Affiliates vs. Aribitragers

Why Affiliates are from Mars and Arbitragers from Venus

A little more than two years ago, I wrote a what if piece thinking about the time when Google would enter CPA landscape, not just by offering publishers ads to run on a performance basis, but by arbitraging the risk on behalf of advertisers. Google has (smartly) held-off on doing so for the time being, but without a doubt there will come in the not so distant future where select advertisers can use Google for more than just generating clicks. At the time of writing that piece, I was thinking more broadly in that advertisers would place a pixel and pay Google for results. That pay for performance approach is one that countless companies employ and offer to advertisers, the most common being ad networks.

Those who have had this conversation with me in the past will know that I can be a stickler for semantics, especially as it relates to the use of certain terminology. One of those areas involves ad networks. In my  mind, there is a big distinction among the following - ad networks, cpa networks, affiliate networks. All of them play an aggregation role between traffic sources and advertisers, which makes them easy to use interchangeably. Here are some key distinctions:

• Ad Network - company that focuses primarily on graphical display ads; core technology investments are in ad serving, optimization, and targeting enhancements (contextual, behavioral, etc.). Can at times take principal risk (have advertiser pay on CPA) but not a defining characteristic.
• CPA Network - company that focuses exclusively on performance-based advertisers and publishers willing to receive payment for actions not impressions or clicks;
• Affiliate Network - company that focuses exclusively on performance-based advertisers and publishers willing to receive payment for actions not impressions or clicks
  

You might notice the definition for CPA Network and Affiliate Network don't differ. It's because they differ so greatly that it warrants its own discussion, and the distinction between them has only grown with the advent of flogs.

CPA Network vs. Affiliate Network
Were we to plot the major differences between them, we could summarize it by looking at the number of advertisers, the role of the network, and the type of publishers.

Both are paid when actions occur, but CPA Networks don't charge an upfront fee. CPA networks make money only from traffic, so they are more selective about the types of advertisers with whom they work. Their specialty is understanding traffic and finding advertisers that fit in the traffic gaps their publishers uncover. The CPA networks in many respects operate in a more competitive landscape. Their market acts more like a commodity, with their offers rarely being truly exclusive. As such they must fight for price and do their best to differentiate through better payment terms (weekly payments) and applying internal resources to help out top publishers (white label sites, creatives, and more). From a technology standpoint, they need it, but it isn't a factor for success. Some of the biggest cpa networks operate on licensed technology. Customer service is their other strength. They take care of their top publishers, like Sandra Bullock in Two Week's Notice. (Almost) Anything to keep them happy. It's very personal.

Affiliate Networks, on the other hand, more often bill themselves as outsourced technology platforms, tools for advertisers that want to offer an affiliate program but do not have the infrastructure. They are market makers who charge a set-up fee and monthly minimums to then get out of an advertiser's way. The more companies that use them the better as it means guaranteed revenue. And, once they have a particular advertiser on board, they don't have to worry about their affiliates getting them from someone else. They don't have to worry about losing an affiliate because they found the offer somewhere else at a higher price or with better payment terms. Only more recently are the affiliate networks (CJ, LinkShare, ShareaSale) taking after the CPA Networks and playing an active role in distribution, i.e. seeking out specific advertisers with which their affiliates might do well. But, they still don't service their clients. They don't take financial risk or answer affiliate emails with a full name and phone number. 

Affiliates vs. Arbitragers

When I originally wrote about some of the differences between cpa networks and affiliate networks, I used to think that the advertisers drove that separation, but now, I realize it's just the reverse. Any advertiser uniqueness is driven purely from the traffic side. At its most essential, the affiliate has an audience they try to which they cater, where as the arbitrager has only traffic. The true affiliate has their own site, their own brand in which they've invested time, money, and ego. They have something to lose if they mess-up. They can't just fold-up shop and start again. The arbitrager on the other hand is the day trader who at the extreme is ephemoral, defined by his appearing and then disappearing act.

To understand the difference between affiliates and arbitragers, let's start with a hypothetical question. If you met an advertiser, especially a newer advertiser (it could be one with items for sale or who is collecting leads), and you didn't stand to earn money off them, would you recommend their first experience to third-party traffic be through CPA Networks or through Affiliate Networks? If you are struggling for the answer, once again read about the flogs. CPA Networks know what they are, know the top publishers who do them, and have taken steps to facilitate their financial success. An account manager at an affiliate network would have no idea what we're talking. The affiliate network is the company that is withholding money from a good friend and legit search engine arbitrager; the cpa network is the one that just flew him to meet with them so that they could get him to run more traffic to their offers.

Let's look at it from the publisher standpoint. Let's assume you are like the new advertiser, except in this case, you are the new publisher. You have seen the flogs being advertised and want to give it a try. Your next challenge is two-fold - obtaining the offers and designing the site. For the links, if you know where to go, it saves time, but even at the least (assuming you don't work at one of the companies already), add a week. As you go to sign-up, you'll probably decide that you need to incorporate first. You don't want to incur legal headaches should your little experiment go awry. Add two weeks there. For the site, the vast majority are designed in Word Press, so given your level of savvy, you could design it yourself but chances are you will pay someone who already has some familiarity. You will show them the sites, give then the wording you want to use, and the links. Again, using realistically quick expectations, you are looking at one to two weeks, especially assuming a relatively novice level of exposure to the arbitrage world. You will be using resources that you may know and/or have worked with before, but you won't have that working dynamic.

Add it up, and if done right (with corporate set-up), you're looking at four to six weeks from when you first decided to do it. Done hastily, you might reduce that time to three to four weeks, this before you ever can even send traffic. In that four week span, you might have even run into the situation of your entire site now being obsolete. You might have built a government grant site meant to run on Facebook because so many others were, but when you finally got yours ready, you no longer could. Take the experienced arbitrager on the other hand, and from decision to inception, it might take two to three days. If the hypothetical window for running is four weeks, they have an opportunity to use almost all of it. That sense of urgency and speed to action is perhaps their most distinguishing trait. There are no product meetings, no wondering whether to pull the trigger, and no hemming and hawing over the cost to build or test. Just action and getting it done because someone else is probably doing the same. And the CPA Networks have evolved to support this fast acting, higher risk taking behavior.

The problem is not arbitrage but the arbitrage at all costs attitude that has arisen. Those who find traffic pockets and take the financial risk serve a very valuable role and deserve to make money off it. When thaat discovery runs afoul of all laws and ethics, when they are so morally lost they would need a map to find out where to go, they don't just endanger themselves. They are a speedboat, gone into the distance before than can be identified, the victims being those left in their big wake. Those victims are all of performance marketing.

The difference between the good and the bad players couldn't be more clear, but for the rest of the world that just isn't the case. I'd wager many savy readers didn't immediate know how to answer the question of where to send that novice advertiser. Those embedded in the space on the other hand had an answer before finishing the sentence. That there could be such a difference but with only so few people realizing it is dangerous to the long-term health of the performance marketing space. Until the good from the bad is more widely known, the good will continue to get caught up in the bad's mess. 

Comments

[Brian]

Excellent article very interesting reading, However I think CPA is on the up and CPC will eventually die off. With CPA at least the advertisers get something out of it, CPC is full of fraud (Click fraud)its just not worth the expese any more and some keywords can cost upto 20 USD with Google. 2 Clicks and goodbye 40 USD.

[Sam]

You have an amazing blog. Your insights into this industry are perceptive, interesting, and accurate. Please keep writing.

--- Sam, I'm not sure I deserve such kind words, but thank you for one of the best possible compliments.