Why affiliate marketing has attracted $4 billion in recent investment

February 14, 2016, 9:12 AM

By Greg Shepard Chief strategy officer, eBay Enterprise Marketing Solutions

The acquisitions of three major affiliate marketing companies reflects the channel’s role in driving online sales.

As the new chief strategy officer for Ebay Enterprise Marketing Solutions, it’s my job to recognize the leading edge of industry trends and map the way forward. As a company, we are intent on further legitimizing affiliate as the ideal payment model in online marketing, but first we must dispel some myths and highlight differences between the shadowy underworld of affiliate marketing and the major emerging players in the space.

If you’ve been in the industry for any length of time then you are probably aware that some segments, especially those running CPA [cost per acquisition] models, have been marked with a less than stellar reputation from those outside the immediate echo chamber. Many consumers and marketing professionals like to label them as a bunch of cookie-stuffing, malware-foisting, disclosure-avoiding, get-rich-quick, rule-bending crooks, while those running CPS [cost per sale] models are rumored to be focused on promo code and loyalty affiliates. (Cost per sale means the advertiser pays the affiliate fee if the consumer makes a purchase; cost per acquisition means the advertiser pays if the prospect takes other steps, such as signs up for more information or applies for a credit card.) While these assessments are not entirely unfounded, the industry as a whole has grown up and worked hard towards earning the respect of the larger marketing world. The morally questionable side of affiliate marketing is now a largely isolated minority, and the major players in CPS are beginning to take steps to improve affiliate mix and ROAS [return on ad spend] for more savvy merchants who expect more from the channel.

This has resulted in the larger marketing world waking up and realizing, OMG, there’s real, legitimate money to be made here. The proof is in the purchase; all you have to do is take a look at the recent merger and acquisition activity that’s occurred.

Commission Junction (and all its subsidiaries) were acquired by digital marketing firm Conversant (formerly known as ValueClick) which was then acquired by data marketer Alliance Data for $2.3 billion. Ebates was then acquired by Japanese ecommerce firm, Rakuten, for $1 billion. And, most recently, eBay Enterprise Marketing Solutions acquired our own AffiliateTraction, which combined, were acquired by investment firms Banneker Partners and Permira Funds for $985 million.

In all, that’s over $4 billion invested in a space that many have traditionally labeled the black sheep of the online marketing world and thats only the transactions where the amounts where publicized. That kind of money doesn’t get thrown around by large companies without some serious forethought and ample confidence of return on investment 

More broadly, Forrester has predicted affiliate marketing spend will hit $4.5 billion in 2016. In addition, predictive analytics e-commerce firm Custora says affiliate marketing will affect 14% of all e-commerce purchases in the United States. Couple that with Forrester’s prediction that 2016 US ecommerce sales will hit $279 billion and you’ve got affiliate marketing affecting $39 billion in sales.

I think we can all agree at this juncture that affiliate marketing is serious business, and with serious business there comes a need to provide big brands with the strategic advisement they are used to receiving from their consultants in the “regular” marketing world.

Don’t just take my word for it. In a recent PerformanceIn article, Affiliate Window US Country Manager Alexandra Forsch said, “There is a strong demand for informed and consultative account management, which is often overlooked. Brands still need reassurances that the affiliate channel can deliver the right types of sales for them.”

As I step into my new role as chief strategy officer of eBay Enterprise Marketing Solutions, I’ll be doing my part to help position the affiliate marketing space in a light indicative of the spending and investment dollars that have rallied behind the industry. 

Remember, 14% or $39 billion of ecommerce will be affected by affiliate marketing. Compare that to the 17% of ecommerce affected by email and 19% of ecommerce affected by organic search. Affiliate marketing is no longer just a curious sideshow. It’s now an integral, front-and-center component of every brand’s marketing mix.

Yes, affiliate marketing is on the move, and there’s no stopping it from proudly taking its rightful seat at the table. Stay tuned because it’s going to get interesting.

Why affiliate marketing has attracted $4 billion in recent investment