Three seemingly disparate events this year — the closing of the Google Affiliate Network (GAN), Facebook introducing CPA buys and Twitter launching Lead Generation Cards — foretell the future of performance marketing. There are two trends moving in parallel: the increasing consolidation of the industry that will result in only a few select full-service players and niche networks in operation, and a continued integration of lead-generation marketing capabilities by social media portals.
Brands are increasingly coming to the realization that an experienced performance marketing network/agency is critical. Equally important is the acquisition of action-taking consumers in a social media setting versus merely purchasing a presence.
In short, more advertisers, along with the social media platforms they use to reach consumers, are realizing that a strong lead-gen component is needed for successful, ROIpositive brand advertising. The closure of GAN, combined with Facebook’s and Twitter’s forays into lead generation, represents a critical evolution toward performance marketing’s future.
Google Affiliate Network Closure and Consolidation
In mid-April, Google announced it was shutting down the GAN platform to allow the search giant to “focus on other products that are driving great results for clients.” All services will be shut down over the course of a few months, Merchants (May 1), Publishers (July 31) and reporting (October 31). Many of the traditional CPA networks have tried to capitalize on this gain, though I’m sure the majority of this scramble went to the convenient choices of behemoths like Commission Junction or LinkShare.
The sudden closure of GAN came as a major surprise to many in the performance marketing industry because of the general feeling that Google had the market power to succeed at anything it attempted. Google has an amazingly talented and entrepreneurial staff but even so it is hard to shake the idea that Google believed it could dominate a $35 billion industry on name and existing clients alone. The problem is that search and performance marketing are two completely distinct channels of online marketing. The complexities within the performance marketing industry are far greater than those within search marketing.
Google’s shuttering of GAN reinforces the notion that performance marketing is one of the most complex facets of online marketing. It requires a sophisticated understanding of how customer acquisition works in the digital age.
GAN’s failure is indicative of the across-the-board consolidation that has been going on in the performance marketing industry in recent years. Performance marketing is still a huge growth channel, and it will continue to grow, fueled by innovations in mobile marketing and social media. There remain, however, far too many small companies getting squeezed out by market saturation and capital needs.
In short, there wasn’t enough value being added to the performance marketing food chain by all of the new affiliate network entrants to sustain their own business, let alone drive organic growth for the industry. Something had to give, and it took the shuttering of GAN — not the largest affiliate network, but one that had great name recognition given its affiliation with Google — to wake the industry up to the reality that a bubble of new, often unsustainable affiliate networks was forming. And just like financial and real estate bubbles, all good things eventually come to an end.
The Era of Performance Marketing Stability
The closing of Google Affiliate Network represents the end of a reckless era of expansion and greed within the performance marketing industry. We’re at the dawn of a more mature, stable era in performance marketing.
Affiliate networks and performance marketing agencies need more than big-name recognition to fuel sustained growth. They need to have their own content and properties, focus on a particular niche or vertical(s) and employ highly skilled internal media buyers with powerful technology and analytics — not just own the physical media channel. There will always be room for small players to earn a decent living, but those days are slowly passing by without having one of these pieces.
Large or small, consolidation is helping to assemble large, end-to-end performance media experts. I have even seen this with my own company. MediaWhiz has always been a large player in the performance marketing industry, working with some of the world’s top brands across a variety of media channels, such email and search, and competes strongly in several verticals (Education, Finance, Insurance and Health and Beauty). Last January, we were acquired by Matomy Media Group, a global performance marketing company that excels in display, mobile, international and verticals such as games and entertainment, and is a strong complement to MediaWhiz’s core business. Combining the best of these two companies’ core strengths in such a complementary fashion will pay off in the near future as we spread out wider coverage to thrive and adapt. Adaptation, in this case, is the ability to focus resources on growth opportunities as they arise without losing focus on the core business offerings.
There are many other mergers and acquisitions of note throughout the online marketing and advertising ecosystem, such as Globalwide Media buying Neverblue, Facebook acquiring Instagram and Yahoo buying Tumblr. All of these will undoubtedly continue the online marketing arms race to own and operate the media.
Social Performance Marketing: Facebook and Twitter
Although the aforementioned GAN failure/industry consolidation may seem like an independent event, I believe it’s strongly connected to the recent wave of social media networks/platforms moving into performance marketing. This is a significant departure from social networks operating on a CPC- and CPM-based pricing model, as well as the weak marketing technology platforms they have offered advertisers.
In April, Facebook launched CPA bidding through its API. Facebook Exchange (FBX) allows retargeting and offline data matching.
Twitter launched its Ads API in February and added Lead Generation Cards in May. According to multiple industrysources, the microblogging platform is poised to launch an ad exchange sometime this year to allow for retargeting.
So what does this all mean? It seems pretty obvious that social media platforms finally have realized that just having “presence” metrics (a.k.a. eyeballs) isn’t a sustainable business model in digital mediums. That, and brands will spend more on scalable, ROI-metrics driven campaigns — a realization that most performance marketers have long understood.
Social networks like Twitter and Facebook have done the difficult part of having the content and owning the media, but until now have not executed on the skilled media-buying aspect necessary to sustain long-term advertising revenue growth. This is especially obvious since, until now, there has been little investment by most social networks in the mediabuying interfaces or purchasing units for advertisers.
Companies have spawned out of technology opportunities and API access trying to make it easier to spend advertising dollars. With the billions of dollars pouring into performance marketing, the only natural adaptation is to capitalize on this opportunity by making it easy to spend the money effectively — both technically and from a cost efficiency standpoint.
It may seem intimidating that social media giants like Twitter and Facebook, which, combined, have billions of users globally, can potentially become dominant players in performance marketing. However, similar to Google, I view them as the experts in developing their data-driven vehicles to reach targeted consumers, not capable of operating their own performance agencies. Perhaps that is down the line in a few years, but if we have learned anything from Google with GAN, it’s that it’s best to facilitate the dollar spend for the experts with great performance marketing capabilities and technology. Marketers should view this as an opportunity to help drive true ROI results via social media.
Other social networks, such as LinkedIn, Instagram and Tumblr, will continue to turn to the performance side of online advertising as a means to strengthen their value. Having social networks actively join the performance marketing ecosystem means that advertisers and marketers will have a sudden influx of real-time, verifiable data at their disposal. This will help eliminate wasteful marketing spend since targeting relevant offers will be that much easier, particularly at the local level. As more state and federal cookie/privacy laws get passed, turning to these portals for enhanced targeting will become that much more critical and valuable.
The Future is Strong for Performance Marketing
The performance marketing industry will continue to experience further consolidation amongst companies, coupled with social media lead generation efforts that will help propel the industry to new levels. Within five years, I predict, we will be looking at an industry based primarily within social media and mobile, targeting specific consumers who want immediate information and are primed to take an action. Technology and data will drive real-time bidding and analytics to make smarter decisions and deliver better ROI for advertisers. Barriers to entry will be tougher as one will need the right combination of content, media ownership and media-buying experience.
Performance marketing has always bred entrepreneurship for marketing campaigns and technology services, and will continue to do so in the future. Don’t be surprised to see more mergers and acquisitions within the ad-tech space, as there are many DSPs, SaaS providers in tracking and lead validation, and data aggregators that would make a great fit when added to the portfolio of a performance marketing company.
No matter how you look at the performance marketing industry in these changing times, the strong influx of dollars, whether from advertiser spend or investment, is creating a more mature and sustainable ecosystem. Never have marketers had the ability to engage, acquire and retain so many people so quickly and accurately.
Performance marketing has shown its value and will become even stronger as more of the big social media sites continue to recognize the internal and external value of marketing ROI.