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Seventy-five percent of Americans with mobile phones have used their phones in the bathroom, according to 11mark. The gender split is nearly identical, with 74 percent of men and 76 percent of women saying they’ve used their mobile phones in the bathroom.

Meanwhile, 30 percent of men vs. 20 percent of women said they don’t go to the bathroom without their mobile phone, according to the report.

11mark goes even deeper into the details to find that:

• 20 percent of men and 13 percent of women participated in work-related calls in the bathroom
• 26 percent of men and 15 percent of women sent/read work-related email in the bathroom
• 41 percent of men and 36 percent of women browsed the web in the bathroom
• 13 percent of men and 7 percent of women made a purchase while in the bathroom

Android users are the most likely to use their mobile phone in the bathroom, with 87 percent of Android users saying so, followed by 84 percent of BlackBerry users and 77 percent of iPhone users.

BlackBerry users are the most likely to answer a call while in the bathroom (75 percent) and initiate a call while in the bathroom (48 percent). Meanwhile, iPhone users are the most likely to use social networking sites while in the bathroom (53 percent) and use an app while in the bathroom (67 percent).

According to 11mark, 91 percent of Gen Y mobile phone owners use their phones in the bathroom, while 80 percent of Gen X mobile phone owners, 65 percent of boomers and 47 percent of the silent generation do the same.

The report also highlighted that 16 percent of Gen Y mobile phone owners made a purchase while in the bathroom, while 10 percent of Gen X, 6 percent of boomers and 2 percent of the silent generation have done the same.

“Based on the trend, bathroom buying is poised for growth,” according to 11mark.

Getting down into the health aspects of this trend, 11mark found that 92 percent of respondents said they always wash their hands after using the restroom, while 14 percent said they always wash their phone after using the bathroom.

A separate report from Google and Ipsos MediaCT Germany found that more consumers use mobile phones than laptop/desktop computers in all five studied regions of the world (U.S., U.K., France, Germany and Japan).

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According to the survey, 97 percent of marketers believe social media marketing benefits their business, while 75 percent intend to boost their spending on the medium this year.

The survey also highlights the three phases brands go through in their social media campaigns: growing, engaging and monetizing their fan bases. “Currently, the market is focused on the first two phases while monetization has yet to be the focus,” Wildfire notes.

Another finding is that 88 percent of marketers point to growth of brand awareness as a benefit of social media activities, followed by 85 percent who point to engaging in dialogue, 58 percent who point to increased sales and partnerships, and 41 percent who point to reduced costs.

Ninety-four percent of respondents utilize Facebook, followed by 74 percent that use Twitter, 41 percent that use blogs or blogging communities, 32 percent that use LinkedIn, 30 percent that use YouTube and 6 percent that use other social media channels. Wildfire noted that this may change in 2012, thanks to Twitter’s branded pages, LinkedIn’s developer launch, Google+ and the growth of blogging networks like Tumblr and WordPress.

Meanwhile, 44 percent of respondents said new customer recruitment is the most valuable aspect of a Facebook fan, followed by 18 percent that cited higher conversion rates and 18 percent that cited more frequent purchases. Wildfire also noted that nearly 70 percent of marketers surveyed believe Facebook fans are worth more than non-fans.

According to the survey, 38 percent of responding marketers use increased fans, “likes,” comments and interactions as a measure for social media ROI, followed by 24 percent who use increased revenue, and 15 percent who use increased brand awareness.

Wildfire added that 100 percent of respondents that did not define ROI in the classical definition still thought social media benefits their business.

A separate report from Awareness Inc. found that 70 percent of responding U.S. marketers will invest more in increasing their presence across social media platforms in 2012, followed by 59 percent who will invest more in increasing the frequency of content publishing.

The Rise of the Connected Consumer

I wish we could remember from whom we heard the term “connected consumer.” While they probably did not invent the term, hearing it from them changed the way we think of the web. The connected consumer has existed for some time, but 2011 was a true breakout year. Like many mega trends, there are probably statistics that will emerge to explain what we feel. It might be the percentage of users with smartphones or that number compared to certain usage statistics. Whatever the numbers, the connected consumer is ushering in a new version of the web. It is social and mobile intertwining to form a new internet. The connectivity AND the consumer usage patterns have reached a point where any new business, even if it doesn’t touch mobile or social must be cognizant of their potential impact. Equally important, the friend of a friend network has reached a point where it can truly influence purchases and enable models that couldn’t exist before, like Airbnb.

