Black Hat Marketing Techniques Exposed and Why to Avoid Them

Exposing Black Hat Marketing Techniques

Well, I said nearly a week ago that I would put this post online. This post has implications that go far beyond online marketing and economics into the realms of politics, ethics, and even religion. I'll leave it to the reader to make those connections and associated implications for him or herself.

There is a principle I've found to be valuable throughout my career called "work." I remember sitting in a physics class at Butler Middle School when Mr. Browning said, "you can't cheat work." As a principle of physics, he was absolutely right. And the principle also applies to online marketing and life in general. If you want to succeed in the long run, you have to work for results and to build long-term value.

Yes, you can innovate and find seems and creases to exploit and make money through improved efficiencies. That's a great guerrilla marketing strategy I have employed when creating search-term optimized awards programs, niche interest pages, and directories of user-generated content. But those projects all had something in common--they provided added value to the economic system. Partners, customers, and search engines loved these programs for improving relevancy and access to valuable content.

Most black hat marketing strategies drive results through unfair or unethical practices by ultimately attempting to cheat work. And what most of these approaches share in common is that they are only effective for a short time before they are exposed or lose their effectiveness (requiring just as much or more actual work than legitimate marketing methods).

Here are a few examples of black hat marketing to consider:

The Bump

A bump is an offer added to the end of a lead or CPA offer to essentially get people who have just signed up for something to (usually unwittingly) sign up for a second or third offer as well. When implemented, the bump offer usually appears as a required step in completing the initial registration process. Typically, this offer is pre-selected on the first confirmation page with "hidden" billing terms. In essence, the customer is now being billed for two different offers by completing one. Credit card information entered for the first offer is usually shared with the owner of the second offer as well, so the user doesn't have to go through more than one registration process (or see that they are actually going to be billed for subsequent offers).

I think Classmates.com was the first company I saw effectively employ a bump offer when signing up for a free site membership. Upon completion of the registration, the site made it appear that you needed to complete a credit card application to before the process was completed. This offer was presented as a way to receive access to their premium services or to receive a $15 credit. They implemented this offer back in 1999, so the details have become fuzzy in my mind. I just remember being mad when I clicked through and saw what they wanted me to do. This old bump offer, however, wasn't nearly as slick as current bump offers. You still had to complete a second form rather than being opted in automatically to participate in the offer.

Shared Billing

This is very similar to a bump but comes in a few different forms. Many offers I've seen recently promote free access to a premium service. The catch? To receive the free premium service, you must sign up for one or more partner offer. Similar to the bump, you are often caught in a seemingly never ending cycle of registrations to get what you thought was a straightforward offer. Those who are most effective include a page where you can sign up for multiple offers and then enter your billing information once for all of the offers.

This practice of sharing credit card information across vendors is dangerous. It also tricks the consumer who is just trying to get a free offer into paying for service he or she doesn't want or need through a confusing registration process.

You can read about one such program, run by Affinion, that was recently exposed and featured on Good Morning America among other media outlets: Co-registration probe. Evidently, companies including 1-800-Flowers, Orbitz, Shutterfly, VistaPrint, and more than a dozen other companies made more than $10 Million from this program. Classmates.com is included in the $10 Million circle. Dozens of other companies earned more than $1 Million from the program.

Advertising and Referral Arbitrage

This is a rather simple and unsophisticated tactic that employs PPC advertising and SEO pages to generate incremental advertising revenue from Google AdSense and other advertising networks. The tactic usually consists of creating SERP (Search Engine Results Page) spam pages tied to specific keyword where advertisers are paying a high cost per click. The trick is to then get traffic to these pages that have little value in themselves and then get people to click on the ads.

You've probably visited dozens of these sites. Most make little sense or are simply directories of keyword categories with advertisements. What's wrong this this tactic? The "marketer" is not adding any value and is actually frustrating the customer who is looking for legitimate, valuable content. The advertisers also lose because their ads are getting additional clicks from customers who are tricked into clicking on ads rather than actual product links.

In the past, I have literally clicked through up to a half-dozen lead referral and directory sites before getting to a page where I could actually purchase the product I had search for in the first place. Far from adding value or efficiency, the companies that run these sites are simply inserting themselves as "value sucking" intermediaries.

