Private Network

At a high level, many in those in the performance marketing space fall under the general umbrella that is affiliate marketing, i.e. acting as commissioned agents promoting a third-party product. But, are those in our space really affiliates? If we look at a vast majority of dollars flowing into the cpa networks, we would argue that their affiliates aren’t affiliates. They are different. They are risk takers – seekers of media opportunity who look for an offer not because they run a site which needs it but because they have access to traffic where that offer could turn a profit. (It was that distinction which motivated our piece, "Affiliates are from Mars. Arbitrages are from Venus.") Affiliates and arbitragers occasionally overlap, one that comes to mind is a site like PlentyofFish, but the risk tolerance and risk seeking behavior profiles differ so greatly that each has a different type of company to service it. We could just as easily say, Affiliate networks are from Mars and CPA Networks are from Venus. An account manager from Commission Junction or Linkshare would find their head spinning if dropped into a similar position at one of the leading CPA Networks. There is a downside though of this distinction and the risk taking that drives it, and it shows itself in the number and types of advertisers that work with each company.

As we mentioned in our article two weeks ago, take a look at the top advertisers at an affiliate network, compare that to a cpa network, and don’t be surprised when no overlap exists. Risk is not for everyone. In the arbitrage world, publishers aren’t the only ones who take risks, advertisers do too. The risk publishers take can at times come at the expense of the advertiser. Making money arbitraging traffic often requires a maniacal focus on data and the profits, when successful, can lead to those running them to put blinders on. So, while the high performance marketer is at one level aligned with the advertiser – being paid on performance – that doesn’t imply actual alignment. Take our favorite example of a diet continuity program, one that understands the nuances of the high performance marketing space. The balance they must face is having a high price point to pay the "affiliates" as well as how to make money off customers who enter with low intent and a below average lifespan. A less sophisticated marketer would work on paying a competitive rate but not have the insight to prepare operationally for the different type of customer they will receive. They would assume that those marketing the product would have their best interest at heart (customers who signed up with a definitive interest in the product with an intent to stay subscribed) as opposed to marketers taking a purely transactional view that has them trying to get as many signups as possible, regardless.

The feedback loop isn’t quite perfect, and part of the challenge in the system is the value that cpa networks provide and the position of strength that the elite high performance marketers command within those organizations. Speaking to the first point, the cpa networks offer more than access to advertisers. They act as cash flow float machines for their biggest partners – paying on a weekly basis and ensuring their biggest spenders can keep sending the traffic. Two plus years ago before this became common place a large arbitrager might have to shut down the traffic because they hit their limit on the credit cards. Once funds would clear at the end of the month, they could pay off their credit cards and start traffic again. By receiving money before they reach their limit, they can manage the balance (literally and figuratively). Doing that means that the majority of networks with affiliates like this aren’t in the dark about their activities. They maintain plausible deniability but not complete ignorance, and they face tough headwinds when trying to promote change. A liquid marketplace for that marketer’s traffic exists, so if the network wants to restrict the publisher’s activities, several other networks wait in the wings to take the traffic. And, it’s not just flogs of which we speak; that’s just a more extreme scenario.

An interesting thing has started to transpire as a result of this risk – a new breed of consolidation. The skills needed to navigate between arbitrager and advertiser mean that only the strong can play in this higher risk environment. Others can’t make the balance work, losing either the advertiser or the marketer. The rules of the game have changed. Only a smaller number of people can find scale, but that same level of sophistication hasn’t reached all networks. More and more find themselves not prepared for the challenges of managing the network. They either aren’t prepared or find the balance not well suited to their own risk thresholds. So, what have they done? More and more have decided to try and do it themselves. Affiliate Fuel is just the latest. Here is what they sent out to affiliates March 26, 2009:

Dear Affiliates:

Experian Interactive Media, who owns Affiliate Fuel, has decided to take a different direction with our affiliate network. We are changing our focus from an affiliate network to an internal marketing channel.

Therefore, effective 4/1/09, we will unfortunately need to suspend our business relationship with you. If there are fees owed to you, you will receive your final check on or around 4/15/09.   Please note: As of 4/1/09, your Affiliate Fuel login will no longer work and your account will not be credited for any activity as of this date.

We would like to say thank you for your business and good luck in your future endeavors.

There has long been the notion of a private offer, but now we are finding the creation of a private network. To the outside world, the offers they source they also place. It’s not that dissimilar from a display ad network. The display ad network buys traffic from third-parties, but the third parties have only limited control over how the ads get placed. There is also a financial reason for taking things in-house, especially if your network struggles to compete on the big stage – profit. A network that can buy its own media can operate at a higher margin than one who must operate on generally razor thin margins to maintain competitive. This isn’t to say that all smaller networks will change or that opportunity doesn’t exist for them. But we are entering a different landscape, one more polarized than before where risk is becoming an ever increasing factor. Some choose to take on risk with publishers. Others are now trying to take the risk in-house.