|Tue Aug 10 2010 22:49:14|
Indicted Affiliate Blasts eBay in Blog-Post Defense
By: Ina Steiner
eBay filed a lawsuit against three affiliates in 2008, and in June, federal prosecutors charged two of them with wire fraud in connection with "cookie-stuffing." One of the affiliates shot back, blasting eBay in a blog post last week.
First, readers may wish to pause and try to absorb how much money eBay was paying top affiliates. According to Federal indictments, eBay paid Shawn Hogan's Digital Point Solutions $10.5 million in compensation from the eBay Affiliate Program in 2006, and paid $2.8 million to Brian Dunning's company, Kessler's Flying Circus in 2006. In the first 6 months of 2007, they were the top two earners in the program.
Like other Internet companies, eBay pays affiliates to drive traffic to its site. eBay accused the three affiliates of violating its terms of service by tricking it into paying them for users that didn't click on an eBay ad and never saw the eBay website load on their computers. Federal prosecutors agreed.
After being indicted on criminal felony charges, Shawn Hogan alleged eBay had encouraged him to violate the terms of service of its Affiliate program. In his blog he wrote:
"In the summer of 2005, eBay decided it needed more traffic from me. I told eBay I couldn't drive any more traffic. They responded that I should "experiment" with what they deemed "grey area" things (this is what eBay called anything that violated their terms of service)."
He goes on to allege he was coerced into giving an eBay employee expensive gifts. Hogan said eBay told him the Affiliate Program was a facade, and that "It allowed eBay to do things they wanted to do (like spam search engines, deploy in countries where they had no actual presence, etc.), while also giving them a way to wash their hands of any wrong-doing when any of their large partners (like Google) would question them about it (like why there are so many spam sites directing people to eBay)."
The compensation eBay paid affiliates is proof of the importance of the Program to help drive not only sales, but boost metrics as well. Wall Street used eBay's number of registered users as a key metric for gauging the company's current and potential performance. Then-CEO Meg Whitman and CFO Rajiv Dutta vaunted the numbers in quarterly conference calls with analysts.
The eBay Affiliate program had a history of allowing questionable tactics, as John Battelle documented in his 2005 book, "The Search," when he wrote about a black-hat eBay affiliate story AuctionBytes broke in 2003.
AuctionBytes wrote about an affiliate named Ryle Goodrich who had allegedly created hundreds of thousands of doorway pages that diverted traffic to eBay. John Battelle wrote in his book, "The Search," that the affiliate was "siphoning off thousands of dollars in affiliate lucre for his work. Even more damning, Goodrich had the implicit approval of eBay,..." (page 162).
Louis Monier, who was director of research at eBay, is quoted in Battelle's book, saying: "Some of our affiliates are a little bit aggressive, but it's a general problem on the web: any time someone will gain from traffic, they'll try to abuse the search engines. It's a well-known arms race. It was true in 1997; it's even more true today. My only comment would be: best of luck to Google."
Digital Point's Hogan writes that he was coerced into buying his eBay contact a Plasma TV and laptop computer, and was told, "Yes, all the affiliates buy their contacts stuff like this."
Hogan and Dunning have not been given a chance yet to defend themselves from these charges (Dunning next appears in Court later this month, and Hogan, next month). But regardless of their guilt or innocence, eBay itself does not come out of this looking good - it didn't have a handle on just what these two men were doing.
If the affiliate program didn't explicitly encourage questionable practices by their participants, it appears that, at minimum, it looked the other way.
The indictments allege that Commission Junction and eBay questioned these affiliates about their practices in 2005, but let them continue in the program through June of 2007. Was it only when affiliates turned to cookie-stuffing, thereby ripping off eBay's own program, that it cried foul and filed the lawsuit against the affiliates?
Hogan's claims in his blog post might be dismissed as someone trying to divert blame (CYA) - and some stretch credulity, as in when he says eBay wanted to pay him with a secret fund - the Black Budget, "a large allotment of money that eBay was free to do what they wanted with, without it being reported on accounting sheets" - if he would "hurt Google."
But by virtue of eBay's claims against the men, the company may be acknowledging its negligence in managing its affiliates - and, perhaps, its own employees.