Affiliate Marketing as a Business Model: Two Opposing Views

Today I have read two articles about the future of affiliate marketing as a business model for publishers. One is as optimistic as I was a few years ago about the future of affiliate or performance marketing; the other is closer to my current view. It would make more sense if they were written 6 years rather than 6 days apart. First read the articles…

Mail Online trials affiliate marketing initiative – will other publishers follow?

via Mail Online trials affiliate marketing initiative – will other publishers follow? | Media Network | Guardian Professional.

and

Study: Apps and Content Startups Miss Out Because Affiliate Model Is Broken

via Study: Apps and Content Startups Miss Out Because Affiliate Model Is Broken | TechCrunch.

Let’s start with the trial by Mail Online.

Smaller publishers, content creators and website owners have been using affiliate marketing and the % of sale, cost per lead and cost per click models for years. It works well although, as the article notes, some thought needs to be put in to determine where the line is between the advertising complementing rather than directing the site content.  While established mainstream publishers resisted affiliate marketing as their model for selling advertising, some were quite happy to use it as a model for buying traffic and leads.

The story of affiliate marketing… seems simple and is a win for all parties. What could go wrong?

The story of affiliate marketing sounds simple. Place a related product advertisement near content and the reader will click. If they purchase within the cookie period – often 28 days – the advertiser pays the publisher a commission on that sale. It seems simple and is a win for all parties. What could go wrong?

Well, lots can go wrong for both the advertisers and the publisher. There are plenty of pitfalls that reduce the likelihood that the publisher will receive payment for their sales and I will address them elsewhere. As a publisher, there is an acceptable level of this “leakage” just as shops have an acceptable level of losses to shoplifting. It would be nicer if it didn’t happen but it’s fairly inescapable. For advertisers, the pitfalls are affiliate trickery to claim commission and sometimes damage to brands.

If done well though, it is a great business model as it takes away many issues with selling advertising based on old-media metrics and allows publishers to try new works without having to seek out money from advertisers first.

Can the Affiliate Model Really Be Broken?

The second article addresses one of the long-standing issues in affiliate tracking.  Which click wins?  With some systems it is the first click; most it is the last click. If you assume that all affiliates are equal, you may also assume that it all evens out.  Affiliate A may lose some sales if the customer goes to a competing site and clicks on a link there (overwriting the cookie which records the referring affiliate), but they may pick up some sales where other affiliates have primed the customer who eventually buys after visit Affiliate A’s site and clicking on their link.

But all affiliate sites are not equal – and I’m not talking about quality, but where each type of affiliate is likely to feature in the lead-up to a sale.  As the second article notes, content sites like the Mail Online are likely to introduce sites and products to readers.  But between the introduction and the purchase, there are other types of affiliates who may get in there and claim the sale.  All will claim that they contributed to the sale. The “clever” affiliates will target customers when they are as close as possible to the point of purchase.

When the last click wins, the advertiser will look at their reports and see a large proportion of their sales coming from coupon sites, retargeting services, ppc brandbidders, anonymous affiliates (usually cookie-stuffers) and perhaps a few sales coming from sites like Mail Online.  One has to ask, how many of these sales would have occurred without each of these parties.I was alerted to this issue when an advertiser rang me and asked why I’d removed them from my sites and begged to be put back because their sales had stopped dead. I’d had just a few minor sales register for their site but it didn’t take long to work out the problem. They had large ticket items so sales were usually on return to the site. They had a domain name that was difficult to spell – the easiest way to find it was to type it – near enough – into Google. Above their natural search listing was what appeared to be their Google ad. When the customer clicked that link, although it appeared to take them directly to the shop, it did so via a hidden affiliate link. So that affiliate’s contribution to the making of that sale was to pay a few cents to advertise on a merchant’s URL.

While some advertisers, with varying degrees of assistance from affiliate networks, have done some work to remove the loss of commissions from content sites to arguably less-valuable affiliates, the vetting of affiliates has always been an issue. Within experienced publisher circles, you hear talk about clean or parasite-free affiliate programs. You also drop any advertiser whose appears to have deficient tracking. As well as factoring in the likelihood of an advertiser’s site converting our readers into customers, we factor in the likelihood of those sales being recorded and attributed to us.

Affiliate or performance marketing is here to stay on the internet… or at least until someone can come up with a better idea. The challenge for publishers is to find a way to use it that makes it a viable model. Allowing the bulk of your commissions to be snaffled by others is not a viable business model for publishers.

The majority of the advertising on my sites uses affiliate tracking. The difference is that it is an in-house platform and my sites are the only affiliates. In return, I can guarantee to advertisers that I won’t use the tricks affiliates use to claim sales that would have occurred anyway. Same technology, different business practices.

Tracking by the Advertiser, Publisher/Affiliate or Network?

In theory any of these parties can run the tracking platform. All have benefits and drawbacks.

Advertiser tracking – ie inhouse affiliate program Some larger advertisers, particularly in the travel industry have in-house programs. It means they have greater control over who joins but requires in-house management and knowledge.

Publisher/Affiliate tracking – this is only really an option for those who have sufficient volume to fund the tracking, accounting and management, and to attract advertisers.

Affiliate Network – in theory these provide all the answers – a large marketplace were many advertisers can deal with many affiliates, they provide the tracking, support, accounting, advertiser and affiliate recruitment. But they also encourage the view that all affiliates are of equal value and can decrease transparency and accountability.

Broken or a Future?

I set up the in-house platform after coming to the conclusion that it was the only way that advertising retailers was worth doing. A combination of adware, ppc brandbidding and fake coupon sites were flooding the Australia affiliate space. I had doubts that any of the existing networks would be viable without this sort of activity.

A better solution would have been a clean network with multiple publishers. Perhaps if major publishers like the Mail Online begin using affiliate marketing, they will bring sufficient volume to allow at least some affiliate networks to operate a business restricted to quality-controlled content-only affiliate advertising.

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