Key Cogs in the Affiliate Machine by Chris Trayhorn, Publisher of mThink Blue Book, January 1, 2009 In May 2008, JupiterResearch analyst Patti Freeman Evans published a study on affiliate marketing that indicates online marketers will spend $2.1 billion on affiliate marketing fees, with U.S. online affiliate marketing spending reaching $3.3 billion in 2012. That figure includes the aggregate cost of running an affiliate program: affiliate network fees and affiliate commissions. Evans estimates that the affiliate space is growing at 9 percent. A report from Evans in December 2008 says a growing number of retailers will increase spending on holiday sales-driving tactics like promotions and online advertising. Twenty-seven percent of online retailers will increase spending on affiliate marketing (a 14 percent increase over the previous year) whereas 18 percent will increase spending on banner advertising. Sitting smack-dab in the middle of that affiliate equation are the networks. The networks’ job as trusted third party means they are acting as an intermediary between advertisers and publishers. Serving multiple constituencies requires being a lot of things to a lot of parties. The networks are partners, matchmakers, facilitators, data keepers and more. The major networks have many things in common and perform most of the same basic functions, including tracking technology, reporting tools, payment processing and payment aggregation. The networks each use slightly different terminology to deal with e-tailers selling products and those that receive the commissions as part of the programs. Commission Junction, LinkShare and Google Affiliate Network all refer to them as advertisers and publishers, while ShareASale calls them merchants and affiliates. All of the terms are acceptable and interchangeable within the industry. While each network also has its own specific terms and conditions that must be adhered to by advertisers and publishers, most of the networks have agreed to some basic rules about overriding affiliate commissions and what constitutes flagrant violations of the basic tenants of affiliate marketing. However, each of the major networks has developed a slightly different flavor. Some are geared towards big e-tailers, others focus on lead generation and still others tend to work with major catalogers. The reasons why an advertiser or publisher chooses a specific network can depend on a variety of factors. It’s like having a choice, between Pepsi, Coke, and RC Cola – and in some cases, Fresca. For advertisers, the choice to work with one network over another can depend on a range of factors, including additional services offered, the technology platform used, the cost of setting up a program, the customer service and the quality of publishers in the network. Each network has its share of loyal advertisers – large and small. Although there is some amount of churn, where merchants switch their programs from one network to another, that process can be complicated, disruptive and time consuming, so it’s not all that common (like customers switching mobile phone carriers). Some advertisers run programs on multiple networks, but in most of those cases one of the networks seems to act as the primary one. LinkShare is the only major network that requires merchants to sign an exclusivity contract and work only with them. Most affiliates tend to maximize their earning potential and work with several, if not all, of the major networks. Some affiliates work with just one or two based on preference about payments, advertisers in the network and commission rates. One of the biggest jobs of the networks is to facilitate relationships between advertisers and affiliates. All of the Big Four networks do that in some form through annual face-to-face gatherings, and most have facilities within their respective platforms to allow contact between those two parties. Commission Junction is the only big network that does not provide merchants with the names and contact information of their affiliates. While merchants can use a variety of techniques to get around that and also have contact with publishers, they are not given direct access through the CJ platform. Some of the other differences – and the most hotly debated – often surround the issue of network compliance.The major networks have teams of various sizes that work to ensure advertisers and publishers are not in violation of their respective terms and conditions. However, those levels of policing infractions and ejection from the network varies widely. In addition, each network seems to have its own ideas about what activities are acceptable within the network. ShareASale stands alone as the only network that forbids merchants from offering any type of downloadable applications or software. That stance means affinity and loyalty merchants are not allowed within ShareASale. It also means that the company has greater control over ensuring that its affiliates are being fairly credited for commissions. Increased competition from ad networks and vertical networks are forcing the major networks to step it up with their offerings, which is likely to result in increased innovation and better service for advertisers and publishers. That should be a boon for the entire industry. Filed under: Revenue Tagged under: 25 - 25/2009, affiliate marketing, affiliate networks, Commission, Features, mtadmin About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.