How Affiliate Networks Have Evolved & What You Should Know

While Affiliate Marketing has changed from a Merchant’s and an Affiliate’s perspective with the tools, technologies and promotional methods available, Traditional Affiliate Network models have also begun to evolve into new business models as well.  Some of the traditional affiliate networks have begun to evolve and offer more options for Affiliates and Merchants, while some are becoming dinosaurs.  This post is more for merchants to help them know what is coming from some of the New Affiliate Network models and the new solutions they provide the industry with.  It can also help both Affiliates and Merchants rethink the traditional affiliate network model and start to try some of the new Affiliate Network technologies out there.  It could also be a good read for Affiliates if you want to see another side of the industry you work in.

I’m going to start with a basic overview of what a traditional affiliate network model is and then compare it to the new and evolving affiliate SaaS (software as a service) model.  Afterwards I had the pleasure of talking to someone who helped to invent and build one of the first traditional affiliate networks and has now begun reinventing the Traditional Affiliate Network model with a new affiliate network model that can definitely be a huge win for both Merchants and Affiliates.  It’s interesting to see what is going on and if you manage a program, you may want to pay close attention to some of the things in this post because it could save your company a lot of money while not having to remove many, if any partners.

What are the Differences Between Traditional Affiliate Networks and New Affiliate Models?

The Traditional Affiliate Network Model.

Agency – A traditional affiliate network model works like an advertising agency.  The traditional affiliate network at some point decided to start managing programs instead of being a tracking solution with cookies and basically competes with agencies and in some cases can try to take the job of the in house affiliate manager.

Side note:  (Letting an affiliate network manage an affiliate program in my opinion is always a horrible idea.  I have yet to find one where the Merchant’s best interest or a value adding Affiliates’ best interests are kept in mind.  I am happy to audit your program for you if a Network has been involved and tell you if anything that could be causing financial damage to your company is currently happening.)

Networks have a large publisher base which is appealing to Merchants, but that same publisher base is available across every major Affiliate Network so there really is no actual difference affiliate-wise in the traditional affiliate networks.  There is one small exception with one of the traditional affiliate networks (which I consider the best traditional affiliate network) that enforces a stricter policy towards some of the negative practices like adware.  This means that some of the largest and most well known Affiliates on the traditional affiliate networks are not allowed in this one.  It doesn’t mean all of them are not allowed, but some of them aren’t.  This affiliate network also exhibits and recruits at blogging shows, content shows and other places you don’t normally find the other traditional affiliate networks at which builds their user base of value adding partners with their own following to add value to the merchants on their network.

Pricing –  The pricing model of a traditional affiliate network is based on a percentage of sales generated or commissions earned.  Many of the networks used to go off of the Affiliate’s Commissions, but some have changed for very strategic and tricky reasons.  This section can save you a lot of money if you are a merchant!  I go through the largest way to lose money into the best way to save money.

• Gross sales – Move your network fees to Net Sales.  The reason you want to do this is because if you get returns, fake orders, etc… you aren’t making money so why would you pay the Network, the Affiliates and any bonuses to agencies or other parties when you didn’t earn anything.  Net Sales is much better if you are paying on a percentage of sales, but still not the best option.
• Net Sales– This is better than gross sales because you are only paying on full sales that are commissionable.  However, this is also a huge waste of money if you got talked into changing from paying network fees that were based on Affiliate Commissions.

• Affiliate commissions – This is the best option if you use a traditional Affiliate network for your program.  I don’t know for sure, but probably the main reason some traditional affiliate networks moved away from this is that they lost money when people realized that coupon sites ranking for your url + coupons don’t add much if any value or to the merchant.  When merchant’s realized this they started lowering the commissions on these sites ranking for their trademarks or urls + coupons or setting their commissions to zero.

When the commissions were lowered from the standard commission rate to a fraction of what it was, the traditional affiliate networks lost money which could be a reason why some of them have changed their pricing models to be based off of sales instead of what the Affiliates earn.  By changing to Gross or Net Sales, they are able to make more off of the merchants even though there is still little to no value being added and the Affiliate’s commissions have been decreased.

What does this mean for you as a Merchant?

They’re making money off of the net sales even though you already realized that you have low value partners or no value partners that are still in your program.  Even though those partners are getting paid less, now your network fees have increased because it is based off of net sales instead of what the Affiliates earned.  Now you should be asking yourself why should they make more when little to no value was added and is also the reason you decreased or removed commissions from the partners.  When I have a % of sales as part of my compensation, as of now I only have it on value adding partners and very clearly explain what is value adding and what is not which is why my clients trust me.

