Affiliate Marketing Blog - a Traffic Junction Blog

A feature article in Internet Retailer says, “Gaining sex appeal, affiliate marketing is receiving more attention”. Without giving a lot of detail/ statistics as to why they think affiliate marketing is getting sexier, the piece talks about retailers looking at this channel more closely and altering their strategies.

Sexier or not, there are a few discernible (if inevitable) changes that have happened in the recent past:

(a) Affiliates getting more tech-savvy. Not only have they been early adopters of some of the emerging technologies and social phenomena (user behaviour), in many cases affiliates are leading the way and sowing the seeds of change.
(b) Affiliates becoming enough of a force to reckon with to make the large networks listen to them (even though there are some companies that believe affiliates are a lowly bunch out to steal commissions from them). With their expertise, proprietary tools and capabilities, and most importantly, results in terms of greater sales, affiliates have shown the power to shape decisions at networks and merchants.

Undoubtedly there has been continuous growth in affiliate commissions in the past few years, which one would expect considering the growth in overall online marketing budgets. There are two questions that most of us in this field look at closely, the answers to which are probably a better indicator of the health of the affiliate marketing industry (a) are merchants increasing their affiliate marketing budgets as a proportion of their overall online marketing spend (b) is the proportion of revenue contributed by affiliate marketing growing compared to other marketing methods?

Continued success for affiliates will depend on being where their consumers are (whether that be the forums or review sites) and secondly, speaking in the language of their consumers (if consumers like videos, then the affiliates better give them videos..). Of course, these rules apply to any form of marketing; thus far, affiliates have pretty much followed these rules to a ‘T’ and there’s no reason why they wouldn’t continue to do so and get even sexier…

In a detailed interview with e-Consultancy, ValueClick Europe CEO Carl White speaks on a number of topics including the current consolidation in the online markting industry, the Google threat and their own plans for the UK. His answer to the expected question about the Google threat, particularly with the latter’s entry into the CPA market, was also along expected lines [how could he answer it any differently?]: that Google’s entry only reinforces the CPA model. He also tried to project the “strengths” of Commission Junction as a “high touch” model, instead of it being completely automated. Well, I’d be surprised if that response wasn’t solely for the media– because Google has shown an uncanny ability to successfully automate processes that we once thought could never be completely devoid of intervention by support staff. While we can’t argue with his assertion that Google’s entry reinforces the model, if ValueClick/ Commission Junction (or for that matter, any of the networks) don’t see it as a challenge, it wouldn’t be smart at all.

The other highlight of the interview [and this has more bearing on affiliates] is ValueClick’s plans to be a publisher– there are apparently a large number of domains that are in their portfolio that they intend to roll out including the relaunch of classifieds.co.uk and the development of local.co.uk. ValueClick already has the shopping portal shopping.net. When a network is a media agency and is also a publisher, there is always the apparent conflict of interest; but this looks like a fairly common (and acceptable) scenario in the online media world.

Soon after Linkshare set up operations in the UK, it looks like Linkshare’s parent company, Rakuten plans to tap into the UK’s booming market for online shopping. The Japanese internet giant plans to set up a ‘virtual shopping’ along the lines of what it has in Japan[news courtesy: The Independent, e-consultancy.co.uk], though it is not clear if it will follow the same business model in the UK [a membership fee for merchants + a percentage cut of all transactions].

A few affiliate networks have launched recently in the UK– adding to the many established players. There are a couple of blogs asking these related questions: do we need more affiliate networks in the UK and whether new networks will be able to attract affiliates?

As to the first question, I think the answer really depends on who you ask. At the rate at which online shopping is growing, may be there is space for some networks that operate in their own niches [whether it be in terms of vertical segments or size of advertisers/ merchants or the type of rewards programs they run]. As long as they are able to identify and create a strong niche for themselves, I suppose there will be takers for these networks and they will survive. I think the answer to the second question also lies in the above sentence- affiliates will join networks provided they find good programs to promote with considerable potential, the compensation offered is good and the network can deliver on service and support and affiliates can believe that they can trust the network.

