Affiliate Marketing: A help or hindrance for start-ups?

There was a time when affiliate marketing was the darling of the digital mix.  Then came the renaissance of display through programmatic, followed by social media, onsite dymanic optimisation and more recently influencer marketing.  However what do all these advancements have in common? They all offered start-ups an opportunity to embrace a new way to connect websites and their audience.

Affiliate marketing is no different.  Throughout the years it has been utilised by hundreds of start-ups.  But with a channel still hyper-focussed on the last click CPA payment mechanism is affiliate marketing an ideal model for new businesses, or do these restrictions mean the channel fails to support start-ups in the way they need to survive? 

We can consider this question in light of both advertiser and affiliate start-up businesses.  The channel sees thousands of SME advertisers selling goods or services online, who may still be forgoing profit for development and growth of their business.  They may not be a fledging business, and could have been running for a few years. They are simply a small company, striving for growth.  On the other side of the coin publishers are often start-ups businesses.  If we were to look at the percentage of publishers that are established businesses vs those that are in their infancy in the UK I’m pretty sure that most publishers by that definition are a start-up!

To set the scene, affiliate marketing has long since been thought of as an effective channel to utilise when entering the ecommerce or martech market, for both advertisers and publishers.  Why is that? Well, it’s because it’s thought of as cost effective, a good testing ground, and has a proven track record of breeding innovation.  It’s this heritage of innovation which makes the channel one to watch if you’re a CMO or ecommerce Director.  Similarly, start ups embracing affiliate marketing are attractive to watch if you’re an angel investor or VC that wants to invest capital into emerging businesses. 

So lets consider publishers / tech start-ups first.  Why do so many of them choose to focus on the affiliate industry to galvanise their business?  The industry is often seen as a quick ‘in’ with lots of big name brands.  Going directly to 5 or 6 key players (networks) will open the ability to meet with, and get a product or service out to pretty much every major UK ecommerce brand.  This scale is highly attractive when you are a start-up publisher with few resources and little time.  Going to a agencies and affiliate networks also gives you the opportunity to validate your product.  Not just with network staff, but as a publisher, once you’ve been able to get in front of the affiliate manager at a brand you know they’re often happier to trial within their affiliate channel, which is perceived as low-risk, has a healthy ROI to support innovation tests and is often thought of as a good proving ground. 

From an advertiser point of view, why do advertisers or SMEs choose to enter the affiliate industry? It’s risk-free advertising and offers a variety of promotional formats and partners, reach across the internet with no fees associated to the relationship (other than commission in return for a sale).  But is the channel really a key support, does it actually nurture start-ups into making more money and are those start-ups incentivised to re-invest that money into the affiliate channel?

Lets take a look at a few of the biggest publicised start-ups that used the affiliate industry as their platform for early growth.   Stories such as, started by Mark Pearson in 2006 which went on to sell for a reported £55m in 2014.  Similarly was started by brothers Duncan and Max Jennings who launched the site after affiliate success with paid search company, Econversions. was later acquired by Whaleshark Media for $40m.  Skimlinks launched in 2007, and has for many years been of interest to investors in the tech startup world.  Skimlinks has been part of Tech City’s Future Fifty program and has raised over $23m in investment.  MyCityDeals was a German based SME advertiser, with nearly $6M of investment they were acquired within a year by Groupon who sought to gain European presence in 2010.

But these weren’t accidental success stories.   All of these examples come down to the changing nature of how people interact with the internet.  These companies capitalised on new concepts combined with unique ways of generating traffic.  For Myvouchercodes and it was about utilising Search, combined with growing confidence and improved ecommerce logistics when shopping online.  For MyCityDeals it was the growing consumer desire to deal hunt online, tapping into impulse shopping behaviour.  And finally, for Skimlinks it harnessed the emergence of content validation, early stage influence if you will.  Changing the links on content sites, where traffic and consumers were interested in digesting this content.

The most successful start-up businesses find a gap in the market that solves a problem or makes our lives, as consumers, easier.  The biggest growth stories in start up innovation generally are those businesses that have disrupted their market, take Uber or Airbnb as examples.  

Combine this with the relative ease of starting your own business now means that it is more accessible to ‘do your own thing’ in today’s world.  Anyone can become an affiliate; social media and influence is widespread and advertising is accessible for us all. Setting up your own advertiser business is also a lot easier than 10 years ago, with information at your fingertips and SaaS solutions such as Mailchimp for CRM, Hubspot for Sales, Xero for accounting, Upwork for staffing resource, all mean it’s much easier for people to start up their own business. 

Based on the PwC / IAB annual survey the UK affiliate industry has around 12,000 active affiliates and 4000 affiliate programmes.  However in reality there are thousands of affiliates signing up to networks every year.   However…the same PwC survey has been published for the past 4 years, and this active number, for both affiliate and advertisers hasn’t really moved.  It means the contributors to the industry isn't growing.  Why is this? Are older affiliates are churning, or are newer ones finding it harder to become successful? 

Innovation hasn't always been given an easy ride in the affiliate channel.  The channel has historically been conscientious, rightly concerned with proving it’s incremental value and disparaging any negative connotations.  But with this has the channel been over sensitive to new concepts, ideas or  innovation?  Perhaps closed to new ideas which were passed over before they should have been?  Additionally, the industry has deliberately tried to scale, for advertisers in particular, by creating a programme template and standardised acceptance criteria.  By doing so it's created barriers to entry, or freedom of choice in some instances that may be seen as overly protective or dictatorial to advertisers, and what is acceptable or not for their online marketing partners. 

Going back to this idea of disruption or making online consumer activity more enjoyable, publisher start ups will capitalise on a consumer opportunity, however the affiliate industry has, at times fought back on this - deciding what is 'acceptable' on the advertiser’s behalf.  Imagine you’re an affiliate who comes up with a new idea, a piece of tech or a way to promote to your traffic.  You start promoting and the sales start tracking into your various network accounts.  Then a few weeks later you get a threatening email from a compliance person at a network or agency, saying you have been taking in part in deceptive practices and face all sorts of sanctions.  Remember how we talked about how easy it was for your average Joe to start a business these days? Well chances are this average Joe didn’t know they were violating best practice or upsetting sophisticated concepts of incremental attribution. 

The affiliate industry is self-regulated for the most part, and the crux of this regulation comes down to dropping a cookie off the back of a click. The ability to judge what is valuable or not comes back to this fundamental concept.  Some may ‘well the rules are written in the T&CS’, however being realistic, these best practices, rules and concepts are fine if you work in the industry, but if you are teetering on the edge of it - trying to set up a business, it’s really not that easy to find and understand what is considered best practice, particularly if you generate commission across multiple networks and multiple countries who have differing guidelines of 'acceptable promotion'.

So is affiliate marketing a help or a hindrance for start-ups?  It still remains a low barrier to entry, and a good return mechanism for advertisers and publishers alike.  The channel provides start-ups with reach and variety, volume and control.  It’s a channel that the more you put into it the more you get out.  So whilst the industry's protectiveness has ensured we don’t give affiliate marketing a bad name, it is time to think about more flexibility in the ways of working with advertisers to achieve their goals and embrace innovative start-ups.