Cookie Stuffing and Other Affiliate Fraud

You're on a site looking for a new phone service because you're not happy with the one you have. You find a site that lists six competitive services. You click on one to check it out. The site you are on is an affiliated site of the six services you are comparing. They have signed up to receive a commission from each of the six competing phone companies any time someone they have referred makes a purchase. But they want to be sure they get credit for making the sale . . . whether or not they actually do. So instead of setting a single cookie that tracks the affiliate click to a single company, they run a script that sets cookies for ALL SIX COMPANIES before handing the customer over through the first link. They may also set a few cookies for phone conferencing or other phone-related products as well just for good measure.

What's more? The site is most likely masquerading as a review site, so you believe you are getting an impartial review of the products in question. In this case, all of the products probably sound great, but the service that provides the best commission probably sounds just a little bit better.

Promoting Products and Services with Little or No Value

Take a look at the affiliate offers on ClickBank.com when you have a little time or want a good laugh. Many of the offers are nothing more than publishing free online content as eBooks or aggregating and selling videos from YouTube as a "video tutorial series." These companies make sure they charge enough for these "products" that they are able to enlist greedy or gullible marketers to push their offers. Is an eBook on how to assemble your own windmill really worth $700? Even when those instructions are found on the Internet for free?

Carefully research any product or service you promote, so you aren't unwittingly associated with a scam or even a horrible product. Chances are, those who sell such deceptive and valueless goods will not survive long enough financially to get around to paying you for your marketing services.

How Black Hat Marketing Poisons the Well

So, what's the big deal?

There are three main reasons to avoid black hat marketing: 1. personal or corporate integrity, 2. buying into a fraudulent ecosystem, and 3. sacrificing long-term success for short-term fixes.

Personal or Corporate Integrity

Do you really want to be associated with any of these tactics? I hope not. I was talking with someone last week who participates in advertising arbitrage. A comment he made when I explained that he should add valuable, unique content to the optimized pages he had created was, "that sounds like work." I can't think of any better personal indictment or clear sign of a lack of integrity than the stated desire to get something for nothing. Someone I admire recently shared something his father had taught him: "any deal that is too good is stealing." He was evidently arguing for the principle of fair value exchange, someone fewer and fewer people seem to embrace.

Buying into a Fraudulent Ecosystem

I've ranted a few times about this point already, so I'll be brief here. Once you engage in black hat marketing practices, you are damaging the economic engine for the industry that is paying your bills. You are also swimming with sharks and shysters who are also trying to do the same thing. The borderline between what is ethical and what is legal can quickly become blurred, and you may find you have been treading on the wrong side of that line.

Another risk is that all of the revenue you are "earning" may never actually make it into your bank account. Why? Merchant accounts in shady industries are often frozen or suspended, marketing partners may not pay in a timely manner, and many companies that sell products or services that are "too good to be true" will fail financially or be shut down. This is an ecosystem in which you can't afford to participate, even as a little fish.

Sacrificing Long-Term Success for Short-Term Fixes

Yes, any company can get drunk off of their own bad revenue. Such a drunken stupor nearly always results in bad decisions that stifle the long-term success of the company.

I am aware of a company that was making money on ads that promoted trivia quizzes, IQ tests and that like that found it very difficult to ween themselves from the revenue these ads provided. What seemed like innocent ads were actually powerful and deceptive tactics to get people to sign up for paid services to receive the results of their quizzes. Wouldn't you want to give your cell phone number to receive your IQ results if you just spent the last 20 minutes completing the evaluation? Evidently, lots of people wanted the results of their quizzes. The fact that they were signing up for a monthly recurring bill was hidden in the small print.

They were so successful with their offer that they were willing to pay an $8 CPM (Cost Per Thousand impressions) to any website publisher who would run the ads. But it didn't last. After some time, they decided (probably with help from the FTC or FCC) that they needed to make the terms of service in the small print more obvious. This reduced their conversion rate and the rate they were willing to pay for CPM advertising. They were probably still getting tons of complaints and credit card chargebacks because they soon added a phone text verification to the process. This again drove down the conversion rate and CPM they were willing to pay.

