What Is Affiliate Marketing?
In her opening keynote address at Affiliate Summit, Anne Holland of Marketing Sherpa, said that affiliate marketing bounties and commissions will reach $6.5 billion in 2006, or roughly 40% of projected 2006 online advertising expenditures. As she writes on Marketing Sherpa yesterday, “This (number) includes retail, personal finance, gaming and gambling, travel, telecom, ‘Net marketing’ education offers, subscription sites, and other lead generation, but it does not include contextual ad networks such as Google AdSense.” Assuming 30% margins for the advertisers, which collectively seems a bit low, her prediction indicates that affiliate marketing will generate more than $9 billion dollars in revenue, more than half of the projected Internet advertising revenues for 2006.
This year’s projected $6.5 billion in commissions represents a more than four-fold increase over the $1.5 billion the Marketing Sherpa team came up with in January of 2005. And, if accurate means this year’s tradeshow attended by roughly 1500 should see multiples more in future incarnations. The trouble for those like me in the audience, ones with an ad network and lead generation background, is trying to understand exactly what affiliate marketing is. If Affiliate Summit is any indication, affiliate marketing consists of the following – technology solutions, big brands’ merchant programs, traditional webmasters, organic search traffickers, ppc arbitragers, lead generation, and a large email undercurrent.
Unlike Ad:Tech, noticeably absent from Affiliate Summit are companies like Fastclick (part of ValueClick), Advertising.com, Specific Media, Undertone Networks, Casale Media, Revenue Science, Tribal Fusion, and the one for whom I represent, Revenue.net. These are the major display ad networks, the largest doing tens of millions monthly in revenue. Also absent from the show were the search engine marketing companies, i.e. those that offer large and small businesses in-house, ASP, and fully outsourced solutions for managing their presence on the major pay per click engines. Many of these companies focus on arguably the most technologically and algorithmically difficult piece, bid management.
At first glance, it might make sense for display ad networks and search engine management companies to display at Affiliate Summit. Those in attendance have traffic for which they need ads, as well as place ads on engines for which they could benefit by doing it more efficiently. The reason they don’t is that, at its core, affiliate marketing has a decidedly traffic-centric bias. Those displaying at Ad:Tech, SES, and OMMA, for example, don’t mind meeting publishers, but their target audience is certainly not traffic generators; it’s advertisers. Affiliate marketing on the other hand is really about the affiliate and what those who want to service them need. And, it’s with this lens that has a traffic bias that we can evaluate the pieces that comprise affiliate marketing – technology solutions, big brands’ merchant programs, traditional webmasters, organic search traffickers, ppc arbitragers, lead generation, and a large email undercurrent.
Affiliate marketing is part technology solutions, because many of the companies that want to work with third party traffic are ones that are either too small to create such a solution themselves or so large that doing so not only requires too much bureaucracy but ultimately a poor allocation of resources. As a result, companies such as Linkshare and Commission Junction exist to offer them just what they need to do. For many of you, who have spent time in internet marking but away from affiliate, the thought of a gatekeeper for offer management seems inefficient and limiting, unless that gatekeeper has guaranteed access to traffic. In part two we will discuss in detail the additional components that make up affiliate marketing.
