Essential to successfulmarketing
According to research from E-consultancy, companies across all industries spend, on average, 18% of their online marketing budget on affiliate marketing. In the same research, 62% of retailers say that they are spending more on the channel than they were two years ago.
This significant rise in the usage of affiliate marketing is testament not only to the exceptional return on investment offered by the channel, but also to the efforts of networks and affiliates to recognise and adapt to the needs of advertisers and agencies. The market is not only growing, but becoming more sophisticated, both in terms of the rise of “super affiliates”, and with the development of new technologies. Affiliates are nowa trusted and innovative sales force – an essential part of themarketing mix.
So where will we be in the future? We believe that developing technologies such as mobile and behavioural targeting will definitely have taken off. We are likely to see a thickening of the long tail with niche products representing a larger share of the sales, we will see a more evenly distributed weight among best performing publishers, for example 50 to 100 sites instead of ten generating 90% of the volume.
There is likely to be consolidation across the affiliate networks, and networks will be repositioning to cater for the ever changing landscape. There will be a rise in different players providing affiliate services such as specialist agencies. In a nutshell? Things are about to get even more exciting…
Alison Guise, general manager, Commission Junction, Europe,
Oxford House, 182 Upper Richmond Road, London SW15 2SH
t 020 8785 5870, www.uk.cj.com
Results drive development
As the channel matures, technology, consolidation, brand bidding and social media will be among the major issues for affiliate marketers in the next 12 months. By Sean Hargrave
Just a couple of years ago the major personal finance brands using the MotleyFool.co.uk money advice website for generating sales would tell its managing director, Saul Devine, that their spend on affiliate marketing sites was around 5% of total online budget. Today, they are telling him it has grown to at least 20% or 25%.
Affiliate marketing is coming of age as the very simple message that underpins it – merchants pay for results, not traffic or leads – is supported by better behaviour among affiliate sites and more thorough accountability. At the same time, the year ahead looks likely to see huge debate over the relationship merchants, and brands should have with affiliate sites and whether this extends as far as to allow third parties to bid for brand names in Google.
The entire affiliate marketing model could also be shaken up by potential plans to alter the way affiliates and other marketing agents are rewarded and, at the same time, affiliates themselves could change with the rise of social media to enable individuals to become affiliates, generating revenue from the leads they supply from their online communities.
As these developments take place, there will undoubtedly be much talk about consolidation, as small affiliate networks find it hard to keep up in the technology race and venture capitalists that have backed the giants consider whether it is time to reap the reward for their risk.
The notion that a merchant should pay on a cost-per-action (CPA) basis, such as how many items they sell or how many people sign up to a newsletter, had led to some tactics in the past which brands felt uncomfortable with – namely a lack of clear rules over third-party affiliate sites bidding in Google on search terms that contained their brand name.
However, with the rise of large affiliate networks, that link multiple affiliate sites so customers can manage accounts through a single contact (although many might combine different networks), brands are being reassured they can trust the medium.
The main area where there were problems in the past was affiliates bidding for brand names without clear and defined agreements from the owners of those brands.
“Just three or so years ago there weren’t any really solid rules,” admits Kevin Cornils, chief executive of affiliate network BuyAt. “Now the medium has grown up and there is 100% accountability as the technology has progressed and the reputable networks have got better at ensuring that brands and the affiliate sites they’re using know the ground rules.”
The crucial issue is, and will undoubtedly continue to be, brand bidding. While some brands would consider it a breach of their trademark to allow a third party to bid on search terms in the leading engines, notably Google, some will allow it so long as there is agreement on how it should be handled. Although many will see it as cannibalisation of their customers and allowing a third party to make a living from a brand it has created, there is the potential advantage that a brand can dominate branded search terms through affiliates. Google only allows the same Web address to appear once in its “sponsored links”, and so a brand could bid for terms relating to the item it is focusing on and then allow affiliates to bid on terms relating to its other products, argues Cornils.
“If you have a long tail of products or services, you may want to focus on your main one at any time and let affiliates soak up the rest,” says Cornils. “It means you get sponsored links for other products and not just the one, but you must agree the terms with affiliates. Often the fee for a sale generated through an affiliate using the client’s brand name will be lower than for a generic term, to reflect that it was made with the help of that brand’s own name.”
Maz Darvish, chief executive of Affiliate Future – which lists the Disney Book Club, tour operater Kuoni and Currys among its clients – believes this could turn out to be the leading debate around the channel this year. “It’s not something that I advise our clients to get involved with, it just cannibalises their traffic and you end up buying customers you’ve already got,” he argues. “People increasingly use Google to find a homepage, even though they probably know what the url is likely to be. So a brand can advertise on TV, then someone can look for that product on Google and end up clicking on an affiliate – so you’ve paid for that customer at least twice.”
While that debate rages, and marketing managers make up their own minds about how their interests are best served, another hot topic they need to be aware of is technology.
