Even though affiliate marketing has been around for several decades, in recent years, it has reached new heights in both popularity and profitability. Largely due to the evolution and almost universal penetration of social media, affiliate marketing is ultimately a win-win marketing model.
Unlike traditional marketing, companies only pay commissions when their affiliates achieve tangible results. And for marketers, affiliate marketing is a minimum investment opportunity of low risk.
However, whether you are a business owner looking to start an affiliate program or a content creator looking to join one, you should be aware of the risk of affiliate marketing fraud. Read on to find out more!
Types of Affiliate Marketing Scams
People who commit fraud don’t choose their victims. They have no problem duping beginner marketers, the companies who run the affiliate programs, and even the visitors who could potentially become their customers. As long as they find a way to earn quickly and with the minimum of effort, they will run their scams on anyone.
In fact, affiliate marketing statistics estimate that the industry lost $3.4 billion to fraud in 2022.
Affiliate Scams Where the Marketers Are the Victim
In the first section, we will focus on affiliate marketing scams where the companies running the program are deceiving unsuspecting marketers.
Pay-to-Join Programs
Most successful affiliate programs are free to join, which is why affiliate marketing is generally regarded as a low-risk and minimum-investment type of gig. However, some inexperienced marketers are not aware of this, and scammers see this as an opportunity.
In a common affiliate marketing fraud, scammy websites that don’t sell anything, require paying a membership fee for the chance of becoming a part of their exclusive affiliate program.
Unsuspicious and unpracticed marketers get lured into the scam by promises of unrealistically large commissions and getting rich overnight guarantees. In some cases, this affiliate marketing scam can have elements of a pyramid scheme, where the duped marketers are asked to get their close ones to join as well, for even larger commissions and other perks.
When the fraudster decides that the time is right, they shut down their website and walk away with the money.
Dishonest Companies
Rather than an elaborate scam, some companies that run affiliate programs commit outright affiliate marketing fraud by not paying their marketers their hard-earned commissions.
Unlike the pay-to-join programs, these scammers actually have products they want to sell and are relatively easy to become a part of. Knowing that they will never pay anyone anything, they will accept anyone willing to spread the word about their product. They enjoy their free exposure for a while, and when too many marketers get duped, they simply shut down their website.
While it can be hard for novice marketers to differentiate between affiliate marketing scams and honest programs, it is not unheard of for experienced marketers to get duped as well. In some cases, they will pay commissions to newly joined marketers while their earnings are still low and remove them as soon as they make a more serious amount of money.
Affiliate Fraud Where the Companies Are Being Scammed
Some scammers successfully deceive companies into believing they referred new customers and earn commissions for sales they didn’t generate. Here are some popular examples.
Faking Traffic and Leads
Using bots to create spoof traffic is an affiliate scam generally associated with pay-per-click and pay-per-impression marketing. In such models, affiliates are not required to generate a sale, but instead, they are getting paid for generating traffic to a company’s website.
Companies expect the ads posted on their affiliate’s websites to reach a new audience and potentially generate sales from the newly created traffic. It is a perfectly fine marketing model until the company runs into a marketer that is not above using affiliate fraud to earn.
Rather than genuine interactions from visitors that are actually interested in the ad, scammers use scripts to impersonate clicks and generate bot traffic on the company’s website. Since bots won’t make a purchase, the company is scammed into wasting money for bad traffic that will not generate any new sales.
Some companies try to avoid getting scammed with bot traffic, and require their affiliates to generate leads to earn from the program. Getting a visitor to sign up for a newsletter or fill up a form usually qualifies as a successfully generated lead.
Of course, scammers have found a way to run affiliate marketing scams in this model as well, by using stolen information and generating invalid leads that will never buy anything, but still get paid for generating them.
Hijacking URLs
URL hijacking is another affiliate marketing scam that only works for pay-per-click and pay-per-impression models. The scammer creates a website with an URL very similar to the URL of the website they are getting paid to bring new traffic to.
If a visitor mistypes the URL and accidentally gets on the scammer’s website, they will be automatically redirected to the company’s website. However, the redirection is done through an affiliate link, generating commission for the scammer.
Of course, traffic generated through URL hijacking affiliate scams should not be rewarded with commission because the marketer did nothing to promote the website. As a matter of fact, if his phony website did not exist, the visitor would’ve gotten on the company website right away.
Affiliate Fraud With Multiple Victims
Cookie Stuffing
Cookie stuffing is one of the most widespread affiliate scams that fraudsters have been using for more than a decade. It is a black hat affiliate marketing technique that allows affiliates to earn commissions for sales they haven’t necessarily generated themselves.
To understand how exactly this affiliate marketing scam works, you have to first understand how the legit affiliate marketing sales and commissions are generated.
Here’s a brief explanation.
