Networks have been instrumental in driving the growth of the affiliate market over the past decade.
Companies such as TradeDoubler, Affiliate Window, Buy.at and AffiliateFuture have helped put brands in touch with thousands of affiliate sites. They have also policed the way those sites use brand properties and handled the payment of commissions.
Now, however, they are facing trends that could affect their hold on the market. Amazon and eBay, for example, have moved the management of their affiliates in-house and dispensed with the networks.
Meanwhile, agencies from other fields such as media and search marketing are trying to make inroads to the business.
These agencies have the advantage of being able to build on their existing relationships with clients and offer to handle affiliate marketing as an additional service. Media agencies, in particular, smarting from dwindling marketing budgets for their traditional business, have jumped at the chance of moving into a growth area.
The latter group argues it is well-placed to understand the proportion of budgets brands need to devote to above-the-line media and how much should go to affiliate marketing. Agencies within it can also plan for integrated campaigns.
This means the networks are under pressure to prove their worth. They take an ‘override' commission on sales through affiliates, often worth about a third of the sum paid to the affiliate, and need to show they are adding value to their merchants' strategies.
As brands and merchants forge closer direct relationships with their affiliates, networks could become sidelined.
Naomi Brown, online marketing manager at Firebox, an online gadget retailer with a turnover of £11m, says few brands have the resources necessary to take all their services in-house. While Firebox manages many of its affiliate relationships itself, it continues to outsource some of the complex tasks, such as paying commissions and tracking online behaviour, to networks.
‘We have thousands of affiliates signed up and we communicate with them about new products coming up and which affiliates we want to work with and in which areas,'
she says.
However, Brown adds that it can be useful to turn to an affiliate network when moving into new sectors. The site used networks to help it expand its Firetots brand launched
last year, which features products aimed at children under the age of eight.
Understandably, the networks play down the threat to their business, arguing that they have key skills in helping to build relation-ships, doing much of the analytical and back-office work for merchants, such as paying commission.
Alison Guise, general manager for Europe at Commission Junction, says that Amazon ¬ and eBay are the exception when it comes
to taking the running of their networks in-house, and believes that most brands cannot do without the advice and support of a network.
‘The idea of brands taking affiliate marketing in-house became a pertinent conversation a while ago, but I haven't seen the trend growing at any pace,' she says. ‘Every time an affiliate partners with a single merchant, that can be as much work as building a relationship with a network like Commission Junction or TradeDoubler.'
Some believe that newcomers to the affiliate marketing world have a lot to learn.
Last year, for example, there were complaints from affiliates when retailer Next hired search marketing agency i-level to conduct its affiliate marketing strategy. The brand promptly slashed commissions and introduced stringent conditions.
The situation has now been resolved. Nonetheless Mark Kuhillow, managing director of affiliate management agency RO Eye, says: ‘Affiliate marketing has been an obvious area where media and search agencies can open up new revenue streams. It has created another layer of communication to offer clients. But mistakes are going to be made when new strategies are created and the agencies face a steep learning curve.'
Sales drivers
According to Paul Wright, head of affiliates at traditional media buyer Mediaedge:cia, it is the small boutique affiliate agencies that have raised the profile of the sector and shown clients how they can boost sales.
With regard to his agency's role, he says: ‘Our goal is to provide more of a cross-channel integrated strategy, and so show clients the true profitability of affiliate marketing and how it can work with other media strategies.'
Wright adds that the volumes available through affiliate marketing have registered on Mediaedge:cia's radar. ‘No longer can clients ignore the fact that this is an important sector and that there are great success stories in affiliate marketing,' he says.
One of Mediaedge:cia's client is recruitment site Monster. The US arm of the business had tried affiliate marketing but felt it hadn't worked. However, Mediaedge:cia has persuaded the UK division that it can benefit by working with just a handful of affiliates. ‘Some clients worry that affiliates don't provide the quality of traffic,' says Wright. ‘We have advised Monster to go back to basics and talk to niche websites, such as those helping people to write CVs better. We have shown that affiliate marketing can work for it.'
One of the biggest issues for anyone handling affiliate relationships is making sure that the merchants maintain good lines of communication with all those websites that act as an external sales force.
Not every online affiliate is well rewarded for their efforts. However, Buyagift.com, the online gift service, believes that affiliates should receive similar treatment to any internal sales force and be offered incentives. It runs regular competitions for affiliates, and last year offered a trip to Las Vegas for those generating the greatest sales and for the most-improved performance.
‘Incentives have been instrumental in improving affiliate relationships,' says Buyagift's affiliate manager, Graham Keen. Nonetheless he stresses that it is still important to have access to some of the
data analysis a network can provide.
Samantha Leigh, head of communications for Affiliate Window, which helps run Buyagift's network, believes it is crucial for merchants to build close relationships with affiliates. ‘They need to have a one-to-one contact and to do that they need a dedicated resource,' she says. ‘Affiliates should be viewed as a virtual sales force and the brand must enable them to go out and sell the products. You have to treat them like you would treat your own in-house sales force.' That means regular communication, face-to-face meetings and having a personal touch.
As the recession bites and traditional above-the-line advertising budgets are cut, affiliate marketing is attracting attention.
The downturn is making cashback and voucher-code sites ever-more popular, so this may well be a recession-busting business. As brands wise up, they are likely to be more demanding of agencies and networks as they attempt to get closer to their affiliates.