In case you missed the initial news and findings, here’s Simon Holland’s news post detailing the launch of the dubbed ‘hidden’ marketing channel industry study.
As you will no doubt be aware by now, the Affiliate Marketing industry in the UK has been valued (alongside Lead Generation) as a £9 billion revenue generating industry. The key findings and big numbers have been released, however the report throws up even more interesting figures. Read on for additional insight as I plough through the OPM Online Performance Marketing study.
A quick note before I start to say that this study is a long time coming. From A4u’s perspective the only way this type of study was ever going to come to fruition was from the support of networks, agencies, technology solutions and key stakeholders who could submit large volumes of revenue data to such a specialist company.
In addition, thanks must go to all financial contributors (A4u included!) who enabled the IAB UK to commission PwC into conducting the study.
As an industry that was described within the initial press release as the ‘hidden’ marketing channel that generates significant revenue for brands; those that have been involved in Affiliate & Performance Marketing for such a long time prior to these figures being generated will be pleased to finally see the channel gaining the recognition we feel it has rightly deserved for many years.
Here’s another brief overview of the key findings from the report:
- There are c. 3-4,000 advertisers and c. 10,000 publishers actively engaged in Online Performance Marketing (in this instance - Affiliate & Lead Generation)
- Advertisers expected to spend (through commissions, management fees, bonuses and other marketing spend) £814 million on Online Performance Marketing in 2012, generating c. £9 billion of sales for advertisers
- This spend was achieved through at least c.100 million transactions and an additional c. 70 million leads generated
- This is equivalent for c. 7-9% of UK digital marketing spend, and drives c. 5-6% of retail e-commerce in the UK
- The largest end-sectors include Finance, Retail, Telecoms & Media, Travel & Leisure
- Market growth of c. 14% p.a (2008-11) and c. 7% p.a in 2012 (expected)
- Cashback, voucher, loyalty and price comparison websites are the leading publisher types
- Sites designed specifically for mobile and tablet account for c. 4-5% of advertiser spend on Online Performance Marketing
Analysing the OPM Online Performance Marketing Study
Let’s break these key highlights down, attributing relevant figures and additional channel comparisons. For this article, I’ll refer to Affiliate and Lead Generation as the OPM study, even though I have a few issues with it being a ‘performance marketing’ study that only details two of its many channels.
c. 3-4,000 advertisers in the UK have leveraged performance marketing, where up to c. 10,000 publishers have the ability to work with them to drive sales. Being for the most part a pay-on-performance model, publishers are deployed to work within brand guidelines to become an additional sales arm to a brand’s e-commerce strategy. Within these 3-4,000 advertisers are some of the UK’s largest brands, including Tesco, Vodafone, BSkyB, Next, Marks & Spencer, American Express and Admiral.
Advertisers have spent £814 million, which has generated c. £9 billion of revenue. That’s around £700 million through affiliate and £114 million through lead generation, judging by the figures.
Comparing that to the wider market & economy (as much as is feasibly possible) puts OPM also at c. 6% of the UK internet economy and c. 0.6% of UK GDP (assuming GDP is £1.4 trillion).
CPA still Dominates, but Additional Payment Methods are on the Rise
As mentioned previously, even though the official press release for the launch of the OPM study mentions a ‘hidden’ industry, an increasing number of publisher websites are far more common to the eye of the consumer, placing themselves within the online mix as specialist comparison engines, shopping portals, loyalty and mainstream brands.
Here are a few examples of tenancy deals:
With publishers increasingly being an early point of call or final shopping destination for consumers, it is not surprising that advertisers and publishers have looked at other ways they can add value and brand awareness in order to increase sales revenue. Enter CPM [Cost Per Mille] and Tenancy deals.
We're also led to believe that this figure for tenancy has increased by 129.6% over the past few years, although it is not reflected in the final report.
Whilst also not included in the final report, sources tell us that there has been a decrease in 2012 for management, access and set-up fees, down 14% from 2008-11.
A Cashback-Reliant Industry?
Responsible for 31% of total advertiser spend, equating to around £217 million pounds, cashback websites such as Quidco and TopCashback are the largest revenue drivers, nearly double the amount of next-in-line coupon / voucher codes (£119 million).
I would argue that not many in the industry would actually separate cashback and loyalty / reward websites, meaning that the total monopoly that cashback affiliates potentially hold in the market is 48% of advertiser spend, around £336 million.
There is continuing discussion surrounding an over-reliance of the highest revenue drivers in the affiliate channel, which was posted on A4u a couple of days ago.
Jason Norris, Amazon Partnership Manager for LOVEFiLM, believes cashback websites have been big winners in the market due to economic pressures over recent years:
"Cashback sites enable a brand to get in front of a massive audience with a focused message, so they tend to get more time and budget. These sites are willing to spend to gain awareness during hard economic times, and they have become an example of how to run a professional affiliate business."
Helen Southgate, Online Marketing Controller, Strategy & Planning at BskyB, also commented:
"Overall I don’t think we're overly reliant. Yes, cashback has grown over the last few years at a phenomenal rate, a positive rate for the industry as it has enabled continued growth across the sector as a whole.
"Two of the biggest cashback sites are now running their own DR advertisements which again, in my opinion, can only be positive for the industry. All the analysis we have done at Sky points to cashback being mostly incremental and driving high customer value and positive LTV [life time value].
"I see this as a key demographic to drive incremental orders for new and existing customers. Other areas of the industry are also growing, especially the price comparison sector. Broadband Choices, for example, have recently started their own DR advertising which again is only positive for the entire industry. I think there is an over-reliance on a few top affiliates in the industry, but I don’t think that's due to cashback and in fairness, this has always been the case."
