Affiliates: From Black Sheep To The Future Of Performance
1 March 2010Introduction
So what does the future hold for performance based marketing? Well this is a tricky question to answer as – unlike other traditional channels – performance marketing constantly evolving, and morphing. This article will explore the various elements of performance marketing, focusing on affiliate marketing and lead generation and hypothesise what the next few years may have in store for this sector.
Since 1998 affiliate marketing as an industry has matured along with affiliates’ promotional methods and clients’ expectations. An increasing number of clients who, up until a few years ago, focused on the long-tail approach are now focusing on a select pool of experienced/specialist affiliates to deliver large volumes of sales at a cost effective price. The long-tail still exists and is still seen as an important factor in driving sales for certain sectors; however, with the increased concerns regarding fraud and issues concerning brand representation, it is natural for some clients to want to know exactly where and how their brand is being marketed. Media Contacts was early to recognise this evolution and has evolved its business to adapt to this.
So where are we at the moment?
Affiliate types
Whilst working in the performance market it’s noticeable to see that top performing affiliates are now focusing on specific traffic driving strategies; resulting in a clients’ brand and product gaining visibility across a range of mediums.
Paid search
The concept of paying for traffic is still integral to affiliates. Recently, however, paid search affiliates have had it tough. A competitive marketplace has led to increased bid prices and, whilst the commission clients pay affiliates has remained fairly stable, the margins have become tighter – leading to a diminishing ROI. With Google’s brand policy change in 2008 (turning the search landscape into a free-for-all), affiliates are once again seen as saviours for clients, protecting their search campaigns by building micro-sites to position ads under those of the brand owner. Media Contacts has successfully set up brand bidding groups to block out competition, maximise sales and increase visibility for clients.
Natural search (SEO)
SEO is of growing importance to affiliates. A strong understanding and effort to increase their search listings has led to affiliates creating an improved user experience for their visitors. Affiliates’ awareness of Google’s preference for sites with rich, unique and regularly updated content has meant that many media owners now hire web content specialists specifically for SEO growth. In general, SEO affiliates are in one of the strongest positions to weather any online storm as they do not have to pay inflated prices for their traffic. Of course, these sites are only as strong as Google’s next algorithm change; however, through regular updated content and great SEO skills, they can maintain organic listings. Where possible, to aid such media owners optimise their campaigns, Media Contacts recommends clients offer as much promotional material and copy for their affiliates.
Social Media
The buzz word in 2010 and one which affiliates have begun to capitalise on is social media. A number of affiliates have turned to this medium to drive traffic to clients, utilising the likes of Twitter, Diggit and nameless other social media/bookmarking sites. Even the company behind the most popular Facebook app (Farmville) is an affiliate. Over the next year, you’ll see a lot more affiliates appear within this space.
Another notable strategic route becoming integral to a client’s online campaign is email marketing. There are now affiliates (such as Intela and TMN) who send out messaging and offers on a client’s behalf. As there is a cost involved in sending emails these affiliates tend to demand a higher commission, but, as the risk lies on the affiliates’ shoulders, clients should be flexible in offering a higher bounty rate.
Reward/ voucher sites
Reward/incentive sites (such as Quidco and Nectar) continue to flourish in this time of scrimping and saving. Currently these sites rely on word of mouth to increase their number of users. Once these sites begin to aggressively market their offering they will come to form a large percentage of a client’s total online sales. Voucher code sites continue to perform well in certain sectors and, although in the past they were tarnished with a certain ‘negative brush’, recent legislation has made this area a lot more closely regulated. Media Contacts do advise that voucher codes should be managed in a controlled environment, thus a dedicated affiliate manager is recommended.
Lead generation
Lead gen is a growing channel within the performance portfolio. In its simplest form, lead gen is the method by which clients can obtain contact information on engaged and targeted users; once obtained, they can be marketed to on an ongoing basis. A phrase which was frowned upon a few years back, lead gen has now matured. The advent and evolution of ‘white-label’ and management software (from the likes of Magnetise and Emedia) has led to a greater focus on warmer and higher quality leads.
Clients can choose from premium leads (likely to be high quality but low volume) that tend to work for higher ticket/niche products or co-reg/incentivised leads (likely to be medium quality but high volume) that work for FMCG, sampling, mass market goods etc. If, as a client, you have not yet trialled lead generation, Media Contacts recommends getting involved in this area to avoid losing out to competition.
