Havard Business School - Reducing Risk with Online Advertising

According to Harvard Business School professor Ben Edelman there is fraud in affiliate marketing. You can read his Q&A here.

Fraud is fairly easy in the world of online advertising, particularly for determined adversaries. In this Q&A, HBS professor Ben Edelman, who designs electronic markets, explains how contract terms can be managed to both reduce advertisers' risks of being defrauded and reward good suppliers. "The idea here is to make everyone better off, except of course the fraudsters," Edelman says.

He goes on to outline some methods that cheaters use to defraud both advertisers and affiliates. I found this quote to be interesting;

For example, an affiliate program manager might be paid a modest salary plus 10 percent of year- over- year growth in the size of the affiliate program. But consider the incentives of someone paid in that way. If there is fraud in the affiliate program and the staff person recognizes it and ejects it, that means the program is smaller and her bonus gets smaller. In fact, her bonus might be disproportionately smaller because it's based on growth, so if you took out the 10 percent of fraud in the program, there goes this year's growth and the Christmas bonus. So in many companies the incentive to get to the bottom of this quickly and successfully is tempered by the incentive of staff to do what is in their personal interest.