Three weeks have passed since the IAB and PwC’s report into the value of affiliate marketing and lead generation was unveiled. We’ve looked at the affiliate and lead generation slant in great detail. IAB AMC steering group member, Kevin Edwards also provided some behind the scenes insight.
Now that the dust has settled around the study, we cornered some of the industry’s top affiliate decision makers and posed them a few questions about the results. What do these key figureheads really think about the IAB’s big reveal?
We have comments from Mark Walters, managing director at Affiliate Window, Peter Berry, Affilinet’s senior publisher services manager, Matt Bailey, commercial director at Performance Horizon Group and Stephen Kerin, Webgains’ UK managing director.
Finally, there’s a joint effort on Tradedoubler’s answers between the network’s head of client strategy, Nick Fletcher, and Dan Cohen, Regional Director.
The OPM report's data shows that cash back and loyalty receive 48% of advertiser spend (approx. £336 million). The channel has proven to be a good revenue generator, but are you concerned it may impact the growth of other affiliate channels?
Non loyalty publishers are continually tasked with bringing ‘new’ customers to advertisers who subsequently aim to promote themselves directly. By their very nature, loyalty and cashback sites target consumers in a reciprocal fashion and offer a compelling reason for consumers to engage with retailers, with significant research on the higher basket values, lower returns and repeat purchase patterns of these types of customers. Therefore what we are actually seeing is a more accurate reflection of the ‘lifetime’ value of customers driven by these affiliates as everyone else is merely rewarded a share of the first sale as opposed to the real market reward on delivering a customer that may go on to purchase again and again. Lifetime value, consumer insights and data driven analysis will all play a part in how this will affect the future reward and attribution of customers, regardless of the contributing publisher type. It is worth noting that the growth can also be attributed to the fact that this sector actively promotes through additional advertising mediums, like outdoor and TV to attract members.
As long as advertisers continue to see the right return on their investment and spend continues to grow across the board, then cash back and loyalty publishers will continue to thrive in the performance market. However, I firmly believe that other publisher models will continue to innovate and can increase their share, and advertisers will test and embrace the alternatives delivered to them by networks. Tracking technology, which records pan-channel view and click paths, is already being developed to enable advertisers to attribute. This technology is currently not being widely used, but will play a big part in ensuring that all partners are fairly rewarded in the future.
Most affiliate programmes pay out on a last click wins basis and therefore we cannot be surprised that models have arrived that are geared towards being the last click. I am concerned that there is a focus on discounting within affiliate marketing and a reliance on a small number of affiliates. There are no more than a handful of serious cashback and loyalty sites that will make up the majority of this 48%. Therefore the message that there are 10,000 publishers engaging in performance marketing becomes very diluted when we see that nearly half of the sales are driven by no more than 10 partners.
The incentivised traffic affiliates do a crucial job for the sale in ‘getting it over the line’ and do add value. We wouldn’t want to diminish the importance of that and neither would advertisers, but the enquiry is about the impact on the growth of the other channels?
The answer is manifold. Many affiliates choose to promote programs that don’t use loyalty or cashback and remain unaffected (some caveats here), while some advertisers appreciate the branding and contribution that these affiliates provide and have chosen to move beyond the ‘last click wins’ model to reward them anyway. As we move more towards hybrids and multi-attribution, the value other types of affiliates provide for the advertising funnel is protected. So, no.
No, we’re not concerned. We actually expect 2013 to be somewhat of a defining year for cashback and loyalty, as developments in user-journey analysis now mean that both affiliate networks and advertisers can more accurately assess the value that these types of sites contribute to the overall marketing strategy.
This will also allow greater visibility into the performance of other affiliate channels, and networks will need to work with their clients to reward those affiliates that consistently deliver a high quality of traffic but miss out on receiving any commission because they weren’t the last click in the purchase process.
Tenacy deals are on the rise. At what point is this introduced to your affiliate ecosystem and do they have value in your opinion?
MW: Tenancy already forms part of our network solutions but obviously with only the large publishing portals. Whilst it may seem that tenancies sit counter to the principles of pay for performance, they do in fact offer complementary aspects such as bespoke advertiser offers; time specific promotions or broader access to a publisher’s audience. In most cases, our client tenancy deals support the performance marketing initiatives and are another tactic for creating awareness and ultimately securing an action. The affiliate ecosystem is no longer a narrow band and like all advertising methods, the interaction and engagement between channels is increasing and the task ahead is to maximise this to form an overall bespoke solution that will likely vary, advertiser to advertiser.
