Affiliate Marketing: A thoroughly modern service

The industry now generates hundreds of millions in sales revenue. It is
estimated by e-consultancy that the value of affiliate marketing in the
UK grew by 60% last year to hit £2.16bn in online sales.

Even for the uninitiated, affiliate marketing is not as complicated as
it first appears. Advertisers wishing to drive online sales to their
e-commerce platforms simply supply text links or banner ads to a network
of web publishers known as affiliates. These affiliates display the
links on their websites to encourage consumers to click through to the
brand owner's homepage. Affiliates are then paid a pre-arranged
commission based on the number of sales or leads they generate for their
advertiser client.

The aim for marketers is to establish an affiliate network comprising
dozens of websites that act as a virtual extension of their sales force.
After all, brands need traffic coming to their websites to ensure their
online businesses are successful.

Not only are marketing directors now devoting more resources to
affiliate campaigns, so are media agencies. The bigger players, even
those who once prided themselves on their big TV-buying capabilities,
are hiring staff devoted to affiliate marketing, in a bid to remain
relevant to the way their clients are spending their budgets. Among
those that have established affiliate teams are Carat digital, Zed,
i-level, Starcom, MediaCom and Media Contacts.

Affiliate-related companies have been at the centre of some significant
deals. These include TradeDoubler's acquisition of The Search Works in
July for £56m, a deal that the company has said will broaden its
reach beyond traditional affiliate marketing to offer a full range of
digital direct marketing services. It will also help TradeDoubler secure
a foothold in the Asian market, where The Search Works already has a
strong presence. Interestingly, TradeDoubler has been a takeover target
too; AOL eyed it up in a deal worth a reported $900m, but
TradeDoubler's shareholders turned it down.

Buy.at's acquisition of Lightstate, a technology company founded by
internet entrepreneur Shakil Khan, is also significant. Renamed buy.at
leads, it collects consumer information from partnerships with
financial-services sites, portals and comparison sites, where consumers
complete online application forms providing financial information and
contact details. The forms are then delivered to advertisers, who can
use the information therein to target consumers' specific needs.

Another company in the affiliate sphere that is dealing with the issue
of delivering quality leads is Quidco, the first of the affiliate
cashback companies offering to pay 100% of its fees to customers. Users
pay a £5 annual subscription fee, and then every time they sign up
to a service via Quidco, the commission fee paid by the company is
returned to them.

Quidco is making real strides in developing systems that make the
process of the affiliate sale far more transparent, allowing merchants
to see exactly where their sales are coming from. It is a strategy that
is winning them friends among agencies, not to mention its clients,
which include insurer Zurich, Marks & Spencer and PC World.

One of Quidco's most recent initiatives has been the introduction of
SureShop, a mechanism that aims to build credibility and loyalty among
its members by ensuring that they receive the cashback they are due for
the purchases they make. This is in response to difficulties that some
customers have had with other cashback affiliates in the past, where
users have not received payments they believe are due to them.

If a Quidco member submits an enquiry relating to a claimed missed
payment by a SureShop merchant, it will be investigated and the findings
submitted within a month. The service is also of benefit to its
advertisers. 'SureShop assures the merchant that we won't pass on bogus
queries. They know it's not just Bill in his bedroom sending false
enquiries,' says Quidco director Tim Gibson.

The SureShop service ties into the wider issue of tracking, which is
high on the list of merchants' priorities. BT is one such company
looking to develop more sophisticated solutions. 'We are implementing
metrics to understand whether a customer delivered from an affiliate
site is more or less loyal,' says BT head of affiliates Chris King.
'Consumers are always on the look out for a bargain and, in most cases,
if you shop online you can get a better deal.'

Sara Brook, director of media and specialist in affiliates at digital
agency LBi, believes the development of such tracking and metrics is an
area in which the industry needs to gain credibility. 'Insights from
tracking will dictate the direction the industry goes in, but developing
tracking systems is still at the discussion stage,' she says.

While transparency is making improvements and understanding of the
industry is growing, Richard Kelly, digital marketing manager at Glasgow
agency Dog Digital, believes more could be done to increase the pace of
technological advancements.

These changes include the ability to track instances where online
delivers customers to call centres, and advertising units that, instead
of being fixed with a single message, can be updated at appropriate
times.

'Developments such as the integration of call tracking have ensured
affiliates get a fairer deal, and tools such as dynamic content units
are using XML to display relevant content or offers, increasing
click-through rates and, in turn, sales revenue,' says Kelly.

However, these developments are emanating from the networks. 'Affiliates
haven't really pioneered new technologies, and I would question whether
it's in their power to do so,' adds Kelly. 'It's disappointing that not
one has yet managed to identify a way to use social elements to advance
the model. It may be that this medium simply doesn't lend itself well to
affiliate marketing.'

The industry also faces the spectre of Google, which is seeking to
muscle in on the action, with a trial of its Pay Per Action Beta
service. 'This model operates on similar principles to the affiliate and
many are concerned it will sound the death knell for affiliate marketing
as we know it,' says Kelly.

This may not be the case just yet, however, as an Adwords-style
affiliate manager system would lack the human touch required for
successful affiliate marketing, according to Kelly. Nonetheless, he
still has a warning. 'Given their role as the middleman, affiliate
networks may begin to feel the pinch in the longer term.'

CASE STUDY

BT - The maturing UK affiliate market has seen the emergence of 'super
affiliates' - major players in the online marketing arena that are
becoming brands in their own right, such as Shopping.com, Kelkoo and
Cheapflights.co.uk.

BT head of affiliates Chris King points out that this development has
seen a big shift in the way brands are dealing with affiliates, and with
good reason.

'The original "super affiliates" have developed unique skills that
merchants and agencies can only wish for,' he says. 'It is down to the
brands that they are promoting to treat them with the utmost respect and
as business partners - as opposed to simply driving sales volume.'

Although a strong believer in managing affiliate programmes in-house,
the telecoms company also works with affiliate marketing firm UK Web
Media. As far as King is concerned, affiliates and affiliate networks
are effectively a virtual sales force, and as such, must be afforded the
same level of brand information and understanding as a member of the BT
sales team.

'By working closely with these affiliates and giving them the tools they
need, they are making major contributions across the marketing mix,'
adds King. 'The "super affiliates" have made the choice to grow as
businesses, and this has been possible only by a mature and professional
approach to the brands with which they are partnering.'

£2.16bn

Value of UK market for affiliate marketing. It grew by an estimated 60%
in 2006

Source: e-consultancy.