Public Markets

Zillow, Bankrate, Groupon, Angie’s List, Zynga, and LinkedIn — there are definitely more, but we had no problem rattling off at least six tech IPOs that happened last year. That does not include the non-stop chatter about those who have yet to come, most notably Facebook. Unlike the first tech bubble, most of these companies have real businesses. Like the first bubble, most of these IPOs experienced a wild ride. LinkedIn – priced at $40, started trading above $90. Hit well above $100, but ended the year down 32 percent. Groupon – priced at $12, started trading around $16 and closed in the $20s that first week. Flirted with the low $30’s before dropping to a low of $14. Trading just under $20 after another run in the mid $20’s. Down 26% since it began trading. Zillow down 35 percent for the year. Zynga – flat. Angie’s List – down 7 percent. The winner? Bankrate, up 45 percent.

The Tech Bubble… or what tech bubble?

Were we in a bubble or weren’t we? No matter what, something big happened last year. Call it the year of the investor, a return to the days of free-flowing angel investing, where almost everyone, it seemed, wanted in on the action. Everyone, though, wanted in on the action, and we saw some of the largest deals and most prolific deal-making we can recall, regardless of what the stats say. It was a year that cemented names like Andressen Horowitz, DST and Reid Hoffman. Just as 2011 was a mix of old internet money and new, it also was the year of the incubator – YCombinator, Tech Stars, Dream It Ventures and the tens of other official and unofficial money-plus-mentor-for-equity models. The two even came together in the form of DST offering any graduate of YCombinator $150,000 in additional funding with virtually no restrictions. As we said, time will tell if it was a true bubble, but it was something.

Change in Media Buying

Arbitrage is not dead, but it has changed dramatically. Some of the factors come from external changes in policy from the major platforms, namely Google and Facebook. The biggest change is a technological one, the shift towards audience buying and the amount of media driven through ad exchanges instead of the more traditional remnant ad networks. Email is still vital, and incentivized traffic, co-reg and other more enduring channels haven’t gone away, but display is not going to be the same again. It is partially more accessible, but the pockets of untapped inventory are not. It’s more math and science, less art.

Do Not Call My Ass

For all the talk of the connected consumer, or perhaps because of it, old-school direct marketing ruled the performance marketing world for 2011. It was the year of the phone, especially in the world of lead generation where call verified leads became, if not the majority of lead flow, pretty darn near close. For all of the old-school calling that occurred, with businesses built entirely on ramming data not on the do-not-call list through call centers to see if they could be turned into mainly education leads, we also started to see the emergence of telephony in innovative ways through platforms like Twilio and companies like Datalot and RingRevenue.

Year of Groupon… For a Little While, Anyway

Not many company’s years include raising almost a billion dollars, refusing to sell for six billion more, worrying about a cash crunch, going from the absolute darling to vilified, and a still being a successful IPO despite all sorts of dot-com-one accounting questions. The IPO was successful if judged by the fact that it trades today higher than it was initially priced with a value more than double the amount the company turned down. While still a darling, the company inspired many similar businesses — hundreds, in fact, many of them coming from the performance marketing industry. Yet, in the same year, you had seemingly hundreds more, if not going out of business, trying to create as much distance between themselves and their spiritual predecessor.

End of a Rebill Era

Flogs aren’t completely dead, and acai isn’t completely dead, but they are both really close. The market has not only adjusted but punished many who played in the game. Collection issues put an enormous cash crunch on once-healthy networks with more than a few players, even one of the large old-timer firms going completely bust. It took a few years, but as one litigator chimed, the FTC might take a while to catch on, but once they do, they are quick learners. That is what happened here — another major rebill category shut down because the industry chose not to police itself. Nothing new there, but this time around, the impact was much greater, so much so that I’m not sure we can survive another catastrophe of this magnitude.

