It’s worthwhile to pause for a moment, before getting into the story of that second fortune, so we can explore the current craft of online scamming—specifically one of its primary tools, an often confusing, usually respectable, and occasionally downright devious practice called affiliate marketing.
Of course, for nearly as long as there has been an Internet, there have been Internet fraudsters—from traditional swindlers running versions of centuries-old cons to basement-dwelling hackers sifting through e‑mail accounts. But now that the Web has emerged from its gawky postmillennial adolescence to become a fixture of American life, most of us have grown so familiar with the classic online scams that we can’t help but chuckle at the idea that anyone ever fell for them. With the exception of those who have been lost in the wilderness for the past decade, virtually nobody would wire cash to anyone identifying himself as a Nigerian prince or open Viagra-themed e‑mails from senders with names like Horatio Hugemember. We know the potential pitfalls of buying on eBay, and we recognize the constant threat posed by identity thieves. We have, in short, become appropriately wary of revealing personal information to unknown entities online.
And yet most of us have not fully realized the extent to which scams are now operating through sites we’ve come to trust. A lot of this happens when scammers buy targeted ads that crop up alongside a user’s search results on Google, Yahoo, or Microsoft’s Bing. (More about this later.) But perhaps the least heralded—and often most pernicious—offenders here are so-called marketing affiliates, who are, in essence, the door-to-door salesmen of the Internet: independent operators who buy ad space on trusted sites and then steer consumers to other companies’ products in exchange for a cut of whatever sales they generate. Theoretically, at least, affiliates offer companies huge advantages over conventional marketers. If you’re a small manufacturer who wants to publicize your new line of muscle-building supplements, but you don’t have the budget for a traditional Web-marketing campaign, affiliates provide a way to do this while charging virtually nothing; you pay them only when they make a sale. That’s the upside.
The downside to affiliate marketing is its astonishing rate of fraud. Because affiliates put up their own money to pay for ads pushing these products, they have a strong incentive to dupe consumers, so they can recoup their investment. If you’ve ever clicked an ad or a “sponsored link” about, say, a spectacularly effective new weight-loss scheme, which then leads you to a fake news article (or “farticle,” in the industry parlance) filled with sketchy scientific findings and constant entreaties to buy a product “risk free,” then condolences are in order: you’ve likely stumbled into some affiliate’s trap. “Affiliates are the most creative bunch of people you’re ever going to find, because you’ve got 5,000 people promoting the same product, and they’re all trying to get an edge,” Jim Lillig, an Illinois-based affiliate-marketing strategist, told me. “So of course you’re going to have people pushing the envelope. Some will do anything and everything to promote a product they think they can make money with.”
All across the Web, affiliate ads have spread like a tropical rash; nearly every high-traffic site, from FoxNews.com to ESPN .com, runs at least a few of them. And despite these companies’ frequent claims that they are actively weeding out affiliate links to potential scams, Web surfers rarely need to look hard to find evidence to the contrary. In 2009, for instance, an MSNBC.com story that called attention to the outbreak of fraudulent advertising featured an MSNBC.com vice president expressing zero tolerance for “fakeosphere” ads—yet as the affiliate-marketing and Internet-fraud expert Pace Lattin pointed out when I spoke with him in late 2012, those very ads continued to proliferate on MSNBC’s site.
“Here’s ‘Las Vegas Celebrity Doctor uncovers one simple trick for a flat belly,’ ” Lattin told me, browsing through a random MSNBC.com page. “I click on it, and it goes to a fake news site. You’ve got sponsored links that say ‘Nevada mom publishes a free facelift secret, doctors angry,’ which goes to a fake blog. There’s one that says ‘Mom outsmarts Botox doctors with her $4 trick to wrinkle-free face, only six trials available,’ which is completely fraudulent; it’s obviously not true. These are all fake.” FTC guidelines require such sites to label themselves as advertorials, but their creators often skirt those guidelines by disguising the disclosure with small, vanishingly pale fonts.
Obviously, Jesse Willms was one man out of thousands trying to make money through affiliate-driven sales. Yet in all my reporting on the shadowy world of affiliates, he remains the only one I have seen referred to not just as an “Internet pimp” but as a “legend” of the field—the half-billion-dollar man.
After Microsoft crushed his company, Willms sifted a valuable lesson from the remains. The lesson was not in what he’d done wrong, but in what he’d done right: a person, he now knew, could make a hell of a lot of money selling products without ever coming within 1,000 miles of them. At eDirect, Willms’s greatest profits came after he began “drop-shipping”—that is, employing remote warehouses to ship off goods he had acquired sight unseen. The only problem with the eDirect model was that not all the software was technically his to sell. If he could drop-ship his own product, though—outsourcing everything about it but the marketing and the revenue—the potential windfall could be huge.
