No Borders

In 1492, Christopher Columbus proved that the world was round. In 2006, Thomas Friedman reversed that thinking by writing in his book, The World Is Flat, that the Internet, technology and diminishing trade barriers have created a global marketplace. We can now work and trade with people all over the world with an ease that would have been unimaginable even one ago.

Performance marketers are taking advantage of this more open and leveled playing field to grow their business across borders and oceans by using the skills honed in their home countries. Publishers and networks no longer must confine their opportunities to the 50 states, but through partnerships can reach out to the world.

However, just as American networks and publishers envision growing profits by going abroad, marketers in other regions are now aiming to do battle in the United States. Everyone should prepare for heightened competition.

The United States may have had the early lead in Internet adoption and e-commerce, but the world is catching up quickly. The EU, which has a population two-thirds larger than the United States, now has approximately the same number of Internet users according to research firm eMarketer. China is expected to have the largest community of Internet users by the end of the decade, and Australia and Japan have a higher percentage of citizens with Internet access today than the U.S. As more people go online, global competitors sensing the opportunity are developing operations on par with the U.S.

Europe Grows Up

Just a few years ago Europe was between 18 to 24 months behind the U.S. in affiliate sophistication, but those days are over. During the past few years TradeDoubler, Zanox and Commission Junction have expanded their networks throughout much of Europe and rival the U.S. in their ability to establish relationships and attract an audience. Publishers are expected to help online commerce in Europe to grow from $94 billion in 2006 to more than $200 billion by 2009, according to Forrester Research.

From a network-services, marketing-savvy and technology standpoint, affiliate marketing in Europe is now equal to the United States, according to Carl White, vice president of ValueClick Europe. (ValueClick is the parent company of network Commission Junction.) For example, network software now automatically adjusts the content for nation-specific language, currency and taxes, says White, adding that ValueClick’s European and U.S. networks use the same software. With an understanding of local markets and a bit of training, publishers can get a passport to market internationally.

ValueClick Europe has offices in four countries and saw revenue grow by 30 percent in 2006, according to White. He says that while standardizing on the euro for currency has helped to unite the region, familiarity with the business practices and legal differences of each nation are critical for affiliates to succeed. For example, skill gaming is allowed in much of Europe, while in some regions software downloads as promotional vehicles are less tolerated, White says. “Each market has its own nuances.”

William Cooper, chief executive officer of TradeDoubler, says his company learned that hiring local personnel who live in the country and have an intrinsic understanding of the cultural values and language is critical to growing an affiliate program. TradeDoubler, which started in Sweden and now has offices in 15 of the 18 EU countries in which it operates, grew revenue last year by 61 percent to $256 million.

Rather than trying to conquer Europe simultaneously, the company added one or two countries per year, according to Cooper. “I wouldn’t say for a second that it has been easy,” he says. While most of Europe has adopted the euro (with the exception of the U.K., Poland and Sweden), the unique tax regulations and business laws require time-consuming research before a network can set up shop in a country.

Cooper says that European networks have a more handson style than their American counterparts. “It is more of a consultative approach as we work on a daily basis with our publishers,” Cooper says. Focusing on account management rather than technology enabled TradeDoubler to spread across Europe, he says.

TradeDoubler’s publishers have asked the company about expanding its network into the U.S. and Asia, but for now the focus remains on Europe, according to Cooper. Earlier this year AOL attempted to acquire TradeDoubler, but shareholders rejected the offer.

The European market may become even more crowded should Performics enter the fray. Chris Henger, vice president of affiliate marketing at Performics, says the company is still debating expanding outside of the United States. “We have other priorities than an international distribution effort.” However, Henger says 2007 will be a year for international “investment and investigation” for the company. “We can decide based on demand whether or not to go international,” He says. His rival Link- Share is already in France and the U.K.

Steve Denton, president of LinkShare, says the focus in the U.K. is not about the merchants, which often have two or three different affiliate programs, but with the publishers.

He notes that because interactive agencies have a much bigger influence on advertisers’ affiliate programs in the U.K., its harder to have exclusive merchant deals with networks. Instead, that means that networks must work hard to woo publishers who often have to decide between offers from the same merchant who may have programs on several networks at the same time.

“As a network you need to look at the needs of publishers,” says Denton. “It’s about how they choose and why.”

Consumers-Border Conscious

While most of the trade and technology barriers to market across borders in Europe are crumbling, publishers may find difficulty in converting visitors because of consumer resistance to shopping internationally. According to a 2006 European Commission survey, while 27 percent of citizens have purchased something online, only 6 percent had made an online cross-border purchase.

European consumers say the biggest concerns about buying internationally include the security of transactions, potential problems in resolving complaints, differences in national laws regulating consumer transactions and higher delivery costs, according to the survey. Partially because of these perceptions, just 29 percent of EU retailers offer their products outside of the country, which limits the number of merchants available to publishers.

ValueClick’s White says the software and practices used in affiliate marketing and e-commerce has evolved to the point where the physical location of the publisher or network no longer restricts entering a new market.

“A publisher’s life is border-free,” says White. With a little guidance and local connections, publishers who are successful in one country can achieve success elsewhere, he adds. “A good business in one country is a good business in another,” he notes. He says it is becoming commonplace for U.S. affiliates to come to the EU, and the company also has affiliates based in South Africa.

