15 February 2013 - 11:36am | by Affiliate Window

A shot in the arm for performance industry

Kevin Edwards, Strategy Director, Affiliate WindowKevin Edwards, Strategy Director, Affiliate Window

Affiliate marketing has an image problem. This is one of the statements that many people who have worked in the industry for any period of time find baffling. As one of the most transparent and accountable marketing channels that has ever existed, this perception bears little resemblance to the conversations we have with our clients at Affiliate Window. But in recent weeks, a couple of pieces of editorial have surfaced that open old wounds. They can be dismissed as lazy and ill-informed, exacerbated further by US and mainland European approaches to the channel; something that has always done the market in the UK a disservice.

One of the reasons for these residual niggles that are proving difficult to shake could be our inability to showcase success. We’re a disparate channel, comprised of thousands of players from small, one man bands to multi-national corporate entities. That’s why the recent launch of the IAB Affiliate Marketing Council’s groundbreaking study into the size and scope of all things performance has provided such a shot in the arm.

Never well served by the twice yearly PwC AdSpend (lumped together with Display activity adds to the confusion about the business model), this ambitious research piece was commissioned by the industry last year to finally answer the perennial question: how much is the performance marketing industry worth?

Affiliate Window was one of two networks that helped form the team that agreed on the scope, definition and reach of the project. This presented a number of challenges. Standardising terminology and agreeing on what to measure were just two of the initial hurdles to navigate. Where does performance marketing begin and end? Rewind six or seven years and the affiliate channel existed in relative isolation, its commercial model reflecting its core definition.

With the general shift towards payment (or at least monitoring) based on performance across the digital ecosystem, so this distinction has been lost even if its core premise is as pronounced as ever. After some deliberation we agreed on the following definition, “A form of online advertising that differs from traditional online display advertising, as payment is triggered by an outcome”.

We also wanted to be far more ambitious. We know performance is often hailed as a cost effective and efficient route to market but we needed data to verify this. So while the PwC AdSpend survey measures above the line, it neither captures the full cost of sale or associated revenue. This presented additional questions about how service based products, reciprocal bonuses or lifetime value associated with certain products and campaigns would be measured.

Following three months of planning, auditing, number crunching and countless discussions about terminology and methodology, the final tally was declared. At around £9bn in revenue generated, £8bn of it associated with affiliate marketing, the remainder lead generation, the number was far in excess of what many of us were hoping for. The modelled up figure of 100m transactions through the affiliate channel alone represents more than two annual transactions for every British adult using the Internet driven by more than 10,000 active publishers.

This amounted to an outlay of around £820m, comprised of commissions, network fees, tenancies and other associated costs. At current growth rates we can expect this to break £1bn at some point next year. The affiliate channel has grown by 50% since 2008, lead generation by an impressive 136%.

Beneath the headlines there were other impressive insights. Return on investment is always a critical metric for affiliate practitioners as our channel generally stacks up well in comparison with others. At £11 for every £1 invested this was pounced on by the industry as an obvious signal of the channel’s strength.

Sector breakdowns also showed how critical performance marketing is for certain verticals with telecoms, retail and finance all showing strongly.

For me the statistic that gave me most pleasure is that affiliate marketing accounts for around 0.6% of the UK’s GDP, almost on par with agriculture. Whilst we cannot measure economic contribution in terms of companies created, employees hired, office space rented, local business supported, infrastructure built and the army of performance marketers who will evangelise about the business model in their future endeavours, there’s no doubt the channel is in rude health.

So finally we have concrete proof of what those who have worked affiliate side for many years have always known. Some people have commented that the PwC study has finally shed light on what they call the ‘hidden’ value of the affiliate industry. The reasons for this statement are many and varied. Indeed the complex ecosystems and relationships involved in navigating the performance channel are partly responsible; the fact is many people give up because they don’t have the time, resource or patience to understand the intricacies. What this report hopefully proves once and for all is that failure to invest in the performance marketing channel could have serious implications for future online growth.

Kevin Edwards
Strategy Director
Affiliate Window

Affiliate Window
Tel: +44 (0) 844 557 9240
Email: strategy@affiliatewindow.com
Web: www.affiliatewindow.com
Twitter: @AffWin

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