As glob­al ecom­merce spend­ing con­tin­ues to boom year-on-year, a grow­ing num­ber of UK adver­tis­ers are mov­ing away from third-par­ty affil­i­ate mar­ket­ing plat­forms in favor of build­ing their own resources in-house and tak­ing direct con­trol of their online per­for­mance mar­ket­ing. Here’s a case for both approach­es and whether there’s a third way for­ward.

Not so long ago, it made a lot of sense for adver­tis­ers to out­source the bulk of their online per­for­mance mar­ket­ing activ­i­ty to third-par­ty affil­i­ate net­works.

Most busi­ness­es sim­ply didn’t have the time, resources, exper­tise, or incli­na­tion to man­age their own net­work of online pub­lish­ers. The lack of appro­pri­ate, afford­able in-house tech­nol­o­gy, com­bined with the con­sid­er­able admin costs asso­ci­at­ed with devel­op­ing and sup­port­ing an affil­i­ate net­work, were a major turn-off.

As such, the option of pay­ing an estab­lished affil­i­ate net­work a month­ly fee in order to lever­age its pre-exist­ing rela­tion­ships with an exten­sive range of pub­lish­ers proved attrac­tive to many. This required min­i­mal effort on the part of the adver­tis­er and the pay-on-per­for­mance mod­el made it inher­ent­ly trans­par­ent, with pub­lish­ers rather than adver­tis­ers assum­ing the ini­tial risk (i.e., no con­ver­sions, no com­mis­sion).

How­ev­er, over the past three years or so, there has been a grow­ing trend: busi­ness­es are bring­ing their affil­i­ate mar­ket­ing pro­grams back in-house. First seen in the U.S., the trend is now gath­er­ing pace in the UK, thanks to a vari­ety of fac­tors.

In many ways, the shift going on in affil­i­ate mar­ket­ing right now is sim­i­lar to what hap­pened with search a few years ago. At that time, brands typ­i­cal­ly out­sourced their search mar­ket­ing activ­i­ty as it was a new, must-have capa­bil­i­ty. They didn’t under­stand it and exper­tise was scarce so the easiest/smartest thing to do was to hire an agency to man­age the pro­gram.

Jump for­ward five years to today and almost every major brand has brought search in-house because:

• There are more peo­ple avail­able with the exper­tise and skill-set to man­age, under­stand and suc­cess­ful­ly imple­ment a search mar­ket­ing pro­gram.
• There are intu­itive tech­nol­o­gy prod­ucts now avail­able, such as the tools offered by Marin and Ken­shoo, which allow brands to cen­tral­ly man­age all search activ­i­ty in-house.

Like­wise, advances in tech­nol­o­gy and an increase in the num­ber of skilled dig­i­tal mar­keters are now mak­ing it an increas­ing­ly viable option to bring affil­i­ate mar­ket­ing activ­i­ty in-house.

The Problem(s) With Third-Party Affiliate Networks

As the dig­i­tal mar­ket­place has evolved, it has cre­at­ed stress­es on the tra­di­tion­al busi­ness mod­el of third-par­ty affil­i­ate net­works, shin­ing a spot­light on their short­com­ings for both adver­tis­ers and pub­lish­ers:

• Take the exam­ple of an adver­tis­er who wish­es to work with a par­tic­u­lar pub­lish­er. In many cas­es, that pub­lish­er may not belong to a par­tic­u­lar net­work or the pub­lish­er may work across all net­works with­out being exclu­sive to any­one. The nat­ur­al desire for the pub­lish­er isn’t to tie itself down to one net­work, but to work direct­ly with adver­tis­ers and, increas­ing­ly, UK adver­tis­ers are begin­ning to feel the same way.
• The affil­i­ate net­works work with thou­sands of adver­tis­ers, includ­ing many sets of direct com­peti­tors, so there can be lit­tle com­pet­i­tive advan­tage to be gained from the data that the net­works offer. In fact, with such a high vol­ume of clients per account man­ag­er, there is actu­al­ly a risk that direct com­peti­tors could be gain­ing insights from each other’s data!
• This mas­sive client base also means inno­va­tion at the affil­i­ate net­works tends to be dri­ven by the needs of their larg­er clients, leav­ing many medi­um-sized and small enter­pris­es with­out the new func­tion­al­i­ty that they would like to see devel­oped. Small­er adver­tis­ers also suf­fer dis­pro­por­tion­ate­ly from the high­er fees charged by net­works, which eat into their prof­it mar­gins. The month­ly fee due to an affil­i­ate net­work can also seri­ous­ly ham­per the cash­flow of an SME that expe­ri­ences sea­son­al peaks and troughs.
• The recent Black Fri­day out­ages and down­time expe­ri­enced by sev­er­al high-pro­file retail­ers – and affil­i­ate net­works – also raised ques­tions in the mind of many affil­i­ate net­work adver­tis­ers about the wis­dom of being over­ly depen­dent on any one par­tic­u­lar tech­nol­o­gy plat­form.
• For busi­ness­es look­ing to expand beyond the UK, affil­i­ate net­works may not have any activ­i­ty in the over­seas mar­kets being tar­get­ed, so can’t pro­vide the required affil­i­ate pub­lish­er base or, indeed, the trans­la­tion, data for­mat­ting, cur­ren­cy, legal or tax sup­port that inter­na­tion­al trad­ing demands.
• We’re also see­ing pres­sure from the pub­lish­er side for more inno­va­tion by the net­works, for dif­fer­ent types of cam­paign and pay­ment mod­els beyond CPA (cost per acqui­si­tion) and per­cent­age com­mis­sion that bet­ter reflect the influ­ence of pub­lish­ers at dif­fer­ent stages in the consumer’s online jour­ney (before and after con­ver­sion) and uti­lize the attri­bu­tion mod­el­ing capa­bil­i­ties of the new tech­nol­o­gy tools avail­able.