The Birth of Rebill

Despite the hardship and loss from this year, if there is one thing that we can count on in the performance marketing space, it’s the survivability of the rebill campaign. Sometimes, though it’s just not what we might expect, and that is exactly what happened in 2011. The rebill campaigns were more like 2004 in that they resulted from true rebill businesses, ones that don’t make it hard to unsubscribe, who actively check up on their users every time they must pay and even offer the ability to skip a given month’s charge. These aren’t breakage businesses, but sustainability businesses. Their high lifetime value comes from people wanting to stay not discovering that they have been signed up for something or often two things they didn’t expect. The only problem is that these new rebills won’t run or work in flogs. Marketers will have to earn their money without being misleading.

Major World Changes

It’s one thing to talk about how the consumer world has changed. It has. The connected world has transformed not just business, but  life. It has enabled transparency and organization and toppled barriers. It may have hastened bigger changes, but it cannot cause it. Last year saw the type of major world changes that will play out in the years and decades to come, some of which will not be pleasant. We saw dictatorships overthrown, totalitarian regimes upended, and oppressive monarchs pass away. From Africa to North Korea, the world’s power structure has changed, a vacuum created that will not fill the way we hope. This is the trend that will override anything else, but it’s also the one that is least clear.

Google finished November with 65.4 percent of explicit core search queries in the U.S. in November, according to comScore. This was a 0.2 point drop from its 65.6 percent share in October. Yahoo finished with 15.1 percent of the market, down 0.1 percentage point from its 15.2 percent share in October. Microsoft Sites handled 15.0 percent of search queries in November, up 0.2 percentage points from its 14.8 percent share in the previous month.

Combined, Yahoo and Microsoft (i.e., Yahoo-Bing) accounted for 30.1 percent of the U.S. explicit core search market in November, up from 30.0 percent in October. Ask Network finished November with 2.9 percent of the search market, unchanged from its share in October. Meanwhile, AOL Inc. finished with 1.6 percent of the market in November, up 0.1 percentage point from its 1.5 percent share in October.

comScore notes that “Explicit Core Search” excludes contextually driven searches that do not reflect specific user intent to interact with the search results.”

In November, U.S. searchers conducted 17.9 billion explicit core searches, down about 1 percent from the 18.1 billion searches conducted in October. Google accounted for 11.7 billion of these searches. comScore also shared its “Powered By” numbers, which found that 67.6 percent of searches in November carried organic search results from Google, down 67.7 percent in October. Meanwhile, 26.7 percent of searches were powered by Bing, up from 26.1 percent in October.

According to separate numbers from Experian Hitwise, “facebook” was the top overall search term during the four weeks ending Dec. 10, with 3.59 percent of search clicks. “Youtube” was second with 1.14 percent of search clicks, followed by “craigslist” with 0.59 percent, “facebook.com” with 0.46 percent and “ebay” with 0.42 percent.

According to Google Zeitgeist 2011, Rebecca Black was the fastest-rising global query in 2011, followed by Google+, Ryan Dunn, Casey Anthony, “Battlefield 3,” iPhone 5, Adele, Tepco, Steve Jobs and iPad 2.

According to the survey, 51 percent of respondents expect their marketing budgets to increase in 2012, while 8 percent expect them to decrease and 41 percent expect to maintain current spend levels.

When asked to indicate the programs for which they plan to increase spend, 60 percent pointed to email marketing and 55 percent said social media. Search (SEO/PPC) followed with 37 percent, while mobile also had 37 percent of the response and advertising had 28 percent of the response. Direct mail (18 percent), tradeshows and events (18 percent), public relations (16 percent) and “other” (8 percent) rounded out the list.

When asked which email marketing programs would receive increased spend in 2012, 47 percent answered social media channel growth (Facebook, Twitter, etc.), 44 percent answered promotional (batch), 39 percent answered newsletter (batch), 35 percent answered lifecycle programs, 14 percent answered referral programs, 12 percent answered none, 6 percent answered progressive polling profiles and 4 percent answered other.

For lifecycle email marketing programs specifically, 68 percent said they plan on increasing spend on win-back/re-engagement and 59 percent plan on increasing spend on welcoming. For social media marketing program investments, 39 percent of respondents said they plan on increasing spend on Facebook marketing programs, while 25 percent said they would increase spend on social media management technology.

When it came to mobile programs, 29 percent of respondents said they plan on increasing spend on building an application for the Android, BlackBerry, iPhone, iPad, etc. Meanwhile, 28 percent of respondents said they plan on decreasing spend on direct mail programs, while 23 percent said they plan on decreasing spend on tradeshows and events.