Meanwhile, the website publishers who were making money on these offers were reluctant to shuck the ads from their sites, even after receiving angry complaints from site visitors. Why? Because they had gotten drunk off the revenue and didn't have a good revenue replacement. And the downward spiral continued. The publishers with foresight focused on improving their services to get more qualified visitors and expand their advertising inventory. Those that reacted poorly focused on increasing the number of ads units on their sites and on other short-term strategies to temporarily prop up revenue that had been too good to be real and sustainable.

In another instance, I worked with someone who was promoting his product through a bump offer. In the end, he had so many credit card chargebacks (for what could have been successfully marketed through legitimate methods) that the merchant account provider assessed him with a huge fine and canceled his account with more than $20,000 in frozen funds. After several months it appears he will be able to collect most of the money that was frozen in his account, but the cost of the lost cash flow was tremendous. In the end, the decision was made to shut down the site rather than open a new merchant account and start over.

Conclusion

After reviewing the tactics listed here and several others, I am still of the opinion that there is no free lunch when it comes to internet marketing. I don't believe people who engage in these practices will ever enjoy long-term success. Instead, they will continue to hurt consumers and the economy at large as they exploit their next opportunity and execute their next scheme. They merely understand how to combine technology with the art of deception to line their own pockets at the expense of customers and the very companies they promote. They engage in changing the dynamics in a zero-sum game, where if they succeed everyone loses.

Using Interactive Marketing to Compete in a Down Economy

Yesterday, Cydni Tetro, the CMO of FamilyLink.com shared that a VC she met with said, "flat is the new up" when referring to revenue trends. It seems that everyone I've been talking with lately has a company that falls into one of three camps:

1. Well positioned in a declining market.
2. Maintaining sales at a higher cost than the past.
3. Experiencing growth because of their position in a growing market.

In healthier times, I would expect to see more companies in a fourth category: companies aggressively growing within an expanding market; however, I'm not aware of these firms today. One of the challenges of a down economy is that the rate of innovation tends to slow. Instead of adopting "reinvent or die" as a mantra, companies are hunkering down for survival and trying to maintain their current revenue and market share positions with as little investment as possible. Since the "entire economy" is down, they believe that maintaining their revenue position and market share is an adequate goal. And for the most part, they are right.

But, whenever there are challenges in the market there are also corresponding opportunities. Why? Because each company will react to those challenges differently. The variables by which success has been measured and through which success has been achieved will start to move unpredictably, and companies can see success turn to failure overnight if they are not vigilant and adept at adapting to these fluctuations.

This was certainly the case for Ancestry.com after the Internet bubble burst in 2000 and 2001. Ancestry.com could have easily become another casualty and gone the way of pets.com, but we were always looking at our bottom line and were able to use interactive marketing to continue to improve the position the brand and service. We had visibility into what was happening in the market and with our online marketing. We were thus able to implement programs and tactical changes to maintain market share at the same time the online economy was in rapid decline. The big difference then was that online activity and purchases were actually increasing at the same time businesses were failing, causing an overabundance of cheap ad inventory. Ancestry.com was able to increase their "interactive dragnet" at the same or lower cost than before. This is one of the key reasons the company is in the position it is in today. But today, the challenge is that online spending is flat or in decline at the same time competitive pressure is increasing. The remedy today is a little different.

Interactive Marketing in Red and Blue Oceans

Here is a sample scenario in terms of interactive marketing, but the same applies elsewhere (in a cause and effect sequence):

In this scenario, the economic pressure creates an increasingly bloody "red ocean."

1. Fewer consumers are looking for your product that is clearly an unnecessary purchase.
   
2. You chase these customers with more advertising dollars to maintain revenue and market share.
3. Your advertising rates increase.
4. Your cost per acquisition increases.
5. Your competitors increase their advertising spends.
6. Everyone starts getting "cute" to exploit perceived gaps, creating wide swings in cost and performance.
7. Soon, you or your competitors decide the increased cost isn't worth the return and decrease spending levels.
8. Costs temporarily come back down below previous levels.
9. You or competitors jump back in with more money because costs are now lower.
10. The cycle continues . . .

