The President of Advaliant, Jivan Manhas, talked to Jeff Molander on two different occasions. During the first interview, Jeff talked about the lack of innovation in our industry as well as how performance marketing is perceived by traditional media. A short time later, Jivan talked to Jeff again and they continued their conversation:
Jivan : Should marketing channel cannibalization be a real concern for merchants or are they simply misinformed of the value affiliates bring to a merchants program?
Jeff: Yes, it is real and and should be a concern for SOME advertisers — in particular, retailers. But to call this channel cannibalization and such is to miss the point. I’ve always called it that too but we’ve got to stop. The issue is advertisers wanting to UNDERSTAND the way their channels interact and respond to that understanding — with a more logical or “fair” way to attribute sales to channels. Ultimately that trickles down to how they want to pay — and paying on performance is what it’s all about! They LOVE CPA but it’s got to be sensible and FLEXIBLE. That is where networks like Advaliant can cash in as I see it — offer more flexibility to advertisers.
Yes, some retailers are misinformed but is that really the right way to look at it? Yes, the people running their association are echoing the negative perceptions. I suggest that they’re not mis-informed at all. THEY consider themselves informed. Bottom line: advertisers’ perception of truth drives this industry — drives their spending patterns, their investment decisions. In many cases, advertisers are ‘inclined to see things differently’ because they’ve got competing interests with their affiliate partners.
The fact is, everyone is showing up at Internet Retailer and hearing large and small brands tell horror stories about how working with affiliates and networks just isn’t worth it — or is highly questionable in terms of value. If we want to do something about it we need to move far beyond suggesting that Google is validating us now and constantly asking for more respect. We need to RE-EARN the respect of advertisers.
Advertisers perceptions are driven by:
1) Their past experiences with affiliate networks (they felt resistance when they wanted flexibility)
and
2) The nature of their customers… specifically HOW they buy.
So if we want to change things with advertisers we need to address these issues.
1) Affiliate networks need to offer more flexible tracking and payment systems that help advertisers visualize channel interaction and sensibly reward/pay performance partners (CPA, CPC — all of them).
2) Marketers are measuring and actually seeing channel interaction/inter-mingling/cross-over in the order-level data. Orders are being attributed to multiple performance partners — affiliate networks, CPC partners (shopping comparison, search, etc.), offline media promotions, etc. Networks are forced to accept this phenomenon and cannot sweep under the carpet.
On the lead generation side, advertisers leads also use affiliate marketing… but the concern isn’t as prevalent. I think because there’s so little focus on lead quality and follow-through… at the moment. Actual ROI analysis — understanding how many leads actually convert — isn’t as much a priority for, as an example, educational lead buyers. That kind of thing. In simple terms, it’s sloppy. Yet that will change in time too.
So… it’s important to remember that retailers want more from their affiliates — more value. How do they measure that? Simple: They’re hyper-focused on getting more incremental sales/leads from affiliates. In simple terms, they want affiliates to send all the customers and potential customers they can but they only want to pay for customers that buy as a direct result of their efforts. Why? Because the Web is all about measurement and this phenomenon can be measured.
BUT… does it need to be measured? All of it? I’m starting to have serious doubts in certain retail categories. Not to mention the two sets of rules that have emerged: One for CPA affiliate marketing and another for CPC Google and Yahoo (CPC). CPA affiliate marketing cannot be allowed to scale (when it does Walmart ends up on white supremacist sites). Yet Google, Yahoo, MSN et al can offer that same dangerous scale without consequence.
Jivan: Where do you see the growth for the performance marketing industry in the next 3 years?
Jeff: I hoped you’d ask that because it connects with the way retailers perceive affiliate marketing. Direct response retailers — who are at work behind the scenes making all these problems for affiliate marketers — need to get on the stick. The problem, in their very perfect and measurable direct response marketing world, manifests itself as “we’re over-spending on customers” and “it’s clouding my ability to understand which marketing channel actually works best dollar-for-dollar.”
In reality what they need to do is understand something very important. Just because it should be measured doesn’t mean it should be measured to the extend that it retards innovation — actually getting to a new place where the cost economics work better for EVERYONE involved. That same place may also offer increased volume.
If they can make that leap soon, Jivan, I think it will spur a new growth area for marketing services/performance marketing companies that can offer a holistic, scaleable value proposition to advertisers. Microsoft (Atlas), Valueclick and Google all see this and are rolling out their products. What happens to Linkshare and similar networks that don’t have a diverse offering? You know, comparison shopping, review sites, display ads, etc. Hard to say.
The eventual realization among advertisers will look like this: ALL the channels work together, in harmony and we can see how customers fit into easily identified “personas” that are based on HOW they shop for stuff. Many are already understanding as much and taking action — with companies like Valueclick.
Think of it this way: The performance channel is absolutely an “indicator” of purchase intent, Jivan. We all know this. Shoppers’ path to purchase is clear and huge, diverse networks like Valueclick can “look across” the various places consumers visit (ie. search engines, comparison shopping engines, e-mail, display, social/collaborative shopping sites, etc.). In doing so they are understanding how customers typically consider purchases. Here’s the rub: If a customer goes through a long process that starts with research… and does NOT purchase after visiting Fatwallet.com’s CPA cash-back site there’s a clear opportunity to chase them down and make them an offer. This is the future and, no, thinking that we’re being “validaded by Google” isn’t going to get us there. Affiliates need to add value or die and many are dying. This will continue and should continue as Google “goes direct.”
