We’re an “Affiliate Network”

Feb 16, 2005
by

As a marketer/advertiser… or if you track this industry at all… you’ve probably found yourself scratching your head when stumbling upon companies like recently funded and famously known spammer aZoogleads.

Have you ever stopped by to check them out? They’re an affiliate network. No, wait… they’re an affiliate. Hold on… they’re a group of affiliates. No, they’re all that and a network… like Commission Junction, Performics, Advertising.com or Linkshare? Well… uh… no. An affiliate network by definition, yes, but what’s truly interesting… yet never discussed… is the fact that these “affiliate networks” are actually enabled by the real deal. That’s right, this long list of head-scratchers…

eMarketMakers
Sherman Oaks, CA

Tranzact Media
New York City

TrafficVendors
Anaheim Hills, CA (oops, this “once funded by some serious VC” company has vanished)

Adteractive
San Francisco, CA

Gattaca Inc.
New York, NY

… are cash rich companies that are enabled by your real affiliate network.


Yes… your affiliate network. Look closely inside these “affiliate networks” and you’ll find your offers, Mr. Marketer. Oh my… you’ll find many an offer. Look close enough and you might notice that they contain almost every offer out there that’s ever been provided to a (real) affiliate network.

What’s at work here?

In short form… you may recall the good old days when affiliate marketing was just an infant. You may recall, some of you vividly, the fact that affiliate networks like Commission Junction had a cost-per-click business component. Essentially, they started – and quickly abandoned – what Google makes a mint at today… selling clicks to advertisers. Why? Fraud. Noodle on that if you’d like but that’s another blog entirely!

My point is that when affiliate networks (the real ones) were first born… well, times were fairly experimental. The cost per click network quickly vanished as fraud ran so rampant (again, makes ya wonder how CPC networks can be successful today) but two nasty little things remained:

* The concept and technology to support “sub-affiliate” or “second tier” tracking
* Lazy advertisers intoxicated by the word “performance”

So, Molander, what is going on here?! Alright, alright. What’s going on here is that some of your affiliates have decided to become affiliate networks. Now go get yourself a shot of espresso, an ice-cream bar or what-have-you because this is where it gets good.

What’s the first thing an affiliate manager does when he or she sees an affiliate doing well? Generally, either the affiliate or the affiliate manager will step up to make what is called a “private offer commission” incentive. A bigger cut. Why? Well… because this affiliate is burnin’ it up. They’re delivering a large quantity of customers, transactions or leads. Seems harmless enough and rather opportunistic to provide an incentive.

Aaaah but this is affiliate marketing friends.

It took some time but within a short period, successful affiliates decided to use that technology that most of us had forgotten about… the sub-affiliate ID. By using it this allows the affiliate to have affiliates – making it, in effect, an advertiser in the eyes of its affiliates. Still with me? Good. If your an affiliate of an affiliate who has many advertiser relationships… well it looks kinda like an affiliate network. Sheesh, you could even tie databases together (that of the real affiliate network and the data pertaining to the sub-affiliates) and form something that looks like a password-protected “affiliate network.”

Now… I leave you to ponder the economic ramifications of Affiliates Gone Wild: Network Style (from the original advertiser’s perspective). Hint: Consider what you pay your largest affiliates. Mix in the value added by the “middle” affiliate/”affiliate network” (??) and…

About Jeff Molander

Jeff Molander is the authority on making social media sell and corporate trainer to small businesses and global corporations like IBM and Brazil’s energy company, Petrobras. He’s an accomplished entrepreneur, having co-founded what is today the Google Affiliate Network. He’s adjunct digital marketing professor at Loyola University’s school of business and author of Off the Hook Marketing: How to Make Social Media Sell for You.

Website: JeffMolander.com

Blog: Off the Hook Blog

Answers: AskJeffMolander.com

You can find Jeff on Twitter @jeffreymolander.

Filed under: Affiliate Marketing
  • http://www.affiliatetip.com Shawn Collins

    What's the big mystery here – these "CPA networks" have been a force in the industry for years.

    They carry various risks and rewards.

    One risk that makes me a little uncomfortable from a quality control perspective is that I don't know who is running my offer when it's farmed out to a CPA Network.

    However, one very good thing is that working with these folks can be a big shortcut to recruiting and moibilizing dozens or hundreds of sites to promote your offer in a short period of time.

  • http://www.molanderassoc.com Jeff Molander

    My version:

    "Working with these folks can be a big shortcut to paying a premium for what you would otherwise pay less for."

    Those "dozens or hundreds of sites" would all work for the "street CPA" (direct… with the advertiser through the real affiliate network) if it were not for the "affiliate network."

    From the advertiser's perspective, it's nothing but expensive actions. An action is an action.

    But what do I know… advertisers seem to love paying extra!

  • http://www.affiliatetip.com Shawn Collins

    Hey then there now – if the affiliate manager managed to recruit the sites, they could pay the "street CPA", but the reality is that lots of the affiliates of CPA networks are not necessarily affiliates of CJ, LinkShare, etc.

    Why? There are different reasons for different people, but the one I hear most often is that they like to get paid quicker.

