Performance Marketing – Is it time to embrace affiliates again?
Performance Marketing - Is it time to embrace affiliates again?
RBH's Joe Hepburn shares his insight into the wild and wonderful world of performance marketing
Affiliate marketing was a buzzword in the late 90s and into the 00s. And they’re still here, but affiliates are changing in their nature, at a rate that might surprise you. Before we get into that, let’s take a trip down memory lane to see how we got here.
In July 1996, amazon.com launched their first affiliate programme on the Internet, back when they only offered books, movies and music. They weren’t the first to the game but they are widely accepted to be early adopters of the modern commission models that exist today. This led to an incredibly lucrative and innovative way of generating revenue for e-commerce products without paying for people clicking on links or paying to just show them a product without knowing their intention.
What’s most important here is the idea that we shouldn’t have to pay to show people products or services, but we should pay – and handsomely – when the consumer does what we want.
How did it work?
In the case of Amazon, this was a single unique link on a placement page. When followed by a user, the placement page owner would receive a commission on any products that the user purchases. It wasn’t long before the rest of the e-commerce industry caught up and in 1998 Commission Junction was founded and created the first ‘affiliate network’.
Why does the industry look down on affiliate marketing?
It sounds great right? You own space on the web, you become a publisher and make money just for having a great site, regardless of other revenue streams you have. As an advertiser you only pay what you want, when it’s relevant to your purchase funnel. What could go wrong? Google had other ideas. In 2008 search engines started targeting affiliates. You can still to this day be penalised for having affiliate links on your site, leading to lower SERP rankings, harming the traffic source that would generate the revenue in the first place. The ulterior motive, of course, is Google AdSense. The Google display network and AdWords together own 42.2% digital ad revenue of the US market. This is down to three letters that all agencies and brands have heard. You guessed it… PPC. The reason the PPC model is the one Google adopted is because it enables the mediator and publisher to take advantage of the advertiser. For the most part, Google is its own publisher and can control rates of bids. It encourages all users to allow Google to make your bids for you. But it doesn’t quite seem fair – as if an auction manager at an antiques fair were making your bids for you.
How did affiliate marketing networks react?
Knowing that there are more ways than one to skin a cat, affiliate programmes moved away from handing out individual links to individual sites and shifted to large networks, connecting advertising partners and publishers.
The birth of the performance marketing category
Over time, many affiliate marketers morphed into ‘performance marketers’, promising to broker ‘offers’ (your digital creative assets linking to a product or service) to a wide selection of publishers at a ‘cost-per’ basis. This shift came at about the time the app market was booming. Just as owning sites in the ‘90s with a user base was a guaranteed revenue stream, the same became true for apps.
How did the app market boost performance marketing and affiliates?
Heard of AWIN? AppNexus? Fetch? Mobusi? IronSource? AdGoji? You soon will have. These companies got their start in the app market, pushing a cost per install for apps, achieving huge revenue sources for the likes of Clash of Clans, Deliveroo, Uber and Hello Fresh. Now they work with larger industrywide offers from user acquisition for streaming platforms to beauty products and automotive lead generation.
Why is the app market important?
The cost per install model re-invigorated affiliate marketers. Because of the technological nature of mobile applications, it also drove the more technical advancements in the marketplace; forcing media buying companies to become RTB compliant and understand a cost per action basis quickly. Cost per install is still the app marketing method preferred today by the performance marketing world. The cycle was perfect for the app owner, the publisher and the advertiser. The app would pay £1 per install. Each user either paid upfront for the app or entered a ‘Fremium’ model where they endured multiple ad banners within the app that was then monetised in favour of the developer again.
How does that all work then?
The end client can monetise how they like, be it e-commerce sales or leads. However, the advertiser, the network, the publisher and the site owner all make money on a commission basis. Let’s say the app developer wants £1 for an install, and the network then brokers that to a publisher partner at £0.70 per install – that’s a 30% margin on each install. The publisher may re-broker that offer at £0.50 and on it goes. This became so prevalent as a circle of monetisation that some of the larger mobile-focused affiliate marketing agencies like Mobusi bought apps and developers to control their own traffic and grow users.
Machine learning makes sense
These platforms are made powerful through machine learning and AI. That’s right, ad-tech has its heart in affiliate marketing. Google doesn’t own the concept, AI exists and even thrives across performance marketing. Our resident insight manager worked at one of the largest affiliate marketing/performance marketing agencies in the app space and at one time had over 70,000 individual offers running through the platform, with over 10 times as many publisher placements. No human can manage that amount of information and serving. That is where machine learning comes in. Believe it or not, a lot of these companies don’t set targeting at all – it comes from trial and error. When a campaign is launched, it is matched with all eligible publishers, based on quality scores and bid amounts (i.e. how much an advertiser is willing to pay for a sale, acquisition or lead). So, say it’s a campaign for a beauty product. After a few million initial impressions and clicks have flown through the offer, the system learns it is performing well among women of a certain age in a certain location on a certain operating system with a certain income with a certain browsing history.
Where does the volume come from?
Running in the background of almost any site you visit these days is what’s known as the programmatic RTB environment. In a split second, while a page is loading, hundreds of advertisers or networks decide whether they want to serve you an ad based on your categories and demographic. They then determine which ad, which creative execution and – most importantly – what bid, based on the space. Knowing the bid rates of each placement across millions of publishers is the job of the AI that powers this market. Imagine the New York Stock Exchange, but with adverts flying around the screens attached to each number. That makes these agencies massively powerful, because a single account manager can handle up to 40 clients at a time, using Slack and Skype to communicate in real time, exchanging offers and setting up publishers to take them. Rarely do these agencies deal with advertisers directly.
That is where the premium guys come in. Fetch & AWIN for example here in the UK. These are companies with offices across the world, thousands of employees now and massive market shares and turnover. They match professionalism and agency knowledge with this numbers-driven performance marketing world and they become a source for a holistic digital strategy. Influencers, web space owners, ad exchanges, email marketing, SMS marketing, notification marketing. All with the same level of intelligence and all at a price point you want to work at.
What’s the catch?
These premium platforms require not only a lengthy integration process requiring tech support on both sides compliant but also the required user base, conversion rates and commission value to be worthy of their premium publisher partners. The best option is to have a full service communications agency with the capacity to handle the task required.
This works for any conversion you can put a £ value on. It could be a test drive of a car, an enquiry form on a legal site, a registration for a gift card for a shopping centre or a solid ecommerce transaction. If you get on these platforms you will get excellent brand exposure without paying CPM (cost per thousand impressions) or CPC (cost per click). On top of that you learn more and more about your own user base and which demographics and trends work best with your current creative and brand or product. The cherry on top of all of this, of course, is the monumental growth in sales at a rate that can’t hurt a company’s cash flow. If you have the right conversion rate, the right commission, the mindset and courage to delve deep back into the affiliate world, the performance of your marketing will increase exponentially. At a rate that is both manageable and traceable.
This year RBH, led by its flourishing digital team, is taking the leap with the largest premium performance marketing agency in the UK. Look out for more news on our very soon.
Want to know how performance marketing can help your brand? Click here to get in touch with your friendly neighbourhood RBH team.