Robert Glasgow- Understanding Affiliate markets in Europe

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Europe 2010

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  • Hello everybodyIntroduction about myself: My role at Webgains, My Role at Commission Junction, My Role at Haymarket including RevolutionAbout Webgains, the history and growthHow Webgains has entered new markets and what we have learnt about the differences launching network in new countries.
  • So what are we going to cover.We only have 30 minutes so we cannot look at every country in depth as we would be hear for days! So I am going to cover some basics and give you an overview of what to expect from some key territories in Europe and the USA.I will start with a brief history of Affiliate Marketing and the look at trends in the current market and what we foresee in the future.Then we will look at the individual markets with an overview of each country.
  • Affiliate marketing or CPA advertising really started in earnest in the UK in 1999. CPA or cost per acquisition simply means that an advertisers only pays for his advert when a consumer has made a purchase or made an action (such as a given some information in the case of lead generation). In this respect it’s a no risk form of advertising.I had my first experience of affiliate marketing back in 1997 when I joined the Amazon affiliate scheme. At the time I didn’t know that I was an affiliate marketer I just saw an easy way to make money on the back of a website about Classic British Motorcycles that I had made for my dad. He would recommend books to his visitors who were interested in reading more about old motorbikes. In return Amazon would pay us 5% of the purchase price for every book that was sold through our little website. Needless to say we didn’t make thousands of pounds or even hundreds but I knew that we were onto something and every time Amazon paid us a commission I felt we had made money for old rope or more accurately a hobby was suddenly making us money. And as I will point out later content sites such as the one I made for my Dad are still KING!Post 1999 in the UK with the emergence of “Long Tail” website – content sites with niche specific URLS and high converting search terms, affiliate marketing really took of with an explosion of networks entering the market from 2001 – 2004. At the time I was working at the UK online marketing trade magazine and we were running weekly features on affiliate marketing and our pages were full of adverts for new companies entering the market, all offering CPA tracking and catalogues of new brands that affiliates could partner with. From 2005 onwards, the networks consolidated and we have a situations now where there are 6 big players in the market which I would certainly count Webgains as one!Broadband penetration is built rapidly in the UK and this obviously spurred the growth of online buying and from 2005 onwards large brand names recognized that affiliate marketing was a key part of their marketing and sales budgets.
  • Most recently we can say that affiliate marketing has shed the image of a place to dump unwanted advertising inventory. Affiliate marketing is now a sophisticated marketing channel driving millions of pounds worth of sales. Its advertiser led and risk free. Affiliates invested more and more into their own websites, and the professionalization of affiliates is now apparent. Going back to my own experience as an Amazon affiliate driving sales from a “hobby” website, there are now affiliates who are individually driving huge numbers of sales and earning thousands of pounds a day in commissions. Most recently an affiliate grew to the point where they bought the network through which they were driving the majority of there sales. Some affiliates are now large companies in their own right with lots of human resource to optimize their own channel and increase conversion and traffic. Along with these “Super-affiliates” we have seen a resurgence of the long tail sites – in the form of blogs, where niche and content really comes into its own. Merchants love websites where the content is product specific and research has shown that it’s these sites that have the highest conversion and most loyal consumers.This most recent growth and awareness that Affiliate marketing is an important element of a brands marketing budget has lead to Global advertisers requiring Global solutions and by that I mean a merchant often needs a network that has reach into foreign markets and has the tools and resource to deal with all that entails, for example a invoicing in multiple currencies and paying an affiliate in their preferred currency is just one of these issues. This had led to Network such as Webgains and others opening platforms across globally and that’s where we currently stand. Recent economic difficulties have led to merchants wanting much more sophistication from their network and their programs. In the most basic terms there has been pressure on the network override (how network make revenue) and increase in their wants and needs in terms of the service and technology that a network can offer. Making sure every penny spent of on any sort of marketing is well spent and accounted for. On top of this of course, the consumer is now looking for the best possible price when buying and this has lead to an increase and explosion of sales driven through cash-back and voucher or incentive sites.
