Affiliate Summit 2006 Wrap-Up Report -- Commissions to Reach $6.5 Billion in 2006

By Anne Holland, Publisher 

This Monday morning I met a nearly mythical figure, an affiliate marketer who's making millions working from home by himself.

Claud Dorton, a gruff white-haired gentleman who says "I'm so old I was in high school when they invented the Univac," bought a used PC for $290 in 2000. His retirement income was too tight to stretch to a dial-up account (in fact he didn't even have a working phone line). So he wrote and saved articles to a disk. Then once a week he headed over to the public library to update his personal Web site.

Dorton was a bit lonely and saw the Internet as a way to share a lifetime's worth of poker playing tips with the world. Then one day he received an email from a for-profit poker site seeking affiliates, and the rest is history. "On a bad month I make $60,000," he told me.

He gave me two tips to share with other poker affiliate wanna-bes:

o Avoid sites that require downloads to start playing. Poker newbies are scared of downloads so your conversions will drop.

o Always run factually-written (not salesy) text-links underneath banners instead of just a banner alone. Poker players are "conservative" and dislike clicking on banners because they don't want to be inundated with pop-ups.

Dorton wasn't the only individual affiliate at this year's Affiliate Summit in Las Vegas. But my rough estimate is that perhaps at most 8% of the 1,250 attendees were from the traditional mom'n'pop "get rich in your PJs" segment of affiliates.

Although the mainstream marketing press rarely cover it, these days affiliate marketing is a massive multi-billion dollar industry. Most of the people involved have made the leap from PJs to khakis and from home offices to small offices with five or more employees.

Here are my show notes for you:

How big is affiliate marketing? Roughly $6.5 billion

As I mentioned in my keynote speech (link to slides below), MarketingSherpa's rough estimate of $1.5 billion in January 2005 was probably way too low.

Now that we have more data, MarketingSherpa's research team roughly estimates affiliates worldwide will earn $6.5 billion in bounty and commissions in 2006. This includes retail, personal finance, gaming and gambling, travel, telecom, 'Net marketing' education offers, subscription sites, and other lead generation, but it does not include contextual ad networks such as Google AdSense.

In addition the "middleman" revenues which were roughly $32.5 million in 2005, will certainly continue climbing this year (see below for more). We're including networks in this figure, but not Google, which is raking in an undetermined amount of affiliate-campaign AdWords revenues.

Our research team is continuing to drill down on these numbers; you can expect more details in March. Also, check out the AffStat 2006 statistics report for 56 useful new data charts. (Link below.)

Search marketing -- trademark wars reconsidered

In the past, many merchants essentially let affiliates take over search marketing for them. But, according to MarketingSherpa research data, last year saw an attitude U-turn.

In January 2005, 21% of merchants banned affiliates from running PPC search campaigns on their trademark and brand names. Just eight months later, in August 2005, that number had jumped to 39%. By now, it may be as high as 50%.

Why the ban? Paid search has become an important-enough traffic stream that merchants are pulling it in-house. And, they don't want to pay sales commissions or click bounties on what they perceive to be the super-easy stuff. Your intern can run a trademark PPC campaign for you so why pay an affiliate?

Now, naturally, we're seeing kick-back from affiliates and search marketing consultants. Three of their arguments:

#1. Recruit top affiliates

Reality: top affiliates are the pretty girl everybody wants to dance with at the prom. There are 10 or 20 times more merchants offering affiliate programs than there are top affiliates.

We define "top" as affiliates who can be counted on to generate significant high-converting traffic streams for a program month after month. 51% of merchants told MarketingSherpa in August that fewer than 5% of their affiliates generate more than 75% of revenues.

87% of merchants plan to recruit significantly more affiliates in 2006.

To attract and retain affiliates from that much-desired pool of top players, you have to offer something pretty special. Trademark, site name, and brand name search campaigns may be your best bet. Top affiliates recognize this is gravy, plus legally you can actually protect your trademark from infringement if you can show that you pro-actively invite only hand-picked partners to advertise on it while barring all others.

#2. Dominate the search results page

No matter how fabulous a merchant is at search marketing, you can't buy more than one PPC ad per search term for your own URL, and taking over all top 10 organic listings for keywords is next to impossible.

Which means ads and organic listings for your direct competitors will show up on search results for your most profitable search terms. How can you dominate the screen? Why not marshal a brigade of affiliates to help?

