Is Affiliate Marketing A Viable Business Model In 2016?

Affiliate marketing has been a long-standing monetization strategy on the web. But can publishers and business owners still find revenue success with it in 2016?

In the early days of online marketing, most big brands struggled to see the yield of investing significant resources in things like SEO and paid search. The early SERP landscape consisted mainly of nimble small businesses and affiliate marketers who recognized the web’s potential as a significant revenue stream.

The original model for affiliate sites was simple: Find a product to promote; find the top 50 keywords for the niche; write 50 pages of technically unique content centered around those keywords and build a website around the program.

As a career affiliate, I can admit those websites had little to no unique value to the consumer by today’s standards. The value these websites had back then was in connecting consumers searching for a product and the underlying brand that sold it — that typically had no search presence themselves.

But big brands began to become enlightened in the mid-2000s. They started to invest more and more budget into online marketing initiatives, while Google slowly moved to favoring them in the search results. Blogs were undergoing a metamorphosis — evolving from glorified online diaries to significant sources of valuable content with increasingly large readerships.

At the same time, it was rumored that Google was actively looking to demote affiliate websites that were using the dated framework in both their organic and paid results.

Affiliates who couldn’t see or move past the old model dropped out of the game. Some of us went on to adapt to the new position of the bar and began to build stand-alone resources that promoted affiliate programs versus building a low-value — and no longer needed — bridge between consumers and brands in the search results.

In reality, the supposed death of affiliate marketing was more of a shift that necessitated more mature efforts and increased resources to find success.

This shift is illustrated perfectly with a quote by author and entrepreneur Seth Godin on his blog: “You don’t find customers for your products. You find products for your customers.”

That was the new strategy affiliate marketers had to embrace and implement to continue to thrive.

So what does the 2016 blueprint for a successful affiliate marketing model look like? A good example can be found in Gawker Media.

Gawker Media And Its Execution Of Affiliate Marketing

Gawker Media is the producer of multiple well-known publications on the web, boasting more than 64 million users per month across its network of sites, which include Gizmodo, Lifehacker, Deadspin and Gawker.com.

Gawker Media didn’t start out with the monetization model of affiliate marketing. Until a few years ago, the publishing powerhouse derived its revenue from display advertising and sponsored content.

But in a world of declining ad viewability rates and ad blockers, it would appear Gawker Media went in search of additional revenue streams — and found affiliate marketing.

Gawker Media flawlessly executes the premise in Godin’s quote. For example, Gizmodo has a large readership looking for information on the latest in technology. And Gizmodo delivers content that is high-quality and informative. The affiliate links within that content are independent and don’t detract from the core value of the content.

I’d argue that a link to the product being featured is helpful to the user. Assuming the validity of the content is not influenced by whether or not an affiliate program exists for the product being discussed, that link being affiliated is without detriment to the user.

Gawker Media’s Lifehacker site centers around solving problems people experience in everyday life. They identify a problem, solve the problem and include an affiliate link to where the user can purchase the solution, when applicable.

In concept, Gawker Media’s content is created to inform, and then they monetize within it where possible. I say “in concept” because I’m sure that their content strategy is not entirely uninfluenced by their ability to monetize it. But the important aspect is that the content their sites produce would still have relevance, purpose and value to a user without being monetized.

Their heavy utilization of the Amazon affiliate program allows them to remain somewhat neutral in their recommendations, as well. It’s hard to mention a product these days that Amazon doesn’t sell, which helps lessen any temptation for publishers to promote one product over another due to the ability to affiliate it.

How Profitable Might Affiliate Marketing Be For The Gawker Media Network?

A recent article in the Wall Street Journal took a look at how Gawker Media was using affiliate marketing to “bring in millions selling headphones, chargers and flashlights.” Gawker Media founder and CEO Nick Denton was quoted in the article as declaring the company’s affiliate marketing efforts “a valuable second revenue stream.”

But that article only lightly touched on the potential impact of affiliate marketing to Gawker Media’s bottom line. From the article:

As for the Velcro ties, 31,535 readers have purchased a 100-pack on Amazon, which currently run for $4.99. That’s $157,000 in cable ties, which could add $6,300 into Gawker’s coffers, assuming a 4% cut.

