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Musings on the Market Size of Affiliate Marketing and Contextual Marketing
I was IMing with Scott Jangro today and we’re we both commenting that our blog muse has left us uninspired lately. Then I read a new piece by Scott (guess he found his muse) that pointed out JenSense stumbled upon the new name of MSN’s answer to AdSense and it’s called ContentAds — a bit of a boring name, but communicates the point I guess. After reading Scott’s blog, the same contextual marketing muse struck me.
As you might know Amazon is entering this contextual ad game too and Dave Taylor has the details. Amazon’s move made me think about how big is the market size of contextual marketing verses that of affiliate marketing. There have been a lot of pieces of the puzzle written about lately, and I thought I’d try to pull them all together
In January, ValueClick in its investor presentation said the market size for affiliate marketing is $400 to $500 million - this presentation is worth a gander. (Now one could debate endlessly how ValueClick defines affiliate marketing, but I’m guessing it’s LinkShare, Performics, CJ revenues, some CPA networks, the smaller guys such as Share-a-Sale, and some affiliate marketing oppertunities abroad.)
Also in January, a NY Times article stated that Google pays publishers 78.5 cents for every dollar it receives for AdSense. That makes sense since affiliate network fees are between 20% and 30% of commissions or 2% to 3 % of sales — same business model as the big three networks, so you would think their revenue share would be similar.
Then last week MarketingSherpa estimates that “online publishers who placed Google’s AdSense contextual ads on their sites in return for a cut of the revenues, made about $1 billion last year.”
Now if you go the math, this would mean Google is making $270 million from AdSense. This means Google alone is making 60% to 80% of what the entire affiliate market size is worth according to how ValueClick defines the space.
I have learned from watching the pay4performance marketing space when a strong program is sucess, other advertisers enter the space and most of the time, the overal pie grows. This makes one wonder what will happen when the Yahoo Publisher Network, MSN’s ContentAds, and whatever Amazon is cookin’ up get up to speed in the space. The one thing I will bet on is higher payouts for publishers and we’ll see what else happens.
The affiliate marketing segment is just $400-500 million? I think a zero fell off their slide show or they have a very narrow view of affiliate marketing .vs. Marketing Sherpa’s estimate that affiliate commissions alone in 2006 will hit $6.5 billion.
I thought about that too when I wrote the piece.
I do think ValueClick has a narrow view of affiliate marketing such as no PPC (Porn, Pills, Casinos), but I also think that huge advertisers like eBay and Dell pay very little for their tranactions in the networks and that helps keep the market size low.
The head of eBay’s affiliate marketing dept said two years ago that they pay their top 50 affiliates over a million a month each. The question is what does Ebay pay CJ?
Also, how much does Amazon pay out? ValueClick will never get that biz and I bet it’s also not included in the market sizing.
Hope that helps clear this up some.
I’m always leary of numbers being tossed around like that. We can only speculate how ValueClick came up with that number. I’m pretty sure the entire space is much larger even if you dont account for Porn, Pills and Casino (great acronym by the way).
Well thats my 2cents for the day.
Here is where I buy ValueClick’s number. CJ’s revenue is $100 million, lets say LinkShare is similar. Then add in Performics, the European and Asian markets, CPA Networks, and the smaller players and I think you end up at about $400 to $500 mm.
Now, if you define players like bluelithum, Fast Click etc as affiliate marketing (which I do btw) and ValueClick does not I think) it’s a different ball game.
I must respectfully disagree with Valueclick’s evaluation. Is the number in terms of network fees, overall revenue or something else? Furthermore, are CPA affiliate networks such as Net Margin or others similar considered in this market valuation? In addition, while I believe it will be difficult to find huge players that don’t have affiliate programs(Ikea for example), there are still some pieces left to fill out the entire pie before all is said and done. I appreciate the dialogue.
It is an interesting discussion…I agree
I think it’s ValueClicks defination is only network fees because if you add CJ’s revenue and affiliate commissions, I’m sure it’s well over a $1 billion.
CPA networks tend to talk about revenue incluing affiliate commissions, but LinkShare, CJ and perfomics do not.
I think if you add up the all of the revenue of CPA networks, it’s hard for me to believe it’s much north $200 mm. Maybe it’s $300 mm but I doubt it. Then there are the European and Asian Markets, but I know little about those.
I agree, we don’t have the whole picure and it is definately an emerging market, but I’m not sure valueclick was that far off in what the market is today.
The thing that is great about this industry is you just have no idea where we will be in 5 years.
Thanks for the interesting dialogue.
Beth
Are there any other reports out there such as AffStat that deal with this topic? Did MarketingSherpa put something together from the Summit?
OK, OK, I got a some IM’s on this the morning.
First when i dicussed CPA network revenue, I meant revenue minus commissions, and that is where the $300 million came from.
Seems due to big picture accounting reasons, you can’t seperate revenue from commissions with CPA networks because of the way accountants look at lead gen. Never thought about this before. Thanks for pointing it out.
So, perhaps however, ValueClick defined affiliate marketing, it did not include CPA networks.
Cheers,
Beth