Affiliate Network versus SaaS: Weighing Up Cost, Recruitment, and 'The Network Effect'

27 Mar, 2019
Written by Jules Bazley, Regional Vice President, Europe at CJ Affiliate

Over the last 20 years, affiliate marketing has evolved substantially in terms of the number of publishers and service providers available to brands.

Affiliate networks originally came about and drew together publishers and advertisers by providing an independent single source of truth that ensured all parties were fairly remunerated for driving sales to brands.

The value provided was simple;

  • Independent tracking ensuring that all parties were fairly charged and remunerated.
  • Consolidation of advertisers/publishers providing economies of scale and a single invoice all activity.
  • Security for publishers ensuring that payments were made fairly by advertisers.

Clearly things have moved on since then, and as one of the biggest networks in the space, I am frequently challenged about the value of our proposition against the other ways of tackling programme management. Some of the more common questions include:

  • Does the ‘network effect’ really exist?
  • Why work with lots of publishers instead of just focusing on my key partners?
  • Is it more cost efficient to work with a SaaS solution?

I wanted to take a moment to address each of these.

Does the ‘network effect’ really exist?

The network effect is definitely aiding the short-term prospects of affiliate marketing. To ensure longevity for both our network and the affiliate channel as a whole, CJ is prioritising with:

  • Strategies that look beyond easy wins, align with brand objectives and drive sustainable growth.
  • Effective publisher recruitment, with an emphasis on those yet to explore the channel.
  • The education of newer publishers to support their long-term development.

You’ll notice that publishers are high on our list of priorities. Research by CJ Affiliate supports the theory that affiliate marketing is growing year-on-year from a healthy supply of new blood. In fact, we’ve seen publishers generate nearly half (45%) of a programme’s revenue after successfully completing one of our five-year growth plans.

New affiliate publishers are helping network-based affiliate marketing grow consistently, year-on-year

New publishers bring new ideas, customers and strategies, leading to better results for the advertiser. By combining their offerings with our knowledge of the channel, the network effect is going to be relevant for many years to come.

Why do I need to work with lots of publishers instead of just focusing on my key partners?

In the face of demands for greater ROI, networks have been able to successfully maintain the contribution of top-tier affiliates while increasing revenue from other sources. Nowadays, we tend to see 50% of a programme’s earnings coming from the top bracket, with 40% delivered by a combination of new, short tail and long-tail publishers. A variable contribution is made by international and cross-border affiliates, who also make up the final 10% of revenue.

This growth has come from publishers being handed the technology, resources, data and guidance to succeed. Top partners will always exist on a programme. Yet, there is now a constant focus on building contributions from the ground up, and it’s a very exciting time for advertisers that want to drive scalable, sustainable revenue.

We have to talk about the value of programme diversification in the same sense. The dangers of relying on just one publisher are made obvious from the horror stories that have followed the demise of several big programmes. What some fail to realise is that spreading the contribution is to spread the risk. By having a more even distribution of performance, less of an impact is had by publishers going out of business, being outfought by a competitor or suffering under the weight of new legislation.

Of course, there is always the option of heading down the SaaS route, ignoring the advice of a network and applying focus to those top five or ten contributors; optimising their revenue until even the mid-tier is made redundant. A more selective approach could make things incredibly easy to manage, but at the expense of performance elsewhere. Indeed, advertisers would be ludicrous to remove 40% of highly cost effective and incremental revenue from their affiliate programme, especially when this is where we’re seeing the most amount of growth.

For those that want to build a sustainable programme, the affiliate network – preferably one with strengths in publisher recruitment - remains their best choice.

Is it more cost efficient to work with a SaaS solution?

The reasons for a brand’s migration to the SaaS model usually revolve around cost, but this actually represents a false economy on a few different levels, namely:

  • Programme structure: Every programme needs two things: people to manage it, and technology to run it. When an advertiser migrates their programme to a network, they gain access to their own team of managers, each of whom can leverage resources from different departments to achieve their goals. CJ has a global network of publishers and talent to facilitate cross-border opportunities. Our technology is designed to be market-leading, innovative and responsive to challenges within affiliate management. While networks are able to compete directly with SaaS providers on price, their rates are often some distance below the combined cost of running a tracking platform alongside an agency or in-house team. In short, it’s the most cost-effective way of packaging in the two main components.
  • Talent: We believe a well-managed programme to be worth at least 50% in extra revenue. Brands can hire their own experts to ensure a similar level of performance, but – yet again – this will come at a significant cost. Not only this, but how many of their affiliate teams consist of under five people? Network-based programmes have access to a pool of different skills, strategies and approaches. They take advantage of all the knowledge sharing within these organisations and use it to power their own efforts. Think about the sheer number of programmes that form under a network’s umbrella. Now think about the daily learnings from each and every one. It’s why a network’s levels of insight and experience cannot be rivalled.
  • Technology: Having a good method of tracking sales is now the bare minimum for advertisers. Our toolset has evolved in tandem with their objectives - bringing solutions for cross-device and cookieless tracking, customer journey reporting and effective publisher recruitment. We’re even supplying technology to assist with their expansion into new and promising territories, like influencer marketing. At the same time, our developers are always looking into ways of solving challenges had by advertisers in specific verticals. Although we cannot speak for the competition, our own investments in technical expertise have closed any advantage that SaaS providers might have enjoyed in this area.

Affiliate networks versus SaaS

Affiliate networks prove time and time again to offer significant ROI to advertisers on the lookout for cost-effective, sustainable revenue.

Every industry has its challengers that threaten the hierarchy, and sometimes the newcomers are offering a much better product at face value. However, that is simply not the case with affiliate marketing.

It’s a channel that relies on certain functions that brands can supposedly 'do without'. If there is a question which produces a legitimate reason as to why networks are unable to compete with SaaS platforms, I’m certainly yet to hear it.

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