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The Implications of Blockchain for the Affiliate Industry

The Implications of Blockchain for the Affiliate Industry

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Blockchain is making headlines everywhere as a technology poised to revolutionise business. What does that mean for the digital marketing industry and, more specifically, affiliate marketing? Should you believe the hype?

At first glance, the affiliate industry appears to have reason to be concerned about the new technology. The main promise of blockchain (the technology behind Bitcoin and other cryptocurrencies) is that it will make transactions safer, faster and more transparent for all parties. These are many of the same assertions that have made affiliate networks so successful to date.

The difference is that blockchain delivers these benefits in a manner that doesn’t rely on establishing trust among the transacting parties. Blockchains are basically secure digital ledger systems that can be easily shared among all network participants. No single entity controls this data; the information is highly encrypted, and it is maintained by a decentralized network of anonymous parties (sometimes called “miners”) who are incentivized to ensure the integrity of the ledger.  

Furthermore, once a transaction has been recorded on a blockchain, it is virtually impossible to change or remove it—making it extremely difficult to hack. The security and integrity of this process has the potential to create a number of opportunities for the affiliate marketing industry.

Imagining a world where all network participants (publishers, exchanges and advertisers) are working off the same information sounds simultaneously exhilarating and frightening. Advertisers who are sceptical about the ROI of certain partner programs would be able to effectively trace the lineage of every lead they receive. By the same token, publishers who are concerned that they aren’t being fairly compensated for their efforts would be able to confirm the delivery (and subsequent activity) for every lead they send.  

Finally, networks and SaaS platforms would be able to indelibly record the value they are providing as intermediaries to improve both the quality and the reach of leads for their customers. This would immediately shine a light on those players who are not adding real value to the process.

The level of transparency that blockchains could offer is unheard of in today’s affiliate market space.

Assuming the benefits are real and the technology can scale, the question isn’t whether blockchain will disrupt digital marketing, but rather when, by how much and by whom. As with any big new change, expect to see a wave of new entrants, many of whom will come to market with new blockchain-based offerings, such as reftoken.io. However, the greater impact is likely to come from major players deciding to adopt aspects of the technology into their products to increase speed and transparency while bringing down costs.

The current SaaS revolution in affiliate marketing has enabled companies to automate and scale their marketing, business development and affiliate partnerships in ways that are similar to what blockchain offers. In fact, one of the biggest benefits touted for blockchain is the “smart contract,” a lighter version of which already exists in today’s affiliate marketing landscape. Networks and SaaS platforms allow companies to sign up partners in mass using standardized agreements—a major time saver over negotiating contracts one by one.

Here are a few emerging trends that will likely be shaped by the adoption of blockchain and the potential implications on the current affiliate marketing landscape.

Broader market access

Blockchain is most disruptive to industries where network access and control is either centralized or concentrated among larger players, which reasonably describes the affiliate industry today. Many futurists hypothesize that blockchain and smart contracts could replace networks—and perhaps even SaaS solutions—as a tracking and payment mechanism between advertisers and publishers.  

While this may be overstated, blockchain is likely to at least accelerate the move from a closed hub-and-spoke model to a more distributed and open marketplace of publishers and advertisers who can work with each other with less friction and cost.

As the market moves to what I call the “Marketplaces of Marketing” (see graph), companies will be able to manage thousands of partners as a single channel or “fat pipe” (see graph), directly expanding opportunities to create an ad channel that rivals the automation and scale of Google and Facebook, but with more diverse sources of traffic.

Undoubtedly, new entrants will leverage the real-time reporting, digital contracts and other benefits of blockchain to enable clients to be both publishers and advertisers—opening up the field to long-tail, non-traditional partnerships and establishing more direct, bilateral relationships among parties.

This trend toward more decentralized, transparent and open relationships will continue to threaten closed or opaque networks that don’t offer exclusive relationships or a value-added layer of services. Vendors would be wise to closely assess their business models to remain competitive.

“Smarter” payment structures

Companies are striving to more closely tie their payments to value, rather than simply paying a fixed percentage for every click that comes their way. One of blockchain’s core features is the “smart contract,” which could allow advertisers to get very granular about what they want to pay for, how and when.  

