This is an open letter to affiliate network leaders & board members:
When I wrote about Generation 3 programs in Performance Partnerships, I made the case that affiliate networks’ relationships with agencies were going to have to evolve substantially. This stance and subject were once very taboo, but in recent discussions with new and emerging leaders in the space, I’m seeing growing support and awareness of the need for change.
In the wise words of William Pollard, “Without change, there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable.”
More change has occurred within the affiliate industry over the past two years than in the decade. Not only are the industry players developing, but so are the needs and demands of advertisers, especially large, global brands. As such, both the technological components of affiliate programs and the capabilities offered by affiliate marketing agencies have evolved and improved – significantly. Competition is quite strong, in both sectors, and growing.
When full-service affiliate networks were the only ones who could provide the technological solutions required for an affiliate program to run and had the know-how to meet program management needs, it made sense for them to oversee all aspects of an advertiser’s affiliate program.
In the very near future, however, that business model is likely to limit the opportunities available to traditional affiliate networks, especially in terms of working with certain clients and program. Sticking with this “dual solution” model may even prevent networks from receiving referrals from one of their strongest sources: agencies. There are five primary reasons for this.
1. Affiliate technology has changed dramatically
After a decade of complacency (especially in the US), the pace of innovation in the affiliate space has advanced considerably. In addition to new entrants, pricing and models, clients are demanding more sophisticated tools for their affiliate program, such as cross-device tracking, mobile solutions, dynamic commissioning, global payments and multi-channel attribution.
What’s more is that one of the fastest growing segments of affiliate marketing is direct or in-house program that are powered by white label network or SaaS (Software as a Service) solutions. In this structure, the brand is the focal point externally, not the platform. For example, these solutions are offered so that it’s “The ABC Company Partner Program,” as opposed to “The Brand Program Hosted By/At [affiliate network name].”
White label solutions make it easier and more economical for retailers to manage certain affiliate, business development and partner relationships directly, or through agencies.
2. New affiliate technology providers are working collaboratively with agencies in a conflict-free way
These newer affiliate technology platforms have embraced agencies as key partners and as a point of distribution. It’s a mutually beneficial relationship that creates significant business for both parties.
3. Affiliate program management agencies/practices are growing and offering more sophisticated, innovative services to clients
After being overlooked for years, affiliate program management is now rapidly growing as a vital capability within larger digital agencies. What’s more is that dedicated affiliate specialist firms are consistently getting bigger and better.
The best affiliate program management agencies/practices have more of a consulting DNA. They seek to understand their clients’ brand and marketing goals; they analyze clients’ current performance data and collaborate on strategic planning initiatives for their clients’ affiliate program.
Increasingly, senior talent with cross-channel experience, not junior-level account managers, oversee dedicated account teams with high staff-to-client ratios. Throughout their program management process, agencies are bringing new ideas to their clients, implementing best practices and working closely with their clients’ in-house team.
Companies with large affiliate programs have more in-house teams managing the high-level strategy. However, they also want an experienced partner who can serve as an extension of their internal team and manage the day-to-day responsibilities of their program. In some cases, these agency account management teams are even serving as an extension of their client’s in-house team where there is demand for full time and integrated team members.
4. Brands want new things for and from their affiliate marketing program
This is especially true for companies with large affiliate program. Requirements and expectations for both technology and services providers are also changing. Big brands are communicating loud and clear that they want:
- Advanced and cross-platform reporting
- Training on different affiliate technology platforms
- Dedicated account teams that are led by more senior managers
- Global coverage
- New publisher types to partner with
- Accountability metrics related to the delivery of services
- To be pushed and challenged to try new ways of doing things.
5. Clients increasingly want separation between their platform partner and agency
Perhaps the most compelling reason for affiliate networks to focus on offering either a technology solution or program management services (not both) is that leading companies want a relationship with their strategic partners that are not conflicted, like changes occurring in other digital marketing channels such as programmatic display. In other words, they want a separation between their platform partner and managed services provider and aligned incentives. They also want objective recommendations for vendors to ensure that they are getting the best value for their affiliate program.
For most of the affiliate industry’s history, networks have represented both affiliates and merchants in a single transaction and charge “performance fees” to do so. While this structure is not nefarious, it omits proper checks and balances and can easily lead to misaligned incentives, particularly around hitting goals and targets tied to incentives.
