UK Affiliate Marketing Landscape Linus Gregoriadis, Head of Research, E-consultancy

Overview of presentation About E-consultancy Growth of Affiliate Marketing Benchmarking its effectiveness Barriers to Growth Key market trends Conclusions

About E-consultancy

Growth of Affiliate Marketing

Benchmarking its effectiveness

Barriers to Growth

Key market trends

Conclusions

About E-consultancy Reports Affiliate Marketing Networks Buyer’s Guide Business Case Request for Proposal Template file Best Practice Guides Events Roundtables Supplier Showcases Training In-house Public

Reports

Affiliate Marketing Networks Buyer’s Guide

Business Case

Request for Proposal Template file

Best Practice Guides

Events

Roundtables

Supplier Showcases

Training

In-house

Public

Survey-based research Affiliate Census In association with Affiliate Program Advice More than 1,500 UK affiliates Merchants Survey Report Sponsored by buy.at 240+ UK merchants across range of sectors Agencies Survey Report ( coming soon ) Sponsored by buy.at 90+ UK agency respondents

Affiliate Census

In association with Affiliate Program Advice

More than 1,500 UK affiliates

Merchants Survey Report

Sponsored by buy.at

240+ UK merchants across range of sectors

Agencies Survey Report ( coming soon )

Sponsored by buy.at

90+ UK agency respondents

A buoyant industry growing fast … On average, UK merchants surveyed now drive 16% of their online sales via affiliate marketing. Two thirds of merchants (67%) are now getting more sales from affiliate marketing than two years ago . Four out of five merchants (78%) now spending more on this channel than two years ago. Only 7% say they are now spending less. And four out of five expect to be spending more on affiliate marketing in two years’ time. On average, 18% of online marketing budget and 10% of overall marketing budget goes on affiliate marketing.

On average, UK merchants surveyed now drive 16% of their online sales via affiliate marketing.

Two thirds of merchants (67%) are now getting more sales from affiliate marketing than two years ago .

Four out of five merchants (78%) now spending more on this channel than two years ago.

Only 7% say they are now spending less.

And four out of five expect to be spending more on affiliate marketing in two years’ time.

On average, 18% of online marketing budget and 10% of overall marketing budget goes on affiliate marketing.

Benchmarking affiliate marketing It is the most cost effective channel for driving customer acquisition – 95% say ‘very cost effective’ or ‘quite cost effective’. This compares to 90% for paid search and 82% for email marketing.

It is the most cost effective channel for driving customer acquisition – 95% say ‘very cost effective’ or ‘quite cost effective’.

This compares to 90% for paid search and 82% for email marketing.

Benchmarking affiliate marketing Source: E-consultancy / buy.at Affiliate Marketing Merchants Report 2007

Benchmarking affiliate marketing The second best channel for driving volume – after PPC. 73% say that it drives either ‘high volume’ or ‘medium volume’. This compares to 85% for Paid Search and 65% for Email Marketing.

The second best channel for driving volume – after PPC.

73% say that it drives either ‘high volume’ or ‘medium volume’.

This compares to 85% for Paid Search and 65% for Email Marketing.

Benchmarking affiliate marketing Source: E-consultancy / buy.at Affiliate Marketing Merchants Report 2007

Progress made … Affiliate marketing will drive in the region of £3 billion worth of sales in 2007. 38% of merchants believe that ‘the affiliate marketing channel is becoming more mainstream and professional’. Just over half of respondents say that ‘it’s changing but there is still some way to go’. Move to ‘Affiliate 2.0’

Affiliate marketing will drive in the region of £3 billion worth of sales in 2007.

38% of merchants believe that ‘the affiliate marketing channel is becoming more mainstream and professional’.

Just over half of respondents say that ‘it’s changing but there is still some way to go’.

