaming the system (call it Shopping Engine Optimization). I click on the great price that they have on an item, and show up at their site only to learn that the item is now $200 more. I’m not sure if its cloaking or not, but it decreases the value of the shopping engine to me.

So, its time to put to the test all of the shopping engines out there. There’s social shopping, shopping 2.0, reverse auction shopping, and the plain old shopping meta search engines. Let’s battle it out. I’m searching for a Ipod Nano 2nd Generation 4 Gig. ($199 at the Apple Store)

• MySimon - This was my first shopping engine experience a long time ago. The service has grown and I like the recommended accessories, like armbands that they mention along with the iPod Nano. Bottom line for the iPod Nano 2nd Generation 4 Gig - $174.
• Froogle (by Google) - The websites a little overrun with stuff I’m not looking for. It doesn’t filter out just the iPods, but the bottom line price is $118, can that be right? (After research its not, its a European site, and its not actually the price for a Nano)
• Shopping.com - This is a mess. It is all accessories, I can’t even find the iPod Nano amongst all the noise. No price found.
• Shopzilla - Nice layout, it filters through the accessories, right to the products. It filters things very nicely, and i can sort now by color. It has its own reviews and helps to cal shipping. Lowest price $189.
• TheFind.com - At first it looks good, but I’m not getting any 2nd generation iPods. So I type in 4 gig and all accessories come up. I get a price of $69 and click to the website and it looks homemade. Again, someone spamming the system. Lowest real price $189.
• Jellyfish - This is the site that shares with the consumer the affiliate commission that the merchant pays to be listed. It’s a nice idea, because the lowest price I find is $185, which is $189 - the $4 rebate I get for clicking through Jellyfish.
• MyTriggers - Nice layout, not quite as clean as some of the others, but I quickly find the one I’m looking for. $189.
• Crowdstorm - I thought this was a shopping engine, but its more of a social shopping site. I love the user reviews and recommendations on the iPod. If it actually integrated a price search engine, it would be great because it has the social component down. No price.

So the winner is… Well, I think $189 is the best I’ll do. This was a little bit of an unfair test because Apple so closely manages the experience of its products. But, as far as the engine that provided the most best experience, I think JellyFish is really consumer-centric and it also is comprehensive and well laid out. So, that’s where I’ll be buying.

I’d love to hear everyone else’s experiences. Here are a few other reviews. Let me know if I skipped a great engine. Happy Holidays and good luck shopping. The great news is there’s never been a better time to be doing all your shopping online.

Beta testing is moving right along, and we sent out our first ‘Mighty Newsletter’ this week to our beta testers. I wanted to keep the beta group small in the beginning, and I have been very pleased with the feedback I’ve gotten from our group so far.

I would highly recommend beta testing because we have learned a great deal about how users interact with the system, and the varying ways they interact with it. After only a week, we have a list of issues to address. They are small things that will make all the difference when we launch to the public. Hopefully next week we will bring on another round of beta testers to make that final testing push before the end of the year.

I’m realizing that this process is not only a test of siteMighty, but of our team as well. I really like the way we are each defining our roles while at the same time keeping siteMighty moving forward.

Lessons learned so far:

• Keep engaging your beta testers. We want them to give us feedback, so make that easy for them. Remind them with a newsletter, or a friendly e-mail checking in on their experience.
• Jump on support right away. As soon as we see a support ticket come in, we immediately assess who can answer it the best and the quickest. We never want to leave the user out in the cold.
• Be honest, it’s beta. There are going to be some things that don’t work exactly how you want them to. I think your beta testers know this going into it, but don’t be afraid for things to look messy. Polishing is what beta is all about.
• Have some fun. This is an opportunity for us to get to know our users personally. I doubt when we have hundreds of users we’ll be able to speak to them all on the phone. So, for now, I am valuing the time and feedback our users are giving us.

We were asked by one of the internet shopping engines to create video Christmas wishlists this year, so we did. We thought we’d share them with our readers too, just for fun.

Here’s what Chris is hoping Santa’s bringing.

Here’s what Blake wants to find under his Christmas tree.

Merry Christmas and Happy Holidays to all our readers.