Assuming a four-percent cut may be underestimating the overall commission rate the media giant averages. Amazon’s commission structure consists of multiple classes of commission rates. Certain product categories have fixed commission rates, while commissions on General Products start at four percent and can go up to 8.5 percent, depending on sales volume.

While Gawker Media likely does a large volume of sales in the fixed-rate commission category of Electronics (four percent), the article fails to look at Gawker Media’s commission potential outside of its direct affiliate links to specific products.

The Amazon affiliate program has a 24-hour cookie, which means that once users click on an affiliate link to Amazon, anything they buy in the next 24 hours is commissionable to the affiliate whose link they last clicked. So if you click on Gawker’s affiliate link to Amazon to look at cable ties and end up buying another, unrelated product, Gawker Media still receives a commission for that sale.

If Gawker Media is selling more than 3,131 of General Products, then their commission rate on those General Products moves up to 8.5 percent. With 64 million+ users per month, it’s probably a safe bet to assume Gawker Media is in the top tier of Amazon’s commission structure for any sales they make in the General Products category.

Additionally, Gawker Media makes use of Skimlinks to affiliate any links they’re not taking the time to affiliate directly themselves.

Skimlinks is something of a master affiliate network. Their technology allows them to check the links on a participating publisher’s page, cross-reference that with their database of 20,000+ affiliate programs and see if the site being linked to by the publisher has an affiliate program. If it does, Skimlinks automatically affiliates the link for you and credits you with any commissions resulting from the link.

Skimlinks takes a cut of the commission for providing the service. The standard split is 25/75,with the publisher getting paid 75 percent of the commissions earned. And I’ve seen companies smaller than Gawker Media negotiate better splits with similar companies as a result of sending larger-than-average volume in the past.

Figuring out how much money Gawker Media is taking home from affiliate marketing is a complicated task. Assuming a four-percent take solely on the sales they openly list in their Amazon widgets on their network is probably a severe underestimation.

Fueling the suspected level of increasing importance that affiliate marketing has pertaining to Gawker Media’s revenue is its discernible investment into their implementation of it.

The Amazon widgets Gawker Media uses to display their affiliate offers showing the number of readers who bought the item are not default Amazon widgets, and some of the data contained within them is not data that is readily available in the Amazon API, either.

Longtime affiliate marketer and co-founder of Shareist Scott Jangro suspects that Gawker Media’s Amazon widgets are custom-built. “It looks like they’ve built a system allowing them to capture data that gives them full-circle reporting on what’s getting bought, through which page, and possibly even by user,” he told me. “Showing a count of purchased products for social proof is just one of the many things they can do with this data.”

Gawker Media’s presumably home-grown widgets are utilizing Google Analytics Event Tracking, which further points to Gawker Media putting in a noteworthy effort to track their affiliate efforts on a granular level.

Gawker Media’s sites also make use of Amazon Sub-tag tracking, a feature only afforded to select publishers that allows them to “monitor and optimize the performance of your Special Links by including different sub-tags in the URLs of different Special Links.”

And recent Ad and Commerce Operations job postings by the company state that the position entails “develop[ing] interesting new revenue sources for the company, helping to expand our successful e-commerce campaigns (which have driven approximately $160m in sales to partners)” and include the notation that “experience with commerce-oriented ad APIs (e.g., Amazon Product Advertising API)” is something that’s nice for applicants to have.

Requests for direct comment from Gawker Media surrounding their use of and investment into affiliate marketing went unanswered. But investing into custom platforms and granular data collection doesn’t seem like something a publisher the size of Gawker Media would be doing unless it were a central part of their current and future overall monetization strategy.

The Continued Growth Of Affiliate Marketing As An Advertising Channel

There’s a reason larger-scale publishers are starting to embrace affiliate marketing as a viable revenue stream. Affiliate marketing as a general industry has seen consistent growth over the last five years.

A study conducted by Forrester Research on behalf of LinkShare concluded that “US affiliate marketing spending will increase by a compounded annual growth rate of nearly 17% between 2011 and 2016, growing to $4.5 billion.”

