The past year was tumultuous for the industry; 2014 should be better but it won’t be without its speed bumps.

As the next issue of Revenue+Performance will be highlights the best performing cost-per-action (CPA) and cost-per-sale (CPS) networks, it seems a good time to reflect on the past year in performance marketing and to look ahead to 2014.

The performance marketing industry has undergone massive changes in 2013. Many companies within the industry have been acquired or have gone out of business. Success in third-party email delivery has become increasingly more elusive. All this while governments throughout the world have become more involved in specific verticals and consumer privacy.

Despite these significant headwinds, the performance marketing industry continues to grow. According to the 2013 IAB Internet Advertising Revenue Report, performance marketing accounted for 66 percent of the $36.6 billion spent on online advertising in 2012 in the United States.

Additional positive indicators are beginning to emerge. Facebook and Twitter have introduced new ways to increase lead generation for brands advertising on their platforms.Fueling much of the industry’s growth is increased client spend on mobile campaigns.

Given all of these significant changes, I foresee 2014 to be a potentially challenging year for the performance marketing industry. The prevalence of various international laws and regulations governing nearly everything related to privacy, combined with the splintering of consumer attention across social media platforms and mobile devices, will require marketers to be smarter, more analytical and utilize deeper targeting. Additionally, it will be interesting to see what new services and acquisitions occur from all of the change coming in from every angle.

Analyzing 2013 and predicting 2014 is no small task even for the best of marketing prophets of profit. In this article, I attempt to break down the industry’s major trends into several areas, including companies, services, social media and mobile marketing, and government regulations.

Companies

The performance marketing industry is likely to see a continued and more aggressive consolidation. We need not look further than my own company, MediaWhiz, which Matomy Media Group, a global performance marketing company, acquired last January. Seven months later, mobile affiliate network MobAff joined the MediaWhiz and Matomy families. Combining the best capabilities, expertise and networks of companies such as these is a sign of things to come in performance marketing.

As such, stand-alone affiliate networks can either stay small with low overhead and a small number of partners and/or continue to serve a niche vertical, or become large as part of a bigger service offering to clients. There really is very little middle ground remaining for affiliate networks. Given how tough media buying and mailing has become, I also see many solo players as potential targets to partner up with a network or larger performance marketing company.

Mobile continues to grow, but it should not be confused with its own vertical, since it is part of the performance marketing mixture. These types of networks/companies will also find it tough to survive without proper partnerships.

Overall, there remains a strong within the industry on achieving true ROI for clients while not trying to build another competitor from scratch if it is outside of a core competency. A solid example of this would be the online marketing monolith in Google, which shuttered Google Affiliate Network (GAN) last July. One would think that a media monopoly trading at $900 a share could dominate just about anything, but without a dedicated focus from established its affiliate network never gained significant traction.

Marketing Services

One of the more significant growth sectors in performance marketing will continue to be SaaS and lead-verification products. These help performance marketers and advertisers monitor and optimize for best quality.

On a platform basis, tech-focused tracking platforms such as Cake will continue to be critical for running an affiliate network or becoming an advertiser as we enter a cookie-less world. DSP offerings that conduct real-time bidding (RTB), such as Appnexus and Convert Media, will help advertisers garner more costeffective leads. Most importantly, quality will be the driver of all marketing campaigns. Scale is great but no longer at the sacrifice of good quality to hit ROI targets.

More online marketers will turn to companies like CPA Detective to ensure the authenticity of incoming leads and, therefore, quality. The MediaWhiz Affiliate Network is one such example of many, in that we rely on CPA Detective in real time to keep our Advertisers happy and our quality at the high end of the scale. Services like LeadID have also slowly become a seal of approval in verticals like education in an effort to create online trust from both the lead provider and buyer. In many cases utilizing a service such as LeadID is a requirement of working with a college or university. Marketers working within the education, finance and other regulated verticals should get used to verifying the quality of their leads via lead scoring.

Given all of the changes in online marketing, it is clear to me that database management platforms (DMPs) and similar segmentation services will grow increasingly important for smart marketing” efforts. Most performance marketing companies amass hundreds of millions of clicks and conversion data, but do little with the information to market more intelligently. Inferences are made based on experience, and media platforms allow for varying levels of targeting. Ultimately, though, the onus will rest on performance marketing companies to get even more intelligent in media buying in order to increase profit and client ROI.

