Guest comment: Affiliate marketing networks- the engine, not the driver

AOL's purchase of buy.at shows that the major media players have recognised an important part of future online advertising lies in the affiliate CPA (cost-per-action) model. AOL have no doubt been attracted by the increasingly significant revenues being driven through CPA: according to E-consultancy, sales generated through this sector in the UK grew by an estimated 45 per cent in 2007 and generated more than £3bn in online sales.

Growth like this is hard to ignore in an environment where traditional advertising revenues are falling. The offline world has been suffering for some time, but even the ‘traditional’ online advertising market is showing signs of weakening. Google’s recent earnings report indicates search marketing will always be a vital online channel, however Google's failure to monetise the exploding social networks shows there is a limit to even this model. Similar reports elsewhere on declining CPM returns show consumers are increasingly disengaged from traditional online advertising models.

The motivation of a major media player purchasing a network in the relatively new and booming CPA channel is thus obvious. However, whilst CPA networks like buy.at are highly effective at tracking consumers across the web, delivering reporting tools and payment processing, the innovation and growth of the sector is to be found elsewhere. The networks and their technology are the engines of growth not the driver.

The innovation and growth of the sector is driven by publishers utilising the CPA model to engage and convert consumers in unique ways which are not possible using other advertising models. These publishers are particularly positioned to leverage the consumer trend away from traditional advertising and their demand for honesty and transparency in their marketing conversations.

The most rapidly growing, indeed probably the largest, channel within the CPA sector is a new breed of consumer reward sites, which enable members to earn money as they shop. Through these sites, consumers receive a percentage of the money they spend as a cashback payment. Typically, cashback payments range from 3% to 15% of the purchase price and are made possible by converting the CPA generated from member referrals into the members' cashback. With the predicted downturn in the economy starting to bite, this model is becoming even more popular with consumers as they look to extract maximum value from the purchases they make.

As may be predicted with any new high-growth channel, these sites are proving disruptive to established ways of thinking and some retailers and their media buying agencies are finding it difficult to get their heads around this emerging model. Traditionally, marketing models have been hidden from consumers, but cashback sites make it a transparent process with the member as a consumer 'partner'. That can be a scary prospect for marketers more used to pushing messages than working in cooperation with consumers. Indeed, on a few occasions at Quidco we have had to end merchant partnerships - despite them receiving enormous boosts in traffic - due to their lack of experience with this model and speculated effect on their brand. 

However, as the popularity of online cashback communities continues to grow, and the consumer cynicism to traditional advertising increases, expect to see more advertising money moving into this form of ‘collaborative’ marketing, where the consumer gets something extra back for making a purchase.

The increasing growth in this non-traditional channel will be good news for the CPA networks, whose revenues will continue to be boosted by the increased traffic that these sites can divert to their merchants’ websites. And of course, this will be good news for AOL.

By Paul Nikkel

Co-founder of Quidco

www.quidco.com