Briefly… I saw Scott Parent’s excellent interview with Angel Djambazov of Revenews… who is one of the smartest and most gifted talents in this industry. The guy is a tremendous critical thinker and that’s why I’m going to make this statement. Angel is missing the mark with this “Google is validating affiliate marketing” stuff. Sorry, Angel, and I’d love to debate this with you if you’ll make the time investment with me… but I’ve yet to hear anyone define what that means in terms of how this changes things. I’d like to know, how does Google’s purchase of an affiliate network change things? How can it change things? How will it change things beyond suggesting ‘rising tides float all boats’ kinds of statements? I belive that this investment is a complete disintermediation and part of a series of on-going, distructive moves by Google. I may be wrong but would love to debate it.
Where does Google see the growth coming from? We are forced to consider how Google has leveraged LACK of transparency to its advantage all while CPA affiliate networks have been held back by it. I’ll ask you to think about that one for a minute too. Think about it this way: advertisers buy vastly more traffic from Google and Yahoo with very little expectation of where or how that traffic is generated. Affiliate marketing is highly, some say unfairly, scrutinized on these factors — the 2 sets of rules I mentioned earlier. As customers expect more from search results in general and as advertisers expect to compete less with their affiliate partners what does Google do? Eliminates the affiliates — and they’ve been doing this, slowly, for years now by making it harder to be a affiliate.
Let’s face it — opacity drives Google’s historic success. Aaron Wall of SEOBook.com documents this well over the years. Why did Yahoo go the route of Panama? Opacity. Opacity plus a decent set of optimization tools (free never hurts!) equals market dominance. That’s been the winning formula but for how long? A while! Should CPA affiliate marketing be running in this direction or toward transparency? Hmm. Traditional affiliate networks tend to hide data that ID’s the traffic sources and methods whenever possible. What’s the answer? Is transparency really the answer?
Comparison shopping engines lock up data too and that’s undoubtedly driven their success in the short term. I bow to Brian Smith of ComparisonEngines.com who has brought that to the forefront. We already see Shopping.com reacting to market pressures coming from companies like Mercent — companies that provide tremendous transparency across PPC partners. These guys are empowering advertisers to manage PPC comparison shopping engines’ inventory similar to managing/automating paid search. In fact, some of these new paid media tools tie to back-end databases allowing advertisers to set media buying rules that are triggered by how fast a product is moving, as an example. Tools exist today that allow an advertiser to “throttle” their spending based on inventory turn — automatically. As an example, an advertiser may be able to spend $0.88 per click rather than it’s typical $0.22 IF the performance partner can move it at 65+ units per day. Woah! It makes an affiliate network look like child’s play. No offense intended of course!
My point is things are changing. It’s difficult to see where the change will come but it’s clear on what’s driving success today. It’s mostly short-term stuff. It’s all about maturation. It’s all about arbitrage really… and it’s nothing new. As my friend David Dalka points out to me regularly, this has played out in other worlds (financial services) over history. Just as ’social media’ will disappear from our lexicon so will ‘affiliate marketing’ in my opinion. If you want to participate as an affiliate or a network or any kind of intermediary between customers and advertisers — and participate in growth — you’ll need to be doing something much different than what we’ve been doing for the last ten years.
Jivan: What specific examples would you point at in terms of change and where things are going? Who are the early adopters or ‘change agents’ out there? Also, how is the performance marketing industry poised to create dynamic new forms of value with the emergence of social networks, widgets, semantic behavioral targeting?
Jeff: Here are some specific examples:
Acerno is a cost-per-action network leveraging offline purchase data of consumers to drive online behavioral offers. Think about that for a minute. They’re taking data based on store and/or catalog and/or call center purchasing and using that to make better decisions on serving up CPA offers. Who’s doing that?!
Otherwise, I see growth coming from two places: micro-networks that can help large and smaller networks FOCUS. Also, the social sphere remains un-tapped but with good reason. It’s treacherous. Transparency, authenticity and trust will each play a role in growth here. In the end,
customers themselves will make or break performance marketing. This is all about our ability to carefully tap into word-of-mouth recommendations and create experiences that keep people buying, referring, recommending. It’s about
experiential marketing… bringing the customer an authentic, engaging (fun) experience to the Web. Video will play a role as will existing industries — namely the
direct TV/infomercial industry (as a single example). Look at innovators like Honeyshed.com. They’re taking a proven model — infomercials — adding a hip/hop element, targeting their market with appropriate products and cashing in. How will affiliate marketing evolve to capitalize similarly? Will they be forced to become the retailer or will they remain a referral partner? Companies like Shopster.com have been lobbying affiliates to convert to retailers via
drop-shipping partners for a few years now.
THANKS TO JEFF FOR TAKING THE TIME TO SHARE HIS THOUGHTS AND HIS PASSION WITH US!
———
Jeff Molander is CEO of performance marketing advisory firm,
Molander & Associates Inc. where heprovides executive-level guidance on digital marketing and media to multi-channel retailers, entrepreneurs and investment firms. He’s also a principal of
The Partner Maker LLC, a system used by affiliate managers to drive increased revenue through better affiliate management & communications. He is co-author of forthcoming book,
Paying for Performance and helped found digital marketing services company, Performics Inc.; today a division of Google.
He can be reached at:
jeff@jeffmolander.com.
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