It is also likely that the recent spurt in new networks entering the market is driven by some of the M&A activity going on in the online advertising space and the large sums of money involved. I just hope that networks are not launching with the end goal of being part of an acquisition and hope to enjoy the inevitable ‘consolidation’…

Affiliate marketing network, Linkshare, has acquired a US-based ‘lead generation’ company, TrafficStrategies.com with plans to incorporate the latter’s expertise into its own lead generation offerings. In many ways, it looks the acquisition is akin to a major network acquiring the capabilities of an ‘affiliate’/publisher, which is what many of the independent lead generation companies are. Not entirely surprising considering that top performing affiliates seem to be equipped with better skills and proprietary systems than some of the companies and networks they generate leads and sales for.

While the above news might be welcomed by merchants/ advertisers that could leverage the ‘complementary’ strenghts of the two companies, earlier this week week Linkshare announced something of interest to affiliates.The company introduced a new web services offering for affiliates, called Automated LinkGenerator. According to the announcement, “this new tool does not replace Merchandiser (LinkShare’s datafeed), but will be helpful for getting direct links from merchants that do not offer Merchandiser feeds.”

The M&A activity in the online advertising space has likely peaked for the immediate future (though a question about the future of ValueClick or Commission Junction is never far away)— the intense activity of the past two months is going to be tough to beat anyway. The next few months may see some more consolidation, but I suspect the focus will now shift on product and service enhancements targeted at end users rather than market capitalisation and P/E.

It’s a season of big name mergers & acquisitions in the online advertising space. Google, Yahoo, Microsoft and WPP have all been out on a shopping spree shelling out serious money in the past couple of months . What’s more, the mother of all mergers [Microsoft & Yahoo] is waiting to happen, if all the rumors are any indication [of course, the wait has now gone on for more than a year].

Compared to the multi-billion dollar deals that have happened recently, Zanox’s acquisition by Axel Springer and PubliGroupe seem to a much smaller deal at €214.9 million (plus some performance-based payments). The acquisition will result in the formation of 2 companies that will operate the zanox brand. While the deal looks like an an all European affair, the intent (as expressed by the management board of Zanox) is to grow internationally.The punchline, stated by all three of those board members in a video release, is ‘monetize the Internet’.

However, the attention will invariably shift to ValueClick/ CommissionJunction– the spotlight has been on ValueClick for more than a year already, but it has been overlooked thus far. The moot question is: even if it is ready to be acquired, which major online media player (of course it doesn’t have to be one) will it be?

For $3.1 billion, Google acquired advertising solutions provider DoubleClick. Google has been stirring the online advertisng pot for a while now and coming up with various concoctions— while all the while getting closer to near absolute control of worldwide online advertising [well, it looks like Google is out to control not just the online ad scenario but any known form of advertising — albeit, leveraging the Internet to do so].

Organizing the world’s information is the company’s stated goal, but everything the company seems to be announcing these days seems to be about getting control of the advertising options available when presenting that information.

Just a month ago, Google had announced its plans to enter the PPA market; with the DoubleClick acquisition, Google may have made further headway into the affiliate marketing space since the former’s affiliate marketing unit “Performics” is part of the deal. What exactly Google does with Performics will be very interesting.

Will there be a conflict of interest now between between different units of the same company? Google is known to be pretty hard with affiliate marketers, who have found it pretty challenging with their search engine marketing efforts on Google [both organic and paid]. Will this change ? Obviously, we can expect Google to say that everything is controlled by their powerful algorithms and everybody gets equal treatment—- but can everybody continue to buy into that without any doubts whatsoever?

Another thing to look out for in the next few weeks and months is the moves by Yahoo & Microsoft and what they do with some of the other big ad networks. We can be pretty certain those two companies will not surrender in the battle for advertising supremacy without a decent fight—- though from the look of it, there seems to be only one winner.

2006 was a bumper year for UKonline advertising, surging by over 41% from the previous year, according to data released by the UK Internet Advertising Bureau. The internet now accounts for over 11% of all ad spend in the UK.

Some of the key details from the report are excerpted below:
“The results reveal that expenditure on the internet overtook advertising in national newspapers, which last year recorded growth of 0.2% to £1.9 billion and a market share of 10.9%. In 2006, the internet was just over half the size of the TV advertising market, which experienced a fall of 4.7% to £3.9 billion.

In 2006, online display advertising (including banners, skyscrapers and online sponsorships) rose 35% year-on-year to £453.7 million.

Traditional advertising formats, such as banners, were reinvigorated by an increase in the use of rich media, which includes graphics, audio, video or animation. Once again online display advertising is experiencing growth far greater than any other display medium.