Affiliate marketing makes a huge play on its claim to be risk free, saying that clients only pay on results. To support this claim, the networks linking affiliate sites have had to invest vast sums in technology to keep track of campaigns and to ensure the complicated tracking process is fully accounted for. Ensuring merchants know what they get for their spend and that affiliates get their rightful rewards is a complex issue.
It is this ongoing need to invest which David Hall, communications director at Affiliate Window, believes is the key channel-defining issue of the year. “Technology is the most important thing any affiliate network must have to run its network properly and it’s very expensive,” he says.
“A couple of years ago you were getting small networks, maybe of just a few sites, but these are falling away now because they can’t compete with the technology to track campaigns and make them fully accountable. So you’re going to see a lot of consolidation as the big guys, of which we are one, are more dominant than in the past.”
This heavy reliance on technology, and hence the investment required to buy the technology, means that venture capitalists and wealthy individuals who have backed affiliate networks are potentially looking to sell and reap the reward of their investment.
“You’re going to see the big guys potentially buying small, niche players, and the big question is whether outside marketing giants are going to come into the UK and buy the lead players,” adds Hall. “It’s safe to say that anyone who has been backed by venture capital, such as BuyAt, is looking to be sold or considering whether to look for a trade sale.”
Cornils refuses to confirm or deny widespread industry gossip that his company is actively looking to be bought, but he does point out that any company backed by venture capital is going to have shareholders that are looking to profit at some stage from their previous investment.
However, his big tip for how the year ahead will be shaped comes in the form of social media, where BuyAt has been working with WAYN.com (WhereAreYouNow), a social network formed around people looking to reconnect after travelling. It is now allowing its users to add their favourite items (DVDs, books, hotels and so on) so that if another person clicks on the link in their profile and makes a purchase, the user gets a cut.
Facebook may have made the headlines for all the wrong reasons, – issues around privacy and the giving away of Christmas presents – when it launched a service that let people see what their friends had been buying online. The service offered by WAYN, however, is not a recommendation service, but an extension of this that rewards users for the leads they generate.
“The Net’s becoming more fragmented as people disperse into social networks, so imagine the power of turning those people into affiliates,” says Cornils. “They effectively use their profile as a shop window and people they know can buy through them and they get a cut. It’s based on users opting in. Nothing is forced on them and their customers can trust what they’re recommending because they’re often their friends. It’s an intensive process to get it set up, but it’s going to completely change the future of affiliate marketing as individuals start to become their own affiliate.”
Another affiliate marketing debate that is sure to rage on in 2008 is the model by which affiliates and other channels are rewarded. At the moment, it is widely accepted that the last site that provides the click on to a site that leads to a purchase should take the commission. However, there is an argument that other affiliates, which may have got the person interested in the product on an earlier visit, could potentially deserve a cut – as could the search engine result they acted on or the site owner which displayed a banner they clicked on previously.
“There’s some very interesting work establishing how commissions might be better divided,” says Hall. “Affiliates work on a tag that follows the purchaser on to the site where they buy a product, and if you could make an effective ‘super’ tag which could work out if other affiliates, search engines or sites displaying banners played a part, then that would be a very powerful tool.”
Affiliate Future’s Darvish disagrees, fearing technology might not be able to deliver on the promise. “It would be incredibly complicated and you’d need tags from everyone involved,” he says.
“Those tags would end up with code being as long as the page itself and would slow up the whole process. I think you just have to be grown up about it and realise that it is a first-past-the-post system. Sometimes you lose, sometimes you win, and it should balance itself out.”
TradeDoubler chief operating officer Andreas Bernstrom offers one prediction for the shape of the year ahead, which all affiliate marketers will agree on and hope comes true. He predicts that, in addition to consolidation among providers as small affiliate networks struggle to match the technology spend of the large networks, we are also about to see packaged-goods brands try out the channel. While these brands usually do not sell their own goods, and so cannot give a commission based on a sale, they can pay for other actions, such as joining a brand’s newsletter. This use of affiliates for branding, instead of direct sales, will take the channel down a new path, he predicts.
“I firmly believe the year ahead will see packaged-goods brands, which have yet to use affiliate marketing to any great degree, test the water,” he claims. “They will come to realise the potential of affiliate marketing, not just as a channel to drive direct response, but also as a key component in their online branding strategies.”
This potential move into branding will come at the same time that social media sites will be deciding whether to follow WAYN.com’s lead and turn their users into affiliates.
These are arguably fresh opportunities and challenges for affiliate marketing, as it evolves into a highly accountable, technology-led marketing channel in which a handful of large players look set to dominate more this year than in the past.
At the same time, however, two debates that seem to have hung over affiliate marketing for the past couple of years look set to rise to prominence once again. The first is about allowing affiliates to bid on branded terms in search. One network will argue that this is paying for the same customer twice, while another will point out that it allows that brand to dominate the sponsored links of Google and prevent that traffic going to a competitor. Ultimately, the decision will rest with the marketing team behind each brand concerned.
The second is the issue of “super tags” that reward everyone in the digital marketing chain. This is not likely to take off until somebody can prove it can be done without slowing up the delivery of pages and delaying customers from researching and buying goods online.