Marketing: How affiliate marketing is changing the game

Marc Pritchard, chief brand officer at Proctor & Gamble — the world’s largest advertiser — sent shockwaves through the global media supply chain in January last year.

While speaking at a major online advertising conference in California, he launched a scathing attack on what he saw as a major lack of transparency and performance tracking in the multibillion-dollar online advertising industry. Big-spending advertisers had little or no way to track the effectiveness of their dollars in the traditional pay-per-click environment. Worse still, he said, fraud was rife in the online advertising business.

His comments sparked a period of soul-searching in the industry. Perhaps unsurprisingly, later that year, multiple surveys and polls found significant drops in digital ad spend by a slew of major advertisers. It was only in April this year that the powerful P&G ended its more than one-year boycott of YouTube over controversy surrounding its products and services being advertised on channels with inappropriate or violent content.

There is now heightened awareness of the issue of accountability in online advertising. It is no coincidence that the traditional pay-per-click model is in danger of having its lunch stolen by affiliate marketing.

Affiliate marketing refers to an advertising model where advertisers pay a commission to third-party publishers and content providers for traffic or sales generated by the latter. This relationship is facilitated by brokers known as affiliate networks.

These brokers are often companies that create marketplaces populated with marketing campaigns for its network of advertisers. Publishers, often vetted and pre-approved by the affiliate network, then browse this extensive marketplace and pick up whatever marketing campaigns that suit their readership best.

The publishers — entities ranging from top-of-the-line news portals, social media influencers, prominent bloggers, price comparison websites, e-commerce portals and even major messaging app personalities — then craft unique and highly targeted content around these marketing campaigns with a view of encouraging their readership to make purchases via the links embedded in the posts. Both the publisher and the affiliate network take a cut of the revenue from the products and services sold.

The concept has been around for a long time, but is only now gaining prominence as the internet becomes more widely available and its ecosystem is better understood.

Involve Asia is one such affiliate marketing start-up. It is simultaneously a digital advertising agency and affiliate marketing company rolled into one. It is working to democratise the affiliate marketing subsector and make it more accessible to a wider range of newsmakers and online content providers.

Involve Asia founder and CEO Jimmy How says the company operates two distinct business models. “Advertisers pay a monthly subscription to set up their affiliate programme on our platform. We also earn a certain percentage of the revenue from each transaction that we track on our platform.”

Formed in 2014 and headquartered in Malaysia, Involve Asia quickly spread its wings to Indonesia and Thailand.  As a local affiliate marketing start-up with deep ties to Malaysia’s many big multinational advertisers, How and Involve Asia were well placed to enter other markets in Southeast Asia.

Involve Asia is currently enjoying some positive momentum, having recently moved into bigger offices at Menara MBMR. But things have not always been so straightforward.

How, a former copywriter turned chief operating officer for local payment gateway giant iPay88, recounts how he started out. “In the early days, it was basically just me running the company out of my apartment for a good three months,” he says.

After raising RM200,000 from friends and family, he hired a small team. He had secured about 100 merchants by then and the company was growing quickly.

After another round of angel investment, Involve Asia commenced a hard burn, quickly gaining more than 1,000 publishers and bringing 200 merchants into its affiliate marketplace. Unsurprisingly, pressure on the small team was enormous.

“There were plenty of teething problems. For instance, we work with a lot of e-commerce merchants and marketplaces to promote their products and services. The big brands would typically contract with these marketplaces to promote their products. This means handing over the marketing rights of some major products to these marketplaces.

“The problem came when some of these e-commerce portals passed the marketing rights over to us without checking to see if they had a mandate to do so. It came to a point where we were being served five to six ‘cease and desist’ letters from major brands every day,” says How.

Involve Asia was not yet well known in the right advertising circles. It was a major challenge for the company, trying to placate and convert powerful advertisers to the affiliate marketing model.

“But we had to trust our model. Over time, once the brands saw that we were actually making money for other advertisers, the conversations turned from ‘Why are you advertising our brands?’ to ‘How can you help us advertise our brands even more?’,” says How.