The growth of paid-for search (sponsored listings that advertisers pay for when a consumer clicks through to their site) was sustained, increasing by 52% to £1.2 billion of total online ad spend or a 57.8% share.

Online classified advertising was also up 45% to £379 million, a share of 18.8%. This is in contrast to traditional press classified advertising, which experienced a significant decrease of 7.8% year-on-year. “

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The increase in online advertising spend can be correlated to the increasing penetration of broadband Internet in the country, with more than 50% of the country’s adult population now having access. According to a report on Netimperative, based on the Digitial Progress Report by Ofcom, “more than 13 million UK homes and small and medium-sized enterprises (SMEs) are now connected to broadband, compared with 9.9 million a year earlier and 330,000 in 2001. “

Both of the above news augur well for affiliate/ performance marketers who depend for the most part on online traffic for sustaining and growing their businesses.

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Meanwhile TradeDoubler, which has been in the news for various reasons, has had some changes in its top management. In the UK, the company has appointed Mike Glegg as its UK Sales Director to “to drive new business across multiple programmes, to further expand the UK sales team, and to build on TradeDoubler’s UK achievements to date, which have seen the company ranked as the 24^th fastest growing digital media company in the UK* with an impressive 284% revenue growth over two years.” This follows William Cooper taking over as President and CEO of the company towards the end of last month.

For almost 2 years now, speculation has been rife about Google’s entry into the “affiliate marketing” arena as we commonly know it [granted Adsense is an affiliate program, which is never viewed that way]. With the latest announcement of the pay-per-action option (beta) in Adwords, Google’s arrival into this space is formally confirmed. Not unsurprisingly, there’s considerable buzz about this development on the major affiliate marketing portals / blogs.

As always, one of the first questions being asked is: does this kill affiliates? On the contrary, I think this could serve to be an opportunity for affiliates. Here’s why. Currently many professional affiliates stay away from using Google’s AdSense program, simply because the CPA programs they promote provide a much better return per conversion than what one could hope to make from AdSense [in general; i know there may be some segments where CPC revenues might be quite attractive]. With the PPA [or CPA] program from Google, these affiliates can now begin to use the AdSense program as well.

We don’t know yet what kind of criteria Google is going to set for advertisers to sign up for this program when it is made public, but I’d think it will offer a much bigger pool of advertisers/ merchants than what most affiliate networks currently provide. Therein lies another opportunity for affiliates.

Two audiences could feel the heat at some stage: a) the networks: how will this move affect the marketing strategy of their current crop of advertisers and what will their reaction be? (b) the large number of AdSense publishers who thrive on the CPC model— I’m not sure if Google will move completely with a CPA model for AdSense [as the company has quite a bit at stake], but if the CPA trial works out well, there might be changes to the way AdSense is run {of course, it is pure speculation}.

Nevertheless, we will be waiting to see the (domino) effect of this announcement.

According to a report on Clickz that quotes statistics from IAB, online marketers spent close to $600 million in acquiring leads in the first half of 2006, using various lead generation techniques. Yet, there have been questions on the effectiveness of this spend, mainly because of the uncertainty in the quality of leads generated.

Therefore the IAB has come up with a quality ranking system for evaluating the quality of leads, to help marketers/ advertisers decide where to put their dollars. The quality ranking system proposed takes into account five aspects: origination of the lead, lead exclusivity, lead age, customer motivation and validation/ verfication of the lead manually and third parties.

One of the challenges of this kind of a scoring mechanism, unlike defining something such as page impressions, user sessions, ad formats etc. which the IAB is involved with, is that it cannot be applied as an absolute standard and has to take into account factors such as the industry and the advertiser’s objectives. The onus is therefore very much on the marketer to accurately define the relative weightage of the above parameters as applicable to that advertiser’s objective and come up with an appropriate score when trying to compare various lead generation sources.

From a lead generator’s perspective, I think very often the “problem” is that marketers [or lead buyers] themselves don’t have a concrete idea of the exact kind of leads that they are looking for. Since they run the risk of identifying their prospect base too narrowly, there is a tendency to be quite broad with their specifications of what is considered a lead — and then we get into this discussion of lead quality. Obviously, the tighter the definition, greater will be the premium for the lead.

In today’s “long tail” world, may be marketers are willing to make compromises there and hope to widen the net with the hope of converting a few more of those “low quality” leads…