Regardless of how you are charged by an affiliate network, you should always calculate the fees your are paying them as both a percent of sales and a percent of commissions. This way you can make sure you are getting a fair rate. For example, if you pay affiliates 3% of sales and your network charges you 1.5% of sales, this works out to be 50% of commissions – which frankly is not a good deal. Conversely, if you pay affiliates 15% of sales and a network charges you 30% of commissions, this equates to 4.5% of sales – again not a competitive rate.

Tools – Traditional affiliate networks offer tracking, affiliate payments, and a few bells and whistles.  Some affiliate networks offer internal email tools, while others offer more advanced things like storefronts, video players, datafeed integrations, and widgets. Unfortunately most of the “innovation” in the past decade has been evolving the same tools. But as we’ll see next, that this is changing with a new breed of affiliate network models and marketing management solutions.

The New Affiliate Model – a SaaS solution.

A Tracking Solution.  Not an Agency – the new age of affiliate marketing is dawning and there is a paradigm shift regarding the role technology plays. In the old world model, the network is both the technology and the services bundled together. In the new world the technology is decoupled from the services providing advertisers two benefits. 1) A solution that is focused on technology innovation and thus creating solutions for advertisers, agencies and affiliates to help them grow their businesses. 2) A better service model leveraging third-party agencies, which eliminates any potential conflict of interest the networks may have between their business’ success and the advertiser’s success.

Pricing – The network model is basically a media model – the more you spend, the more you pay the network. For example, if you payout $100,000 to affiliate partners on $1,000,000 in sales on a traditional affiliate network model, you will most likely pay the network $20,000 – $30,000. If you double your sales, those fees double as well. However the new SaaS pricing model is a fixed licensing fee based off of technology usage (typically clicks and/or conversions). So for that same $1M in sales you might only be paying a fraction of the network fees. These costs savings can be reinvested into your affiliate program to cover the costs of more internal resources, adding an agency, or doing more placement buys with top affiliates, all of which will drive more topline revenues helping to make you more profitable.

Tools – If there is one thing that hasn’t changed in the affiliate industry, it is new features and tools to automate manual processes and make Affiliate Marketers’ lives a little easier. For years we have all lived with the same basic toolset that existed 10 years ago, with the exception of a few vendors for datafeeds, video and coupons. The new SaaS solutions are driving innovation by building out better reporting capabilities, tracking, and other tools that provide more controls and data for Merchants and Affiliates.  These new systems help automate manual processes and give you more data to better optimize your ads, posts and audience which means you can potentially make more money.

The New Affiliate Network Solution – An Interview With Todd Crawford.

Now I’d like to introduce you all to Todd Crawford who was one of the original people at Commission Junction and helped to develop this multi-billion dollar industry from it’s infancy to it’s continued growth which has yet to peak.  Todd is a long time Affiliate Network and Affiliate Veteran who has been through almost every change and evolution the industry has seen.  Because he was one of the original people to build one of the first traditional affiliate networks and is also one of the people who built the new affiliate model, he is the perfect person to talk about the evolution of the affiliate network, why there needed to be an evolution and what we can expect for the future.  (The opinions and statements in the interview may or may not reflect the opinions and ideas of Adam Riemer Marketing, llc.  They are solely here for educational purposes.)

Q:  Todd, you helped to develop the traditional Affiliate Network model and have now moved onto to be the innovator of a brand new way to provide solutions for the performance marketing industry.  What caused you to want to reinvent the wheel, take it to the next level and how have you begun to do this with your new affiliate network Impact Radius?

A:  When I left CJ in early 2006, I felt that the core technology was commoditized and innovation had stagnated.  When I got together with my old partners from CJ to build Impact Radius, we now had the opportunities to build what we always thought the next generation of performance marketing needed.  This would include improved tracking (i.e. multi-layer tracking), a more cost-effective pricing model, more transparency into data and attribution, the ability to have more control, and everything else we always wanted to include.

Q:  Can you tell me a bit more about the multi-layer tracking options available on Impact Radius and why this is better than the traditional affiliate network model?