In a normal scenario, a visitor will receive a single cookie at the moment they click the affiliate link on an affiliate’s website. The cookie will track the visitor’s online behavior and point to the affiliate website that it came from as the referral. If the visitor decides to proceed with the purchase, the affiliate will earn a genuine commission for generating a genuine sale.
With the affiliate fraud known as cookie stuffing, affiliates use black hat techniques to stuff the visitor’s browser with third-party cookies at the moment they visit their website, rather than when they click the affiliate link. What’s more, they fill up the browser with dozens of different cookies that will falsely point to their websites as the referral.
This means that if the visitor, at a later point, decides to buy a product for which their browser was stuffed with cookies, the affiliate will unjustifiably earn a commission without actually referring the visitor.
Cookie stuffing is one of the worst affiliate marketing scams because it hurts both companies with affiliate marketing programs and legit affiliate marketers. It tricks companies into paying commissions to scammers who did nothing to advertise their products, and steals commissions from affiliates who work hard to actually promote them.
Credit Card Fraud
Fraudsters use stolen credit card information to make money in many ways, and some of them use it to commit affiliate marketing fraud. After illegally obtaining credit card info, scammers use it to make purchases from their own affiliate links. Not the most sophisticated of scams, but possibly the most immoral.
The scariest part of this scam is that not everyone whose credit cards were used will be able to retrieve their money. And if the victim somehow manages to get a chargeback, the company losses the sold product to the thief, returns the money to the victim, and still has to pay a commission to the affiliate.
Numerous other affiliate marketing scams involve using credit cards or different types of payment information. There are also affiliate scams that involve other black hat techniques like click spam and spoofing, copying of entire websites, using fake products, and all kinds of unethical and criminal practices.
Depending on their skill sets, some affiliate fraudsters exploit software vulnerabilities, while others rely on false promises and deceit to exploit other people. In the end, all of them share the same goal of making money without regard for the well-being of others.
Popular Affiliate Marketing Fraud Cases
Since we can’t possibly delve into every single idea that the criminal mind of the affiliate market scammer can come up with, let’s look at some famous real-world examples of affiliate fraud instead.
Scamming Nordstrom for $1.4 million through a software exploit
Two brothers from Dallas, Texas, Andrew and Allen Chiu, pleaded guilty to defrauding international fashion retailer Nordstrom for $1.4 million back in 2012, and it is still one of the most famous cases of affiliate fraud. What’s interesting is that the brothers were actually banned from using Nordstrom’s website because of excessive refund claims four years prior in 2008.
In January 2010, Andrew and Allen discovered an exploit on the website, which allowed them to earn commissions for unprocessed orders through the affiliate program of FatWallet. Over the next two years, using their affiliate marketing scam, the brothers earned $1.4 million in commissions, generating $23 million in sales that never happened in the process.
Cookie-stuffing to defraud eBay for $28 million
A San Diego-based founder and CEO of Digital Point Solutions, Shawn Hogan, was sentenced to five months in prison in 2014, after running an elaborate affiliate marketing fraud to illegally obtain $28 million in commissions from eBay. Prior to his arrest, Shawn’s digital marketing agency was considered a huge success, as he was eBay’s number-one affiliate.
The case reached new levels of popularity after the FBI revealed that they created an online sting operation called “Trip Wire” to monitor Shawn’s traffic. eBay had been suspecting foul play from some of its marketers, and cookie-stuffing is not always easy to detect, hence the FBI’s involvement.
While uncovering Shawn’s affiliate marketing scam, the FBI’s sting also discovered that eBay’s second-most successful affiliate marketer, Brian Dunning, was also using fraudulent methods to earn commissions. Both scammers together defrauded eBay for a combined total of $35 million.
Using bot traffic to scam multiple companies for $7 million
After scamming several world-renown companies, including the New York Times and the Wall Street Journal, Russian affiliate fraudster Aleksandr Zhukov was arrested in 2018 in Bulgaria. Three years later, in late 2021, he was sentenced to 10 years of prison in Brooklyn, NY, for running affiliate fraud and illegally obtaining $7 million.
Aleksandr and his team were involved in pay-per-click and pay-per-impression marketing, but instead of generating traffic from human interactions, they deployed bots from 1,900 servers. The bots racked up the ad views numbers, inflated the advertising rates, and generated $7 million for Aleksandr, but did not generate any sales or leads to the advertised companies.
Is Affiliate Marketing Legit?
Affiliate marketing is 100% legit and beneficial for all parties involved. It allows companies to raise brand awareness to new audiences and potentially increase sales, while providing content creators with a great monetization opportunity.
At the same time, through affiliate marketing, end users who follow these content creators can get introduced to new products and services and learn more about them before purchasing.
Affiliate marketing fraud is real, but so is healthcare fraud, credit card fraud, and even voter fraud. As a matter of fact, there is fraud everywhere around us. Luckily, the number of honest people who play by the rules heavily outweighs the scammers, and we don’t allow one bad apple to spoil the bunch.
