One of my biggest takeaways from Affiliate Summit was that we are well and truly into an era when VC and private equity money dominates the industry. If a network hasn’t brought in new owners or investors already, there’s a good chance they’re out there looking. And if investment funds are already in place, then it is likely that they are actively searching for new acquisitions. The affiliate marketing M&A sector is hot right now, and it’s going to get hotter because there are at least four factors driving the influx of money:
- The existing MarTech and AdTech investment sectors have been saturated and are already starting to consolidate as weaker players fall away and the platform companies like Adobe and Salesforce eat up market share. The venture capital and private equity funds have been piling into biotech but even there the new opportunities are thin on the ground. Affiliate marketing represents relatively virgin territory to these perennially hungry investment groups.
- It is estimated that the Trump tax cuts allowed companies to repatriate around $500 billion previously held offshore. In an economy in which profits were already at near record highs and wages have been flat for years, this additional influx has contributed to a flood of cash for shareholders during 2018. Goldman Sachs estimated that stock buybacks and dividends would hit almost $1.3 trillion through 2018. Those stockholders now need to reinvest all that extra income, and VC and PE funds are significant beneficiaries. The result is that the need for these funds to find new opportunities has effectively been supercharged. Funds have a ton of cash currently and few places to invest it that will give them the returns they need.
- Display advertising is broken, Google has extracted most of the profit out of search, nobody trusts Facebook or their metrics, and fraud is rampant. That sounds over-dramatic but I’d be happy to defend it as a statement of where things are in digital media currently. A good illustration of just how bad things are is that there’s a big switch back to television – one of the least measureable, trackable media around – among the largest brands as brand owners recognize that digital advertising doesn’t build brand equity, and that behavioral targeting doesn’t add incremental sales. Affiliate marketing addresses a lot of concerns in this regard. The costs are predictable and scaleable by revenue, and the risk of fraud is largely transferred to media-buying affiliates. Performance marketing can and should be a refuge for CMO’s seeking real results.
- GDPR is already biting behavioral marketing companies in Europe – Google was find $57 million just this week – and with the Democrats winning the House we are likely to see increasing pressure for privacy reforms here in the USA. Again, affiliate marketing allows brand owners to pass the risk down their marketing supply chain. GDPR and privacy regulations are good for performance marketing.
These four trends are creating a situation in our industry that will generate what used to known creative destruction. Networks with new investment will invest in new technology and growth and will extend their lead over smaller, less-well-funded competitors. Some networks will try to grow too fast and will flame out, while others will enter into M&As that may or may not succeed as they struggle to integrate brands, staff and technology.
2019 may be the most interesting and dynamic year we have yet seen in the performance marketing industry. Watch this space.