  • So here we have some self evident truths born from the history we have just covered. Namely:Growth has been extraordinary and will continue, driven by:Appearance of long tail websitesMove by advertisers to lower-risk marketing modelFull transparency of transactions, activity and rewards, enabled by technologyBroadband penetrationConsumers will seize opportunities to save money when transacting, especially in the recession Cross-border retail will grow Internet use fosters cross-border transactions Growth in credit formats, Euro currency, e-wallets Pressure on banks to lower fees for cross-border payments across EU
  • OK now we now, how the affiliate market has grown and where we stand lets look at some current trends in more detail and the individual markets in turn.I’ve already covered the first two points here in some detail but I will say we don’t see these points reaching a plateau any time soon and certainly in Europe in countries such as Denmark and Sweden Cash-back and voucher sites are only really just starting as they have only been recently legalized. A very apparent issue in the market is the “last click wins” model which all affiliate marketing currently operates under. To put this into context the last affiliate sends a consumer to a merchant is the one that gets paid. However, if you look at customer journey for a purchase of a new laptop, for example, there are lots of places that could have influenced their purchase. The average consumer may have Googled the term Sony Vaio, then read reviews on numerous websites, then visited a price comparison site to find the lowest price, then finally visted a cash-back site to make their purchase. In the current model, only the cash back site is paid a commission on the sale even though the sale was driven by at least 4 different affiliates. A good analogy would be having a fantastic football team that works together but only the striker being paid a salary. Currently there is no perfect solution on the horizon for this issue but with the pace and speed this industry grows we can predict that networks will be looking at tracking solutions that can offer every influencer in a customer journey a slice of the commission pie. This issue follows on to affiliates themselves wanting more transparency and communication with the merchants they promote. If sales are being rejected they need to know why, loyalty for promoting a merchant is not something that last long if sales are constantly being rejected. Affiliates are also creating their own pieces of technology to increase conversion rates and sales. Advertising agencies are more and more offering affiliate services to their clients and this has been in the form of full affiliate account management (taking the onus of the network) and in some instances actually buying a “white-label” CPA tracking solution and setting up their own network.Lastly, fraud continues to be a problem, and this is mostly in the form of cloned credit cards being used for purchases, however, Networks are developing technology to counter such practices and cancel fraudulent commission payments.
  • So before we look at each individual countries market in detail we can have a quick overview of the European market in general.One word really sums it up and that’s Fragmented. By this I mean that there a many local networks, we count 10 local networks in the Benelux region alone. I mentioned that there are 6 large networks in the UK but there are countless smaller players. Of the 6 large networks only 3 have a true pan European presence. Moreover, as well as fragmented networks there are relatively few affiliates that operate across multiple markets and this in my opinion is because of launguage barriers rather than currency or banking regulations. For merchants there are LOW barriers to selling internationally and that’s especially true here in the EU. Finnallyalough banking regulations are slowly being harmonized we are not quite there yet – EXAMPLE!
  • There are numerous things that define the differences between markets and these include:Size of opportunity – and we’ll look at this in more detail on the next slide. Population and GDP Number of on-line merchants Value and quantity of on-line retail transactions Broadband penetration Numbers and types of affiliates Speed of adoption of new formatscashback discount vouchers mobile widgets Adoption of affiliate tools Product Data feeds forums and self-help communities Regulations and laws Culture and Language
  • So this graph looks at the opportunity from the Merchant Perspective, what exactly is the size of the opportunity in the given country?Along the Y axis on the left the GDP per head of population and along the X axis the Broadband penetration.5As affiliate marketing is really all about retail transaction. So what is the size of the market, what is the level of access for consumers and how much are they buying?The size of the bubbles on this rudimentary graph relate to the size of the population.So immidiate you think maybe you should be aiming for the Nordic Countries and Benelux, all with high GDPs and High Broadband penetration. But these are DIFFICULT markets to get into. They have relatively small populations and there are some legal issues which I will go further into later. So you may decide to go for the markets in the middle and hedge your bets namely Germany, France and the UK and this is most probably is the easiest decision. All three markets have great inertia and programs progress relatively quickly. All three markets have been quick to adopt new technologies and utilize all affiliate business models. Spain is an interesting market in that its in a really deep recession and therefore there is opportunities with budgets shifting from traditional markets to CPA. Also Spain gives you access to the whole latinamerican market which is a huge area for growth.Lastly but by no means least there’s the US market, by far the biggest market in terms of population and certainly sales. However it also has numerous problems. Firstly the market is very saturated and for every product you want to launch there will be competitors already out these who are established and benefitting from the economies of scale they have built. Furthermore the US is unregulated, the IAB have not set up any sort of council or published guidelines for affiliate marketing.