    It's not uncommon for performers (and even small fries) to get paid on net 7 days.

    Believe me, I'd rather pay less, but the CPA networks are providing more favorable terms to affiliates, and money talks.

  • http://www.molanderassoc.com Jeff Molander

    I won't argue with any of that, Shawn. I will point out, though, that there's a whole lotta fat to be cut.

  • http://www.fawnkey.com Marty Fahncke

    Jeff,

    Interesting perspective.

    I've actually worked with one of the above mentioned companies in the past, and did not think about what they might have been doing.

    However, to Shawn's point, I think that even with the knowledge of what they are up to, it does not necessarly preclude me from working with them. They still provide some benefit by recruiting and managing affiliates that I may not have otherwise reached, which is the same reason I continue to work with the "legitimate" networks.

    The loss of control over multi-tier affiliates that have no direct legal agreement with you is an issue to be concerned about, but we must weight the risks vs. the benefits in all of our activities, right?

  • http://www.TrafficSynergy.com Eric

    There are few true monopoly's in the world (even Microsoft with its considerable reach and power has competitors).

    Thus the 2nd tier networks play an important role, as it isn't practical to expect the major affiliate networks to control and manage relationships with ALL the major marketers.

    Different companies do things differently. Both in terms of the advertisers they deal with, how much they pay the affiliates for the leads or sales the affiliates generate for the advertisers, how they generate new affiliates to their networks (it costs money, time and resource to find the quality new affiliates), and how they treat and deal with their current affiliates. (payment terms, type of offers, customer service etc).

    Also, different companies operate differently depending on the size of the company, the individuals, the systems – i could go on…

    So if you're an advertiser, you need to make the call, as to where you want to find your customers. And each company you work with has different relationships, different inventory, and a different way of doing things.

    Sure, there might be crossover, where an affiliate could work with CJ on an offer, rather than a network who is syndicating the offer from CJ – but keep in mind, the affiliate has the choice of whom to work with. Maybe they get a lower rate from the other network, but don't know any better (coz information is costly to acquire, and the internet has an overload of information), or they get better service from the second tiers, OR – and this where it gets interesting – the 2nd tiers pay more to the affiliates than the Large Networks, as they are getting higher payments from the large networks, than the sub affiliates would get if they went directly to the large networks.

  • http://www.un-leash.com Jonathan

    Hi Jeff

    I’d like to add my voice to your post. Yes, there are many pseudo-networks that run the same offers that the major networks / private label programs do.

    As long as the merchant is happy paying the acquisition cost – frankly, where is the harm?

    I know you’re a great proponent of optimizing acquisition costs – but most merchants work on the premise that as long as the average acquisition cost is in line with expectations they’re happy to continue the campaign.

    In most cases I find that these networks contribute to getting a program to ROI, and in most cases I treat them as separate campaigns.

    If they’ve built up a relationship with an affiliate that is happy to work with them – then power to them. I’m not going to squeeze them out just because I could have recruited the affiliate myself. They’re helping me to ramp my program faster and get ROI for my client at a mutually agreed rate.

    Jonathan.

  • http://www.mastermcom.net/consulting.html Fred Conquest

    Jeff,

    You can blame the whole CJ CPA disaster on Declann Dunn

    and the total stupidity that was rampant at CJ then and now.

    We had a CPC program there that paid 5 cents per click, with 7,000 plus affiliates.

    We paid out over $65,000 to affiliates in one year. Thousands of affiliates were getting paid something every month. Was fraud a problem? An easily handled minor one.

    The problem was merchants were not making a profit because of the same problems they face now – they can’t sell – and they thought they should be guaranteed a profit from online advertising.

    Like if you pay $1.5 million for a Super Bowl Ad you will be guaranteed to make more than that?

    For us to make money we had to make 7 cents per click thru. As the net imploded the going price dropped so we dropped our rate from 5 cents to 3 cents…now we only need to make 4 cents per click on average to make a profit.

    The point was and is, that CJ takes a trainload of stupid pills and wipesout all the CPC programs…we have to do CPA. Thousands of affiliates no longer get a check for just sending traffic, we have to trust merchants to track and report everysale with no verifiable audits, a few merchants make sales, a few affiliates do well, fraud and theft become rampant because everyone is chasing sales potential not traffic, link theft is endemic, parasites spring up and the thieves simply say it’s okay, just send us traffic and we will pay you IF you make a sale.

    Google coins money, because Adsense affiliates get paid something for their effort of simply building and operating a website which expands Google’s reach for FREE.

    The net now becomes a giant newspaper…each website is like a page in the paper.

    It’s too bad for merchants that the FREE traffic is history. But eyeballs have never been FREE.

    He who controls the eyeballs controls the net. CPM is how they figure it out in offline media as to what it’s worth.

    The net is now doing the same thing…CPC is just an child of CPM, since the only true meaningful number is CPM you pay for incoming traffic and CPM you receive for having that number of unique eyeball.

    The real problem is most online marketing types are all delusional in their view of the what the net is really all about – and it’s not sales – it’s information delivery and logistics.

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