So the question was: What could he sell? According to an article by Joe Castaldo in Canadian Business magazine, Willms pored through heaps of Web data on popular searches and ads to figure out what might catch fire with consumers. The answer he arrived at was weight-loss products. Specifically, he targeted a Chinese tea called Wu-Long, which was gaining a reputation among diet-craze chasers as a fat-burner. Moving with the blinding speed that would become his trademark, Willms rechristened his enterprise Just Think Media, outsourced production of the tea to a “white label” company—a business that creates generic formulas of products and then lets others slap their own labeling on them—and started selling. By the time Microsoft reached its settlement with Willms, in February 2007, he was already pushing Wu-Long through an assortment of Web sites.
To put it mildly, these sites contained a significant amount of deceit. One of his apparent sites, dietawards.org, masqueraded as the home of a panel of nutritionists, doctors, and “one high-priced Hollywood personal trainer” that had deemed Willms’s tea its diet of the year in a ceremony at L.A.’s Staples Center, none of which was true. Another evidently Willms-affiliated site, oprahsdietsecret.com, blared “As Seen On Oprah” in a splashy pop-up graphic and juxtaposed pictures of the talk-show maven with pitches for Willms’s tea. (Oprah later sued Willms and other advertisers for linking her to products she claimed she had never endorsed.) Some versions of the sites even featured a picture of a handsome Asian man with the caption “From the desk of Jesse Willms, Weight Loss Coach and Fitness Guru.”
To make matters worse, Willms had allegedly lifted much of his Web design from the site of another company, Okuma Nutritionals, which had created the Wu-Long name. (Okuma sued and later settled with Willms.) Soon enough, Willms began calling his product Wu-Yi, and he stuffed his sites with “scientific proof,” more “as seen on” endorsements, and customer “testimonials”—some of which appeared to describe experiences with his products over a longer time period than the company had even existed. One woman, Brook Barth, found out that her name and before/after photos were being used to endorse Wu-Yi tea—which she’d never heard of—only when her grandmother’s friend stumbled across a Willms Web page. Barth told 20/20 that after she complained, Willms paid her $1,000 for permission to continue using the pictures. (Willms’s lawyer claims the testimonials were from actual customers and the scientific research came from “reputable experts.”)
Despite all the questionable claims—or, more likely, because of them—the Wu-Yi scheme was such a success that it provided a template for Willms’s future ventures. While his tea business peaked and waned, Willms rapidly debuted lines of colon cleansers, teeth whiteners, and, most notably, acai supplements, sales of which exploded after Dr. Oz spoke of the berry as a potential anti-aging panacea on television. Over time, the Web pages that Just Think Media built for these products hosted increasingly honed versions of the classic Willms themes: dubious scientific claims; implied endorsements from celebrities like Rachael Ray and networks like ABC; incredible “testimonials”; manipulative plays on insecurities (“You wouldn’t have to worry about being the ‘fat bridesmaid’ at your sister’s wedding!”); and “iron-clad” guarantees that “free trials” of the products were absolutely “risk free.”
Needless to say, none of the foregoing tactics could be considered so groundbreaking as to merit several hundred million dollars in sales. But this was all just a starting point; Willms’s true genius was for making tweaks to an existing scheme in order to blast it from mild profitability to blockbuster success.
Fundamentally, Willms’s new business prospered because of two crucial decisions. The first involved the way he took advantage of affiliate marketing to publicize his wares. As Willms must have known, he was neither the only person trying to sell diet products on the Internet nor the only one using affiliates to do it. How, then, could one company break through the noise? Willms’s solution to this dilemma was crafty: he decided to sell not just one brand of each product, but dozens. Whereas his competitors might offer a single acai label, Willms saturated the market with a dizzying variety of them, all of which were essentially the same product; for example, Willms sold his acai pills as AcaiBurn, Ultra AcaiBurn, Extreme AcaiBurn, AcaiSlim Detox, and AcaiEdge Max, among many other names. And this is where his creativity in using affiliates came in. Because he had brand names to spare, Willms could offer each one as an “exclusive” to an individual affiliate network—complete with its own custom-designed, demographically targeted Web site—which made the network far more enthusiastic about pushing the product. Sweetening the deal even more, Willms paid some of the highest bounties around: reportedly as much as $80 a sale, on products whose advertised price might be less than that.