The majority of “affiliate marketing spend” in the US is in the form of commissions paid out to affiliates, both directly from the merchant and through affiliate networks. The study further claims that buyers through affiliate channels spend more money than the average online shopper.

With Google AdSense showing a decline in revenues being paid out to publishers, and display ad viewability rates falling in an increasingly mobile world, it’s no wonder publishers of every size are looking for potential revenue streams to fill that widening gap.

What Affiliate Endeavors By Large-Scale Publishers Mean For Affiliate Marketing

The acceptance and open implementation of affiliate marketing by a large-scale publisher like Gawker Media has both pros and cons for their smaller-scale counterparts.

As affiliate marketing emerges as a viable native advertising alternative for traditionally display-funded larger publishers, the competition in obtaining affiliate sales will increase. The challengers for affiliate marketing revenue will be stronger in terms of technology and resources.

The bar for what kind of sales volume allows you to negotiate higher commissions from merchants will likely be raised.

But amid the cons, we also stand to see some positive effects on the industry. The adoption of affiliate marketing by larger publishers could help increase the level of acceptance of affiliate monetization models by users as encountering affiliate disclaimers becomes a more regular occurrence.

Larger publishers with more substantial budgets also are positioned to be able to promote innovations that smaller publishers can replicate.

More merchants may see the benefit in launching affiliate programs in hopes of getting exposure on larger-scale websites, which could also result in increased program availability for smaller publishers. It might also force bigger dogs into the fight against the affiliate tax.

But larger and smaller publishers have historically been able to coexist in the display advertising world. I believe they can do so in the affiliate marketing arena, too.

One thing is for sure: Affiliate marketing is still a viable business model.

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Some opinions expressed in this article may be those of a guest author and not necessarily Marketing Land. Staff authors are listed here.

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(Some images used under license from Shutterstock.com.)

Is Affiliate Marketing A Viable Business Model In 2016?

Model performance: The power of measurement and transparency in affiliate marketing

The UK performance, or affiliate, marketing industry is currently worth over £1bn a year, with advocates claiming it generates one in 10 sales. However, despite being such a mature channel in terms of the sales figures it generates – £16bn plus a year – practitioners bemoan a widespread lack of quality attribution modeling in the sector .

Add to this some of the historic distrust of performance marketing, and it’s apparent that some marketers are failing to make the most of the opportunity, plus arguably wasting their marketing budgets as well as endangering their relationship with consumers, although some are working to raise awareness of how things can change.

Last-click
Sarah Treliving, head of digital at GroupM media agency MediaCom, explains one of the principal reasons behind the poor application of performance marketing techniques is using a one-dimensional attribution strategy; namely last-click.

This model rewards those in an affiliate network that have been deemed to have generated a sale using the last click before the conversion, regardless of earlier customer interactions upon the path to purchase (or further up the purchase funnel).

“Everyone knows last-click is flawed,” explains Treliving, adding that this had led to scepticism among some advertisers as to the incremental value posed by their affiliate marketing investment.

Clare O’Brien, the IAB’s senior programmes manager, says: “Our Performance Marketing Council also recognises that in some quarters of the marketing and advertising world, that there is a degree of legacy reputation existing.”

Cannibalisation
However, by its nature affiliate marketing employs a complex mix of channels (search, display, content, email, etc), and simply employing last-click attribution in such a complex sector incentivises some poor practice.

‘Last-click’ means all parties on a media plan are chasing the final click before conversion, this could lead to users being over -served with ads. This subsequently eats into an advertiser’s profit margin, according to Ed French, director of digital at ad tech company Ve Interactive. He explains that such a model also means that advertisers could end up retargeting users that would have purchased a product anyway.

The danger of myopic rewarding
Not only does this negatively impact upon profit margin, it could also potentially damage a relationship with a potential customer. Research published last year from InSkin Media and Rapp reveals that 55 per cent of consumers are put off buying an item they have previously expressed an interest in online, if they are retargeted with ads multiple times, after initially researching for it.

Therefore, it’s apparent that the lack of a holistic attribution strategy is not just poor marketing practice, but also potentially detrimental to sales.

