2010 Affiliate Industry Preview Series: Interview with Jonathan Levine of LinkShare

As part of the ReveNews 2010 Affiliate Industry Preview Series, I interviewed industry leaders to get a sense of their plans and goals for 2010. Today’s interview is with Jonathan Levine, Co-President of LinkShare.

How do you feel about the affiliate industry’s current health overall?

I think 2009 was the first year where our industry was the only online marketing channel that was that showed growth year-over-year.  Everybody else is basically flat or down.  If you looked at the sales figures you’ll know that traditional retail sales were terrible this past year.  Online retail sales overall were sort of marginally okay in terms of year-over-year numbers.

What we saw in the performance marketing space was completely different.  We are way, way, way up above the stated ComScore numbers for the year in terms of retail sales.  I reckon that’s true across the networks.  Because as an advertiser, if I have lots of money to spend I’ll spend it everywhere; but if I only had a very limited amount of money to spend, I’m going to spend it where I know I’m going to get a return on it. And that’s what affiliate marketing is.

I think the industry is healthy. I think the reason the industry is healthy is because this kind of marketing works.  In a world where you’re scrutinizing every dollar that you spend on marketing, if you’re measuring the results, you’re in much better position here than any other marketing industry.  That’s the feedback we’ve been getting over and over again from our advertisers that the affiliate channel is the bright spot in the marketing mix.  And the fact that we have been able to facilitate a large year-over-year growth in this economy is indicative to the fact that we’re healthy.

How has the affiliate industry evolved?

Benjamin Franklin always talked about how easy it was to build a reputation and how hard it was to great rid of it.  I think that we as an industry built a reputation around being the “coupon guys”, the “deal guys” or the “cash back guys”.  I think that reputation ignores the innovative stuff that affiliates are doing. Like you’re doing with Popshops for example, a lot of the innovation is content based and not simply deal based. I think superficially everybody still thinks of affiliate marketing as coupons and deals. Here at LinkShare, and I think our competitors are as well, we are trying to facilitate expanding the scope of the channel. The goal is to make affiliate marketing into the engine that can power the economics behind innovative publishers with innovative distribution models that cross a wide spectrum of ways to reach the consumer.

Is the industry leaving coupons behind?

I don’t think we’re leaving coupons behind and I don’t think we’d want to leave coupons behind.  The coupon vertical is certainly still the core of affiliate marketing.  Coupon as a vertical had a huge amount of natural growth this year as you’d expect in a recession.  I think the coupon sites were looking at 30% per year-over-year natural growth.  I love our coupon publishers they are really important for us as a network and for our advertisers.

What I do think is that everything that can be measured eventually will be measured.  Because of that, more and more kinds of types of marketing are becoming amenable to CPA.  If you think about the wedge of the online marketing pie it used to be that a huge amount was CPM and the other amount was CPC and the smallest wedge was CPA.  I think over time the CPA wedge will grow and overtake both CPC and CPM. I think 2009 was the year we started seeing exactly why.

One thing that obviously had a big impact in 2009 and the later part of 2008 was the so-called Amazon Tax.  Being based in New York, LinkShare has been in the epicenter of it. How did that tax impacting things in 2009?

We had a number of online only merchants pull out of all the states where they worried that they were going to have taxes from affiliates.  So it really hurt New York affiliates, I’m not the first person to tell you that; and it’s going to hurt the North Carolina affiliates.  I think in California the affiliates were able to get their act together enough to stop the bill which we were really happy about.

As a citizen I totally get that folks have to pay for roads and schools and all other stuff sales tax goes to support.  I also get the fact that all the states are hurting for revenue.  It is however really arbitrary to put that type of tax burden on the backs of the affiliates in just a couple of states. As I hear other people talk about it I really feel that whole online sales tax issue is going to have to move to some sort of national solution in the relatively near future.

One thing for LinkShare is that we do have a disproportionately large number of brick and mortar guys in our network.  So we have a lot of department stores with online presences, so that makes the problem a little bit smaller for us.  Many of our advertisers already have nexus in New York even without affiliates.  We value our online-only advertisers who are in no or low tax jurisdictions who don’t have nexus in New York.  At LinkShare we have worked very hard and will continue to work to help in the lobbying effort against these kinds of laws on behalf of our advertisers and affiliates.

How do you see do you see the Amazon Tax issue playing out in 2010?

We’ll continue to work with other networks and the Performance Marketing Association, as well as on our own, to lobby against these bills wherever they crop up.  We will do whatever we can to help our advertisers and our publishers in those states, keep those states from hatching those bills and we’re going to have to do what our advertisers need us to do to help them keep doing business if those laws are passed. And that is really all we can do.

