The Future of the Flog

When we came back from Affiliate Summit, we found ourselves fixated on one of the takeaways that we wrote about upon our return – this notion that part of performance marketing has entered into a race to the bottom. Here’s what we said two weeks ago, "Whether related to the tough times, but certainly aided by it, the performance marketing industry has in many ways abandoned good taste; it’s not just recklessness but a shift towards barbarianism. Among other things, the combination of the allure of money, the perception of the ease with which some have made it, and the less than FTC abiding style with which it is made doesn’t give us much hope of either a litigation free year or the perception of performance marketing improving in the eyes of the broader advertising community." At the heart of the good and the bad, the greed and even more greed lies the Flog, the fake blog. Out of relative obscurity, this "1 Simple Rule" method to making money online has proven itself a more than versatile marketing platform, starting first with weightloss and now spreading to any number of other areas, like government grants. It is not uncommon for flog publishers to make hundreds of thousands of dollars monthly. By conservative accounts, the current flog industry generates $30 million monthly in revenue, and it wouldn’t surprise me to learn that it could top $750 million for 2009.

What’s a flog? It’s a fake blog. It’s a site generally built using WordPress, which has proven itself more than just a blog platform but a means for managing an entire site. Part of WordPress’ beauty, though, is the ease with which it allows a person to create a blog and customize it. If you’ve ever created one at Typepad or Blogger, you will be familiar with the process, except WordPress, which you would install on your server where the domain is hosted, is a more feature rich way of creating such a site. It’s "fake" because while written in the first person and told in an autobiographical point of view, e.g., "My name is Molly Sullivan from Minneapolis, MN and I wanted to share my weight loss story with you," they are anything but factual accounts from successful users of the products.

Tens of millions of dollars monthly, no barriers to entry (especially on the distribution side), false and misleading advertising… sounds familiar doesn’t it. It sounds like Ringtones Take 2. The future of the flog should follow a predictable path. Here is what we think it has in store.

• Legal action – it may not happen now but it will happen, and just because it seems like the regulating agencies are behind the times doesn’t mean they haven’t taken notice. The question is who will get hit this time. And here is where it gets tricky. If we follow the money, a direct advertiser should take the fall given the profit generated, but they will argue and fairly effectively that they had proper disclosures on their forms. The ones marketing the product deceptively, the affiliates, should be in the line of fire, but they are like the specters of the Internet – fleeting and changing names. That’s why, as was the case with ringtones, the majority of monetary penalties will come from the networks. Advertisers and affiliates shouldn’t get complacent. Some from each always get involved, especially if the network needs to do a little CYA.
• Compliance changes – after either a State Attorney’s General or the FTC take the lead in mandating change, we will end up with a set of guidelines that we must follow in order to still run the pages. While I have a love hate relationship with the Flog and its evil genius, the nature of the marketing isn’t inherently evil or truly original. It definitely qualifies as a "why didn’t I think of that," but when we take a step back, how different is it really from having compensated spokespeople or an advertorial in a magazine? The only difference is that it hasn’t gone through the necessary vetting and balance of disclaimers. Chances are it won’t be that bad to make the flogs compliant. A few mentions of "not actual person" but "paid endorser", "results not typical", etc. Yes, conversion rates will go down, but it won’t go to zero. The problem here is that no one wants to take the lead for fear of missing out. This alone is a topic unto itself on human behavior, it’s an irrational behavior, but it’s not likely to change until one person gets caught.
• Credit card and merchant accounts – the secret weapon in the race to profitability comes not surprisingly behind the scenes. The merchant accounts are a big trick, because most merchant account providers do not want to work with companies that generate a high amount of complaints. Not surprisingly, those who have operated in such a space for a while have learned special tricks to not burn through their merchant accounts. A select few have even set up their own merchant accounts so not to be at the mercy of someone else. In a double whammy for the consumer, once you give permission to a company to charge you, it is a lot harder to get them to stop charging you. Often the key to making money here is not that people stay on for one extra month, but that they can’t unsubscribe in time for that one extra month to not go through.
• Right sizing – markets aren’t efficient, but they often correct and come to some equilibrium. That is what will happen here. The size of the market is over-inflated because of the tricky tactics used along with the depressed cost of media. What is the right size? It’s not zero, but it will be at least 60% of what it is today. Industries like this that grow too fast without any structure must collapse and then rebuild. That’s not necessarily a bad thing though. It means sustainability, and it will come once the rules come into play. Those in it for the right reasons (relatively speaking) will continue to do just fine.