Affiliate Programs Can Result in Millions Lost to Fraud

Online Affiliate FraudYou have decided to build an online community, and you have the recruitment campaign materials (Part 1 of this series) to start growing your community membership. Most importantly, you have secured funding to use an affiliate program to help increase your community membership levels. So it is time to turn on the spigot and spend some cash, right? Yes, but you better have great affiliate tracking and monitoring measures in-place so you actually get active members with your spend and not bot created accounts. Nothing is worse than determining your cost per acquisition is quadruple the standard market rate and that high cost is a result of affiliate fraud.

One of my favorite statements was made by a VP of Business Development, “Who would rip off or scam an online survey company?” That bold question was made after I questioned what affiliate monitoring measures were protecting against online fraud. This was also made months after we began building an online community in China; China is notorious for online fraud. We saw MASSIVE community growth with our China community and communities throughout Western Europe and the United States. Everyone was happy that our $5 million plus annual recruitment spend was swimmingly successful. I was skeptical but not in a position to review the fruits of our affiliate program success.

Months later there was a re-org and I inherited the VP of Operations and Director of Operations positions as the next Sr. Ops Manager. I immediately dove into the membership database and uncovered massive fraud (If you have an online community you must review your membership data because it will paint you an accurate picture of your community and their behavior).

We were paying $3.00 for every member that registered an account with our online community. We also were using just about every affiliate program available for maximum community growth. The mandate was to build a membership base of 20 million consumers globally. Our unsavory affiliates welcomed that goal and they themselves or their website publishers created bots and scripts that would sign up member accounts programmatically. Yes, a computer program was creating membership accounts. There was indeed no human behind that account and we were deriving zero revenue or activity from those accounts, but we were spending $3.00 for each of them. For one calendar year in the US alone we literally burned up two million plus in affiliate fraud.

We had communities in all of EMEA, APAC and the Americas, so finding that much in fraud for just one country was more than alarming. So what did we do to prevent further waste of company resources? We implemented the following security and fraud monitoring countermeasures:

  • GEO-IP Tracking – This made sure an individual in China could only create an account with China as their country of residence.
  • Digital Finger Printing – A true bot killer. Digital Finger Printing extracts reference points from every computer used to create a member account. Like your finger print each computer can be identified individually. If a computer created more than two accounts it was banned from creating future accounts.
  • De-Duplication Algorithm – This nifty program scans membership data and compares each account to each other. Some bots are dumb and utilize the exact same sign up attributes for every created account. A De-Dupe Algo will find all the accounts with the same mailing address, date of birth and last name and purge them from your community.

We also slapped a quality algorithm that evaluated each affiliate. This compiled how much we spent on each affiliate, how many members they registered, and how active their members were. We determine how much each member was worth based upon their actions within the community. If they completed a single task it generated $xx.xx in revenue. So if it cost $3.00 to acquire Member #1 and Member #1 completed 10 tasks and each task generated $5.00 in revenue we calculated Member #1’s value. He generated $50.00 in revenue minus the $3.00 in acquisition costs netting a $47.00 profit.

When you analyze the members registered in this manner for each affiliate program you will see which affiliates are generating positive ROI or negative ROI. So not only do you have the fraud prevention measures mentioned above to stop bad member acquisition, but you now have affiliate monitoring that you can use to evaluate which affiliates to drop altogether or which ones to increase your recruitment spend.

To answer the Biz Dev VP’s question above, “If you are offering payment for an action to be completed on the Internet then anyone will try to game, scam or defraud you.” Do not be naive and release your fraud, security and quality monitoring and prevention measures before you start spending money to increase your community membership with the help of an affiliate program.

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