Many merchants are evaluating private options to supplement their affiliate programs.

They may not be quite chanting “igualdad, fraternidad y libertad” in the streets or dumping tea in Boston Harbor, but nonetheless a small rebellion of sorts is brewing in the affiliate marketing world that is transforming the industry’s landscape and offering savvy merchants a broader range of opportunities.

First a quick review. The affiliate marketing industry is in the midst of rapid growth. A Forrester Research 2003 study found more than half of online retailers were using affiliate programs -- and 99 percent of them said the tactic was effective at driving sales. That finding outstrips the approval ratings for email, search marketing and portal deals. In addition, affiliate programs generally can attain between 10 to 30 percent of a brand’s total online transactions over time. According to the 2003 Affstat Report, of active affiliate programs, 18 percent are driving 30 percent or more of total site transactions.

Today, the vast majority of these programs are operated via a small handful of “public” networks that provide access to thousands of affiliates for a commission of sale. Commission Junction claims approximately 70,000 “active publishers” and Linkshare reports approximately ten million “partnerships.”

In return for approximately 2 to 3 percent of sale, not including set up fees, these public networks will provide a merchant access to the network and tracking.

And for the last several years, merchants gladly paid the fees for access. Nine out of the ten leading online retailers work with the “Big Three” -- Commission Junction/BeFree  (combined under Valueclick), Linkshare or Performics. 

But with the rapid growth of affiliate marketing -- and resultant scrutiny by cost-conscious merchants looking to “optimize” their programs -- together with a new generation of battle-hardened veteran affiliate managers and a proliferation of new affiliate tracking and management technologies, the grip of the Big Three on merchants is loosening. A growing legion of merchants are rethinking their approach to affiliate marketing to cut costs and enable more innovative implementation by evaluating private options. Merchants with private programs include Pegasus Footwear, Calendars.com and Club Mom.

“Frankly, I believe the best approach for merchants embarking on an affiliate marketing program today is much different than even a year ago,” says Beth Kirsch, Affiliate Manager at Audible.com. “In prior years, I’d run a program exclusively through one of the networks. Today, however, I believe the most effective approach is to launch a program with a public network, like Commission Junction, to recruit affiliates that are off your radar screen, but also have a parallel private program to work with those affiliates with whom you already have a relationship.” 

Kirsch, like a growing cadre of affiliate managers with their eye on the bottom line and a desire for more flexibility, is beginning to resist paying out those sometimes hefty commissions to networks for tracking affiliate transactions where the relationship was established outside of the network channel. “I have hundreds of relationships with top affiliates that I’ve developed over the years outside of the affiliate network. I don’t want to have to pay premium commissions simply for tracking that activity,” she says. “Private programs provide greater flexibility and cost savings. A combination of private and public can be the best of both worlds.”

Shawn Collins, author of "Successful Affiliate Marketing for Merchants," co-founder of the Affiliate Summit and a veteran industry observer concurs that the industry is going into a transformational stage that will spell the end of the network domination of the industry. 

“The movement towards independent programs is inevitable as the industry matures,” says Collins who transitioned a large affiliate program from BeFree to a private technology when he was Director of Affiliate Marketing at Club Mom. 

Collins points to a truism of affiliate marketing: Ninety percent of affiliate performance is generally driven by ten percent of affiliates. These limited numbers of “superaffiliates” are pretty well known and can be recruited without the access to a network if the financial incentives are compelling enough.  

The fact that “the usual suspects” are generally already on the radar screens of savvy affiliate managers is only one driving force behind the transformation. Perhaps more importantly, a growing number of merchants are looking to create smaller, more focused and more active affiliate programs that do not include thousands of smaller affiliates. “The days of affiliate programs with several thousands of affiliates are over,” says Collins.

Adds one affiliate manager at a leading hospitality brand: “With greater emphasis on brand protection and vigilance against fraud, we simply cannot afford to have too many affiliates. We need a focused, manageable and highly profitable program.”

The greater openness to independent options is supported by new statistics. According to a recent Affstat report, a statistical study of the affiliate marketing industry, sixteen percent of affiliates prefer to work with independent programs instead of the networks while another 41 percent said they have no preference.

So what should a merchant know before leaping into the world of independent affiliate programs?

Determine the ROI

Do the savings you generate from not paying network commissions outweigh the more aggressive resources you’ll need to dedicate to the program to make it successful? Without a public network, an independent program can mean more work from an affiliate management perspective.  

As one manager for a top performing program said, “When we looked at the volume of sales we were generating and resultant commissions, the ROI was pretty easy to determine.” If volume is not as substantial, merchants may want to stick with the public network route.

Evaluate the independent options

There are a wide range of new independent technologies available, including those from Direct Response and KowaBunga! Technologies. Understanding what might be the best option for your program requires some due diligence and careful thought before pulling the trigger.

Understand the pros and cons

Independent programs can provide significant cost savings, more flexibility and, in some cases, direct linking technologies that can enhance a merchant’s natural optimization program. Merchants need to understand, however that the programs may not be able to scale as rapidly and more intensive and sophisticated affiliate management will likely necessary. Some superaffiliates will also be reluctant to work with an some independents.

Know contractual limitations

If a merchant decides to go the parallel route -- a public and private program -- be sure to understand all the limitations imposed by the public network. While some networks are fine with parallel programs, other networks want “exclusivity” and frown on “independent” programs that they feel do an “end around” their network.

What has become abundantly clear is that merchants evaluating their affiliate marketing programs now have a greater array of options than ever before. Understanding how to orchestrate the right mix of technologies, networks and management can provide them even more opportunities for success.

Rob Key is President & CEO of Converseon, a digital communications company. Converseon manages a range of affiliate programs for leading brands via “public” and “private” technologies.