But there were many challenges on the publisher-facing side of Involve Asia’s marketplace as well. “This may sound funny, but we constantly get requests from so-called publishers to join the marketplace. However, many of these requests are just from individuals who think they can trick us into thinking that they somehow run some of the biggest news websites in the country!” says How.

Needless to say, Involve Asia instituted a strict pre-approval process for publishers. How also has dedicated audit teams that constantly get in touch with the company’s 15,000 publishers to verify key metrics and facts.

But there is another angle to its proposition. Unlike the still prevalent pay-per-click model, it only pays publishers for users that purchase a product. This ensures that publishers remain motivated to put out the kind of quality content that appeals to both advertisers and readers.

It also means that advertisers know exactly when a sale is made via Involve Asia’s stable of publishers. “It is invaluable for the advertiser, knowing the return on investment from their online marketing campaigns,” says How.

“Brand safety for our advertisers is our top priority. That is because we know that the only reason they have for pulling any affiliate marketing campaign off our marketplace is that they feel that their brand is being compromised. So, the vetting process is really mission critical for us.”

In addition to Involve Asia’s internal audit functions, the advertisers regularly conduct their own independent audits of the company’s many publishers. These measures have worked out great for the company. There are currently about 7,200 advertisers running campaigns on its marketplace.

“We have more than 15,000 publishers engaging with our platform. These users range from loyalty platforms and price comparison websites to content and media platforms and social media influencers. We have also successfully generated more than US$100 million in sales for the advertisers and disbursed more than US$2 million in incentives and fees to publishers who promoted those advertisers,” says How.

Broader local industry data for affiliate marketing is hard to come by. But in more mature economies like the US, it is booming.

A 2016 report by Forrester Consulting found that the US affiliate marketing industry grows at 10% on average a year. This means that by 2020, the industry could have paid out up to US$7 billion in fees and publisher commissions. Last year, the UK’s Internet Advertising Bureau estimated that the entire value of commissions and fees for 2017 came up to £1.6 billion.

According to The Awin Report 2017 by global affiliate marketing giant Awin, marketers are shifting towards tangible and unequivocal measurements and affiliate marketing is primed to help them achieve those goals. “For too long, affiliate marketing has been waiting in the wings, anticipating a time when its business model would resonate, and with the continued gravitational pull towards performance … it is time to take centre stage,” says the report.

Of particular significance, The Awin Report 2017 found that every marketing dollar spent on affiliate marketing provides a 17-fold yield.

But Involve Asia is a small fish in a very large pond. Affiliate marketing may have yet to hit critical mass in this part of the world, but major North American content creators and news outlets such as Buzzfeed and the Huffington Post have invested heavily in growing their own affiliate marketing capabilities. Similarly, e-commerce giants such as Amazon and Lazada have dedicated affiliate marketing programmes for their retailers.

But even before affiliate marketing gains global acceptance among advertisers and publishers alike, new questions are already being asked about the high volumes of very valuable and targeted data being churned out by the industry.

With affiliate marketing, advertisers and publishers have access to unique data sets. This could give rise to a host of game-changing performance-tracking metrics. For example, according to The Awin Report 2017, affiliate marketing could turn customer “stickiness”, that is, the lifetime value of a customer’s relationship with a brand, into a more prominent measure of success for an affiliate marketing campaign. This is in contrast with the traditional metric of online marketing success: new customer acquisition.

It adds that while there has traditionally been a reluctance among advertisers and publishers to share this data, doing so could potentially unlock what is essentially the holy grail of the advertising industry: hyper-personalised and targeted advertising, aimed at ever shrinking and more divisible groups of consumers, with little or no loss to reach.

Involve Asia generates significant amounts of accurate, highly targeted data and, like any forward thinking company, it is constantly looking for ways to leverage these unique data sets to provide value-add for its advertisers. “We are looking at the amount of data we have generated to date and are trying to build better tools for our advertisers and publishers,” says How.