This year marks a higher level of maturity for affiliate marketing, with the industry now sufficiently established as an integral part of the online marketing mix. A testament to the health of this channel, US affiliate marketing spending is predicted to reach $4 billion by 2014, increasing at a compound annual growth rate of 16% from 2009 through 2014 (Forrester). Further, the affiliate channel is regarded by many as the predominant direct response channel for sales generation.
Although maturing, affiliate marketing continues to be a fast-moving industry where businesses must adapt quickly to succeed.
Business Models Are Changing
On the advertiser side, a majority of brands operated affiliate programs for a number of years, over which time they continued to increase the level of investment and resource in this channel. Now, most brands set up well-optimized programs to complement rather than cannibalize their other marketing channels.
On the affiliate site, leading publishers are now recognizable brands in their own right and have become destination sites that earn consumer trust and loyalty. On a global scale, niche content sites – the root of affiliate marketing – now form the long-tail of most programs while incentivized traffic and coupon sites are at the forefront. Now a crowded space, many of these publishers recognize the need to incorporate social, true content, UGC, comparison and review elements under a single brand if they want to stay successful.
In addition to its rapid pace, the affiliate industry continues to hold the status as a proving ground where innovative methods of marketing are tested on their ability to demonstrate ROI.
The Transformation of Performance Marketing
The benefits of the performance-based affiliate model are obvious for advertisers, but this was not traditionally the format of many other online campaigns. Now however, there is a growing willingness from publishers to run ads on a performance-only basis across multiple online marketing formats (display advertising, etc).
As such, where CPA was once unique to affiliate marketing, it is now a key model for a variety of online campaigns. Marketing activity that previously worked to CPC or CPM is now often worked back to an effective CPA, and there is a growing awareness that any form of online marketing can be regarded as performance-based.
As a result, ‘performance marketing’ is now attracting players that previously worked on other payment models. Through what was traditionally the affiliate channel, advertisers can work with publishers as a branding force as well as a sales channel. With this comes an abundance of promotional methods, with retargeting and remarketing among the latest forms to be imported from CPM channels.
This presents two challenges for advertisers:
#1 Understanding New Formats and How They Meet Marketing Objectives
Affiliate programs have always involved managing a large number of relationships with affiliates that work in vastly different ways, but now this requirement is greatly accentuated.
#2 Learning How To Identify and Engage The Long Tail
Compounding the challenge of new formats is the fact that most affiliate programs contain only a small proportion of sales generating affiliates. Therefore, identifying and engaging with long-tail publishers has become an affiliate manager’s mission, and a more telling measure of the health of a program than sales volume alone.
A Continued Push for Transparency
There is an increasing demand from advertisers to know more about their publishers, bringing accountability and transparency to center stage. These are also the measures by which many advertisers judge the value of their affiliate network. Networks that remain simply as ‘platform providers’ may struggle to meet these requirements by agencies attempting to build their own networks with out-of-the-box tracking technologies and by advertisers hoping to take their top performing affiliates in-house.
In the future, networks may need to justify their override by providing more of a community rather than a simple platform, through which connections between advertisers and publishers can be built on a more transparent basis. This will help provide greater insight into performance-based activity.