In-House & Outsourced Affiliate Marketing: Getting The Best Of Both Worlds

Here’s a case for mov­ing away from third-par­ty affil­i­ate mar­ket­ing plat­forms to build­ing in-house resources. But is there a third way for­ward?

Paul Wright By Paul Wright from CAKE. Join the discussion » 0 comments

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.

Paul Wright

Written by Paul Wright

Managing Director, Europe, CAKE

Paul leads CAKE's growth and expansion in Europe. He has worked in the performance marketing industry since its early days, building and shaping strategies for some of the UK's largest agencies and brands for more than 18 years.

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