In one of the features that made our 'US Affiliate Marketing Supplement', sponsored by Affiliate Window, we sought to lay out a state of play for the channel's progress within a market that poses a huge amount of potential. The supplement is available for free to all PerformanceIN account holders.
The exact origin of affiliate is disputed: some point towards murky beginnings in the online adult industry, while others look, perhaps optimistically, towards its patent in 1996, and a more lighthearted birthplace in William J. Tobin’s PC Flowers & Gifts.
Having weathered accusations of illegitimacy and a closed doors, club-like culture among its hardcore, affiliate’s mired history is testament to its nature as a continually evolving beast, and one that still tends to fly under the radar of mainstream media coverage.
That said, its presence in mainstream digital marketing is unquestionable; with Forrester predicting that the affiliate channel received $4 billion in spend in the US last year, it seems it has certainly found a place to mature.
In 2015, affiliate marketing accounts for a healthy 14% of all e-commerce purchases across the United States – a percentage point higher than last year – putting the channel on a near-level with perceptively more ‘legitimate’ channels, including email (17%) and organic search (19%), according to Custora.
By the end of the year, if stats by Forrester come true indicating e-commerce sales in the US will be placed at $279 billion, affiliate could be behind some $39 billion in sales, or roughly $10 back in the bank for every $1 spent.
It’s the retail sector that’s driving the bulk of this business, with a number of niche verticals dominating the scoreboards. Out of the top 20 most popular affiliate program verticals in the States as reported by AM Navigator, fashion leads with 18.7%, followed by sports and outdoor goods (14 .6%) and beauty products (11 .1%).
Path to maturity
Affiliate’s growth into an essential part of the US online marketing mix is in part owed to an increasing culture of openness and transparency – the result of a rising need among networks, agencies and publishers to justify the channel’s value with hard data. Alexandra Forsch, country manager for Affiliate Window US, claims this response has lit a fire under innovation within the channel, which has in turn sent it firmly down the path of greater adoption in more diverse mediums for monetisation, such as content.
“The release of advanced technology has been key as it enables advertisers to track and measure consumer touchpoints and influences driven by a particular publisher or promotional type. “In response to this data, new compensation models (payment on influence or attribution) have been offered to publishers as a result of advertisers placing greater value in the long tail. Therefore, we see more bloggers expanding their monetisation strategies to include affiliate marketing.”
Trials & tribulations
A desire for better education and technological innovation has brought the US affiliate industry forward immeasurably in recent years; attribution options are continuing to expand, low-level relationships with large publishers have become commoditized, mobile publishers continue to ramp up and cookie tracking is slowly fading from the strategy sheet. However, its rapid development means the US affiliate industry is not without growing pains, some of which include a perception among merchants that affiliate is still a ‘make money quick’ scheme; not one that requires time, nurturing and a fostering of relationships with partners.
“There is a strong demand for informed and consultative account management, which is often overlooked. Brands still need reassurances that the affiliate channel can deliver the right types of sales for them,” observes Forsch.
Furthermore, while across the Atlantic the affiliate industry is supported by the IAB, the US equivalent is ‘mysteriously absent’, leading to issues with a lack of regulation and governance, which does nothing to quell scrutiny from the digital marketing industry at large.
This lack of representation has also seen the affiliate industry in the US take a considerable hit from the increasing prevalence of ‘Nexus Tax’, which works on the basis that affiliates are accountable for a tax on the merchant sales they influence. This has led to the termination of hundreds of merchant programs in the states that enforce it, and ultimately risks advertisers shifting budget elsewhere. This is despite Forsch's claims that enforcement outside of each state’s borders remains “ineffective”.
Affiliate Window predicted the role of the network to be “at a crossroads” in 2015, with firms deciding whether to strengthen their traditional offering through additional insights and strategic guidance, or to evolve their products in order to compete with more established agencies.
“In fact, through Q3 we have found the industry defined by the release of advanced tracking technologies, enabling new commercial models and promotional methods, including attribution & payment on influence, online to offline,” she explains, “and mobile and cross-device tracking.”
Mobile does indeed seem to be where the next chapter in the story lies. According to data from Affiliate Window, mobile conversion rates through the channel have more than doubled on smartphone since 2013 – from 0.87% to 1.8% – while traffic has leapt from around 16% to 27% in the same period.
Conversely, desktop has seen a decrease in affiliate traffic from 75% to 57%.
However, long-term gain on mobile will rely on a revision of attribution models with affiliates who drive a significant amount of their traffic via smartphones potentially losing out significantly on CPA.
“There is a direct correlation between the volume of smartphone traffic an affiliate has and the volume of cross-device sales they initiate on a smartphone,” says Forsch.
“These are sales that aren’t being tracked via network’s traditional tracking methods, so how can we expect mobile-first companies to think the CPA channel has anything to offer them?”
While the nature of evolution means that affiliate marketing has yet to reach a stable plateau – one defined by an ironclad set of industry standards – any scrutiny it receives in the meantime will only serve to stoke the flames of innovation, as marketers seek to further prove its worth with the most valuable conversions.
As such, the affiliate marketing industry has challenges to scale in the US, but you’d wager on its chances of success.