Social Media and Mobile

Social media and mobile are still what many refer to as “new” media. The frenzy surrounding many of social media companies is driven by mobile ad growth. An examination of the stock shares of LinkedIn ($250 at the time of writing), Yelp ($65) and Facebook ($45), all of which trade at large multiples, in addition to Twitter’s planned IPO, indicates that social needs mobile for sustained growth and vice versa.

Many social media companies are beginning to offer performance marketing capabilities for advertisers that they often shunned in the past. They are helping drive not only mobile growth, but also the aforementioned smart marketing efforts via RTB and DMPs. Last April, Facebook launched CPA bidding through its API. Facebook Exchange (FBX) also allows retargeting and offline data matching. Twitter launched its Ads API last February and added Lead Generation Cards in May. These new lead-generation capabilities by social networks are welcomed, as they will lead to new and more powerful retargeting capabilities. The realization that ROI is king and that performance marketers have such focus is what brings all of this things together.

Privacy and Regulation

Every year the government finds new ways to get involved in marketing efforts, and especially in online performance marketing. I could fill this entire publication with specifics and pontifications about how each one will affect the industry. However, for fear or boredom from all sides, I will stick to the most recent developments.

The Nexus tax law debate continues with seemingly no end in sight. Likewise, the controversial Do Not Track proposal currently winding its way through Congress (where it has been stuck, with little progress, for several years), continues to hamper tracking of marketing efforts and allegedly make consumer privacy more secure.

Three other significant regulatory hurdles are worth noting:
• State legislatures continue to crack down on the Payday (cash advance) industry;
• Updates have been made to the Telephone Consumer Protection Act (TCPA), effecting how advertisers — and affiliates — engage and market to consumers; and
• The Federal Trade Commission’s ongoing investigation into sponsored advertisers posts and reviews on third-party editorial sites.

Payday is perhaps the No. 1 online marketing target in the regulatory crosshairs at this point in time. Once a highly profitable industry for online marketers and lenders alike, more of these companies continue to shutter their doors due to increasing regulatory challenges and consumer lawsuits. Payday is now illegal in at least 15 states as I write this article. Even Native American groups, which once provided a seemingly nice shelter, are slowly taking a step back from engaging in Payday practices. The Payday industry will likely continue in some fashion, but marketers should be keenly aware that consumer protection must be a priority when engaging in any kind of Payday marketing campaign.

This year also saw a major update made to the TCPA, which was originally enacted in 1991. (Updates to the TCPA went into effect Oct. 16.) TCPA was enacted to ensure that consumers have the ability to opt-in and opt-out of receiving commercial phone calls before being contacted in any kind of automated fashion. This includes both auto-dialing by businesses and a recorded voice. I highly recommend reading the overview and analysis for marketers and advertisers on the website of industry legal experts Klein Moynihan Turco LLP for a much more in-depth follow up. A good portion of lead generation, especially by brand advertisers, is followed by an outbound phone call. Whether you market insurance, health and wellness products, or home services, you need to take the TCPA updates seriously.

Last but not least, the FTC is beginning to conduct greater research on what is frequently referred to as native advertising (also known as testimonials) on desktops and on mobile devices. According to the FTC, the Commission will “bring together publishing and advertising industry representatives, consumer advocates, academics, and government regulators to explore changes in how paid messages are presented to consumers and consumers’ recognition and understanding of these messages.” Once again, the focus here is on the consumer, at the expense of the marketer.

2013 was a major turning point for the performance marketing industry. The pendulum has clearly swung over to being in favor of the consumer. Expect innovation and regulation to get more technical and wide reaching. Companies will continue to bifurcate along two common threads: combining forces to become large entities with the scale and breadth of capabilities necessary to meet advertisers’ increasingly complex leadgeneration and customer acquisition needs; or small firms will focus more on the underserved niche segments of the performance marketing industry. The middle ground will likely not be able to sustain business.

As the performance marketing industry continues to mature, there will be a growing suite of services to help drive smart media buying and lead quality. Change within the industry will continue and there will always be a new opportunity just around the corner.