Suddenly, affiliates began racing to deliver customers to Willms’s sites, which tied in perfectly with his second, far more devious maneuver: his approach to billing. To make a profit when he was paying such generous fees to affiliates, Willms had to ensure that each sale led to as many credit-card charges as possible. So beneath his promises of a “free trial,” the FTC alleged, Willms buried an assortment of charges in the fine print of his terms and conditions. After the 14-day trial period for each product, customers automatically became enrolled in monthly subscription plans, for up to $80 a month. Consumers generally didn’t realize this had happened until they either saw the charges on their credit-card statements or received a product they hadn’t ordered, by which point it was too late.
And for his unhappy customers, the charges for the original product were only the beginning of a long, difficult journey. One autumn day in 2012, I spent an afternoon in a vacant conference room at the FTC’s Seattle office looking through the agency’s yard-high stack of files on Willms. Even an hour of perusing Willms’s business tactics was enough to make me want to cut up my credit cards and retreat to a tribal society that barters with root vegetables. In addition to the consumer grievances about shoddy products (one woman, for instance, claimed that the colon cleansers she ordered made her rectum bleed), the FTC’s investigation revealed in vivid detail the tortuous paths Willms made customers travel when they wished to cancel or receive refunds.
With few exceptions, a “free trial” from Willms included hidden extras like a “Comprehensive Weight Loss ebook” or a club membership, each of which carried separate monthly fees, according to investigators. Figuring out what, exactly, the fees were for usually involved a small feat of detective work. In a typical complaint, a customer who had signed up for an AcaiBurn trial found charges from eight different entities on his credit-card statement, many with cryptic names like VHACCESS and ezykit; Candice Rozak, an Edmonton-based customer who signed up for the trial, reported being charged a total of $731 over a few months in this way. Adding to the challenge was Willms’s practice of charging random dollar amounts for the hidden extras—$7.22, $2.97, $3.34—that would look like legitimate purchases. According to the FTC, these irregularly denominated charges were some of Willms’s biggest moneymakers, because consumers either assumed they were genuine or didn’t know to be wary of them. They recurred on some consumers’ cards for months and months.
But even if a customer succeeded in sniffing out all the monthly fees, canceling those charges posed a new ordeal. According to documents filed in the FTC suit, Willms and his employees approved separate call-center scripts for each of his products, all seemingly aimed at creating confusion and halting progress. When customers succeeded in getting through to a call center and asked to “cancel everything,” employees were instructed to give misleadingly literal replies: “Sure, I can help you cancel Acai for $87.62.” If consumers requested to cancel the other charges, according to the FTC, they learned that they had to call a separate line for each product—even though the numbers led to the same call center, and possibly to the very same employee. (Willms’s lawyer claimed that the company received complaints from only a small fraction of its customer base, and that it contracted with “highly qualified” call centers who “guaranteed their compliance with all applicable laws.”) The process for receiving refunds was more complex still, involving thickets of rules and refusals. The only reliable way for customers to get their money back was to threaten to contest the charges with their credit-card company or file a report with the Better Business Bureau.
Over time, Willms’s appetite for new quick-hit opportunities grew positively voracious. In the summer of 2009, for instance, a Utah company called dazzlesmile—which sells teeth-whitening tablets developed by a pair of dentists—began receiving an influx of strange complaints. “People started calling and saying ‘I don’t want this—I’m going to return this pen,’ ” said Roger LeFevre, dazzlesmile’s CEO. “We were like, ‘What are you talking about? A pen?’ ” Soon, angry customers—some complaining of burned gums—were sending the company hundreds of teeth-whitening bleach pens bearing the dazzlesmile name, all of which appeared to have been made cheaply in China.
LeFevre tracked the pens back to Willms, who had been using affiliates to advertise and sell them. “It was an out-and-out hijacking,” LeFevre told me. “They counterfeited our product, they pirated our Web site, and they basically directed all of their customer service to us.” At the peak of Willms’s sales, LeFevre says, dazzlesmile was receiving 1,000 calls a day from customers trying to cancel orders for a product it didn’t even sell. When irate consumers made the name dazzlesmile synonymous with online scamming, LeFevre’s sales effectively dropped to zero. Dazzlesmile sued Willms in November 2009; he later paid a settlement.
Regardless of what you might think of Willms’s business ethics, no one could argue with his results. From 2007 onward, Willms was awash in cash, the whole enterprise reaching its high-water mark in 2009. He intended to enjoy it while it lasted.