Affiliate marketing is BIG.
Globally Affiliate Marketing campaigns are estimated to generate over 600.000.000 yearly transactions for over 50.000 campaigns.
The affiliate marketing landscape can be compared to an enormous ocean full with tons of fishes in several sizes, ranging from huge whales, to fresh Norwegian salmons to small goldfishes (and yes, there are sharks and jellyfishes along the way). Compared to other online markets it’s a more complex marketing method due to a large diversity of traffic suppliers, where other online marketing methods are more controlled by a few big business and have more characteristics like a monopoly structure (Search) or oligopoly (Social networks or Display Advertising).
Due to its size and characteristics it makes it a very interesting and challenging online marketing opportunity and when implemented correctly it can give both Advertisers as Publishers a huge increase in sales and leads with a positive ROI.
Basics of Affiliate Marketing
Before we go into detail what Affiliate Marketing is and it’s past, present and future we first need to clarify some terminology so everybody knows what we are talking about.
- Advertiser (also called Merchant/Retailer/Brand) – A business that wants to generate more sales or leads online and pay for the results.
- Publisher (also called Affiliate) – A business or individual that wants to make money by driving visitors or customers from his site to an advertisers site.
- Affiliate Network – A business that functions as a marketplace for Advertisers and Publishers to exchange campaigns and handles payments.
- Traffic – visitors on a website
- Performance Marketing – Another name for Affiliate marketing - a type of marketing where the advertiser only pays for results.
Affiliate Marketing summarized in one sentence could therefore be:
“Affiliate Marketing is a type of online marketing through which Publishers drive traffic from their site to the Advertisers’ site for financial rewards”
If we try to simplify the Online Marketing landscape from 2015 there are basically 5 ways for Advertisers to drive traffic to their site through paid advertising:
- Google Search – Visitors that look for keywords related to a site
- Social Media – Advertising through social networks (usually display advertising)
- Display Advertising – Buy advertising space on a publishers website
- Email Marketing – Buy advertising space in a publishers email newsletter
- Affiliate Marketing – Pay publishers for traffic they bring to your site.
The complex version of the Landscape contains tons of industries and business around all 5 traffic driving methods.
Evolution of Affiliate Marketing
Affiliate Marketing started as one of the earliest Online Marketing possibilities for Advertisers to attract more traffic to their site. It was actually Amazon.com during July 1996 that launched the first mainstream affiliate campaign by providing a link and banners to a publisher where the publisher would get paid for each visitor he would drive to amazon.com that would buy a book. After Amazon dozens of other advertisers launched their individual affiliate programs and two year later in 1998 there was a need for a new player in the affiliate landscape, which was the Affiliate Network.
Almost 20 years later in 2015 the Affiliate market is a +$4 billion global market in which hundreds of Affiliate Networks drive traffic to over 50.000 campaigns and generate an estimated $40 billion yearly revenue.
The US has traditionally been the biggest Affiliate Marketing and still generates between 60%-70% of revenues, mainly due to the state of the e-commerce market and the culture of SME that are very active as publishers. The second country is the UK where the market is also over $1B in yearly revenue and the industry yearly generates over 100M transactions and 70M leads. Next are large EU countries like Germany and France and at a respective distance smaller EU countries, Southern EU countries and Australia follow. Other continents are less represented and Asia, South America and Africa consist of <5% of the total market.
Main industries are: Travel, Shopping, Finance, Jobs & Education, Dating, Internet & Telecom, Computers, Business, Home, Leadgeneration, Health & Beauty, App downloads
The basics of the affiliate industry are still the same as back in 1996, however the market has evolved tremendously due to new technologies, market circumstances, access to global markets and regulations. All those factors will further progress during the next years and each of them has his impact on the Affiliate Market:
New technologies: technology is constantly evolving and this will also be reflected in Affiliate Marketing platforms/software. New tracking options will most likely become available and with the pressure on customer privacy, user anonymity will have effects on technologies that for now are still very dependant on cookie-tracking. Also usability and simplicity will progress during the next years. Most platforms still have to catch up a lot to become the Apple of Affiliate Marketing.
Marketing circumstances: Increased competition and more educated Advertisers and Publishers combined with a stagnating marketing growth in current large markets will lead to specialization and marketing consolidation. Smaller players will have difficulties to survive during the next years as competition will be more fierce and unique selling points become more important. At the same time entry barriers will further decrease with the availability of of 3rd Party tracking platforms. Affiliates that manage to offer a good product and customer service will be able to further grow.
Furthermore focus will shift further from Desktop campaigns and move more towards the Mobile device. Currently App downloads (both on Android ad iOS) are a growing industry within Affiliate Marketing and both mobile App Downloads as mobile Web Browser sales and leads will further increase with the shift of consumer behavior from Web to Mobile.
Global Markets: With regions in Asia, South America, Russia and in parts of Africa seeing a further increase in GDP and internet speed these markets are projected to further grow during the next years. Due to the high penetration of Smart Phones it is most likely that the majority of transactions will happen on mobile devices.
Regulations: Last are further regulations that will have impact on the Affiliate Market. Last years we have seen in various parts of the world local governments proposing and introducing new regulations mainly regarding Privacy (Cookie-laws), Spam (Can-Spam act), and Piracy (SOPA and PIPA). While some regulations were accepted widely by the industry others faced a lot of resistance. Although some regulations will further complicate business practices and might harm revenues, additional regulations will help to further shape the industry, cement its legitimacy in the online marketing world and provide a clear framework for affiliate marketers to operate in this very interesting business.