  • Robert Glasgow- Understanding Affiliate markets in Europe

    1. 1. Understanding the European Affiliate Landscape<br />Robert Glasgow, Managing Director<br />A4uexpo Europe, Munich 18th May 2010<br />
    2. 2. My Background<br /><ul><li>Founder and MD of Webgains UK
    3. 3. Head of Webgains Profit Centre
    4. 4. Formerly MD of Affiliate Window in the UK</li></ul>Webgains Roll-out<br /><ul><li>Webgains was established in the UK 2005
    5. 5. Merged with ad pepper media in May 2006
    6. 6. Launched Germany and France in 2006
    7. 7. Launched BeNeLux, Denmark, Sweden in 2007
    8. 8. Launched Spain, Ireland, USA in 2008</li></li></ul><li>Agenda<br /><ul><li>History of Affiliate Marketing
    9. 9. Current and Future Trends
    10. 10. Overview of Markets</li></li></ul><li>Brief History 1: the early years<br /><ul><li>Affiliate Marketing entered the UK in 1999
    11. 11. Emergence of first ‘long tail’ websites, all with potential inventory
    12. 12. Affiliate Networks exploded 2001-04
    13. 13. Network consolidation 2005 - current
    14. 14. Lead Generation business started to emerge
    15. 15. Broadband penetration (democratised by adsl technology) drives growth in on-line shopping </li></li></ul><li>Brief History 2: recent <br /><ul><li> Reversal of market perception: </li></ul>“a place to dump distressed inventory” <br />to “advertiser-led, low-risk marketing channel”<br /><ul><li> “Professionalisation” of affiliates, sophistication of marketing managers
    16. 16. Second wave of long tail (Blogs)
    17. 17. Global advertisers require global solutions
    18. 18. Economic difficulties drive move to transparency and value
    19. 19. Consumers drive trends</li></li></ul><li>Some self-evident truths<br /><ul><li> Growth has been extraordinary and will continue, driven by:
    20. 20. Appearance of long tail websites
    21. 21. Move by advertisers to lower-risk marketing model
    22. 22. Full transparency of transactions, activity and rewards, enabled by technology
    23. 23. Broadband penetration
    24. 24. Consumers will seize opportunities to save money when transacting, especially in the recession
    25. 25. Cross-border retail will grow
    26. 26. Internet use fosters cross-border transactions
    27. 27. Growth in credit formats, Euro currency, e-wallets
    28. 28. Pressure on banks to lower fees for cross-border payments across EU</li></li></ul><li>Current Trends<br /><ul><li>CPA going from strength to strength, driven by advertiser recognition of low-risk model
    29. 29. Consumers turning to voucher-code and cash-back websites
    30. 30. Issues surrounding “last-click-wins” becoming more apparent
    31. 31. Affiliates calling for a greater emphasis on transparency and communication across the sector
    32. 32. Affiliates developing innovative media methods
    33. 33. Social, Video, Widgets
    34. 34. More agencies offering affiliate services to clients
    35. 35. Agencies setting up their own networks
    36. 36. Fraud continuing to pose a problem</li></li></ul><li>The European Affiliate Market: Overview<br /><ul><li>Fragmented
    37. 37. Many local networks
    38. 38. Some pan-European networks
    39. 39. Few affiliates operate across multiple markets
    40. 40. Different types of affiliates strongest in different markets
    41. 41. Low barriers to selling internationally allow merchants to expand across borders
    42. 42. Banking regulations being harmonised but we are not there yet</li></li></ul><li>Differences between markets?<br /><ul><li> Size of opportunity
    43. 43. Population and GDP
    44. 44. Number of on-line merchants
    45. 45. Value and quantity of on-line retail transactions
    46. 46. Broadband penetration
    47. 47. Numbers and types of affiliates
    48. 48. Speed of adoption of new formats
    49. 49. cashback
    50. 50. discount vouchers
    51. 51. mobile
    52. 52. widgets
    53. 53. Adoption of affiliate tools
    54. 54. Product Data feeds
    55. 55. forums and self-help communities
    56. 56. Regulations and laws</li></li></ul><li>Opportunity?<br />High<br />Benelux<br />USA<br />SE<br />DK<br />GDP per head of Population<br />UK<br />DE<br />FR<br />Spain<br />Low<br />Low<br />High<br />Broadband Penetration<br />
    57. 57. France<br /><ul><li>Major consolidation of networks in 2005
    58. 58. Strong affiliate movement with multiple forums
    59. 59. Early and strong adopter of discount voucher codes, with dominance by a handful of early-moving affiliates
    60. 60. Cash-back sites important, and not shy of demanding fees from networks (either kick-backs, or click commissions). Big affiliates also want lifetime value payments or ongoing rev-share
    61. 61. Movement towards post impression tracking
    62. 62. Many networks depend on ‘pop-under’ networks egaegency
    63. 63. PPC drives a high percentage of sales
    64. 64. email database exploitation still very strong
    65. 65. New trade organisation ‘CPA’ (Collectif des Plate-formesd’Affiliation) established beginning 2009</li></li></ul><li>USA<br /><ul><li> The wild west!