PB: Fundamentally we work in the performance channel, so despite arranging tenancy deals with publishers we ultimately work to a target ROI and blended Cost Per Sale. Advertisers in our network are keen to work in this way because it offers the opportunity for increased exposure that delivers additional sales within a target margin. I would be keen to see more publishers sharing statistics on the effectiveness of particular placements so that advertisers can make informed decisions on where best to allocate budget.
MB: In a standard affiliate programme, the risk is loaded on the affiliate with them only being paid when a sale is made and having no control over the conversion once traffic hits the advertiser site. As the bigger publishers grow in importance, they seek to minimise the risk of their traffic not converting and get a more guaranteed reward. As the industry matures this is a natural progression, and if this is what affiliates require in order to provide the security they need to innovate then it can only be a good thing.
SK: It’s held that with the reach of just a handful of the affiliate titans, gaining additional exposure through tenancies can be a vital contributor to a program’s performance, particularly for niche advertisers. Second tier florists in the build-up to the Valentine’s Day would be a good example of an advertiser looking to gain a foothold in performance sales in this way.
We don’t as a rule press tenancies (unless recruiting a good content site that struggles to monetise via CPA) as we are a performance network, but we have a feel for where it’s appropriate, and with the support of affiliates will present the opportunities to our advertisers.
NF: Yes, if they didn’t have any value we wouldn’t be offering them so frequently to our clients. It’s important, however, to make sure the marketing solution is tailored to the advertiser. The client’s key objectives need to be clear from the start, whether they wish to generate sales or raise brand awareness.
Tenancy deals have been proven to boost brand awareness and dramatically increase site traffic volumes and therefore can contribute significantly to an advertiser’s performance. Ultimately the success of tenancies can be measured by analysing the impact on performance whilst ensuring that the associated costs do not reduce ROI below the client’s expectations.
The affiliate industry's growth rate is slowing according to the IAB's findings, why?
MW: There has been a general slowdown in all advertising spend largely due to the economic climate but performance marketing is still the most attractive solution. However, when you performance measure anything, you automatically seek to gain more value for your spend, so whilst spend may reduce, the return is often the same or greater. Unfortunately for many businesses, budgets are still set annually and the concept of affiliates ideally being treated as a cost of sale and therefore unrestricted in a budget sense, is a work in progress and only adopted by the most progressive of online retailers. As more advertisers understand this principle we should see a continued shift in budgets towards supporting affiliates and performance marketing as a whole.
PB: In a maturing market a certain amount of growth deceleration is to be expected. Part and parcel of this is that advertisers are expecting a stronger return at a time when budgets are under real scrutiny. Focus tends to be on maximising return rather than growing volume and market share. Performance marketing has responded strongly and continues to deliver high value and sustainable growth – perhaps perpetuating this pattern. It is becoming an increasingly important part of companies’ online strategies, and along with initiatives like the OPM study this can only help its case for an even greater share of voice.
MB: It is now a mature industry and the majority of brands now have an affiliate campaign, therefore the rate of uptake will slow given that there are fewer brands left to come on board. In addition, I think that brands are becoming a lot more savvy and recognising that not all sales are good sales, and therefore looking to dial down activity from certain sources.
SK: Straitened times during the greatest financial meltdown in history? Actually, I don’t think it is slowing down. We’re in a period of flux and re-adjustment and that’s perfectly natural in the normal cycle of things for a new industry.
Pre-targeting, multi-attribution, cross-device advertising, the conflation of PCs and television, the high street fight back and more are contributing to the traditional jurisdiction of affiliate performance looking like slowing down when it’s simply morphing. Those that understand the full journey, with an emphasis on performance, will prevail.
Our industry has experienced incredible growth very quickly and, as we move closer to the mainstream, it is to be expected that the growth rate will slow. Furthermore, some affiliate channels such as PPC have become so successful that they are becoming industries in their own right. Other models may soon follow suit. That being said, Tradedoubler is always seeking new channels to offer brand awareness and growth to its clients.
Mobile affiliate tracking has had its issues, but is now well on its way to being resolved. Why did it take so long to enforce with advertisers?