Move to ‘Affiliate 2.0’

Progress made … Source: Duncan Jennings, eConversions Professional affiliate individuals and companies with dedicated resources Part time affiliates Desktop Widgets & RSS Google AdSense Email Offer Newsletters CPM Banners Cash back and reward sites with long term user bases Free Stuff Sites Closed groups of approved affiliates providing complimentary PPC with performance targets and accountability. Emphasis and rewards on long tail Unauthorised PPC activity High quality sites utilising user-generated content and comparison engines Spam SEO sites Affiliate 2.0 Affiliate 1.0 >>>>>

Changes in the affiliate world … Rise of the super-affiliate. Companies such as eConversions, E-Business Assist UK Web Media, Clicks 2 Customers and Traffic Junction. Higher barriers to entry. Increased competition = more money and effort. Half of affiliates agree that ‘affiliate marketing is getting harder over time’ – only 11% disagree. Non-niche, smaller affiliates caught in no-man’s land. Still great opportunities for niche affiliates.

Rise of the super-affiliate.

Companies such as eConversions, E-Business Assist UK Web Media, Clicks 2 Customers and Traffic Junction.

Higher barriers to entry.

Increased competition = more money and effort.

Half of affiliates agree that ‘affiliate marketing is getting harder over time’ – only 11% disagree.

Non-niche, smaller affiliates caught in no-man’s land.

Still great opportunities for niche affiliates.

But plenty of room for improvement Four out of five UK merchants (81%) wish they could get more out of this channel compared to 16% who declare themselves satisfied with their returns. Only 19% of respondents say that the range of affiliate marketing segments - such as affinity sites, email affiliates, price comparison sites, content sites and search affiliates - are fully understood and optimised.

Four out of five UK merchants (81%) wish they could get more out of this channel compared to 16% who declare themselves satisfied with their returns.

Only 19% of respondents say that the range of affiliate marketing segments - such as affinity sites, email affiliates, price comparison sites, content sites and search affiliates - are fully understood and optimised.

Barriers to success The main issues faced by merchants are as follows: Lack of internal resource 71% 33% Poorly converting website 60% 19% Restricted budget 58% 18% Difficulty in attracting affiliates 58% 20% Problems with tracking 48% 20% Note: % of UK merchants ranking issue as ‘major’ or ‘minor’ barrier, with figure for major barrier in red

The main issues faced by merchants are as follows:

Lack of internal resource 71% 33%

Poorly converting website 60% 19%

Restricted budget 58% 18%

Difficulty in attracting affiliates 58% 20%

Problems with tracking 48% 20%

Note: % of UK merchants ranking issue as ‘major’ or ‘minor’ barrier, with figure for major barrier in red

Barrier: Lack of internal resource Half of UK merchants expect to have more people managing this channel in two years’ time. Compared to only 4% who expect to have less employees involved. 37% have a dedicated in-house affiliate team or a dedicated manager. 90% use at least one network. 37% use a media agency. Of whom 13% rely on a media agency to manage fully all their activity in this channel.

Half of UK merchants expect to have more people managing this channel in two years’ time.

Compared to only 4% who expect to have less employees involved.

37% have a dedicated in-house affiliate team or a dedicated manager.

90% use at least one network.

37% use a media agency.

Of whom 13% rely on a media agency to manage fully all their activity in this channel.

Barrier: Poorly converting website If the website doesn’t convert then it is going to be difficult to attract affiliates - no matter how large the CPA. Merchants need to follow best practice to ensure they are converting customers as effectively as possible.

If the website doesn’t convert then it is going to be difficult to attract affiliates - no matter how large the CPA.

Merchants need to follow best practice to ensure they are converting customers as effectively as possible.

Barrier: Restricted budget Many companies have a limited budget for affiliate marketing … 43% of UK merchants treat affiliate spend as part of marketing budget, compared to 39% who treat it as a cost of sale. Just under a fifth or respondents (18%) treat it as ‘both’. A third of merchants (34%) said investment was held back because they don’t understand the level of incremental volume they will get.

Many companies have a limited budget for affiliate marketing …

43% of UK merchants treat affiliate spend as part of marketing budget, compared to 39% who treat it as a cost of sale.

