Opinion: The evolution of Affiliate Marketing

Monday, November 5th, 2012

I often describe web development as an industry that’s inventing itself on a daily basis. One of the things I find fascinating is the evolution of an idea over time. When a system, model or process is invented online, it’s exposed to the entire world. The world inevitably has influence on it. The world changes it to fit new needs and desires often far beyond the scope of its original design.

There are many examples of this, and most are far more interesting than the one I’m going to talk about; but I got to thinking recently about the evolution of affiliate marketing.

The early days of Affiliate Marketing

I was first exposed to affiliate marketing somewhere around 2002. I was managing a small e-commerce startup and we were contacted by new kid on the block, Affiliate Future. The idea was simple enough – instead of paying for people to view our ad banners on various sites, we paid only for sales that were generated from those banners. It seemed too good to be true, but for once it wasn’t.

We signed up immediately and watched with glee as people began placing our ad banners all over their sites. Before too long, sales started rolling in. We’d have to pay 10% of the revenue back to our advertisers, but it was easy to take the view that these were new customers we’d probably never have gained without their ads.

It didn’t take too long for website owners to start taking advantage of the new advertising model. They’d put more effort into getting a user to click on an affiliate link by offering extra value. Perhaps they’d write a product review or offer a place for customer discussion, maybe a product or price comparison. By and large this was good for all involved. The ads only tended to work if they were placed on relevant sites, and we only had to pay for ads that worked. Users saw ads they were interested in, sites made the effort to target the ads to their users, and we got more sales as a result.

The next step: Affiliate sites

Then came the shopping directories. Huge sites filled with structured links to various e-commerce shops around the web. Some of them offered reviews and comparisons and whatever other extra value they could add to their offering. Shopping directories were nothing new, but the previous model of asking companies for a fee to be listed gave way to listing with affiliate links in order to get a percentage of the sales they generated. Generally the benefit of these directories for the companies listed on them was that they’d often do very well in the search engines, catching organic customers that the companies themselves may have missed.

Soon enough, shopping directories gave way to voucher sites. These sites would scour the internet looking for money off vouchers they could display to their users alongside an affiliate link. Now the companies would have to pay the percentage back to the advertiser, as well as the voucher they’d offered to the customer. This would obviously reduce their margins further; but ever eager to get new customers, companies began working with affiliates to offer exclusive vouchers for use on their sites – providing more value to the sites in question, whilst still keeping some control over what percentage is paid for a sale.

All of this was fine back in the days when companies had difficulty getting organic customers. When SEO was more about link triangulation than content, the shopping directories had the upper hand. Those days seem pretty much over. The search engines favour sites over directories, and customers are far more savvy than they were a decade ago.

The rise of cashback websites and a new kind of customer

Customers know how to compare prices across websites these days. Google product search makes that incredibly easy and since shop owners are able to add meta to their products to make use of unique identifiers such as barcodes, it’s easier for systems to trawl the internet and offer summaries of prices & delivery options etc.

So it seems inevitable that in the race to offer extra value, the only option left to the affiliate marketer is to pay for users to buy through them. So, the rise of the money back website.

The idea is that instead of the website owner taking the sale percentage for themselves, they offer it to the customer as an incentive to use their sites. It’s a great deal for the customer – they get money back for things they were going to buy anyway. The marketer in theory, gets more clicks through their links than they would have otherwise, as their offering is financially beneficial to the customer.

The only people that lose in this deal, is the e-commerce shops themselves. No longer are affiliate sales new customers that they’d not have gotten otherwise. Instead, they’re paying for many of their existing customers. Once a customer knows about a money back website, it makes sense for them to always buy through that site. If they’re going to spend £500 on a new tv, why not get paid £50 to do it?

A new way to shop is evolving. As customers have become used to comparing prices amongst various online retailers, so they are getting used to including money back websites in that comparison process.
The margins of e-commerce companies, often already razor thin; are being squeezed yet further by the need to literally pay for each sale. It’s no longer enough to just offer the lowest price or the best service – if a company doesn’t also offer cashback, they risk losing out to a competitor who does.
So it seems affiliate marketing no longer has a benefit to the companies using them. It’s less of a tool to generate new customers as it is a deal sweetener.

An example

As an example, I took a look at the TomTom Start 20 satnav.
Always my first port of call, I found this on Amazon at £88.95, free delivery and the always awesome Amazon customer service.
A quick check on Google product search and I can see that this is the cheapest price – however it’s shared by Currys, PC World and Halfords.
On to Quidco and I can see that Amazon don’t offer any cashback at all. Currys & PC World are offering 2%, Halfords 3%.
Halfords get my money, I get paid £2.67 for a purchase I was going to make anyway and Amazon have lost a sale by not having a competitive money back offer.

So who’s benefitting here?
Me, certainly. I’ve been paid money for nothing.
Quidco, absolutely. They’ve given back the entirety of their affiliate commission, however they charge £5pa for the use of the service. It’s less than another affiliate site might take, but I’m more likely to use Quidco than another site as they pay me more money to do so.
Halfords, perhaps. They’ve gained a sale that would ordinarily have gone to Amazon – however they had to pay for it. I’m not a new, loyal customer. Next time around I’ll do the same thing and my money will go to whomever gives me the best deal.

Who loses?
The small e-commerce company selling unique items. Affiliate marketing these days represents the purchase of sales, often from existing customers. If you’re a company selling unique items then there’s no scope for comparison shopping and the affiliate sales can cost more than they’re worth.

A final word

The Quidco link I posted above, is itself an affiliate link. If you click on it, sign up for an account and earn £5 in cashback, Quidco give me £2.50. Money for nothing. Everyone’s on the take, eh? Even me.

As a business owner, I recently cancelled all my affiliate programs. They no longer generate more than they cost.

Filed under: E-Commerce.