It seems that one of LinkShare’s inherent advantages in mobile due to your parent company Rakuten.  If I had to place my bets on any particular network in the affiliate industry poised to take advantage of that it’s you.  Is 2010 the year for mobile?

If I could get the crystal ball to work (laughs)… I’m a big proponent of mobile; this is probably because I spent a lot of time in Japan. I’ve bought big ticket items on mobile devices in Japan before, so I know it’s possible to sell big-ticket items.  Rakuten is doing 15% of its overall sales now through mobile.  We have seen that the lifetime value of a customer who uses both mobile and PC is nearly an order of magnitude greater than the lifetime value of a customer who uses just one.

Where I think we’re really poised, here in the US, to leap-frog Japan is in coding. In Japan you still really have to code your websites using proprietary HTML variants.  Of the three big mobile phone companies in Japan, each have they’re own flavor of HTML.  And you wind up designing four websites for every site.

With Safari on the iPhone working basically like Safari on a Mac or a PC with the internet browser basically being a browser; I think what you’re going to see is it’s going to be a much simpler task for a merchant to put up a website that works in mobile and that is going to make it that much easier for advertisers to get on mobile.

Now the thing that nobody’s figured out yet, in the US, is the common wallet or payment system. Something we have figured with Rakuten in Japan.  Because as a consumer if I have to enter in all my personally identifiable information using that on-screen keyboard on my iPhone over and over again, I’d be like “I’m going to kill myself.” (laughs).

I think the company that figures out how to broker the common wallet hurdle is going to do very well on mobile.  It could be as simple as making auto fill work right in Safari for mobile and internet browser. That may be the breakthrough.

What are LinkShare’s goals for 2010?

We talked a lot at LinkShare Symposium last summer about how we really wanted our network to be easy, fast, and open.  When you look at what we did in 2009: with exposing Merchandiser and other functionality through API’s; with improving the publisher interface significantly; with improving the timeliness of the data provided to advertisers; with facilitating better reporting;  I think all these things make us much easier to work with then we have been historically.  Going into 2010 we really want to build on the foundation that we started in 2009.  We’ll continue making our interface easier to use and give our advertiser user interface the same facelift the publishers’ got.

We’ve been working a lot on our deep linking capabilities and we’ll be unveiling some interesting new functionality built around that this year.  Due to our success in the UK in 2009 we have very high goals in Europe for 2010. I think in some ways the UK affiliate networks have been more historically innovative than the US networks.  We want to be as innovative in all of our regions and take some of that learning back into the US.

As I said earlier I feel this will be the year where the paradigm of what we think of as affiliate marketing will change.  Currently as a publisher you setup up in your vertical, go to the network and you pull down a link and you pray that it works.  Repeat.  Pull, pray, and repeat.  That is just not scalable for anybody.

At LinkShare we’re doing a lot of work around whether we can make it more practical for people who want to run performance based ads but are not in the industry to have easier access.  We are working to broaden our tool sets to make it easier and easier for content aggregators and providers as well as social media providers to participate in affiliate marketing.

What I’m saying is if you are a coupon site it’s relatively easier for you maintain the content, creative, and merchandising on the site through the affiliate model. The barrier is much greater, if your business model is finding interesting things to write about for your blog because your advertising is incidental to your main focus.  It has to be an incidental cost to you in terms of time and resources.  We have been and will continue to do a better job providing tools for everyone to be able to participate in the CPA world.  As we do that you will see that paradigm shift.

Well, let’s piggyback on that. What is the key to shifting the paradigm and rebranding the industry’s image?

Every year we talk about rebranding the industry from affiliate marketing to performance marketing.  I really want 2010 to be the year people are thinking about us as performance marketing rather than simply affiliate marketing.  There’s nothing wrong with affiliate marketing as a model it’s just that the term “affiliate marketing”  has certain associations with it that really limit our growth as a industry.  Those associations are just associations.  They are not reality.  If we can rebrand affiliate to mean innovative publisher models that facilitate performance marketing that would be perfect.  We can then keep calling it affiliate marketing.  Otherwise I’m going to call it performance marketing because that is what it is.  You know, you pay for performance and you get performance.

I want to thank Jonathan Levine  for taking time out during his busy schedule to take part in our 2010 Affiliate Industry Preview Series. Stay tuned for our next conversation with Brian Littleton, Owner of ShareASale.