Just under a fifth or respondents (18%) treat it as ‘both’.

A third of merchants (34%) said investment was held back because they don’t understand the level of incremental volume they will get.

Barrier: Difficulty in attracting affiliates Good quality affiliates relevant to a specific sector are hard to find. There can be some wooing required, perhaps involving some sharing of risk, i.e. through hybrid CPA and CPM / CPC model. If you’ve got an attractive program the good affiliates will be proactive enough to find you, though networks can play a role here.

Good quality affiliates relevant to a specific sector are hard to find.

There can be some wooing required, perhaps involving some sharing of risk, i.e. through hybrid CPA and CPM / CPC model.

If you’ve got an attractive program the good affiliates will be proactive enough to find you, though networks can play a role here.

Barrier: Problems with tracking Very hard for merchants to get perfect overview of where sales are coming from – can be hard to de-dupe sales. Different layers of technology. Multi-channel business models.

Very hard for merchants to get perfect overview of where sales are coming from – can be hard to de-dupe sales.

Different layers of technology.

Multi-channel business models.

Voice of the merchants … “ A few super affiliates with a drop in volume and standard to the next group .” “ There are too many search affiliates. I wish an affiliate network could actively move away from this model. ” “ Fraud is a major issue. Takes a lot of our resource that could be better used optimising our activity.” “ Counter-bidding on paid search can be a real obstacle with some affiliates .”

Voice of the affiliate … “ I find that deep links often do not work and just take the customer to the home page. A good selection of deep links with good photos of products are essential. Customers are put off by having to search for products.” The biggest reason for affiliates not promoting merchants after making the effort to sign up for programs is because of insufficient quality & quantity of links .

Role of Networks

Use of networks by merchants The vast majority of UK merchants are signed up with either one affiliate marketing network (40%) or two networks (33%). Advantages of having two networks. A network should help facilitate communication with affiliates, rather than act as a barrier. Research shows that good communication with affiliates is limited. But good communication drives success (e.g. press releases)

The vast majority of UK merchants are signed up with either one affiliate marketing network (40%) or two networks (33%).

Advantages of having two networks.

A network should help facilitate communication with affiliates, rather than act as a barrier.

Research shows that good communication with affiliates is limited.

But good communication drives success (e.g. press releases)

Branding is increasingly important Affiliate marketing bottom line and USP has always been purely about performance-based marketing. There is also a branding benefit by being on good affiliate websites. This has ramifications for the costing models.

Affiliate marketing bottom line and USP has always been purely about performance-based marketing.

There is also a branding benefit by being on good affiliate websites.

This has ramifications for the costing models.

Voice of the agencies … “ The distinct lack of actual experience and understanding [is a barrier]. It would be good to see some kind of accreditation for affiliate managers that was recognised in the industry.” “ As soon as empathy, understanding and real communication from all sides come into play then we will see the real growth happen in this industry ”. “ There is a bit of a challenge with educating merchants on the added value of affiliate marketing. Some are convinced they would get the sale anyway as a portion of affiliate sales are from returning customers .”

Key takeaways Different stakeholders (i.e. merchants, agencies, networks & affiliates) must pull together to ensure a strategic approach. Good communication is very crucial. Merchants must look to optimise range of different types of affiliates, i.e. affinity sites, email affiliates and price comparison affiliates as well as search affiliates.

Different stakeholders (i.e. merchants, agencies, networks & affiliates) must pull together to ensure a strategic approach.

Good communication is very crucial.

Merchants must look to optimise range of different types of affiliates, i.e. affinity sites, email affiliates and price comparison affiliates as well as search affiliates.

THANK YOU If you would like a copy of this presentation or information about E-consultancy, then please email [email_address] The full report Merchants Survey Report at available from: www.e-consultancy.com

THANK YOU

If you would like a copy of this presentation or information about E-consultancy, then please email [email_address]

The full report Merchants Survey Report at available from: www.e-consultancy.com