Zanox, the network based in Berlin and with a U.S. office in Chicago, sees Asia as a fertile ground for affiliates, and has been among the most aggressive European networks in the region. The company has relationships with approximately 250,000 publishers in Asia, according to Holger Kamin, Zanox’s U.S. regional manager. Kamin says China, “with only 9 percent [consumer] Internet [access] penetration … has by far the greatest potential.”

TradeDoubler’s Cooper says his company currently is not active in Asia, citing the challenges posed by cultural differences. “Europe has been the focus for us,” he says. Nicky Senyard, CEO of Ecom Access, attended the Ad:Tech conference in Sydney and says there is considerable interest in affiliate marketing in the East. “The take-up in China and Asia is amazing,” she says. She predicts that Asia will follow Europe as the next quickly maturing affiliate arena.

Because of its ties with parent company Rakuten, LinkShare has established a strong presence in Japan.

From Global to Local

Technology has made it much simpler for publishers to participate in international marketing, including targeting the audience on a local level. Geo-tracking and geo-targeting are becoming standard features of affiliate and advertising software. The software prevents ads from being seen outside of their intended geography and should increase conversion rates.

Zanox, which works with publishers from 30 countries and five continents, uses geotracking technology to customize how publishers display content to visitors from different countries. The technology identifies the visitor’s IP address, and when used in conjunction with a geo-targeted advertising system, displays geographically relevant content to maximize revenue, according to Kamin. Advertisers in industries such as finance and insurance that can only offer services to domestic consumers do not want to pay for external leads, so Zanox prevents their content from being shown.

U.S. publishers can monetize their international visitors by signing up with an international network and then displaying relevant content to visitors regardless of their country of residence.

American publishers who enter the United Kingdom can tap into an audience of English speakers that will include some traffic from their home country, according to Malcolm Cowley, director of strategic accounts at the Buy.At network. Up to 25 percent of visitors to some U.K. sites are from the U.S.

Cowley says Buy.At’s network currently has many U.S. publishers who market U.K. products to a U.K. audience. It also works in the other direction, as Cowley says U.S. affiliates can enhance revenue by signing up with a U.K. network and automatically deliver relevant content to those visitors from their home by tracking their IP addresses.

Ecom Access’ Senyard says geo-targeting is a “great function for affiliates” to enhance revenue by serving foreign visitors. The company developed the software in-house and uses it to deliver custom advertising to its European audience through its ShareResults network. The company, which has offices in Canada, the U.K. and Australia, also has affiliates in Italy, Sweden, Finland and Spain who use the software to identify people from other regions and customize content to suit them.

Sophisticated geo-targeting software can identify the city of the visitor (or at least the city of their Internet service provider), which can be used to customize content for people living in a nation with regional differences in culture or language. For example, Digital Envoy’s geo-targeting software, which is used by Performics, maps Web addresses at the city level and can also detect for connection speed. So sporting affiliates can display different merchandise to footballers (or as we say, soccer fans) in Birmingham and Sheffield, or similarly target different areas of the U.S.

Coming to America

But just as technology has made it seamless for U.S. publishers to participate internationally, it also creates a window for foreign networks and affiliates to participate in the domestic market. In March, Buy.At opened a U.S. network without a physical presence, although executive Cowley expects to do so at a later date.

Buy.At chose to expand into the U.S. before operating anywhere else in Europe because of the common language and because the network already had relationships with many American advertisers. “We were looking to make it a two-way street because of brands we have in the U.S.,” according to Cowley. He hired veteran affiliate manager Andy Rodriguez to develop the network because of his local expertise and ability to develop the affiliate relationships.

Zanox’s Kamin agrees that there is considerable interest from U.S. and European publishers to work with affiliates on the opposite side of the Atlantic. Despite the maturity of the U.S. market, Kamin sees opportunity in creating vertical networks that develop market-specialized material.

Affiliate marketer and blogger Fraser Edwards, who works with Commission Junction in the U.K., visited the U.S. recently to learn more about the networks here and to meet with potential partners. He was surprised at the number and variety of specialty cost-per-action networks.

Despite the intense competition, he sees opportunity for international networks to enter the U.S. Edwards, who is based in Edinburgh, Scotland, says that by focusing on the quality of service delivered to affiliates, they could take business away from U.S. networks.

Edwards says European publishers who apply for U.S. programs using current domains are often automatically rejected, but they get around that by signing up with an American Web-hosting company. Content would need to be modified to give a local perspective and the language used in campaigns would have to be checked to ensure that it is familiar to a U.S. audience, Edwards says.

During the next few years publishers are likely to have a much greater audience to market to as more consumers go online. By 2010 more than 360 million consumer households worldwide will have broadband access, with nearly 40 percent of all connections located in the Asia/Pacific area, according to research firm Gartner. This will result in new affiliates and networks with international aspirations.

As author Friedman says, “Globalization 3.0” enables individuals to collaborate and compete globally. With global networks and software that automatically adjust for local currency, language and taxes, international online marketing has indeed become flat.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the Editor of Matter-mag.com.