Depending on your perspective, ad:tech either felt like just yesterday or as though a month has gone by. Regardless of how the time passed, most people found themselves asking the same question, not "What did you think of the show?" but more along the lines of, "What’s next?" If we are talking macro trends we might answer the question by talking about Facebook’s socialization of the web or mobile apps impact on browsing habits. But, those asking the question of "What’s next?" are performance marketers – advertisers, networks, and arbitragers trying to figure out how to keep the numbers high. Not many will want to view the business this way, but there is a good argument to say that performance marketing is coming off its own version of the housing boom. While the housing market crashed, performance marketing exploded. But, much like the CDO’s that came hand in hand with the loose lending, performance marketing had its own version of collateralization. Last year, it allowed companies in the ecosystem to make lots of money, but the more toxic assets have left quite a few far from their Q1 2009’s revenues.
Boom and bust cycles happen almost everywhere and impact almost everyone. Some companies, like Google and Apple, have escaped relatively unscathed, where single digit growth counts as missing the mark. The rest of the world hasn’t had those luxuries, and while performance marketing as a whole might have shown similar overall robustness, the classic CPA network ecosystem has some inherent challenges which leave it vulnerable to a boom and bust cycle not dissimilar from the stock market. At times like these it feels to many online direct marketers that they are swimming upstream. Let’s understand what factors are currently shaping our space.
- Hits driven ecosystem -I heard this term used to describe social gaming, but it applies just as aptly for the performance marketing one. Our hits aren’t games but themes / types of offers, and at this moment, we might have some offers with potential, we don’t have the blockbuster one helping to prop up everyone. Continuing with the movie analogy, we’ve had some decent releases, some critically acclaimed offers, but no mass appeal franchise. Without a hit, we, like the movie business, will struggle to keep on pace with regards to ticket sales.
- Limited distribution – Many of the channels that once allowed for overnight success have by and large dried up. Facebook is a prime example, with some advertisers outside of the performance marketing ecosystem talking about cheaper access to traffic than previously available. If true, it could mean many things, but one would imply that Facebook makes less now than it did, at least temporarily. One performance marketer actually quipped, "Could you blame them?" Like a third-world country that feels taken advantage of by outsiders, the party that feels victimized often reacts with an overwhelming response but not always the most logical one or the one that will prevail in the long run. Performance marketers are in a cooling off period with many traffic sources.
- Vicious cycle – Offer drought and a traffic source squeeze make for a challenging environment in which to operate. This time last year it was almost the reverse. From exchanges to every self-serve platform, there were no shortages of places to buy and with a type of offer outperforming, it enabled buying almost everywhere. It’s a lot like what the daily deal / local commerce flash sales are experiencing today. They can buy everywhere and the economics of the business enable them to buy lots of volume.
- Difficulty in differentiating – As I recall from a conversation with our friends at Venable, when one doesn’t have a truly differentiated product, you often see a situation where marketers end up making misleading claims as a means for differentiation. Evan of Bardon likes to tell us all the time how white labels don’t count as unique offers, and on some levels, it’s hard to disagree. White labels work to technically create a different offer. It did with ringtones, where so many had different entryways but the same backend. Yet, those entryways gave enough room for some to out-convert others. But, even white labels run into the differentiation aspect. If we use the same backend, what can I really say to make myself different from you. Usually, the only way is to start making over the top, unsubstantiated claims. It’s not excusable, but it’s common. This brings us back to a major issue with traffic sources. They don’t want the same ad running. Emailers are the same way. Pattern recognition isn’t the hardest thing, and if an ISP sees many of the same ads coming through, that sends up the warning signs, especially if the content of the email is light.
- End buyer dilemma – blame the middle man. Every industry has them, many can’t live without them. Elsewhere they are called distributors and play a key role in helping product owners reach consumers. In the internet advertising ecosystem, especially with performance marketing, being a distributor is somehow no longer a value-adding proposition. The retail equivalent (the traffic owners) want direct relationships even though working directly won’t necessarily yield the best results. Until the role of the performance marketer is better understood by the major self-service platforms, we will continue to hear, "You’re not the end advertiser, so why would I want to work with you?"
- Consolidation – Epic and Connexus, MediaTrust and Bardon. As was the case with MediaWhiz a few years back, we’re starting to see some big moves being made, and it’s exciting. CPA marketing companies tend not to go deep; they go wide, and each of the new big three conglomerates has a slightly different strategy for leveraging their width. It’s easier to think that their scale will play extra importance in times like these where finding and funding the next hit is important. It’s partially why big movies rarely come from small studios. They will be able to do a better job controlling the market not to mention achieve their ultimate aim of getting sold / going public.
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