A:  We support tracking using cookies like most online advertising, but what we do differently is that we have additional capabilities like tracking on the merchant’s domain instead of a generic network domain.  Tracking on the merchant’s domain provides a higher level of tracking integrity (network cookies are commonly washed by anti virus or cookie/ad blocking software) because the cookies are set within the advertiser’s domain.   While a browser can block a network cookie, it is highly unlikely that they would block a cookie directly from the merchant’s own domain.

Cookie blocking software like anti-virus and malware protection look for the common ad serving and tracking domains (i.e. affiliate network, ad servers, etc.).  Because we can use the merchant’s domain it will not trigger the ad blocking so the cookie remains in place and you can track more sales and data.

In the event that the cookie is compromised at the point of checkout then our fingerprint tracking technology matches the click to the sale to ensure proper crediting of the conversions.  Our fingerprints combined with our domain-based cookies help keep track of more of your Affiliate sales. We can also include other marketing channels along with the affiliate channel so you can get more data and make better decisions with your marketing budgets which is critical for today’s savvy marketers.

Q:  Historically Affiliate Networks use a percentage of Net Sales or Affiliate Commissions as a revenue stream.  Why do you feel this shouldn’t apply in today’s market?

A:  Because technology has become commoditized, it doesn’t makes sense to charge a percentage of revenues or commissions.  Advertisers should be paying based on the usage of the technology.  We have a usage model that provides you with an allotment of clicks and conversions to meet your specific needs.  So with a usage based pricing model, the costs are a fraction of what you would pay a traditional affiliate network model.

Q:  You have different fees based on the way the partner finds you, how did you decide this was the right way to go?

A:  The main reason an advertisers works with Impact Radius is because they know who their top partners are and already have a direct relationship with them. These partners are critical to the success of the channel because the typically drive 90%-95% of the volume. These partners are migrated over as “direct partners” and are covered by their SaaS licensing terms. There is always a desire to find new partnerships that you are not aware of.  That is why we created the marketplace, which gives advertisers the ability to discover new partners.  If an advertiser finds a new affiliate in the marketplace, they pay an incremental fee (a percentage of affiliate commissions) just on those partnerships.

Q:  You mentioned that there is more transparency with your new Affiliate Network model than a Traditional Network Model, can you tell me a bit more about that?

A:  Transparency is a big part of our value proposition.  Like the marketplace I told you about before, we do not want to get in he middle of two companies that want to do business together.  You have access to all of the information you need to do business together – Impact Radius doesn’t obfuscate any of the information.  We also provide you with more information about how we track the sales – were they tracked by fingerprints, promo codes, cookies, etc.  Data is a two way street and both the advertiser and their affiliates need to see the whole picture to understand where there are revenue opportunities or where they might be leaving money on the table.

That’s just one data point.  We try to be as transparent as possible.  We try to provide as much data as possible so you know what’s going on.  Another example is giving you traffic and conversion by device.  If you have a lot of traffic but little to no conversions from mobile phones, you can now test and see what is happening, provide a tracking solution or a better experience for a mobile device.  This helps your company by identifying potential issues and letting you optimize in order to strengthen the overall health of your affiliate program.

Q:  You provide solutions for other channels besides Affiliate.  Can you elaborate why this is a solid piece of the future of Affiliate Network models?

A:  Yes, we do. We have found that it is vital to see the whole picture and not just what is happening in the affiliate or paid search channels. From an affiliate manager’s perspective, it is important to understand not only how the customer is interacting within the affiliate channel but how they are also interacting with other marketing channels. With the exception of affiliate, all other media channels have a cost associated with them regardless of whether revenue results from the marketing dollars. For example, if you buy 100 clicks from Google, you pay for those clicks even if they never resulted in a sale. So it is important to not only know when an affiliate was credited with driving a sales but also when they were involved and you didn’t have to pay them. These assists can help you better understand the true value of your affiliate partners. Outside of the affiliate channel, the other marketing team members also want to know how their media is interacting and affecting overall costs and revenues. These types of insights help everyone see the same picture and allows them to compare “apples to apples” more easily and more accurately. The point I want to make clear is that if you aren’t able to see the whole picture, you cannot optimize the affiliate channel correctly.

I’d like to thank Todd for taking the time to talk to us about the new Affiliate Network Model.  I highly recommend you check out Impact Radius so you can see the new features mentioned in the interview and you can follow Todd and Impact Radius on Twitter at @ToddCrawford & @ImpactRadius.