Components of Affiliate Marketing

Note: This is a long post, based on time spent at last week's Affiliate Summit (1/10/06 - 1/12/06)

Unlike Ad:Tech, noticeably absent from Affiliate Summit are companies like Fastclick (part of ValueClick), Advertising.com, Specific Media, Undertone Networks, Casale Media, Revenue Science, Tribal Fusion, and the one for whom I represent, Revenue.net. These are the major display ad networks, the largest doing tens of millions monthly in revenue. Also absent from the show were the search engine marketing companies, i.e. those that offer large and small businesses in-house, ASP, and fully outsourced solutions for managing their presence on the major pay per click engines. Many of these companies focus on arguably the most technologically and algorithmically difficult piece, bid management.

At first glance, it might make sense for display ad networks and search engine management companies to display at Affiliate Summit. Those in attendance have traffic for which they need ads, as well as place ads on engines for which they could benefit by doing it more efficiently. The reason they don’t is that, at its core, affiliate marketing has a decidedly traffic-centric bias. Those displaying at Ad:Tech, SES, and OMMA, for example, don’t mind meeting publishers, but their target audience is certainly not traffic generators; it’s advertisers. Affiliate marketing on the other hand is really about the affiliate and what those who want to service them need.  And, it’s with this lens that has a traffic bias that we can evaluate the pieces that comprise affiliate marketing - technology solutions, big brands’ merchant programs, traditional webmasters, organic search traffickers, ppc arbitragers, lead generation, and a large email undercurrent.

Affiliate marketing is part technology solutions, because many of the companies that want to work with third party traffic are ones that are either too small to create such a solution themselves or so large that doing so not only requires too much bureaucracy but ultimately a poor allocation of resources.  As a result, companies such as Linkshare and Commission Junction exist to offer them just what they need to do. For many of you, who have spent time in internet marking but away from affiliate, the thought of a gatekeeper for offer management seems inefficient and limiting, unless that gatekeeper has guaranteed access to traffic.  In part two we will discuss in detail the additional components that make up affiliate marketing.

Distinct to affiliate marketing are some of the big brand advertisers you will find on them, and the ease with which a traffic source could work with them. From the ad networking point of view, trying to work with Citibank or Payless Shoes means knowing their ad agency and a long sales cycle as you try to get on their buys. From an affiliate marketing standpoint, working with Citibank or American Express means signing up for their affiliate program and waiting a day or two for an affiliate manager to say OK. The big brands that run on affiliate and ad networks will overlap, but those on affiliate will only be performance based. Ad networks’ offerings can also be performance-based, but more and more, the display channel is being tapped for behavioral and other brand options with affiliate becoming synonymous with performance options.

With respect to companies and shows dedicated to them, affiliate marketing is really about marketing to affiliates, and a key affiliate is the original affiliate, the webmaster.  Before search algorithms, paid search, and email, webmasters were the only affiliates. They were technical, not in sales. They were responsible for the maintenance of the site, which for many meant they did everything, including the design. This audience thought of the content first, then monetization. They cared about their audience and their sites, more often than not, dealt with specific topics. They didn’t want just any type of advertiser but ones that they felt matched their content. They talk closely to others who run sites and discuss solutions and techniques for continually making a better site and/or group of sites.  It is this group that launched companies such as Commission Junction, with the standardization of ad units and sites with less specific, often entertainment, content that launched the display ad networks.

Like the webmaster, affiliate marketing has evolved. Yahoo got their start from creating a directory of the sites available on the web. That labor intensive methodology ran into limitations as the web grew, yielding to technology solutions that didn’t rely on people submitting sites but active categorization of the web. This same passive to active transformation that the search engines underwent also happened in affiliate marketing, creating a new segment and type of entity operating in it. Like webmasters, this segment runs sites, but they pick their topics, based on what they want, to generate traffic – a combination of traffic and programs to monetize that traffic. They might run a credit card related site, but they do this not because of an inherent interest in credit cards, but more because they have determined that they can generate pages that will get ranked in the search engines, and that enough merchants offering credit card and credit related programs exist.

The counterparts of the organic search traffickers are the search engine arbitragers. Similar to organic traffickers, this group looks at available traffic and available offers first, versus content that might interest them. They differ from the organic search traffickers in two ways. This group focuses on paid traffic, and at least for now, they generally don’t build web pages. This group consists of really sharp traders – they find holes in keyword pricing and use that to cover their spread. This group is paid on a cost per action, but pays out on a cost per sale. Like other forms of affiliate advertising they help extend a company’s presence online, and similar to other areas of traffic generation they are both large and distinct enough that it represents a separate section of affiliate activity.

Webmasters, organic search traffickers, and paid search arbitrage make up three of the four main affiliate categories, with big brand and other commerce driven companies making up the main merchant group. The last two pieces to be discussed are the remaining merchant category, cost per lead advertisers, and the remaining affiliate group, the emailers. The remaining merchant group, cost per lead advertises, play a secondary role to the big brand / commerce merchants. This is a group that is often more active at other shows, or none at all. It’s a group that in many cases makes their money by performing their own media arbitrage. Take a company like NexTag, who operates mortgage and education lead generation campaigns. Almost all, if not all, of their media comes from in-house activities – they have media buyers for the display ad activity and a search team for both organic and paid search.

The cost per lead companies also differ from the big brand / retail merchants mainly in their affiliate composition. Big brand / retail merchants have primarily webmasters, organic search traffickers, and a smattering of paid search arbitragers; whereas per lead has a few webmasters, some organic search traffickers, more paid search arbitrages, and a heavy email component. After going through a rough spot, email and those in email are back. Not that they ever went away, but at least some of the deception and some of the heavy mailing has. Email is still risky, but it’s hit a point where the potential upside can outweigh the risks, something that was not the case a year or two ago. Email is still a slightly charged word, and their presence at the shows is interesting as its cost per lead offers and the networks that offer them which connect this group with the more classic, affiliate marketing.

Affiliate marketing is still a broad term, and still encompasses many industries, but as Internet advertising has matured, so too has affiliate marketing. The fragmentation of the marketplace has helped provide it a distinct group of advertisers, technology platforms, and traffic sources than other areas of online marketing. This still doesn’t help solve the age old naming issue. Is it advertiser or merchant, publisher or affiliate? One thing at a time it seems.

Comments

[joe]

Nice Post!