As global ecommerce spending continues to boom year-on-year, a growing number of UK advertisers are moving away from third-party affiliate marketing platforms in favor of building their own resources in-house and taking direct control of their online performance marketing. Here’s a case for both approaches and whether there’s a third way forward.
Not so long ago, it made a lot of sense for advertisers to outsource the bulk of their online performance marketing activity to third-party affiliate networks.
Most businesses simply didn’t have the time, resources, expertise, or inclination to manage their own network of online publishers. The lack of appropriate, affordable in-house technology, combined with the considerable admin costs associated with developing and supporting an affiliate network, were a major turn-off.
As such, the option of paying an established affiliate network a monthly fee in order to leverage its pre-existing relationships with an extensive range of publishers proved attractive to many. This required minimal effort on the part of the advertiser and the pay-on-performance model made it inherently transparent, with publishers rather than advertisers assuming the initial risk (i.e., no conversions, no commission).
However, over the past three years or so, there has been a growing trend: businesses are bringing their affiliate marketing programs back in-house. First seen in the U.S., the trend is now gathering pace in the UK, thanks to a variety of factors.
In many ways, the shift going on in affiliate marketing right now is similar to what happened with search a few years ago. At that time, brands typically outsourced their search marketing activity as it was a new, must-have capability. They didn’t understand it and expertise was scarce so the easiest/smartest thing to do was to hire an agency to manage the program.
Jump forward five years to today and almost every major brand has brought search in-house because:
- There are more people available with the expertise and skill-set to manage, understand and successfully implement a search marketing program.
- There are intuitive technology products now available, such as the tools offered by Marin and Kenshoo, which allow brands to centrally manage all search activity in-house.
Likewise, advances in technology and an increase in the number of skilled digital marketers are now making it an increasingly viable option to bring affiliate marketing activity in-house.
The Problem(s) With Third-Party Affiliate Networks
As the digital marketplace has evolved, it has created stresses on the traditional business model of third-party affiliate networks, shining a spotlight on their shortcomings for both advertisers and publishers:
- Take the example of an advertiser who wishes to work with a particular publisher. In many cases, that publisher may not belong to a particular network or the publisher may work across all networks without being exclusive to anyone. The natural desire for the publisher isn’t to tie itself down to one network, but to work directly with advertisers and, increasingly, UK advertisers are beginning to feel the same way.
- The affiliate networks work with thousands of advertisers, including many sets of direct competitors, so there can be little competitive advantage to be gained from the data that the networks offer. In fact, with such a high volume of clients per account manager, there is actually a risk that direct competitors could be gaining insights from each other’s data!
- This massive client base also means innovation at the affiliate networks tends to be driven by the needs of their larger clients, leaving many medium-sized and small enterprises without the new functionality that they would like to see developed. Smaller advertisers also suffer disproportionately from the higher fees charged by networks, which eat into their profit margins. The monthly fee due to an affiliate network can also seriously hamper the cashflow of an SME that experiences seasonal peaks and troughs.
- The recent Black Friday outages and downtime experienced by several high-profile retailers – and affiliate networks – also raised questions in the mind of many affiliate network advertisers about the wisdom of being overly dependent on any one particular technology platform.
- For businesses looking to expand beyond the UK, affiliate networks may not have any activity in the overseas markets being targeted, so can’t provide the required affiliate publisher base or, indeed, the translation, data formatting, currency, legal or tax support that international trading demands.
- We’re also seeing pressure from the publisher side for more innovation by the networks, for different types of campaign and payment models beyond CPA (cost per acquisition) and percentage commission that better reflect the influence of publishers at different stages in the consumer’s online journey (before and after conversion) and utilize the attribution modeling capabilities of the new technology tools available.
Faced with growing discontent on either side, the affiliate networks now have to work very hard to justify their fees. In some cases, where they are providing advertisers with little more than “bare bones” tracking, that will prove a difficult task.
In 2014, advertisers want full transparency of the consumer journey. They want to see the lifetime value of each consumer and match it back to the publisher(s) responsible for bringing the customer to their door. Unfortunately, the affiliate networks only ever see the data from the affiliate channel.
They can’t and never will be able to see the data from your paid search, display ads, online PR and all the other channels within your digital marketing activity.
All of these factors are driving the trend toward brands pulling their affiliate marketing programs back in-house.
The Case For In-House
Advertisers can obviously save a lot of money by no longer paying commissions to an affiliate network, however, it should be remembered that managing an affiliate network in-house will create new internal costs in relation to account management.
Fortunately, a new breed of intuitive, ready-to-use technology platforms are enabling advertisers to cost-effectively manage affiliate programs in-house in a way that wouldn’t have been possible a few years ago.
This provides the opportunity for advertisers to reinvest some of the money saved on network commissions into developing one-on-one relationships with publishers by creating custom campaigns and custom payouts. This can be a great way to win an edge over your competitors.
By cutting out the middleman, marketers also get direct feedback from publishers and develop an understanding of what’s working and what’s not, rather than having to wait on a third-party provider to share whatever slices of affiliate data they see fit. Advertisers gain immediate real-time access to incredibly rich publisher and consumer level data, which is not normally provided by some of the most popular networks.
In-House Platform + Outsourced Affiliate Provider
However, let’s not get too carried away. While the shift to in-house affiliate platforms is becoming more prevalent, it’s not my recommendation that anyone completely abandon their relationships with all outsourced affiliate services just yet.
If marketers take a close look at where their traffic comes from, many will see the combined use of an in-house platform and an outsourced affiliate provider is their best route forward.
On average, 90 percent of a brand’s traffic comes from 10 percent of its publishers. The capabilities of the new technology solutions on the market mean that advertisers can now consider working directly with that 10 percent, cultivating those key relationships one-to-one, while continuing to rely on third-party networks to manage the long and mid-tail affiliates that they are so good at harvesting.
With the right technology solution in place, data from all your digital channels (not just your in-house and outsourced affiliates, but also paid search, display, social, etc.) can be fed into a single analytics platform, providing a complete multichannel picture of the consumer journey and allowing advertisers to optimize their future marketing spend accordingly.
Advertisers of all types now, for the first time, have the opportunity to design a performance marketing strategy that incorporates both in-house and outsourced affiliate marketing activity and delivers the best of both worlds.