Many so-called industry experts are presently proclaiming the slow onset of stagnation in the German affiliate sector. According to insiders, margin pressure, declining profits and new forms of performance-aligned advertising are gnawing away at the established affiliate sales channel. Yet this diagnosis is clearly refutable for the German market.
The truth is quite the opposite: The fundamental idea of affiliate marketing – performance-based payment following the principle that "You only pay when you get paid" – is an absolute model for success. And this idea is more and more in demand.
In the past few years, for example, affiliate marketing has developed to become an established component of the online marketing mix. Affiliate veterans, such as Amazon or eBay, pure online players, such as zalando or ASOS, industry specialists, such as expedia.de, my-Spexx or Fashion
For Home and, to an ever growing degree, classical multi-channel retailers and manufacturers, such as Otto, Media Markt, H&M, Joop and Zara all appreciate the efficiency of this channel as part of their online sales strategy. And it is therefore hardly surprising that Forrester predicts average annual growth for the US affiliate market of close to 17% by 2016.
Imprecise market demarcation
The misdiagnosis of the current trend, especially in the German affiliate segment, is founded on several factors. On the one hand, there are the longstanding inadequacies of the market demarcation between the affiliate channel and the online marketing channels, search and display. Here, for example, the business model of many major publishers with zanox, just as is the case in the other networks, is based on the affiliation model. However, these publishers generate their traffic via display or search.
The revenues and successes of these publishers are then included in the OVK statistics in such a way that, in the affiliate segment, only the revenues that stick with the networks are considered. However, compared with the true amount of sales revenue generated for the advertiser, this represents only a small proportion. At the same time, though, the investments made in traffic acquisition are included as gross advertising prices, for example, in the display channel. On the other side of the coin, this means that the more successful and active a display publisher is, the more display revenue grows compared to the network commissions in the affiliate channel.
Of greater concern however is the fact that, particularly in Germany, inadequate diagnosis instruments are used. In the official OVK report, the scale of the market is measured on the basis of the revenues of the major networks, such as zanox, Affilinet and Tradedoubler. However, for a number of years, while the market has grown continuously, we have seen how the market players and market conditions have changed.
Major advertisers, such as eBay or Amazon, operate with their private networks, but are not (yet!) incorporated into the official OVK statistics. Due to their size, some publishers, having grown very successfully during the past few years as a result of network business, for example with zanox, are deciding to enter into direct business with the advertisers. Their revenues, too, are dropped from the OVK statistics. Reason enough for zanox to actively support the BVDW's efforts towards a new and adequate evaluation of the affiliate channel, which will supply proper information about its relevance as a sales channel.
The growth paradox of the affiliate sector
We at zanox like to describe the declining margins and the stagnating revenues of the affiliate networks as the "growth paradox". It is incidentally a phenomenon that was once also seen in the past in the field of display. There, for a long time, specialised portfolio marketers marketed a major proportion of the display inventory.
Yet, with increasing online utilisation and the marketing success this brings with it, the desire grew among publishers – such as, for example, among the major publishing houses or TV broadcasters – to realise these revenues entirely in-house and, in doing so, to spare themselves the problem of ever-increasing commission payments to the marketer.
A similar situation also applies in the affiliate market. The more successful an advertiser becomes – the more sales it generates via the network and the more it must transfer in absolute commission payments – the greater the desire and incentive becomes to either slash commission levels or to even carry out the entire transaction independently, without any intermediary network or agency.
At present, both the networks and the agencies must learn to deal with this phenomenon. Against this, companies from the smaller and medium revenue segment and virtually all advertiser startups fare wonderfully well with the networks' existing commission model. The benefits and strengths provided by networks in the fields of internationality, service and the integration of new technologies and publisher models are also especially important to advertisers that wish to focus solely on their core business in their expansion phase and, in doing so, have confidence in their network partner's added value.
A further challenge is posed by the question concerning the appropriate attribution model. In the past, the principle of 'last click wins' has become established among the majority of advertisers and conversions are exclusively assigned to the last click. However, as this model does not provide an accurate portrayal of the buying process according to the customer journey, the development and facilitation of alternative models will be important for the industry in the future.
Where the customer journeys are known, suitable models can ensure that the generated revenues are also partly attributed to those sources which, whilst not supplying the final click, still contributed valuable and necessary information and stimuli in the run-up to the purchase.
Mobile harbours enormous potential as a performance channel
Zanox is convinced that the current developments in data protection and privacy provide enormous innovation potential in the mobile segment and the transformation of buying behaviour for our entire industry. The major international networks, in particular, can exploit this potential to develop new products and services and, in doing so, offer immense added value for advertisers and publishers. By contrast, this innovation potential is only realisable to a very limited extent by means of in-house solutions.
The multitude of tracking developments and innovations from zanox in the last six months alone is just one noteworthy example: from a complete development of fingerprint tracking, through display and right into the mobile domain, as well as the entire spectrum of app tracking solutions for all relevant mobile operating systems.
Added to this, zanox is firmly convinced that there are still a lot of undiscovered and hidden advertiser and publisher treasures in the market. These could be medium-sized enterprises, for example, or even new e-commerce or m-commerce startups. zanox takes care of these "Rising Stars" with a dedicated promotion initiative.
The future is called "Performance Advertising"
Performance thinking is also finding its way ever more into the classical display segment; the pure doctrine of reach and environment is dying out. In this regard, real-time advertising and data-driven advertising play a central role. It is precisely this segment that the major affiliate networks, with zanox at the forefront, are advancing into with their performance-DNA and data expertise.