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DGM UK Questions

How Could the Famous Affiliate Marketing Company go Broke?

DGM UK was "UK Affiliates" which was one of the first affiliate marketing companies. It was a success for many years, and it is a mystery that DGM UK has gone into Administration (in mid July 2010), leaving affiliates unpaid even despite the fact that the merchants have already paid in advance!

The first question is: How could DGM go bust? It seems almost beyond reasonable belief that an affiliate marketing company could go broke. The fact is, merchants pay up front, and in a company that's run properly, that money is ringfenced so the proportion of the money that's destined to be paid to affiliates is protected! In some lines of business, companies are compelled by law to operate in that way (for example building societies and casinos). In others, it is optional, but it is a matter of good business practice and commonsense, and I find it hard to see how DGM UK could have failed to get this right. I heard one affiliate say "They've been borrowing off the Bank of Affiliate!". Well, if that were the case, then it's not fair! We trust companies to behave in a way which is solvent.

To draw an analogy, if you put an investment of a coin into a slot machine, you might win or you might lose, but it's a fact that you should have a chance of winning. That's because the machine contains a "float", a stash of coins with which to pay out, in case anyone is lucky enough to win.

Admittedly DGM UK had a built-in delay in paying affiliates, which is fair enough. They did this for good reasons, such as to make sure that affiliates weren't cheating, committing fraud, etc. It also helped to knock down some of the more dodgy practices such as indiscriminate PPC, false voucher codes, spam-sending, cybersquatting, and questionable incentivised leads. Such short-termism was thus discouraged. However, although it's acceptable to delay payment to make sure it's honest, and even to earn interest on the money being looked after, it's quite a different matter to spend the money and to leave affiliates and merchants alike without the money.

Another question I have about DGM UK is to do with the behaviour of the Administrators after the company went "into Administration". The Administrators of DGM UK were RSM Tenon. It is the job of Administrators to maximise the value of any assets owned by a stricken company and to sell those assets and then, after taking a cut (everyone's got to make money), to pay out what's left to all creditors.

The people at RSM Tenon were friendly and nice to folks who phoned up, and they listened to me when I phoned and pointed out an important fact: The most valuable asset of an affiliate marketing company is the network of links on the Internet, between affiliates and merchants. It is a complex matrix of connections, and it exists in the virtual world. However it is truly the most valuable asset, and far exceeds in value the "merchant list" and "affiliate list" combined. Yet, from what I can see of what happened, and in my own opinion, Administrators RSM Tenon did not make the most of that most important asset!

To draw another analogy, supposing an estate agent had gone into Administration, and the Administrators were there in the office making notes on what they could sell as assets. It wouldn't take a lot of doing to point out that the most valuable asset was not the desks and chairs, nor the computers, but was in fact the Goodwill consisting of a set of vendors whose houses were up for sale and a set of potential customers who had made appointments to look around those places. Money could be made available by the completion of any such pending deals, and even if the Administrators didn't fancy going into business as estate agents for a week or two, they should still see if they could sell-off ongoing business to other estate agents in the town! That's where the most valuable asset could be realised, not by going around town with a pickup truck and uprooting all the "For Sale" signs from people's gardens and selling them as firewood. Nor would shredding all of the appointment books and brochures as recyclable waste paper be much of a money-spinner. The real value is not in such ephemera, but in the ongoing Goodwill and good business!

Still, it was jolly nice of RSM Tenon to send all of us affiliates a list of all the creditors. Makes amazing reading! ...and NO, I'm not going to publish the list online as it's private and confidential.

Another question about DGM UK is: How could they not make money? Affiliate marketing companies are cash-rich businesses and have good cash flow. It is baffling to think that somehow they have lost money. Could it be that their running expenses were too high?

They made money for many years, so what went wrong in 2010? They had just set up DGM Travel Maps, which probably had a start-up cost, but after that it was likely to be a success. Oddly, now there is no more DGM UK, the DGM Travel Maps are devoid of markers. This is surprising, as I had heard that DGM Travel Maps were going to continue and would be an asset to whoever acquired that resource. Seems a shame if it goes to waste.

If you're wondering what happened to the affiliate programs of a variety of merchants at DGM UK, there's a list of DGM UK Merchants which is being updated as merchants migrate. Please help to keep us informed about news on this.

This raises another interesting question about DGM: Why didn't the merchants recover their affiliate arrangements immediately? Surely a merchant has a list of all of their affiliates? Or, even if they don't, it should be a matter of auto-acceptance on a new network for affiliates who already have dedicated affiliate pages promoting the companies in question. Although, to be fair, it is a fact that many companies DID have a new affiliate program as quickly as possible with another network, and were quick to resume affiliate links with affiliates who had previously been promoting them, it's also a fact that there were many others that didn't.

Looking for someone to blame for the bankruptcy of DGM UK? Well, if you like you could look at whoever put the "winding-up petition" against the company. It was the Tax Office. You might suppose they did it out of spite. However, it suggests that DGM UK should have emigrated and become a tax exile company a while ago. Alternatively, you could look at the way the technology and inter-business contracts were heavily connected with DGM PRO (Asia Digital Holdings) the international group. It may have been this inextricable interconnection that made the DGM UK company unable to realise any significant value at resale of the important Goodwill etc. For example, all the tracking was done via www.s2d6.com which was owned by DGM International, and DGM Travel Maps somehow ended up owned by DGM International even though it was initially a UK project to promote British holiday resorts. Alternatively, if you prefer a blameless solution, you could assume that the credit crunch was the reason for the loss of the company, and/or the increased competition in the affiliate marketing business

On a lighter note, see rats leaving a sinking ship