PPC'ing against our affiliates

We have an affiliate that just started creating some content, which we encourage. However, they started bidding against us on Overture and getting quite a few sales from that. While it isn't a problem them getting sales, when it's sales that we would have gotten already (same keywords on Overture) it raises a question with me about the real value of this affiliate.

The other question I have is this: would they be seeing enough traffic for it to pay off? Granted, these keywords are mostly under 20 cents per click, but even a 20% conversion rate means they need to make almost $1.00 per sale (if people are following their links in the first place). They don't rank in any of the 3 major search engines, so we aren't competing in that market yet, but they originally copied most of our homepage as their homepage and now they're paying for traffic that we normally buy. Sure, we can afford to get the #1 position back from them, but the real question is why should I have to buy traffic back from our affiliates?

I guess I should start thinking about putting something into our affiliate program about purchasing traffic on keywords we bid on, but that seems like it could cause issues with obtaining affiliates at all. With the way our affiliate program is structured, they do have to create at minimum a landing page so that it'll properly track. It still doesn't make me happy that I have to buy traffic back from them.

Obviously, if they insist on a bidding war I'll just revoke their affiliate status. I don't mean to create an unfair playing field, but this is our primary source of revenue that they're dipping into. Had I not attended SES in NY, I wouldn't have been thinking about my Overture account as much and probably wouldn't have even noticed what they were doing. However, now that I know, I need to make sure to address it before I'm in a bidding war with 100 of our own affiliates.

I really feel for the larger affiliate sites (Amazon comes to mind). They'd have to really be aggressive if they want to make sure that they're not bidding against themselves too often. I guess that's why I work for a smaller company and don't have much interest in working for those huge companies that have seemingly unlimited marketing funds. I can handle our 50,000 key phrases on Google, but getting much larger than that really gets frustrating. I suppose that's why it's easy to beat them on some phrases, but they have the budget to make it more difficult on the very popular phrases. If they were smarter about the less frequent searches, they'd be tough to stop. Good thing they're not.

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