The biggest email marketing initiative in 2012 is increasing subscriber engagement (48 percent), followed by improving segmentation and targeting (44 percent).

The survey also found that 67 percent of respondents see building customer loyalty and retention as the primary value of email marketing as a marketing channel, followed by 51 percent who said awareness building. Another finding was that 37 percent are employing integrated cross/upsell offers during the 2011 holiday season, followed by 34 percent who are employing promotion of in-store sales events and 31 percent employing post-purchase programs.

Source:

Compete first looks at the top 10 domains as a percentage of all internet page views in November 2001, November 2006 and September 2011. In 2001, the top 10 domains captured 31 percent of page views. This number rose to 40 percent in 2006. In 2011, this number dipped to 34 percent. “Since 2006, the total number of Internet domains has increased by 11% and stretched out the power of the long tail in the lens of page view analysis,” according to Compete.

According to Compete, Yahoo.com was the top domain in 2001 with 11 percent of all Internet page views. It was followed by MSN.com with 9 percent, eBay.com with 4 percent and Passport.com with 2 percent.

In 2006, MySpace.com led the way with 16 percent of all page views, followed by Yahoo.com with 8 percent, eBay.com with 4 percent, MSN.com with 3 percent, AOL.com with 3 percent and Google.com with 3 percent.

In 2011, Facebook.com leads the way with 11 percent of page views, followed by Craigslist.com with 5 percent, Google.com with 5 percent, Yahoo.com with 4 percent, YouTube.com with 4 percent, and eBay.com with 2 percent. Compete also looked at internet usage on the top 10 domains in terms of attention. This perspective painted a different story: In 2001, the top 10 domains accounted for 30 percent of total time online. This rose to 35 percent in 2006, and rose again to 36 percent in 2011.

In 2001, Yahoo.com and MSN.com each lead with 11 percent each, followed by eBay.com with 3 percent. In 2006, MySpace.com led the way with 12 percent of time online, followed by Yahoo.com with 9 percent, eBay.com with 4 percent, MSN.com with 4 percent, Google.com with 2 percent and AOL.com with 2 percent. In 2011, Facebook.com leads the way with 15 percent, followed by YouTube.com with 6 percent, Yahoo.com with 4 percent, Google.com with 4 percent and Craigslist.com with 2 percent.

“Although the change isn’t as rapid as the growth from 2001 to 2006, we are seeing evidence to disprove the long tail theory with regard to engagement, which we think might currently be a more accurate portrayal of today’s internet population in the context of the long tail theory over page views,” Jen Duguay of Compete writes.

Separate numbers from Nielsen show that in September, Facebook attracted 155.1 million users in the U.S., with a time-per-person rate of 07:42:26 (hh:mm:ss). The average person spent 28:20:24 online in September, according to Nielsen.

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The distinction sounds small, but to those in the performance marketing space it has, in the past, been the equivalent of a nationality. Confusing the two didn’t carry the same weight as mixing up Israel and Palestine, but it was arguably a little worse than assuming someone from South Africa was from Australia. It wasn’t the worst thing, but it came across as a ding against one’s identity.

The reason, at least historically so, is that publishers and arbitragers (the non-affiliates) thought of themselves as more skilled. They felt their ability to drive traffic instead of just send clicks made them a more advanced breed. And, for quite some time I think that was a fair assessment.

Thanks to issues with misrepresentations and low value-add products for consumers, the publisher and arbitrage businesses have lost a little bit of their luster. Affiliate businesses, on the other hand, have started to come into their own. The hardest part for those who typically identified with publishers is re-orienting their frame of reference to think of affiliate businesses as worth pursuing.

Ingrained Vision

With a media-buying mindset, we have certainly been guilty of automatically devaluing the affiliate world. It was the group buying world and the fashion/tech world that had us start to rethink how we thought of the affiliate arena. Even now, we still struggle to see the affiliate world separate from some of the businesses that defined it — “Top 10″ review sites, toolbar-based link hijacking and the countless number of reward sites.

It’s the reward sites that have in many people’s mind given the affiliate world a reputational hurdle. We could, for example, start the DMConfidential shopping portal and offer readers discounts on places they already shop today. If we did so, we’d get flack because the savvy readers would say something to the effect, “Yeah. That’s not so special. You’re not really giving discounts — only applying the affiliate commissions.” And they would be absolutely right.