#3. Appeal to multiple shopper psychographics

And while you're at it, give each member of the brigade their own target shopping psychographic. One affiliate can promote cost savings, another free shipping, a third high-quality, a fourth customer service, and so on…

There's no way your one ad can appeal to every kind of shopper. Working as a team, you and your affiliates can create ads and matching landing pages for everyone.

Affiliate networks -- an expanding pool of players

After a full decade, you'd expect the affiliate marketing networks to have stabilized in this relatively mature marketplace. Not so. We met several new start-up networks at the show, and more than two dozen ongoing contenders actively recruiting new members.

They were all surprisingly genial and unalarmed by each other. "It's the wild west, there's plenty of room for us," was a quote we heard time and time again. Fact is although most merchants may only want to deal with one network, there are more than enough merchant accounts to go around.

Networks compete for merchants by offering:

- Customized stats and Web analytic integration

- Consultant-style handholding, even creating and optimizing landing pages

- Specializing in a particular niche such as 'As Seen on TV' merchants

The one thing hardly any network brags about anymore is "we have more affiliates than other networks." That's because everyone knows affiliates are not network loyal, and the overwhelming majority work with multiple networks. The truth is merchants will recruit many of the exact same players no matter which network they go with.

Networks recruit top affiliates by:

- More personal attention ("we answer the phone in one ring")

- Quicker payout (I saw 30 days, 15 days, and even one week advertised)

- Hyper-optimized landing pages (multivariate testing is red hot)

- Specializing in a single niche (health-related, gambling-related, etc.)

Merchant staffing -- recruiting and hiring an affiliate manager

Despite aggressive growth plans, many merchants are woefully understaffed in the affiliate management department. Some cope by outsourcing to consultants (this is a growth industry, with many former merchant-side managers flooding in to start small businesses).

I noticed that merchants (and networks) recruiting affiliate managers tend to draw from the ranks of mom'n'pop affiliates. It helps if you:

- Have a brand that people are passionate about - Are willing to allow managers to work virtually from home - Offer low-deductible health insurance and a 401k - Allow employees to continue moonlighting as affiliates (yes, even for competitive offers)

Why are some affiliates willing to 'come in from the cold' and work merchant-side? Part of it is loneliness. They miss being part of a team. Also, smaller affiliates (especially those who depend on search engine optimization and/or AdSense ads for income) are weary of up-and-down income where you never know day to day what you're making.

Look for affiliates who tend to post helpful advice to message boards in the community. The personality type that gets a kick out of teaching, communicating, and helping others is perfect for an affiliate manager position. But, make sure they have as good a persona on the phone as they do via email -- much of affiliate relations is verbal schmoozing these days.

Blogs and affiliate marketing -- three best tactics

Affiliates' and merchants' use of blogs for marketing is booming. Here are the top three tactics I overheard folks discussing at the Summit:

#1. Get ahead of the sandbox

Google and other engines are taking longer and longer to give new sites good organic rankings. Merchants and affiliates alike who plan on launching microsites for new campaigns and/or new product line promotions, are posting blogs up several months out from formal launch date just to get the URL time to climb out of the "sandbox" before heavy SEO traffic will come in.

#2. Microsites

Even non-techies can create a new Web site using blog software in under a day. Marketers, especially merchant-side, who can't face waiting in line for the IT or Web dev department to have time for their project are resorting to blog sites just to get microsites and basic landing pages live.

#3. Tri-part linking strategies

Everyone wants to build their link ranking. But, few want to do the traditional link swap anymore where they give a link back from their site for every one they receive. You risk losing traffic offsite and looking like a link farm.

Instead some merchants and affiliates I met are using a tri-part strategy. They post and update a content blog as a sister site to the ecommerce site or offer page. Then they offer to link from the blog in exchange for links directly to their offer site.

In other words, they'll link to you from the blog site if you'll link to them at the main ecommerce or lead gen site.

It's clever, but then that's what I expect from the affiliate world. They're the smartest guerilla marketers on the Net today. Even if you don't run an affiliate program, keep watching the space to see what you can learn from them.

Useful links related to this article

AffStat's new 2006 Statistics Report on the Affiliate Marketing Industry: http://www.sherpastore.com/affstat-2006.html

Claud Dorton's Web site PokerChance: http://www.pokerchance.net

PowerPoint slides from Anne Holland's keynote speech at the Summit: http://www.marketingsherpa.com/affsum06/study.html

ReveNews - best group blog on affiliate marketing (from the trenches): http://www.revenews.com

Revenue Today -- the best print magazine for affiliate marketers and related merchants (published 6-8 times per year): http://www.revenuetoday.com

Affiliate Summit: http://www.affiliatesummit.com