    66. 66. Unregulated business practices in most areas – affiliate is no exception
    67. 67. Lots of spyware, plug-ins, spam, poaching etc
    68. 68. Lots of cookie stuffing and post-impression cookie dropping
    69. 69. Huge amount of media broking – campaigns churn through many platforms
    70. 70. The biggest opportunity, the most competition
    71. 71. Changes on Google adwords opens up bidding to all-comers
    72. 72. ‘Patriotic’ consumers and affiliates promote own-country products
    73. 73. Threat of Nexus Taxes could seriously affect affiliate industry
    74. 74. Performance Marketing Association has been set up but no major networks have joined
    75. 75. IAB ‘refuses’ to set up an Affiliate Marketing Council</li></li></ul><li>Germany<br /><ul><li> Affiliate market worth €210 M in 2008
    76. 76. Agencies dominate industry
    77. 77. Very tight consumer protection and data protection legislation
    78. 78. Demand from agencies and affiliates for post impression tracking
    79. 79. Highest proportion of population in EU are online buyers (73%)
    80. 80. Relatively slow adoption of ecommerce and affiliate marketing
    81. 81. conservative population with security concerns
    82. 82. reluctance to adopt new payment methods
    83. 83. eCommerce market worth €19.3 B in 2008, with 15% growth</li></li></ul><li>UK<br /><ul><li>European leader in innovative affiliate marketing
    84. 84. Strong Forum usage prolongs ‘collegiate’ approach among many affiliates
    85. 85. Consumer debt hang-over has seriously damaged online sales and hence affiliate commissions
    86. 86. Consumers have adopted discount voucher codes and cash-back sites
    87. 87. Recent Google adword changes have opened up bidding
    88. 88. 32 Networks listed on the forum, but 6 are really big players
    89. 89. Strong move to Internationalise platforms
    90. 90. IAB providing clear leadership on contentious issues</li></li></ul><li>Benelux<br /><ul><li>68% of consumers use on-line banking – highest in EU
    91. 91. 64% of retailers have sold cross-border in the past year – highest in EU
    92. 92. Over 10 domestic networks plus 3 multi- national operate already
    93. 93. Low tax and offshore jurisdictions make attractive business start up environment
    94. 94. IAB currently setting up Affiliate Marketing Council</li></li></ul><li>Denmark<br /><ul><li>Highest percentage of broadband penetration in Europe
    95. 95. Affiliates prove to be slow movers to professional model
    96. 96. Slow adoption of normal affiliate tools – product data feeds, forums, RSS feeds
    97. 97. Recent changes to regulations have allowed introduction of discount voucher sites
    98. 98. Strong focus by Government on consumer protection forces this market to look cross-border for opportunities
    99. 99. Very high 3G usage brings mobile media to the fore
    100. 100. Small market that punches above its weight in Europe</li></li></ul><li>Sweden<br /><ul><li>Huge growth in networks puts huge pressure on fees and margins
    101. 101. 3 years ago = 3 networks
    102. 102. now = 25 networks
    103. 103. Popularity of hybrid campaigns eg. cpa/cpc, or cpa/cpm
    104. 104. Incentive sites reward with products, not cash
    105. 105. Very few voucher sites
    106. 106. No cash-back sites
    107. 107. Affiliate sites, in general, outperform merchant sites on natural listings
    108. 108. Merchants starting to consolidate to 1 preferred network supplier</li></li></ul><li>Questions?<br />
    109. 109. Thank you for your interest!<br />Webgains UK<br />Dragon Court<br />27 - 29 Macklin Street<br />London<br />WC2B 5LX<br />Tel: +44 (0)207 269 1248Fax: +44 (0)207 269 1249 <br />

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