Imagine a world where advertisers could structure tiers of payouts based on how good the lead was. I may pay one price for a click, another for a form completion and yet another when that customer logs in more than three times in a week. Think of it as a live rate card where the terms are continually negotiated and accepted, automatically, via a digital handshake.  

Once validated, these contracts would settle instantaneously, and the partner would get paid immediately. This real-time feedback could drive greater efficiency as partners adapt their programs more dynamically based on what is actually working.

Lower transaction costs and token payments

One of the main benefits of blockchain is lowering transaction costs over time, especially as processing power increases. One of the biggest cost components of SaaS platforms and networks is processing payments and managing multiple currencies and conversions. In a blockchain world, brands could pay publishers in either cryptocurrency or in other tokens that are “released” when a smart contract successfully executes—which allows for the instantaneous payout.  

Although it might seem far-fetched right now, in five to 10 years, brands could conceivably pay partners in cryptocurrencies/tokens, virtually eliminating the 1% to 2% cost of processing payments today. This could actually drive up payout rates and result in more value going directly to publishers.

These changes will likely have some interesting tax consequences that will need to be sorted out.  

More transparency

Using an open blockchain ledger would let everyone see what’s going on in a transaction—eliminating concerns about fairness from either side of a partnership. Transparency makes it easier to conduct business without having to first establish trust, an arrangement that would negate some of the rationale behind having a network of affiliates.

Transparency doesn’t necessarily mean that everyone can see every detail about every transaction—which would certainly raise concerns from a privacy or competitive intelligence perspective. Remember, all transactions are encrypted. The key is that the interested parties should be able to reconstruct a single source of the truth based on the transaction history and their unique, private decryption keys.  

That said, it may become industry practice to show partners some of the attribution chain for orders on a blockchain and to reveal the impact on commissions.

One of the major downsides of Bitcoin is that while the transactions themselves are transparent, the participants in the ecosystem are anonymous. That’s why Bitcoin is the currency of choice for digital ransom and other nefarious purposes and why theft is rampant. Additionally, the principle of enforcing a public, decentralized ledger and a smart contract means control is given to the masses, with a large group of unconnected individuals controlling and therefore policing the blockchain ledger and its associated contracts.

A blockchain that is totally decentralized and leaves brands not knowing with whom they are working is going to be a tough sell. However, a blockchain doesn’t have to be public. Private or permissioned blockchains take a different approach to handling privacy and establishing trust than their public counterparts (like Bitcoin).  

In the private case, rather than exposing the entire history of transactions to everyone, only approved participants can access the ledger. Furthermore, the transaction details that are accessible depending on the level of permissions granted by the network. Finally, trust could be established by consensus among either the transacting parties or their delegates, with trusted networks and SaaS players best suited to play that role.

Loyalty goes crypto

Say goodbye to gift cards and loyalty points. Instead of paying rewards and commissions in cash, large loyalty programs like Upromise and Ebates will likely use blockchain to develop their own currencies for payments to customers, which will dramatically lower transaction costs and offer them leverage for where these tokens can be used.

In fact, as I am writing this, this trend has already started: Rakuten (parent of Ebates) has its own currency, “Rakuten Coin,” that can be earned and spent across its portfolio of companies.

Conclusion

So, will blockchain displace networks and perhaps even SaaS? That’s unlikely because blockchain alone is not a product; it’s a technology upon which to build a product. As with any new technology, blockchain will likely be adopted and heralded by an initial influx of pure play affiliate networks and tracking platforms.

However, the majority of these companies will be too early and too risky for enterprise brands to take a chance on, meaning most will either fail or be acquired over time. The more important impact will come from major players deciding to adopt aspects of the technology into their products. As the use of blockchain becomes more widespread and successful, chances are high that market leaders will use it to enhance their existing offerings by bringing down costs and increasing speed and transparency.

These changes will not happen overnight, but industry leaders should keep a close eye on how this technology is transforming affiliate marketing.

In the long run, the changes blockchain is bringing will likely give publishers and merchants a lot of new choices.

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Robert Glazer

Robert Glazer

Robert Glazer is the founder and CEO of Acceleration Partners, the leading independent global affiliate marketing agency. He is also the author of the best-selling book, “Performance Partnerships: The Checkered Past, Shifting Present, and Exciting Future of Affiliate Marketing” and a sought-after keynote speaker. Book Robert to speak at your next event here.  

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