Tough Questions
No one likes to be the bearer of bad news. It doesn’t have to be bad news. It could just be the truth, but if it is an unpleasant truth, you will rarely find it a popular topic of conversation. In this case, the truth deals with the performance marketing industry. It doesn’t deal with the value proposition of paying on a performance basis. Instead it deals with what has typically been the heart of performance-based marketing, the networks. Since their inception and proliferation, the networks and the network business as a whole has been more than the commercial epicenter of the sector, they have been the emotional epicenter as well. They were what you aspired to be, and they did more than facilitate, they seemed to help shape where the space went.
The networks play no less vital a role, but all is not well in network land. Despite the multiple acquisitions that have occurred this year, what those in the space don’t want to admit publicly is that we’re hurting. We are in the midst of some of the most difficult times that the cpa network business has faced in quite a while. It isn’t just one event that caused it, but there is certainly one thing that has exacerbated the situation more than most would have predicted – the continuity sector. As we wrote previously, the continuity fallout is the performance marketing world’s equivalent to the housing bust. It has sent shockwaves through companies that were the paragon’s of profitability and has lead to more than one high flier to adjust to mere mortal status.
For the past four-plus years continuity in one shape or another has injected profits and a sense of endless conquest into the performance marketing space, and most certainly into the networks who managed them. Whereas in the past, the eventual burnout of an offer was a matter of trying to refuel; the latest ending has serious financial implications. The advertisers behind many of the products left the networks holding the bag and on the hook for millions of dollars. It’s the least best kept secret but still a good enough secret that a large number of employees have been able to continue about their business, albeit with lower overall commission. Make no mistake, though, it’s a very serious problem.
The receivables issue is arguably one of the most immediate concerns for the health of the space. It is tangible and painful, but it is a reflection of perhaps the bigger issue facing the space. This is where we come across like bearers of bad news, but in this case, it’s really just calling a spade a spade. Our version of performance based marketing has much to offer, but it has a perception problem. We have a perception problem. It’s one not unlike Wall Street has faced. And, while we might wish for the type of financial assistance that Wall Street received, we can at least take comfort that our destiny is still in our hands. We do not have to worry about the government creating overarching legislation in reaction to our efforts.
Our space, though, is not too big to fail, and most difficult to except is that the ecosystem has matured to a point where it can live without us. Our survival is not an entitlement, it is something that we must earn. First and foremost, we must fix the same issue that has faced Wall Street. Trust. While we rely on publishers for traffic, the money flows from the top, with the advertisers. Excluding the bad apples with unsustainable business practices (the playing with fire that was certain forms of continuity), the broader set of advertisers has lost trust in our ability to do what we say we do. Were this the boom times with more business than could be handled, that would be fine. These, though, are not boom times. This is a time of tough questions and a stark reality.
One of the tough questions we as an industry must face is defining what business we are in. Is it a churn and burn business waiting for the next sucker to come around, or something else? If it’s churn and burn, then it’s ok so long as we call it that. A churn and burn business means a constant supply of new advertisers, upfront payments, and ready excuses when the solutions don’t work. I don’t think we’re a churn and burn business, but we aren’t doing enough to prove otherwise. This business should offer the comfort and option for new advertisers to try it out. They are what we all want and what we all need. We need an environment that allows those with promise but not experience to take advantage of what we offer.
Another of the tough questions is trying to understand why the cpa network space is essentially the same today as it was eight years ago. It’s easier to start a network today, but if anything, the networks of today look more alike than the network landscape five years ago, and that has little to do with the commoditization of the technology. Networks today tend to compete on price, exclusivity, and payment terms. Price and payment terms competition are especially negative as it means companies must give away money faster and keep less of it in the end. It is no wonder why profit margins have degraded at many networks to the point where we are no less protected from non-payment than the three guy startups. The securing of exclusives cannot be done, though, until the trust aspect is managed.
Little of these issues are the network’s fault. They are a bi-product of an undifferentiated world and the networks, like any company, desire for success. What we have is a landscape where few offers compete on a limited set of inventory. If we look at any of the more thriving ad marketplaces, those doing the best can support, at the least a broad range of advertisers. That’s what we need – the means – be it technology or other – to offer the pay for performance model to more than just the handful who understand how to make run of network traffic work, or to the few that create a business around this traffic. Continuity is great. Mobile is great. Submits are great. If that’s the business we want to be – a hit and miss but ultimately niche industry.