Faced with grow­ing dis­con­tent on either side, the affil­i­ate net­works now have to work very hard to jus­ti­fy their fees. In some cas­es, where they are pro­vid­ing adver­tis­ers with lit­tle more than “bare bones” track­ing, that will prove a dif­fi­cult task.

In 2014, adver­tis­ers want full trans­paren­cy of the con­sumer jour­ney. They want to see the life­time val­ue of each con­sumer and match it back to the publisher(s) respon­si­ble for bring­ing the cus­tomer to their door. Unfor­tu­nate­ly, the affil­i­ate net­works only ever see the data from the affil­i­ate chan­nel.

They can’t and nev­er will be able to see the data from your paid search, dis­play ads, online PR and all the oth­er chan­nels with­in your dig­i­tal mar­ket­ing activ­i­ty.

All of these fac­tors are dri­ving the trend toward brands pulling their affil­i­ate mar­ket­ing pro­grams back in-house.

The Case For In-House

Adver­tis­ers can obvi­ous­ly save a lot of mon­ey by no longer pay­ing com­mis­sions to an affil­i­ate net­work, how­ev­er, it should be remem­bered that man­ag­ing an affil­i­ate net­work in-house will cre­ate new inter­nal costs in rela­tion to account man­age­ment.

For­tu­nate­ly, a new breed of intu­itive, ready-to-use tech­nol­o­gy plat­forms are enabling adver­tis­ers to cost-effec­tive­ly man­age affil­i­ate pro­grams in-house in a way that wouldn’t have been pos­si­ble a few years ago.

This pro­vides the oppor­tu­ni­ty for adver­tis­ers to rein­vest some of the mon­ey saved on net­work com­mis­sions into devel­op­ing one-on-one rela­tion­ships with pub­lish­ers by cre­at­ing cus­tom cam­paigns and cus­tom pay­outs. This can be a great way to win an edge over your com­peti­tors.

By cut­ting out the mid­dle­man, mar­keters also get direct feed­back from pub­lish­ers and devel­op an under­stand­ing of what’s work­ing and what’s not, rather than hav­ing to wait on a third-par­ty provider to share what­ev­er slices of affil­i­ate data they see fit. Adver­tis­ers gain imme­di­ate real-time access to incred­i­bly rich pub­lish­er and con­sumer lev­el data, which is not nor­mal­ly pro­vid­ed by some of the most pop­u­lar net­works.

In-House Platform + Outsourced Affiliate Provider

How­ev­er, let’s not get too car­ried away. While the shift to in-house affil­i­ate plat­forms is becom­ing more preva­lent, it’s not my rec­om­men­da­tion that any­one com­plete­ly aban­don their rela­tion­ships with all out­sourced affil­i­ate ser­vices just yet.

If mar­keters take a close look at where their traf­fic comes from, many will see the com­bined use of an in-house plat­form and an out­sourced affil­i­ate provider is their best route for­ward.

On aver­age, 90 per­cent of a brand’s traf­fic comes from 10 per­cent of its pub­lish­ers. The capa­bil­i­ties of the new tech­nol­o­gy solu­tions on the mar­ket mean that adver­tis­ers can now con­sid­er work­ing direct­ly with that 10 per­cent, cul­ti­vat­ing those key rela­tion­ships one-to-one, while con­tin­u­ing to rely on third-par­ty net­works to man­age the long and mid-tail affil­i­ates that they are so good at har­vest­ing.

With the right tech­nol­o­gy solu­tion in place, data from all your dig­i­tal chan­nels (not just your in-house and out­sourced affil­i­ates, but also paid search, dis­play, social, etc.) can be fed into a sin­gle ana­lyt­ics plat­form, pro­vid­ing a com­plete mul­ti­chan­nel pic­ture of the con­sumer jour­ney and allow­ing adver­tis­ers to opti­mize their future mar­ket­ing spend accord­ing­ly.

Adver­tis­ers of all types now, for the first time, have the oppor­tu­ni­ty to design a per­for­mance mar­ket­ing strat­e­gy that incor­po­rates both in-house and out­sourced affil­i­ate mar­ket­ing activ­i­ty and deliv­ers the best of both worlds.