This is the issue with advertising dollars in the "bloody ocean." (If you haven't heard about red and blue oceans by now, where have you been hiding?) The challenge is that when consumer demand goes down, it actually costs more to reach potential customers because of increased competition for scarce or effective advertising inventory. Economic theory would state that, overall, when the economy declines advertising rates should also also decline because fewer companies can afford the same ad rates. Demand for advertising inventories should decrease, leaving an excess supply, which should drive down costs. However, as outlined in the above scenario, this is not the case in a very competitive market . . . until competitors in the bloody ocean simply can't afford to pay existing rates. So, how can you compete effectively when you and your competitors are tempted to act irrationally? What should happen is the following: Pursue a "blue ocean" marketing strategy:

1. Fewer consumers are looking for your product that is clearly an unnecessary purchase.
2. You take the time to identify advertising strategies over which you have the most control and the least exposure to competitive pressures.
3. You maintain or decrease your red ocean spending strategies, such as PPC search ads, sponsorships, and display advertising. You don't want to just turn these off, but you don't want to focus on these strategies to maintain market share at the same time your competitors are becoming more desperate and may drive up marketing costs for these programs. Give these strategies time rather than money, and you will likely see your advertising rates decrease.
4. Advertising rates maintain or decline based on your decision not to escalate spending.
5. Now, you focus on creating a "blue ocean" marketing strategy. You should always be doing this anyway, but this is more important than ever in a declining market or in a weak overall economy.

Swim into the Blue Ocean

The following are five strategies to creating some "blue ocean" from an interactive marketing perspective:

1. Engage in joint marketing initiatives. Join with companies with related products to share marketing dollars through product bundles, barter advertising, value added free trials, or other joint efforts. You are now increasing visibility of your product or service without incremental cost. You are also focusing on strengthening your market position through strong partner relationships. This is a great long-term strategy.
2. Go after the long tail. Instead of concentrating on current interactive marketing, where competition has been fiercest, expand your advertising efforts to include a longer tail or into a market that is less competitive.
3. Focus on relationship programs. Affiliate programs, friend referral programs, and social marketing are extremely low risk. All of these programs are free or straight pay for performance based on actual customer acquisition (rather than impressions, clicks, or other metrics). If you can't motivate your customers to share your product with their like-minded friends, your problem may be much deeper than your interactive marketing strategy. Similar to joint-marketing initiatives, these programs provide you with a long-term strategic advantage. A customer who invests time and effort to share your product with someone else far more likely to become "bonded" to your brand than someone who doesn't. The same goes for those who invest time optimizing affiliate links or talking about your service on Facebook or Twitter.
4. Focus on business model innovation for thought leadership. Can you make your business model more attractive or implement a marketing strategy that generates buzz? Similar to engaging with partners, any strategy that leads OTHERS to talk about your product and participating in your marketing strategy stretches your advertising dollars. If you have a CD-ROM product, consider an online offering. If you have an online offering, consider making more of your service available for free.
   
   Don't just make a change (i.e. providing your service for free for a limited time or implementing an ongoing customer competition with weekly winners), but tell everyone about it. Bloggers, analysts, and even the press are likely to pay attention to anything that is novel related to business model innovation. In mature markets, this is one of the BEST strategies to create a strategic barrier. Ask yourself: "How many of my competitors can afford to change their business model right now?"
5. Think guerrilla warfare. Consider using Compete.com, Keyword Spy, Spyfu.com, or another service to gain insight to your market segment and gain an idea of how your competitors are reacting to the economy. Competitive insight and careful analysis of data and trends are important activities that can give you a competitive advantage during difficult times for your market or the economy at large. See how you can improve your online presence using free and low-cost services, such as free download services, social media, participating (thoughtfully) in forums and message boards, etc.

As with any economic disturbance, you also need to be able to separate the effects of the economic downturn from other factors that may also be hurting your sales. I'll write another blog entry about how this is done, but it begins and ends with having excellent business analytics.

Taking the time today to invest in interactive marketing relationships and experiment with blue ocean strategies will ensure you are properly positioned to get the biggest gains when the market rebounds.