Exploiting Online Referral Schemes

Apr 21 2014, 3:38pm CDT | by

Recently I wrote about Google’s attempts to increase paying customers of its Google Apps service by paying a referral fee. While I was vaguely dismissive of the concept, one aspect I hadn’t really considered was the opportunity for people to game the system. In the online world, every initiative seemingly opens up the chance for opportunistic individuals or organizations to use the program for their own gains. Reading a blog post over at BrandVerity, it seems that the Google referral program is no different.

BrandVerity explained that with online referrals, companies rely on URL systems that can easily be gamed. These users exploit referral programs by locating their unique referral link and then running pay per click ads through it. Whenever a visitor comes through that link and completes some sort of action (signs up for an account, places an order, makes a booking), the referring account gets a reward. This usually comes in the form of account credit or a discount, but can also be cash. Writes BrandVerity:

In order to push a significant amount of PPC traffic through their referral link, these users tend to engage in brand bidding—poaching traffic from their target company’s branded keywords. This helps them ensure a high conversion rate and a relatively cheap cost-per-click, allowing them to turn a profit in the process. Furthermore, since the referrer’s ads always land on the brand’s domain, they can also displace the brand’s own ads. This makes this tactic nearly identical to affiliate ad hijacking

After Google made its announcement, BrandVerity set up some monitoring and found numerous examples of a Google Apps referrer pretending to be Google in paid search. Basically, the referrer is bidding on Google’s brand terms, masquerading as Google in their ads, and then sending the traffic through their referral link. This gives the referrer credit (and thus $15 a pop) for each new user that signs up through this pathway.

Now it could be argued that everyone here is happy – users signup for the service they want, the service vendor gets paying customers and the dodgy referral agent gets a cut. There is however a potential economic cost – Google pays $15 for a signup but potentially the signup comes from traffic that the referrer has “poached” from those that Google would have received anyway.

It’s also worth considering what effect these ads can have on a company’s brand. With messaging being left in the hands of many autonomous referrers, each with their own set of incentives, there are many opportunities for inconsistent or even deliberately misleading communication.

BrandVerity gave the example of an ad targeting Dropbox that seems to offer 16 gigabytes of free space. According to the plans on Dropbox’s pricing page, users start with only 2 gigabytes of free space. Although users can increase their free allotment to 18 gigabytes (by referring new users, amusingly enough), this isn’t the base offering. The ad therefore omits to mention the true details of the offer – and in doing so potentially causes Dropbox a negative brand impact.

There are even more impactful examples of this behavior. Exclusive fashion brand site Gilt, has an attractive referral scheme. The company promises a $25 discount to both the referrer and referred user, with poached referrals, Gilt could potentially pay $50. Given that Gilt places its own ads and advertises on its branded keywords, referring ads could displace Gilt’s own ads, and drive up their cost per click as well.

BrandVerity has uncovered this sort of activity over a number of different brands including Uber, Evernote, Vitacost, Hulu Plus and FreeAgent. While this sort of activity won’t be likely to end vendors use of referral scheme, they’re certainly something to take into consideration and to factor into the calculations that vendors make about potential schemes.

 
 

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