Likewise, Peter Berry, Senior Publisher Manager at affilinet, believes these figures do not cause concern for the industry:
"The numbers 31% Cashback and 17% Loyalty do not in themselves cause concern as long as advertisers are seeing the right return on that spend and as long as spend continues to grow across the board.
"This is indicative of the mindset of online consumers and just needs to be managed intelligently; advertisers need to analyse the value of these orders and the part that cashback and loyalty play amongst other marketing influences and across the customer journey.
It should be used as an excuse rather than a warning to challenge ourselves; other publishers to innovate and increase their share, networks to introduce and deliver alternatives, and advertisers to test and embrace them."
Longtail, Content & Comparison
The content demographic, described in the OPM study as publisher websites, personal websites, blogs and website syndication feeds, still accounted for 10% of advertiser expenditure in 2012, showing that although considerably lower than cashback and coupon demographics, content is still a key area to be leveraged in the performance marketing space.
For more information on content / longatil there's must-read article we've previously published on A4u entitled 'Why is the Long Tail Key in 2012 and How can you Win Attention?'.
Piecing together advertiser spend for both content and comparison affiliate demographics equates to around £147 million in advertiser spend. As both demographics use content engines / product solutions to keep content current, Lee Brignell-Cash, Managing Director of FusePump, is pleased by the figures shown from these demographics:
"It’s clear that an increased investment in feeds and distribution tools is paying dividends for advertisers given that over 20% of all affiliate spend can be attributed to Price Comparison, Content and Blog affiliate activity. FusePump has seen the quality of both managed and in-house feeds and tools continue to rise, making it easier for these types of affiliates to engage in more programmes, and increase revenues accordingly.
"Price comparison affiliates may receive additional attention this year as advertisers will have created additional budgets for Google Shopping. However, they may decide to reallocate some of this budget to performance activity, particularly in light of this research and if competition for Product Listing Ads increases CPCs in this channel.
"Content and Blog affiliates are always seeking efficient ways of working with advertisers. The provision of high quality feeds and their associated tools are making it easier for these affiliates to grow their revenues whilst improving the consumer shopping experiences on their sites."
OPM Growth Rate Consistent, but Affiliate Growth Slows
While the above graph details a growth rate for the overall OPM study at a consistent 12%, digging deeper into the report shows a breakdown of this into affiliate marketing and lead generation which clearly shows significant growth for the lead generation industry, and a less-than-average growth for affiliate marketing, which is down to 7% growth from 14% for the previous years (2008-11)
I spoke to a couple of industry contacts to ask why they think the affiliate growth rate has slowed during 2012.
Matt Bailey, Commercial Director, Performance Horizon Group:
“As the affiliate channel has matured, more data interrogation and increasingly sophisticated strategies have been employed by the larger brands. This means that their focus may not, as previously, be on driving as many sales as possible but on ensuring the right type of sales, which may lead to a slight reduction in the astronomical growth seen previously."
Adam Ross, Chief Operating Officer, Affiliate Window:
"The market has matured somewhat and is now more subject to macroeconomic effects than it was in previous years. When you think of all the major retailers and service providers in the UK, it's quite tough to find one without an affiliate programme. In years gone by, there was significant industry growth from new entrants to the market. Now that growth has to come from existing players, a large section of which are traditional businesses for whom trading conditions are tough.
“It's quite a complex picture which cannot be viewed through the same lens as ad spend. Traditional advertisers will apply a strict budget to affiliate marketing and have to work within those confines. This is frustrating and something the industry must try and overcome through more meaningful engagement with Finance Directors. With the economy the way it is, this clearly slows down growth but it isn't symptomatic of a plateauing industry. The complete opposite is true for 'Pure Play' advertisers where the only limiting factor to their affiliate programmes is consumers not spending enough.
“This gives us a great deal of optimism for plenty more years of solid growth as more traditional advertisers adopt a performance-based approach to their ad spend and the overall economy emerges from recession."
Retail dominates Affiliate by Volume and Value of Sales
- Clothing & Accessories
- Electrical, White Goods & Computing
- Home & Garden, DIY
- Music, DVD & Entertainment
Telecoms & Media
- Mobile Providers' Products & Services
- Subscriptions (e.g. publishing, film)
Travel & Leisure
- Hotels & Accommodation
- Flights & Airlines
- Credit Cards
There's a lot to digest and discuss with how these verticals are performing within performance marketing. You can expect to hear more from us with vertical analysis over the next few days.
£9 billion in Sales still 'Under-Represents' Market Size
Oh, and within the introduction the report states that ‘our estimate [of sales revenue through the channel] potentially under-represents the size of the market’.
Just when you began to think that £9bn of sales revenue was a large amount, the factoring in of agency commissions, white label tracking solutions (those who didn’t contribute to the study), longtail comparison websites, global travel aggregators and spend on third party technologies were all unaccounted for.
Whilst I have a few issues with the above report being named as the 'OPM Online Performance Marketing Study' and would rather have seen it called the 'Affiliate Marketing & Lead Generation Study' - to be able to showcase the success of advertiser investment in the channel, the maturing nature of affiliates as brand influencers, plus the generation of incremental sales and added customer value, the OPM Online Performance Marketing Study I've no doubt will be another platform that can showcase the industry's pedigree as a trusted and commercially viable marketing channel.
Having been involved in Affiliate & Performance Marketing since 2004, I've seen Affiliate Marketing evolve spectacularly, knock on the doors of other digital channels and grow enormously in value, transparency and reputation. Long may it continue.
As for it being a 'hidden' marketing channel - I, for one, prefer the word under-estimated.