What affiliate publishers can learn from Google and Facebook: More dynamism means more spending
Back in 2016, Rakuten Marketing (neé Rakuten Affiliate Network) commissioned Forrester Consulting to forecast the growth of the U.S. affiliate marketing industry over the ensuing five years. Its estimates: Total affiliate marketing spend in the U.S. would increase from $4.21 billion in 2015 to $6.82 billion in 2020.
That sounds great, but when you put those estimates next to what Google and Facebook ended up doing during that same time, it’s a tad less impressive.
So what’s going on here? The answer, I think, is simple: While Google and Facebook have invested heavily in tools that offer marketers powerful, dynamic ways to target users, test, optimise and better understand performance and ROI, the affiliate industry simply has not.
A lack of sophistication, a lack of spend
The affiliate industry in 2020 functions largely the same as it did in 2005 when I joined it — which is to say, statically. For example, I book 15 trips a year with Hotels.com for work, and my average spend for night is $300. My value to Hotels.com is high, but I am fairly loyal. In contrast, my sister doesn’t travel for work and goes backpacking somewhere exciting once a year and spends $15 a night.
In affiliate marketing right now, brands effectively target both of us with the same offer and have no ability to differentiate the offer they showed to me or her. The result: We both get targeted with the average offer, despite both of us clearly being worth different amount of money. Not only does the brand and publisher lose out on revenue, but we get a bad user experience.
Contrast this with Facebook, where right now a brand can upload multiple user cohorts - gold card users, silver card users, blue card users, people who have purchased once and never again, etc. — and target every one of those groups in a different way knowing their ROI on getting a user to come back is very different.
You may read the above and think, “So what? Google, Facebook, and affiliate are different channels with completely different goals and roles within marketer’s campaigns.” I disagree. While brand CMOs and growth marketers obviously value ROI, they also value the ability to test and optimise how and where they spend. Google and Facebook give them a plethora of ways to do that.
"If the advances in digital advertising have proven anything, it’s that marketers want — in fact demand — that data inform how they identify and reengage valuable users," as our co-founder and CEO put it last year.
In contrast, the only way to test the efficacy of affiliate right now is by flipping the channel off and seeing what happens. Because of this, it’s very difficult for marketers to optimise in a way that’s data-driven and on par with what marketers expect elsewhere. Marketers can only optimize with a sledgehammer, when what they really need is a scalpel. So they invest less in the channel as a whole.
A rising tide raises all publishers
While all of the above is true, it’s also true that the reason why the affiliate industry hasn’t embraced dynamism is because its a big, deceptively hard problem. Here are two big reasons why:
There are just too many parties involved. If Facebook or Google wants to implement a new ad feature, they only have to throw a couple hundred engineers at it. There is no adoption problem there. It’s a lot harder to do the same across a far more fragmented affiliate industry, where there are a lot more players to please.
Publishers are afraid of testing. When a publisher runs an incrementality test, one of three things can happen: A) The brand can discover that the publisher is unincremental and switch off their partnership. B) The brand can discover that the publisher is incremental enough and maintain the partnership as-is. And C) The brand can discover that the publisher is very incremental and starts increasing their spend.
In some cases I’ve seen publishers so afraid of option A that they’re willing to miss out on option C. That’s a shame because one thing we’ve seen is that, when brands run these tests, publishers always win them. The industry has proven over and over that it’s incremental and it does drive value for brands.
The bottom line is this: We need to concentrate on proving that value and unleashing the budgets that brands spend elsewhere. And the only way the industry can do that is by giving marketers the tools they need to target users, test, and optimise their spending. That's where we think the industry has to go.
If you’re interested in working with us to bring affiliate into the future, get in touch.