Flying Under the Radar

What Is Affiliate Fraud, and How Do Affiliate Fraudsters Make Money?

Some brands offer affiliate programs, which allow third-party Web site owners to post the brands’ links and banners on their site or to send traffic to their site directly through domain forwards; in return, the owner of the site that is hosting the link receives a commission for every click-through that results in a purchase. These affiliate programs are meant to be mutually beneficial; brands get traffic funneled to their sites and their affiliates can earn a commission by providing that service. Typically, affiliates are in violation of the brand’s agreement if they register and enroll trademark-infringing domains.

The revenue potential of affiliate programs ranges according to two factors: the traffic that the Web site receives (the quantity and its quality) and the type of affiliate program that the brand offers. Let’s consider four major models of affiliate programs and how they monetize traffic.

Some brands offer affiliate programs that pay according to the number of visitors that the affiliate directs to their site. In this case, the quantity of the traffic that the Web site receives is the only thing that matters. This is a pay-per-click model, where the number of clicks that a brand’s advertisement gets on an affiliate site translates to the number of visitors that land on the brand’s site. For this model, the volume of traffic that the affiliate site attracts is key—the more traffic that a Web site attracts, the greater the chance that an advertisement will get a high number of clicks. However, affiliates can increase those chances even more by targeting higher quality traffic. In other words, targeting traffic that is more likely to click on the particular advertisements displayed on the affiliate’s site. If the domain name contains words related to the products or services that the brand is advertising, such a domain name will attract Internet users looking for particular content and in turn may result in additional clicks to the target affiliate link. Another strategy is to increase search referred traffic to the site where the affiliate links and display ads are located by improving the content and other qualities that affect SEO scoring. This way, pages will be more favorably indexed and appear higher in search engine results.

Other affiliate programs operate on a pay-per-lead model, which provides compensation for visitors that the affiliate directs to the brand’s site only if that visitor completes some variation of a sign-up form. This form usually requests contact or demographic information but does not involve a purchase or transaction of any kind. This kind of affiliate program model requires traffic that is either particularly committed to finding specific content or is able to be enticed by curiosity or some sort of giveaway—these visitors must be invested enough to be willing to divulge personal information. Some banks, for example, will pay Internet affiliates a commission between $20 and $40 each time a referred visitor submits a credit card application. In other words, the threshold for the quality of the traffic must be higher than that of the pay-per-click model. Once again, affiliates often try to attract higher quality traffic by hosting affiliate advertisements on domain names that are closely related to the brand and/or products and services being advertised.

Finally, affiliate programs that operate on pay-per-sale (also known as pay-per-action) agreements pay a commission on each sale generated by an affiliate. This model is the lowest risk to the brand offering the affiliate program and pays out a percentage of sales to the affiliate partner who generated the lead. The commission an affiliate earns is a function of the volume of purchases made on the site. For example, some Internet retailers offer between 5% and 10% in commissions. If a retailer offers a 10% affiliate commission, that’s $10 per $100 order, the typical order size on many of the most popular Internet retailing sites. These big-ticket programs require high quality traffic, which as we have already mentioned, affiliates attempt to generate through the use of domain names that contain the brand which Internet users are seeking and typing into browsers. Rather than presenting Internet users who type these domain names into browsers with links or ads, affiliates have the domain names resolve directly to the brand site that the user is seeking out. Most Internet affiliate programs prohibit enrollees from using trademark-infringing domain names, yet many are doing just that. Today, some cybersquatters are registering domains that contain a trademark or a typographical variation of one and redirecting visitors to the very Web site that they expect to find.

The best way to understand the practice of affiliate fraud is to actually see how it works. One example is a typo of the large US cable operator “Comcast”—COMCASFT.COM—that usually redirects to a Comcast authorized retailer who pays commissions for referrals in the pay-per-action model. The site does not always resolve, possibly to evade detection. Often times, when you enter COMCASFT.COM, you will see it eventually resolves to http://www.comcastadvantage.com/index.html?PID=cj:1735985. An Internet user is rewarded with the content they expect and, unless they look to the address bar again, they will not suspect that anything is amiss. Similarly, a brand owner who is reviewing infringements and simply looking at Web site content may not object to the use when they see that the domain redirects to their own content—especially if they are not aware of affiliate fraud or do not realize the extent of the unjust expense to their company.

Figure 2³: Resolution of COMCASFT.COM

“cj: 1735985” identifies who should get paid the commission and—you guessed it—that person is the owner of COMCASFT.COM.

According to Comcast’s affiliate program terms, leads like this are worth as much as a $35 commission:

Figure 3⁴: Comcast Affiliate Program Overview

This is many times more than the 50 cents or less that cybersquatters typically receive per click on the PPC sites that we’re all familiar with.

Unlike redirecting infringing domains to a PPC site loaded with ads, this scam delivers a more fluid online experience and a completely expected result to the end user. End users are less likely to recognize this as an infringement and many will simply assume that the legitimate company has done the redirecting. Others may not even realize that a redirection has occurred.

This is one of the things that makes affiliate fraud so appealing—its ability to evade detection. Not only do Internet users fail to realize that they have happened upon an affiliate site, but in-house counsel, brand protection professionals and companies of all kinds also typically fail to detect this use since a resolution check would confirm that the name is going to the “right” content. It is assumed that because the name resolves to the correct content, the company owns the site and is using it properly. Since resolution checks leave in-house counsel and brand protection companies unaware that this site could potentially be a case of affiliate fraud, they find little need to investigate further.

To better understand the scope and implications of affiliate fraud, we took a look at one domain owner’s portfolio as a sample set. Studying the portfolio of this individual, who is known to have engaged in affiliate fraud, allowed us to draw conclusions about the impact of affiliate fraud in the larger domain name space.

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