Tom Rickey, Ve Interactive’s affiliate partnerships director, explains how such instances can simply be avoided by more responsible “rules set ting” for retargeting when advertisers agree upon campaigns with their affiliate network partners. This involves setting moderate time and recency settings, ie giving sensible directions as to the minimum amount of time to wait before serving a user with an ad after they have visited a website.

Multi-touch
However, a more fundamental tactic can be employed by advertisers. This involves completely overhauling how they reward their affiliate marketing partners by using multi-touch attribution, according to Rickey.

The IAB’s O’Brien echoes this sentiment, and explains how it further aims to improve advertisers’ knowledge of best practice in the performance marketing sector, and therefore improve transparency.

“This is one of those instances where better information and a more transparent lens onto the operations of the sector would reveal that in broad terms, affiliate marketing achieves complete and reported purchases,” she explains.

“CPA [cost per acquisition] represents one of the most risk-free ad spend strategies for advertisers. However, back to the expertise issue, it depends where in the purchase cycle the performance marketing part of the mix occurs,” she adds.

“There is no one-size fits all marketing technique and customer conversion varies hugely dependent of type of product and service and consumer purchase path,” according to O’Brien.

More advanced advertisers understand this, and have developed expertise that allows them to finely optimise their spend, and therefore results, she adds.

Focus on the upper funnel
Ve Interactive’s French explains that adopting a more holistic attribution model (one that focuses on the upper echelons of a customer’s purchase journey, as opposed to the lower end, or last-click) not only rewards media partners on a more equitable basis, but it can also help advertisers improve how they make use of their data.

For instance, advertisers can take their converted user data (i.e. the information on people that have bought items via an affiliate network) and then use this to work out the attributes of other web users that may also likely to purchase.

This can be achieved by cross-referencing it with second and third-party data sources, and is often referred to as ‘look alike modelling’, meaning advertisers can use their spend more efficiently. “The efficiency is gained by not just retargeting everyone that has visited your site, ” explains French.

By doing so, advertisers can work out the incremental value of their spend with affiliate networks, he adds. “Measurement has definitely driven better understanding of the ads and the platforms that they are on,” says Treliving, adding that MediaCom’s specialist direct response unit – MediaCom Response – has led efforts in this area. “You need a common source [of data] and measurement methodology for all those things,” she adds. “You have to look at all the different types of placement for the last click to understand how a rewards site might be contributing to an overall sale.”

New thinking emerges
Affiliate networks are taking note, and star ting to offer attribution payment models that rewards publishers further up the sales funnel. For instance, earlier this year, Affiliate Window introduced a ‘top-up’ commission feature if their content helps le ad to a sale further on another site. Previously the publisher which ‘won the last click’ would have been rewarded, by employing cross-device tracking.

Similarly, eBay Enterprise – the e-commerce giant’s affiliate sales network – more recently announced that it was to introduce a ‘Dynamic Commissioning model’ that lets advertisers pay publishers custom payouts based on new or returning consumers, the type of device used at check out, and product assortment.

eBay Enterprise claims this encourages advertisers to use metrics beyond simple conversion, and contributes to more complex marketing campaigns in or der to deliver incremental results.

Luke Griffiths, general manager, eBay Enterprise, marketing solutions, explains: “Our Dynamic Commissioning product spells the end for ‘one size fits all’ marketing. It means brands can have complete confidence that the customers they’re reaching are the right ones and allows for a greater degree of control over targeting.

“Previously, marketers were targeting indiscriminately and couldn’t provide robust proof that they were reaching the right customers. Now brands can adjust what they are prepared to pay for different audience segments.”

Griffiths says advertisers must analyse their data in order to effectively assess how their marketing spend is performing. He adds: “We still see brands that fail to use analytics and target according to old-fashioned demographic stereotypes, rather than real-time observed behaviour.”

All sources agree that intelligent mining of data in a coherent fashion is key to attaining transparency; failure to do so means less honest players in the system can continue to ‘ game the system’.

This feature was first published in the 16 September issue of The Drum.

Model performance: The power of measurement and transparency in affiliate marketing