So what does the future hold for affiliates?
Although there will continue to be a large group of vertical specific ‘one man bands’ there will also be a number of acquisitions/mergers by affiliates leading to the formation of super affiliates. These super affiliates will drive large volumes of sales and leverage this power to demand increased commission, service etc. from networks and agencies. Affiliates will continue to work in certain industry verticals, focusing on a range of mediums to drive traffic such as SEO, email, lead gen, reward etc. The affiliates will also migrate overseas exploiting of their skills and expertise in un-tapped and naive markets. It’s at this point that an affiliate’s loyalty to a client’s brand (especially international clients) will be pivotal to continued presence in other markets.
Commission metrics
Inevitably the concept of affiliate marketing boils down to the fact clients pay partners on a performance basis (CPA). A new trend is now emerging whereby traditional CPA partners have begun to demand a CPM/ CPC deal in order to get clients featured on high exposure areas of their sites. The commission model is also changing (examples include eBay offering their affiliates a CPC, as well as a fixed bounty, or 888.com offering affiliates a percentage of a members’ net loss) and clients need to keep up with all the changes.
So what will become of the CPA model and will it be around for much longer? Well, yes, it will. Due to its ‘win-win’ model, the CPA design will be the preferred payment metric for many years to come. Clients beware; although affiliates are viewed as a cheap option to drive sales, there will come a time when they will demand their fair share for a sale. The concept of ‘last click wins all’ will also diminish over the next year or so. The idea of remunerating affiliates based on the part they played in driving a sale is still in its infancy, however, this could become reality towards the back-end of 2010/ beginning of 2011. Agencies such as Media Contacts has already embarked on a project to understand the true value of affiliates and the part they play in the overall mix.
Agencies/ networks
So what’s the current situation with affiliate networks and agencies?
Last year, there were some notable acquisitions by networks including AOL’s acquisition of Buy.at, the combining of Affiliate Window and Zanox and TMN’s acquisition of Affiliate Future. Due to the saturation of networks (over 20 in the UK) it’s really only a matter of time before more networks merge to create powerful entities or begin to specialise in purely one vertical sector.
Another noticeable change with affiliate networks is the white-labelling of their technology to traditional agencies. Not all networks have gone down this path but those that have, have created for themselves an additional revenue stream. So what about agencies acting as networks? Well, the increase in experienced staff has meant that, over the last year or so, agencies such as Quantum and Media Contacts have begun to offer their own in-house affiliate marketing solution.
The approach we take varies according to the client; some running campaigns directly with key affiliates and others working with a select number of leading media owners and collaborating with third party networks to manage the long tail. So what does the future hold? From a client’s point of view, what matters is the value they receive from either agency/network. Parties who sit back watching sales roll in without proactively (and creatively) coming up with new ideas and strategies will be left behind. Affiliate networks left on the side lines will turn to specialisation in certain industry verticals.
By the end of 2011, most agencies would have dabbled in running their own affiliate programs in-house. Agency staff will be a lot more knowledgeable and thus demand a more strategic approach for their clients from affiliate networks.
Media Contacts have also developed other performance driven tactics to complement affiliate. We have recently launched our own ad exchange platform where, following initial tests, we will work on a CPA model. An increasingly competitive ad network landscape has been seen with more networks offering CPA based deals. So expect to see more opportunity in this space.
Technology
Affiliate marketing has evolved over the years, bringing to light new technical advances that both help drive client sales and facilitate an affiliate in their campaign optimisation. Nowadays, networks offer a suite of technology from customised widgets through to content units. And it’s not just networks creating innovative ideas; a growing number of independent companies have created their own technology from award-winning Skimlinks to the white-labelling of cashback sites.
So what does the future hold? With increased competition in the affiliate sector, there is likely to be further investment in new technology: content translators, interactive video, faultless product feeds, dynamic creative, mobile apps etc. are all possible advances in the future.
Conclusion
So what do you get if you mix open-minded clients, creative affiliates, proactive networks, knowledgeable agencies and a cost-effective method of driving sales…? A future proofed marketing strategy which will continue to play a pivotal role in the online marketing mix. As long as affiliates keep up with the way the web is evolving (which, inevitably, they will do), embracing new technology and driving sales for advertisers, then affiliate marketing is here for a long time yet and, as Head of Affiliate Marketing for Media Contacts, I am looking to the future and smiling.
If you have any questions, or would like more information please contact us.