Steve Richter, Part 2

We continue with our conversation with Steve Richter, President of Media Breakaway, the parent company of affiliate.com and other high growth divisions.

Editor: You’ve been in some pretty big legal skirmishes. Some companies wouldn’t have the stomach for what you’ve been through. Can you tell me a little more about how you view the legal side of the business and set the record straight on any misconceptions?

Richter: I came on board on January 1, 2006, and our policy has been to investigate thoroughly when a legal issue has come up. If we find that we did something wrong, we fix it. If we didn’t do anything wrong, then we fight it aggressively. Since I joined the company we have won every lawsuit that we believed was frivolous. When we were sued by Microsoft, which is not something you want to have happen, we actually felt good about our position. At about the same time, the New York State Attorney General started an investigation. Interestingly, that investigation has somehow become synonymous with them suing us, which in fact the New York Attorney General’s Office never did. The suit with Microsoft was dismissed, although we came to $7mm settlement agreement. While we were never sued by the New York Attorney’s General, as a business decision we paid $50k to settle their investigation. The reality is that from a business perspective it was much smarter to settle those cases.

I think it is one of the challenges for all companies in these situations that they must always make the best decisions for their business, whether there has been any actual wrongdoing or not. It is sometimes much more cost-effective to settle and move on than to go through a lengthy court battle, even if you are confident in the eventual outcome. The downside is that the public often sees a settlement as proof that the company must have done something wrong, when many times it was simply the best business decision.

Editor: Speaking of settlements, you recently issued a release regarding the Florida Attorney General (FLAG). The release differed from what others said. For example, were you sued by the FLAG?

Richter: We were not sued by the FLAG. In fact, we contacted them before they ever contacted us. When we had learned that they were in settlement negotiations with another network, we reached out to them to discuss how we could work together. The FLAG wanted to be leader in online marketing best practices, and as a number of other networks have done, we made a contribution towards their cyberfund. Many networks and other companies have given identical contributions including Azoogle, AT&T, The Useful, and Funmobile, just to name a few. The million dollar figure was not based on any particular reasoning. It was simply the figure that FLAG came up with as the amount they wanted contributed to this fund from each company. I believe that FLAG will make the terms of the settlement an industry standard. In their press release they talked about receiving thousands of complaints. That number is based on their investigation of the industry as a whole, not specifically regarding Media Breakaway. In fact, we never were shown a single consumer complaint regarding our services during the year we were in discussions with FLAG.

Editor: Compliance isn’t exactly a sexy topic, but I know it’s near and dear to you, especially as it means lower legal costs. It seems like it could hinder you with affiliates by not being as flexible. Is that true?

Richter: We look at ourselves as a leader in compliance. We have five full-time staff members and two lawyers, along with soon to be released proprietary technology efforts all focused on proactively promoting and monitoring our compliance initiatives. We feel we are walking the talk. Compliance absolutely helps with both the good affiliates and the bad, or at least those that want to be bad. We don’t pay affiliates for leads generated through non-compliant activities. Compliance increases the quality of advertisers, the quality of leads and is a virtuous cycle. Others have said that compliance hurts revenue. I think that is a very short term revenue outlook. It can temporarily lower revenue right off the bat, but that effect will be offset over as more quality advertisers and affiliates choose to work with your company. From a long-term perspective being non-compliant just isn’t a viable option.

Editor: Compliance, the FLAG – all seem to revolve around mobile subscription advertising. From what I could tell, many companies had a better 2007 than 2008 for mobile. Did 2008 see a dip because of the new regulatory efforts – be it from government related agencies or private companies, e.g., Google?

 Richter: We did see a change in where our mobile related revenues came from in 2008 versus 2007. We saw great overall growth but it was much more diversified growth. I think the major players still saw growth in ringtones and in mobile in general. New compliance initiatives certainly had an effect on growth to some extent, but again only for a limited time. Most importantly those regulations will help to ensure that companies can continue making money in the mobile space over the long-term. However, I don’t envy anyone who continues to make money without having an effective compliance program in place. All the major players know that compliance is the only way to go if they want to continue marketing in the space.

Editor: Talking again about 2009, historically certain types of products do well in the beginning of the year. We’ve seen already diet products producing unbelievable returns for networks and affiliates. Putting on my non-performance marketing hat and/or capitalist hat, the tactics employed push the envelope of truth in advertising. As one who runs a network, how can you encourage the right type of risk and innovation without either a) turning a blind eye or b) stifling it? What’s the fine line?

Richter: We always want to encourage innovation among our affiliates in finding new and effective ways to promote advertisers’ offers. The key is that you must focus on value. If you provide value, it sells, and you have happy consumers. If you have to dress it up too much in order for it to sell, then that’s a definite red flag. Our job as online marketers is to make sure the consumer understands the value presented in an offer. If it’s a good value for them, they will make a purchase or participate in the offer. If you make the offer out to be something it isn’t, you’ll have unhappy consumers and everything that may entail.

Editor: Thinking more to the tactics that are driving a large chunk of the revenue today, how do we as performance marketers make money without lying? I hate to sound harsh, but the actions of a few people have a chance to yet again cause millions of dollars in settlements by the networks, have Google come down harder on the entire industry, and close off emerging avenues such as Facebook or Twitter. Direct marketing is already not sexy, so how can we as an industry work to not be seen as the lowest common denominator? In other words, when people are making money today, how can we as an industry take a more long-term view? Is it even possible?

Richter: Never underestimate the value of letting your competition do something stupid. Consider this analogy. You’re speeding along on the highway and there are cars behind you and in front, also speeding, but you are the one who gets pulled over. Will the trooper decide not to write you the ticket, just because you were just “going with the flow of traffic?” Will the judge not hold you responsible just because everyone else was speeding, too? The common industry thinking used to be, let’s see who will be the first one caught, and then we’ll see if they come after us. That’s not real compliance. That’s simply compliance when convenient. That’s not walking the talk. The question is really what is the model and the culture for our industry to take into the future? Is it about wherever there is a regulatory loophole, we’ll go there, and then find the next loophole? That is not what we are about and I don’t think that it is what a lot of people in our industry are about. For us, every day is an opportunity to show people that they should judge us by our current actions.

Editor: I think we’ve taken enough of your time; although, we could easily keep going. Thank you for your time. It was really enjoyable.

Richter: My pleasure. And I look forward to your visiting our new office building that we recently purchased and meeting our ever growing staff. If you give me enough notice I might even get you tickets to our Team Chaos hockey games.