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

A New Online Platform to Limit Investment Losses

Vest Financial Group couldn’t have timed it better. A day before the latest stock market dive began the company introduced its “Vest Protective Strategy,” offering investors and advisors a way to hedge downside risks of individual stocks and ETFs via an online platform.

“Since the announcement we’ve had traffic we hadn’t seen before,” says Karan Sood, co-founder & CEO of Vest, explaining that the product was available in beta for advisors before the official launch on Aug. 18.

Vest’s protection product uses options contracts to hedge market risk at a price level that the investor chooses. For example, an investor owning Apple (AAPL) stock, now trading near $107 a share, could choose a strategy that protects against the stock falling to $75 a share or to $50 a share, or even zero. The cost of the protection — the premium — increases as the price target declines, and the downside protection, therefore, increases.

Investors can hedge individual stocks or ETFs that they already own or create a new position in a stock or ETF along with the downside protection using the actual underlying securities or synthetic versions created with options.

“In most cases the synthetic version is more cost effective — less transaction costs,” says Sood.

Advisors can also create entire leveraged portfolios using the Vest platform. The platform also allows investors to leverage the upside of a particular stock or ETF one, two or three times.

Once the investor or advisor chooses the particular parameters of the downside protection they want — and possibly the upside cap — they will see an explanation of all the particulars of the strategy they have just purchased.

Vest currently offers protection on 700 stocks and ETFs “across the universe,” says Hood. The cost is a 50 basis point (0.5%) annual fee plus the transactions costs to buy the options and stocks. Vest, which is a registered investment advisor, works with several brokers including TD Ameritrade to do the trading and is currently working to add its offering to existing platforms of brokerage firms.

Vest is marketing its product as an easy, transparent way for investors and advisors to hedge portfolios compared to buying individual options, but it isn’t the only option.

Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a recent note suggested several strategies that investors can use to limit risk in a volatile market, including stop loss, stop/limit, trailing stop and bracket orders. They essentially limit losses to a specific level (stop) that investors choose so long as they’re executed, but that is not always the case.

“In a rapidly falling market, or a market that gaps in price overnight, there is no guarantee that the order will execute or that the execution prices will be the same price as the stop price,” writes Frederick.  Limit orders offer additional protection because “they allow you to set a minimum price you’re willing to accept when selling a stock” and “a maximum price you’re willing to pay when buying a stock,” writes Federick, but again he warns that there is no guarantee of an execution.

–Related on ThinkAdvisor:

A New Online Platform to Limit Investment Losses

Taboola gets $3M investment from Daily Mail

Dive Brief:

• Daily Mail announced a $3 million investment in publishing tech firm Taboola to help it improve its native advertising strategies.


• According to CEO Jon Steinberg, “At the end of the day, we have to move so quickly. We’re all competing against Facebook, ultimately.”


• Daily Mail had been frustrated with its current system of selling native ads through DoubleClick, citing efficiency as the issue. The Taboola investment will help the publication speed up the native ad process and eventually create new native ad units. 

Dive Insight:

Steinberg’s candor about competing with Facebook rings true. With Instant Articles and other advancements, Facebook has become the standard by which publications can measure their success. Outside of using Facebook directly, publications are on the hunt for new revenue streams and ad opportunities. 

Taboola represents those opportunities for the Daily Mail. Taboola also announced a new product this week — a feature that allows readers to weigh in on what native ad content they see. The feature will not only improve reader experience, but also glean reader data that will improve native ad delivery overall. 

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