How Web Advertisers Can Avoid Being Ripped Off

Last Updated Mar 31, 2008 5:45 PM EDT

A question for Web advertisers: Do you get what you pay for?

If you answered yes, you might be a little hasty in that opinion, especially if you use an online affiliate program to generate sales. You may be paying referral fees for business you would have gotten anyway.

Affiliate programs, most of which are honest operations, promise to send buyers your way, and you only pay them a commission if a sale is actually made. These types of marketing programs are replacing the old "pay-per-click" model that was particularly susceptible to fraud when Uncle Joe and his clan helped you beef up your commission with an afternoon family clickfest

Trading Places But how can advertisers be duped if they fork over a commission only when a sale is made? A new Harvard Business School research paper by professor Ben Edelman explains the deception, which essentially involves the affiliate taking credit for a sale that would have likely occurred without intervention.

Example: You are on the Dell site, browsing for a portable. A pop-up ad appears for a Dell laptop, and you click through and eventually make the purchase. But it just so happens the affiliate -- not Dell -- popped up the ad on your computer, and he gets the referral commission. To Dell, it looks like the affiliate delivered the customer and should be paid, when in fact the customer was already on the Dell site and was hijacked then returned.

Seem far-fetched as a money-making scheme? As Edelman puts it, it only takes a few scores for the con to start pumping out good coin:

The affiliate probably has to make hundreds or even thousands of people load the site in order to find one user who was going to buy a Dell within the next seven days. But when they find that user, the fraudsters really hit the jackpot.
Namely, 2 percent of the Dell purchase price.

Pay Later Prevention Here's what advertisers can do about it: Take your sweet time paying the commission.

Standard settlements are due in 30 days. But Edelman suggests changing the term to Net 60 or even Net 120 and pay a bonus as incentive. Good network affiliates are likely to go along, but crooked operators will be scared off understanding there will be more time to uncover their deception. What you save in fraud will pay for the bonus and then some.

"So just by paying more slowly," Edelman says, "it seems to be possible to reduce the number of bad affiliates and thereby reduce waste and increase profit."

How has Web advertising worked for your business? Do you feel sometimes you aren't getting all you paid for?

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.