Perhaps more amazing than the number of such sites, be it those that have been in existence for over a decade to those that are popping up almost daily, is the caliber of some of the companies that operate them — everything from the largest network marketing company, Amway, to one of the most storied consumer packaged goods firms, General Mills.

Fashionable Setups

Perhaps then, it’s time to no longer knock certain affiliate strategies but look for ways to do them a little better. We’ve found quite a few recently that seem to do just that. Some of the more unlikely come from the world of apparel.

One that we like creates a more individualized private sale experience. It learns what type of brands you like then monitors major retailers for sales that occur on the brands you like. When you happen to click on the link to go to the retailer, it just happens to go through an affiliate link. Over time, they will work directly with the merchants, but in the interim, using the affiliate channel has allowed them a potential monetization opportunity with brand name retailers out of the gate.

Another fashion-related startup focuses on a slightly different form of discovery and encourages people to tag styles on sites and clip images that represent their style. They use that data to try and suggest new things, monetizing not surprisingly using affiliate links.

There is even one in the group buying space. This startup focuses on setting up private buying groups for businesses, offering variable discounts based on the members of a group. It is meant so that DMConfidential could work with a technology service provider to create a discount for readers, but again, to get started this company backfills deals we might source with business related deals from the affiliate channel, e.g., Skype, GoDaddy, etc.

Work in Progress

We know we aren’t quite there just yet with the affiliate business model. When you suggest to some of the technology companies that they are just affiliate businesses, there is still a little bit of defensiveness, as if to say, yes, we know we monetize through affiliate channels but don’t think of us that way.

While they are still affiliate businesses, they are helping to at least alter our perspective of what affiliate businesses can be. Instead of viewing affiliate relationships as the monetization choice of last resort, the affiliate channel starts to look like a liquidity channel for commercial intent. It starts to become a more customizable version of AdSense as opposed to what you choose when you don’t know any better.

It will still take many some time to become comfortable with the idea of becoming affiliates, but if we do not, we might just miss out building a really interesting business.

Such an answer goes completely counter to what someone not as connected to the space would say. They would think, no way. Not today, maybe a year ago. Maybe two years ago, but not today. The world is too sophisticated for such a thing to happen.

Instead it’s the opposite. The world, namely the fraudsters, are so sophisticated that it can happen. As one lead buyer quipped, “I’m shocked at how much fraud there is, and that it is still a viable industry.”

This is not the first time that we have written about fraud, and it’s not the first time we’ve written about its brother from another mother, compliance. Compliance is the ongoing battle to not run into legal hurdles. The downsides of non-compliance are huge expenses. Fraud is the ongoing battle to insure data integrity.

It is like Chinese water torture for a lead buyer. What is fraud really? The problem is that fraud can be and usually is real data. It’s more insidious than click fraud, because it engages and wastes human capital.

Data fraud is zero intent traffic. The person’s whose information is entered didn’t do it, and they have no desire to be contacted. They will pass validation software and could even score well as a lead, but the only customer they will turn into is an angry one.

Talk to any buyer or offer owner, and you will find that fraud is never far from their mind. One problem is that while everyone has it, there isn’t any standard by which to compare. Given that we spoke of indices in another article, it seems only fitting that we came across this new index below.

It’s from a leading fraud monitoring company, Fraudlogix. What it tells us is that the average company not using fraud verification has 15% of their leads coming from fraud. If they run a $100,000 per month operation, they are looking at losing $15,000. At $1.5 million per month, they are looking at $150,000 per month in lost revenue.

A Two-Part Story

The Fraud Paradox is what those who contemplate minimizing their fraud go through. They look at the above data and do the math. Then they decide that losing 15% of their business is a little more than they can stomach, but it’s not just 15% of revenue, it’s an equally higher percentage of profit.

Given all the headache that fraud causes downstream, it would seem, despite the drop, a no-brainer decision. It isn’t, because ead markets are not optimized. If a seller cuts out 15% of absolutely non-performing traffic, they do not see a 15% bump in prices to make up for the lost revenue. They could argue for a greater than 15% bump given that there are labor savings as well.

The fact is that they won’t see any bump. So, their incentive for using fraud monitoring is limited only to a last resort, where they will lose the business entirely.

