Zac Palet
October 14, 2013 eBay Partner Network (A)

I. Executive Summary
In March 2008, eBay severed their relationship with Commission Junction (CJ), because of fraud problems and a severe drop in their net income. They responded by creating their own affiliate marketing network (ePN). Now eBay has the choice of continuing to develop their ePN, go back to outsourcing their affiliate marketing network operations (either through CJ or another network) or drop their affiliate marketing program all together. Based on my analysis I feel that eBay should continue to develop their internal affiliate marketing network. They should go in this direction because the benefits offered by an outsourced network are not substantial, it eliminates the costs associated with outsourcing the network which will lead to lower transaction fees for sellers and lastly, they can eliminate the fraud that networks are notorious for.

II. Problem, Opportunity, and Objectives eBay decided to discontinue the services of CJ in 2008, opting to run their affiliate marketing program internally because of the fraud issues with CJ as well as their declining net income (exhibit 1). Currently eBay is losing sellers to Amazon and Craigslist because of their higher transaction fees, which can be partially attributed to the fees imposed by CJ. Steve Hartman, eBay’s senior director in charge of global affiliate programs, believes that by handling their affiliate marketing program internally they will develop more direct relationships with their affiliates, leading to a more streamlined user experience. This case analyzes the risks and benefits of this strategy, and what affiliate marketing contributes to eBay’s overall marketing objectives.

III. Analysis
Affiliate marketing allows eBay to engage in a very low-risk form of marketing. Unlike banner ads and Google ads, an affiliate is only paid if eBay makes money. Because of this, eBay doesn’t have to worry about researching an affiliate’s qualifications like they would when implementing a banner ad on a website, which saves eBay time and money. However, the use of an external affiliate network can hinder the efficiencies of affiliate marketing. I feel that eBay does not need an external affiliate network to handle their affiliate marketing program.
Steve Hartman was wise to terminate their contract with CJ and should continue to develop their affiliate marketing program internally, because the benefits of CJ’s services did not outweigh their costs. CJ responsibilities included: 1. Receiving affiliates’ applications, 2. Matching sales from affiliate traffic with the correct affiliates and 3. Reporting the amount of commission owed to each affiliate.
Receiving affiliates applications should be simple because eBay is accepts essentially all of the applications they receive due to the low risk aspect of affiliate marketing. Currently eBay has 100,000+ affiliates, so there is no shortage of affiliates on hand. Because of this, I feel CJ only offers two substantial benefits (2. and 3.). However, CJ’s role in delivering the other two benefits was marginal as well because they relied heavily on eBay’s tracking pixel to communicate the amount of the purchase to them. eBay’s tracking device was actually doing a large amount of the work that was “provided” by the network.
To perform these tasks, CJ charged eBay a $3,000 sign-up fee, a 30% surcharge on all commissions eBay paid to its affiliates and additional monthly fees. Furthermore, CJ charged eBay for all emails they sent to affiliates ($0.03 to $0.015 per email).
The ePN will eliminate eBay’s extra costs resulting from CJ, enabling eBay to lower their transaction fees, which was prompting sellers to take their business to Amazon and Cragislist. As a result, sellers will increase their use of eBay and since eBay’s costs will be lowered simultaneously with the fees that they charge the site’s sellers, eBay’s margins will be unaffected. The combination of stable margins and increased sellers will lead to higher net income. Also, by fostering direct relationships with their affiliates, eBay will be able to provide a more streamlined user experience for their buyers and sellers. Additionally, eBay will no longer have to worry about the fraud involved with working through CJ.
There are downfalls and risks with this course of action as well. Ending the partnership with CJ will help eBay eliminate expenses, however they will incur new expenses through developing their own affiliate marketing department. Also, there is no guarantee that sellers will automatically flock back to eBay because of the lower transaction costs. It is likely that eBay will need to invest time and resources to communicate this change to sellers. Even though eBay won’t have to worry about CJ’s fraud anymore, they will still need to monitor the fraud that could be committed by the affiliates themselves. Lastly, eBay’s affiliates will be asked to open new accounts with ePN. This has the potential to be time-consuming for many affiliates, which could strain affiliate relationships and lead to additional concessions to the affiliates from eBay.

IV. Identification and Evaluation of alternatives
Alternatives eBay could consider would be to not sever their relationship with CJ, contract with a different affiliate network or drop their affiliate marketing program all together. The benefits of continuing their relationship with CJ is that they wouldn’t have to create a new department to receive affiliate applications, track sales driven from affiliates and allocate commission. However, by continuing to use CJ they face the risk and frustration caused by CJ’s fraud, which is damaging to eBay’s reputation and their operations. Additionally, eBay would continue to incur the steep fee’s charged by CJ, which has translated into higher transaction fee’s for sellers leading them to sell less frequently and take their business to other sites.
The second alternative of contracting with a new affiliate network comes with many of the same risks and benefits of keeping CJ. However, eBay would also have to have their affiliates open up new accounts with the new network, which could strain affiliate relationships just like the ePN might.
The third alternative, of dropping the affiliate marketing program all together, would lower the amount of legal work associated with dealing with affiliate fraud and eliminate the expenses associated with maintaining affiliate relationships. However, eBay would risk losing substantial traffic, revenue and profits by doing this.

V. Decisions, course of action and implementation eBay should continue to develop their ePN and stick with their decision of dropping CJ. To ensure that the ePN is successful, eBay should increase the number of employees on the current eight-person internal team. They could look to expand from within, by finding people who are familiar with affiliate marketing (for example, the developers of the tracking pixel) or they could also hire new employees that have had previous experience working at an affiliate network. This would help mitigate the risk of implementing the ePN.
Also I would recommend that eBay reconstruct their current commission structure for their affiliates (exhibit 6). It seems that eBay constructed their commission schedule to incentivize affiliates to maximize the traffic that they direct towards eBay. However, the current structure favors larger websites, and it doesn’t do much to incentivize smaller websites in the bottom half of the commission bracket. To better incentivize affiliates, regardless of their size, eBay could reward affiliates based on the percent of their total traffic they are able to direct to eBay. This would incentivize smaller and larger websites to place eBay links in areas where people are more likely to click on them.
This plan’s success should be measured by the size of the increase or decrease of traffic that is driven from the affiliates and how much more income is earned through affiliates. If a large drop in revenue from affiliates nullifies the cost savings generated by dropping CJ, eBay should consider restructuring ePN or contracting with an external network again.
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