The Perils of Launching a Sub-Affiliate Platform

We all make product recommendations on a daily basis. A co-worker asks on Twitter where he should take his wife for dinner. The woman from Social Media Club asks which laptop case is best. Your brother wants to know which iPhone case you have. Imagine a world where you could get paid for every one of those recommendations. That’s what Danielle Morrill hopes to provide with her new startup Refer.ly.

I get excited about any potential innovation in the affiliate marketing space, so I wish Refer.ly the best of luck. That said, there are some significant challenges to creating a scalable referral platform with a potential for thousand or millions of affiliates.

Negotiating Sub-Affiliate Relationships

Refer.ly is essentially a sub-affiliate program. Refer.ly creates publisher accounts with affiliate programs. Refer.ly users sign up using Facebook Connect, enter a link in the custom link shortener, and start posting links.

On the whole, affiliate programs tend to frown on sub-affiliates. Relationship building is a big part of managing affiliates. A direct relationship makes sure there’s a touch point for handling non-compliance issues. When an primary publisher sits between the affiliate manager and the actual people doing the marketing it can be incredibly difficult for the affiliate manager to have a healthy affiliate relationship.

There are exceptions to this, like Skimlinks and Viglink. Both of those companies have talented people with a long history in affiliate marketing. And both of those companies require you to specify the sites a publisher will install the link code, which makes it far easier to vet how the links will be used.

Complying with Affiliate Terms of Service

Anyone who’s joined more than a handful of affiliate programs has run up against a terms of service violation at some point. If you’ve ever made the mistake of posting a link from one of the major affiliate networks on YouTube, you know exactly what I’m talking about. It’s bad enough if you have a small team of people working on your affiliate marketing efforts, but when you consider the possibility of thousands of Refer.ly users all posting links wherever they see fit, scaling the management of compliance becomes a nightmare.

Using short URLs certainly mitigates the issue to a degree, because the short URL can be redirected to another destination, but I have seen situations where an account is terminated because there were simply too many violating links for the affiliate manager to ignore.

Becoming a Proxy for Bad Actors

Many people get kicked out of affiliate programs for behaving badly. Sometimes they do really egregious things like cookie-stuffing, but there are many other less severe ways to get banned from an affiliate program. Affiliate managers keep a record of these people to keep them from signing up again. A service like Refer.ly is perfect for these bad actors to get a fresh start posting links and getting paid. When they behave badly, Refer.ly and all the legitimate sub-affilaites will likely suffer.

Navigating Affiliate Nexus Tax Rules

Affiliate nexus taxes, also known as the “Amazon tax,” are another affiliate program nightmare. While the recent ruling in Illinois provides some hope that affiliate nexus insanity will draw to a close, sales tax rules make the affiliate marketing space a compliance disaster. Most of the major affiliate programs, like Amazon and Overstock.com, have ceased operation in any state with an affiliate nexus tax.

If you look at the Amazon Associates Program Operating Agreement, you will see that residents of Arkansas, Colorado, Illinois, North Carolina, Rhode Island, and Connecticut are currently ineligible to participate in the program. That means Refer.ly shouldn’t allow anyone from those states to sign up for their service or they are violating Amazon’s operating agreement, not to mention the terms of service of dozens of other programs.

Did I cover it all? What other challenges does a service acting as an affiliate intermediary face?