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WHO BEARS THE RISK ON THE MORPHING REVSHARE LANDSCAPE: CPA networks increase costs and risk for merchants while decreasing risks for publishers
“Beth, who were all those CPA affiliate networks at Ad Tech?” my VP asked me. She continued, “I never heard of half of them.”
“That makes two of us” I replied, a bit sheepishly, since it’s my job to know the affiliate marketing marketplace. New CPA networks were lined-up on each aisle of the exhibit floor. I was a little surprised at how many of them are in the marketplace now.
But it makes sense. Merchants want to pay on a CPA model and CPA networks have figured out how to give merchants what they want and pay publishers more than they would earn working with traditional networks such as CJ and LinkShare. So, it should come as no surprise, everyone is hopping on the band wagon because it’s a business model that is working.
CPA networks help publishers manage the risks of working on a bounty or rev-share basis. CPA networks generally negotiate VIP commissions for their publishers. In fact, in some cases these are better deals than a publisher can negotiate from the affiliate manager for a merchant. For instance, one merchant has three different public offers, $9 in a traditional affiliate network (CJ/LinkShare), $16 in one CPA network, and $25 CPA in another network. (I wonder if a small publisher could negotiate $25 from this merchant in a traditional affiliate network….bet not.) Clearly, the last network with the $25 CPA was able to leverage its ability to deliver volume to negotiate the best offer for its publishers. As a note, not all merchants make this mistake. Audible has the same public offer in all networks and I can beat any offer in any network, but the publisher has to make it worth my while.
In addition, CPA networks might not pay their publishers on just on a CPA basis. In some cases, the CPA networks will buy advertising on a CPM or CPC basis on publisher sites, yet the networks are paid by the merchant on a CPA model. As a result, the network needs to back out the math to make the deal work for both the merchant and the publisher. In other words, the network takes the risk, and the merchant and publisher do not. Brian Clark explained this model, in great detail, when he wrote about Advertising.com.
Finally, for high volume publishers, CPA networks pay every seven days, so publishers don’t need to float the costs of advertising or, in the case of incentive sites, the costs of the incentives. It’s a much sweeter deal for the publishers than CJ or LinkShare.
CPA networks manage to reduce the risks for publishers while maintaining the direct response needs of the merchant. However, for this benefit, merchants add a whole new level of risks to their brand, since they have no control how their offer is presented. In addition, merchants pay a premium to the affiliate and CPA network that they would not need to pay through other channels.
What I like least about CPA networks is they build loyalty between the network and the affiliate with merchants’ money.
This is an outtake from a sales email that I received from a CPA network:
“I ran across your affiliate system, and like some of the promotions that you’re running, and would like to speak with someone about incorporating your offers into our affiliate network. To do so, we need to be sure to promote your offer at a higher rate than our publishers could get if they went to you direct after seeing your offer listed in our system, so we always work with companies like yourself on a slightly increased pricing…”
As you can tell, this model is set up to keep the merchant out of the relationship between the network and publisher.
Now, lets say, I took this network up on their offer. What is to stop my CJ affiliates from taking this offer at a higher rate from the CPA network and bypassing working directly with Audible? In other words, this CPA network might cannibalized my CJ program while loyalty is built between the CPA network and the publisher. I politely told this network no. (I do work with CPA networks; however, we have strategies to address this pitfall)
To pull this entry back to big picture, given, the rise of CPA networks, it does appear that publishers have indeed figured out how to mitigate the risks of a CPA model. Yet there is significant costs to merchants on number of levels.
As a merchant, it makes me think that perhaps, CPC or hybrid model might be a better approach, if the fraud issue can be solved. And, appropriately enough, the next topic in this series is “the CPC and CPM networks”. Stay tuned!
Good luck with those Christmas sales!
(Here are links to the first two entries in this series:
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Sounds like a quality of network issue to me. The better the network’s publishers the better they pay out to them… and perhaps that extends to quality of leads/sales/subscribers.