The second part of the Fraud Paradox is what happens after someone actually starts to implement fraud monitoring. (The someone in this case is almost always an aggregator, and fraud monitoring, like compliance, only works when the landing pages of where the data is collected is tagged.) When someone starts to implement fraud monitoring, the fear of losing business has them only use the service sparingly… at first.

It then becomes like a radar detector for a car. They start to realize that instead of living in fear, they can actually start to open up their marketing efforts to more sources. The net result – virtually everyone who uses these services sees an uptick in their business over time.

An Ecosystem Shift

Fraud monitoring highlights the adage of taking one step back to take two steps forward. That it exists in the lead world is perhaps not such a bad thing as it is a complement to the maturity of the market.

The question with fraud, though, is not whether people should practice safe lead gen. It’s what will happen to change the ecosystem entirely so that running the business, not managing fraud, becomes the opportunity. It’s a question we’ve asked before, and according to one person, the answer lies in something that those in the performance space have not needed to embrace — venture-backed disruption.

We might either see the space continue as is, like search did, or we will see it upended. In this case, it’s not clear exactly what upending really means. It seems more a general observation that we’ve only touched the surface of what should be done, and hopefully we will be free to do so going forward.

Cross-published at the DM Confidential blog.

Having a head start has made all the difference in the world. The simplest example comes from Google or Facebook. Those early to those platforms made immense amounts of money, and, in the case of Google, those who got in early ended up building moats around their listings for no other reason than account history.

Thinking about the performance marketing space, the potential areas for leverage that come to mind are: access to offers, payouts on the those offers, access to traffic and creatives/optimization. Within each, something seems to have changed or better said continues to change.

For the longest time we didn’t quite understand what it might be. At the heart of the matter was this nagging question, “Why do new verticals seem to have a continuously shorter shelf life?”

The easy answer would be competition, that there are more and more marketers today than before, but we just can’t see competition as the reason why ringtones would have longer staying power than acai. It’s as though each new hot trend has an ever-decreasing half-life. It pops and then more quickly than before finds a less than desirable stasis after being driven to the bottom.

The Ad World Is Flat

While competition plays a piece on the shorter half lives of campaigns, we can’t help but wonder if the answer has nothing to do with specific market dynamics and more to do with our transparent world. If we think back to the “early days,” information about offers, payouts, creatives and traffic didn’t exist. It took a relatively long time before word of someone’s success got out, and it took even longer before specifics of their success became more widely known — where they ran, what page they ran, the ads they ran and even what CPA they received.

Forums have typically discussed many of these pieces, but they have an overall limited reach. That is not the case with the tools that exist today including those that show what offers each network has and at what prices.

There is a new breed of tools out there hastening this transparent world, ones like AdBeat that can do for creatives what keywords do for contextual placements and banners what keyword tools have done for search. The insights provided are significant.

Search tools can shed some insights on keywords run, but ad tools share what ads have run and where they run. It means that someone wanting to do a campaign can build a great media-buying list right away. These tools will do more than just frequency, in the future they will have the ability to show iterations of ads so that a competitor can see not just what runs now but what a company has run. This type of historical view would imply a glimpse into their optimization process.

NYTimes op-ed writer Thomas Friedman has talked about a flat world. This might be the equivalent to the flat world in advertising. It is no longer about easy connectivity of where people are based but ease of connectivity when trying to gain insight to a market. All the pieces are visible.

In this new flat advertising world, we start to see what is running, where it is running, and what aspects of it are working. It’s a trend that will only continue, and its impact on the performance marketing world has already been significant.

Looking Long-Term

Like many things, the early impact might be negative. Now and in the near future, it probably continues to mean pressure on those running offers, that their “secrets” could be discovered faster and their lead taken away more quickly than before. That could accelerate the race to the bottom as people continue to try and squeeze out as much money as possible in the shortest time possible.

In the future, this flat ad world should have a very positive impact. As everyone starts to know everything and we start to operate with greater transparency, it should mean more overall innovation. It will mean more defensible businesses. People will start to scam less (not a bad thing) and build more (also not bad).

If people can’t do bad stuff and must do better stuff, we all win. The industry starts to get away from being a) just piggy banks to help others cover float and b) guardians of traffic trying to combat the bad. We might just get what many have wanted all long, greater separation between companies and more fun doing doing what we love.