Nowhere is this more evident than in the RFPs (Request for Proposal) that brands are sending out. Just three years ago, both affiliate management and technology would have been included in one RFP. Now, brands are noticeably separating them.
Considering the options
“The man who chases two rabbits, catches neither.” ~ Confucius
Product development and professional services are distinct and require different skill sets, resources, focus and commitment. It’s incredibly difficult for a company to be exemplary at both. To adapt and thrive in the new era of affiliate marketing, it’s in the best interest of affiliate networks (not to mention merchants, publishers, and the industry as a whole) to make a clear choice between three varied business models and understand that, while no choice is right or wrong, each choice has logical benefits and consequences.
Option 1: Become a product-focused tech company. With this option, an affiliate network would focus all its resources on innovating its affiliate technology and offering the most valuable product solutions to clients. There would still be a certain amount of account management that’s required, similar to what Marketo and Salesforce offer to their clients to ensure their continued success with the platform. What’s different is that your company would, first and foremost, be focused on offering best-in-class technology products and would not offer managed services that compete directly with agencies.
Your affiliate technology platform would create and grow business for agencies, just as your newer competitors are doing. In turn, agencies will be more likely to refer business to you and partner with you for growth opportunities. This option would also make it possible to convert your existing account services teams into to a white label support structure for your agency partners. In this scenario, your account services team would offer program support/management services through agencies, not directly to clients, thus removing any conflict.
By choosing to become a technology-focused company, you would be more clearly understood by investors and likely valued more on recurring revenue than EBITDA (earnings).
Option 2: Become a “platform agnostic” agency. If you believe your core competency is in your ability to offer companies affiliate program management and publisher development services, then become an agency – an agency that is platform agnostic with management that can stand alone as best-in-class and can manage program on multiple platforms as a central resource. This means you’d introduce your clients to all the technology solutions available, help them weigh the pros and cons of each one and focus on the quality of publisher relationships. Your team would also be willing to work with a program on any platform or network.
By choosing this option, your focus would be on providing sophisticated, strategic program management services and offering brands the expertise, strategic solutions, reporting and dedicated account management that they want. You would be a services company, valued on EBITDA, and your financial metrics and capabilities would be more clearly understood by other service firms.
Option 3: Continue on the same path. By choosing this option, your company would continue to offer an in-house service that competes directly with independent agencies and a technology product that competes with both networks and other technology-only solutions.
Companies that choose this option must be aware that there will continue to be ongoing pressure from clients to have more accountability and visibility into SLAs (Service Level Agreements) for each aspect of the program with more transparent pricing. This includes compliance, core tracking and payment functionality, program management services and publisher development. The one to two-page generic agreements that have existed for much of the last two decades won’t cut it anymore.
Unless you have large global reach and scale, it’s important to note that, with this option, you’ll be battling in a two-front “war” that will tax limited resources and make it difficult to sufficiently invest in both the services and technology sides of your business simultaneously. What’s more is that dedicated agencies, many of whom increasingly manage the largest affiliate program and the majority of direct program, will likely be disinclined to bring their program to your network.
Because not only are there a lot of technology platform providers for them to choose from, you may be in direct competition with a core part of their services business (depending on how you price for services). In fact, this is the main reason why the tension in the relationship between some affiliate networks and agencies has grown over the past few years.
Affiliate networks regularly reach out to agencies asking them to bring their clients to the network’s technology platform. To date, however, most networks haven’t really been willing to offer the same in return (i.e. refer their best clients to agencies for program management). This one-way street relationship is a dead end in today’s marketplace. There are simply more viable options for agencies to choose from.
As price competition heats up, agencies will grow more concerned about being crowded out with “bundled pricing” from networks, an offering that has emerged frequently in the past year. As a response to agencies increasingly working with SaaS platforms, some networks are actively selling against their agency partners with bundled pricing. These agencies are understandably going to prefer to partner with vendors who do not have this conflict and who don’t pose a competitive threat.
Moment of decision
At the end of the day, it’s really about making a choice and understanding that each path has logical benefits and consequences. Toeing the line and playing both sides of the fence just isn’t going to work anymore. Focusing on either offering technology products or program management services (not both) will allow affiliate networks to innovate and truly compete on a global scale. They’ll have more time and resources to focus on adding greater value to their business, their clients, their partners and to the entire performance marketing industry.
While a difficult choice to make, it’s time to make it, nonetheless. As Tony Robbins said, “It is in your moments of decision that your destiny is shaped.”