MW: I think the reasons vary from advertiser to advertiser but range from poor technical and marketing communications to a lack of impetus or understanding. An advertiser doesn’t need to be doing mobile advertising to secure sales from mobile devices and the simple understanding that all sites need to be tagged can be misunderstood. Having a network wide solution has helped as our primary goal in this instance is to ensure that every sale is recorded for our publishers. Beyond that we have an ongoing dialogue with all advertisers to set specific time frames on implementing mobile tracking where necessary. This is more retrospective as all new advertisers must have this implemented prior to launch.
PB: When you consider that only 10 per cent of the top 1 million Quantcast domains are mobile optimised, I think the challenge is a lot bigger than just tracking. Statistics released across the industry on a daily basis regarding mobile sales clearly demonstrate that consumers are changing the way they shop, and although we’re seeing big improvements many businesses are not reacting quickly enough. As brands scramble to respond to this swelling trend, unfortunately tracking is one of the things that sometimes gets overlooked in the development process. All parties can play a part in avoiding the “chicken and egg” scenario; publishers must continue to innovate their mobile offering to build a case, advertisers must have faith and commit to having tracking in place so that these efforts are measured and rewarded, and networks should have a seamless process to facilitate and encourage the tracking of mobile transactions.
MB: Simply because it was not a priority for the advertisers. We have to recognise that whilst the figures in this report are impressive, the percentage of sales that come through the channel are still not huge and there is a lack of understanding within a lot of brands. Therefore there is neither the commercial imperative or the recognition of why it is important that will force brands to take action.
SK: I don’t believe it was the advertisers that were slow. That’s the tail wagging the dog. I think the consumer was slow in getting a feel for mobile purchasing (less so tablet) and we (the networks and affiliates) didn’t exploit the opportunity quickly or convincingly enough. It’s all coming together now. Cross-device tracking is an interesting challenge for networks but we’re in the thrall of Google and Apple with that one.
DC: Affiliate networks have been pushing for our clients to adopt mobile affiliate marketing for a while now but, until recently, they were just not in a position to do so. Rates of traffic driven by mobile were low and more often than not, the development and management of any mobile technology was managed by a different team and therefore overlooked as a marketing channel.
In 2012, m-commerce became a serious force to be reckoned with and advertisers have had to react quickly, developing mobile infrastructure of an optimised site or app before thinking about harnessing the marketing potential of the channel. Tradedoubler is the only network able to track app downloads and in-app transactions, allowing our advertisers to extend their performance marketing channel to meet consumers’ desire to research and buy via their mobile devices. Driving mobile innovation in the performance marketing sector, we won ‘Most Effective Mobile Affiliate Campaig n’ at the Mobile Marketing Magazine awards last November.
The report was an underestimation of the market. What figures would you expect from next year?
MW: I’m merely going to say more. As I’ve said before, growth is not a direct reflection of value and whilst the channel offers greater flexibility and transparency, this can come at the cost of less spend for greater return as advertisers seek to quantify deeper value from factors like; new versus repeat customers; channel de-duplication or attribution modeling. The old adage goes, “I know that 50% of my advertising is wasted but I don’t know which half”. The affiliate channel addresses this question directly so whilst we will see continued growth, this is more accurately reflected than the market growth for other channels.
PB: The study revealed some impressive top-level statistics and compelling insights into the marketplace, and industry initiatives like this can only serve to the benefit of the industry. Despite being the first of its kind and limited in scale, the industry is positive that it can be leveraged to increase investment in the channel. Besides, with predictions from parties such as OPM suppliers estimating their revenue to grow by 25% in 2013, and advertisers estimating they will spend up to ten per cent more on OPM in 2013, the future’s bright!
MB: I would expect similar figures for next year as I don’t see anything out there which will significantly impact growth in the channel. If the same methodology is used for the report then I can’t see any reasons to expect much difference.
SK: It is immensely difficult to survey a network of competing and overlapping organisations in an industry as nebulous as ours. We use the report as a guide and the under-estimation is more helpful than an exaggeration and we value it for what it is. Irrespective of the report, Webgains continues to grow with no slowdown.
DC: This was the first report in the marketplace to give such figures and, even if the figure is underestimated, 0.6 per cent of UK GDP is significant, especially when you consider that the entire agricultural industry contributes 0.7 per cent.
Next year, we’d be interested in seeing the report capture all of the activity - not just the ATL – and including the number of people employed in the industry and salaries, so we can get a better steer on the Value of Performance Marketing to UK PLC. We would still expect like-for-like methodology to see a good increase in the size of the market as the industry matures even more and becomes an integral part of the marketing mix.