In MLM parlance, it meant becoming part of their down line, but they most likely pitched it in a more team-oriented fashion than using a term that if not demeaning feels so limiting. In performance marketing terms, what the couple pitched was to become their affiliate, but there has always been something about MLM, known today as network marketing, that never sat well with us… at least from the standpoint of being an affiliate.

While similar in theory, we argued years ago that a huge fundamental divide exists between performance marketing/traditional affiliate marketing and network marketing. Part of that divide becomes more evident as we think of the latter as network marketing instead of multi-level marketing.

It still does promote a person getting paid on multiple levels (generations) — i.e., if you sign up under us, we get X; when someone signs up under you, we get some percent of X; and so on, often for five levels. Payouts on multiple levels sounds sexy, but anyone in our space can share that trying to pay out past one level quickly becomes an expensive proposition.

If a company can do that, it means that the products have a high amount of margin, be it through high cost or ancillary services that do not trickle down. But a high-margin business is just the enabler. It alone doesn’t explain why we struggle to like the networking marketing businesses. A recent conversation with a person who should have been a arbitrager helped explain why.

Limited Upside

Google created something like 1,000 millionaires. Facebook will create several hundred at the very least, and many of them did not come in that early. Not to call some “just engineers,” but many of the future millionaires will get truly lucky instead of actually being good.

They didn’t have to take a major risk or even a pay cut. They simply joined a company that has grown from $5 million to $100 million to $1 billion to more than $80 billion since inception. If you joined at a time when your options might have come to $100,000 at a $10 billion valuation (a small percentage of the total), they will turn into about $1 million when the company gets sold.

True enterprises experience a rising tide lifts all boats. Network marketing businesses do not. The bigger the network marketing company gets, the bigger only the head gets. Even if you come up with a new trick to help sales, which they will then take and tell others, you receive nothing for the growth you create.

Inequality

MLM businesses are deliberately closed organizations. As mentioned above, they promote a dream and a vision, but they treat those in the business like sheep. There is no upward mobility, no advancement and no room for creativity. How they are run is at odds with what they say a person can achieve.

A minor example that has always rubbed us wrong, little to none of the new member setup tends to benefit the referring affiliate. And, given that almost everyone fails, that long tail of revenue bypasses all of those doing the work.That was our rub from many years ago.

Another discrepancy for us is that they are always presented as chances to be independent business owners. You aren’t a business owner, though. You are a contract salesperson. Business owners run businesses and build assets.

Putting a Price on Friendship

Perhaps the modern-day MLMs should call themselves “social shopping organizations.” Calling them network marketing hits pretty close to home, though, as people are expected to sell to their network of direct relationships.

We spoke to one marketer, and they explained it so well. This person said basically that you are expected to delve into their emotional issues and figure out how you can position the business as a solution to some of their problems.

The conversation ended with the comment, “I cannot believe how many friendships I have seen this business ruin.”

These models want and demand the personal sale. They do not want a person to use more scalable techniques. Those that do can actually run afoul of certain programs’ guidelines.

It’s also why they don’t share the setup costs with the referrer. If you did, then you could create a truly successful online campaign.

It’s a Cult That You Pay to Join

More than anything, network marketers sell a dream, and they sell a dream through a series of ongoing indoctrination. Everything about the network marketing business is based not on reality, but on a buy-in of what could be. It operates like a religion in that they have an answer for everything where all success comes from proper behavior and all failure stems from an individual shortcoming.

These are faith-based organizations with no room to question and little tolerance for true creativity. They need and demand obedience. That they have a disproportionately large percentage of very religious — usually Christian — members is unsurprising. They either come from a branch with direct sales built in or just thrive in that type of environment.

Bright Future?

Network marketing businesses have existed for 50-plus years, but it would seem in the past five years, they have really started to take off (again). Many of the newer versions aren’t going by the traditional network marketing moniker. They call themselves direct sales businesses.

These are the modern day Tupperware parties, where people get together to view “sample sales” where those in attendance will ideally purchase and sign-up. Some of the newest come from known names — the doctors behind Proactiv — while others are even venture backed – Stella and Dot.

Whether the economy or simply that people have started to realize the power and flexibility of the model, network marketing businesses are going through a revitalization, and much to our dismay, we have not figured out how to run one yet; we mean, we have not seen them become that much better for the members yet.

Cross-published at DM Confidential’s blog.