Bankruptcy May Turn Your Dollars into Dimes

I was just over at WebmasterWorld reading a thread discussing a WSJ article on how small ad networks are being threatened by the current economic downturn. There has been an explosion in small ad networks in the last few years, and some of them bound to be punished by the coming contraction, and we all know that recession and bankruptcies are coming.

More than 300 online-ad networks have cropped up over the past couple of years, making the business of brokering ads on the Web one of the most popular — and crowded — niches on the Internet.

Two such networks, Adzilla and JellyCloud, closed their doors this month, and more are certain to follow. Other more established networks such as Burst Media are publicly seeking buyers.

It is critical for all affiliates and webmasters to understand, that if you are using an ad network to put ads on your site, or sending arbitrage clicks to an ad network, you are not only a member of that network, you are a creditor.   If the ad network runs into financial trouble and files chapter 11, you may only get 10% of what they owe you.  Even worse, some affiliate networks have clauses that only require them to pay you if THEY get paid. That means that you could be liable if one of their merchants goes under.

Google has made it easy for every college dropout to buy PPC ads and send them to an affiliate network, or an MFA site, or lead generation network. What’s more, when the big affiliates get really big, they start their own ‘ad network’.  Maybe you grab an out of the box software from DirectTrack, maybe you roll your own PHP script, or maybe grab an affiliate feed throw it in a flash widget and call yourself a ‘widget ad network’.

Is your business reliant on payment from these types of networks? Some punk kid’s first ‘business’?

Protect Yourself

Don’t let someone else’s irresponsible financial practices destroy your business.   Be proactive, and watch out for customers who may not be in good financial shape.

1. Use advertising only from companies that are in good financial shape.
2. Don’t Give Customers Credit.  Prepay, prepay, prepay.
3. If they don’t prepay (most affiliate networks don’t) be proactive if payments run late
4. Call, call, call. They may have SOME money, and it should be YOURS
5. You need 3 creditors to force a company into bankruptcy. If you think that a newtork is paying some creditors but not others, find other creditors and at least threaten to file a petition if you don’t get paid. The squeaky wheel gets the grease.

Regardless of what happens, being proactive and keeping a good line of communication is critical. Know what is happening on the writing end of those checks.

This post originated at the Online Marketer blog, home to marketing consultant John Coronella.