When we set up Performance Horizon three and a half years ago, we stated that we wanted to operate in the performance marketing sphere, rather than the affiliate arena.
We have often been questioned on this – are the two not the same thing? No, most certainly not. Last week we received validation of this in the IAB / PwC Online Performance Marketing Study.
Let me start by saying that the study is a great piece of work. Full credit to Dan Bunyan and his team at PwC, I certainly don’t envy the task that they undertook. Not only putting an incredibly complex landscape into context, but also normalising data from multiple suppliers and applying sophisticated mathematical modelling to that data.
Also, credit to Clare at the IAB for corralling so many companies into contributing. Getting money from people is never an easy task but she stuck to her guns and has pulled it off.
In the study PwC defines online performance marketing as “a form of online advertising that differs from traditional online display advertising, as payment is triggered by an outcome (e.g. a user initiated action such as a purchase)”.
This definition sums up performance marketing pretty well, but if we examine the report in a bit more detail we can see that this definition can be broken down further.
Affiliate marketing’s link to performance
At PHG we have long argued that performance and affiliate cannot be used interchangeably. Affiliate marketing is an important component of the performance landscape, but is not the be all and end all.
I would define affiliate marketing as activity that has traditionally occurred through an affiliate network. Consideration must be given to brands that run their own affiliate network (e.g. Amazon and eBay), but the rule that affiliate networks do affiliate marketing stands generally.
Outside of affiliate networks, there have always been significant direct relationships that operate on a performance basis. Think of the large aggregators in the finance and travel space. There is no doubt that these partners fall under the definition of performance marketing given above, but they rarely operate through affiliate networks.
The key component here is the payment model. The vast majority of activity through affiliate networks happens on a CPA basis, whereas direct activity through travel and finance aggregators tend to work to a CPC.
Affiliate networks in the minority
Looking at the figures released last week by PwC and the IAB, they state that 45% of online performance marketing happens on a CPC model and only 40% through a CPA metric.
Without drilling down in to the data more it is impossible to know the exact breakdown, but these figures seem to back up our original assertion at PHG that more performance marketing activity takes place outside of affiliate networks than happens within.
I appreciate that this figure will vary according to the vertical sector, but it certainly tells a story. The fact that brands work with some partners directly is not new, of course. Whether the brands view this as an integral part of their performance marketing activity is certainly a pertinent question.
Much has been made of the need to take a holistic view of online advertising with the role of affiliates having been put under the microscope in recent years. This data suggests that brands need to ensure that they are focusing on defining strategy across their entire performance mix, whether it takes place through an affiliate network or directly.
Whilst the big numbers detailing the amount of spend going through online performance marketing will take all of the headlines, I think that the most important achievement of this piece of work will be to focus the attention of brands on the wide-reaching nature of performance marketing.
If we could get industry wide agreement on what makes up online performance marketing, then serious strategic conversations can commence.