Let me begin by saying that CJU was a great event. There is a completely unique vibe and there is a good deal of bar talk and hallway chatter due to the lack of booths.  Parties and socializing are on the backburner and the talk is most always about the business.

Realize as you read this that I'm not a doom and gloomer.  However, CJU helped me to realize some things that have been peculating to the top of my mind for some time now... specifically, the "little person" in "affiliate marketing" is doomed.  I put both of those terms in quotation marks in parenthesis because they are terms that are still rather loosely defined by those of us in the performance marketing space, but they are going the way of the dodo despite their lack of linnaean placement.

Why?  (1) Margins, (2) market forces and (3) the merchant sided economy.

It's no secret that ValueClick's earnings increased by a dramatic amount over the past year.  That profit increase seems to conflict with the seemingly shrinking margins I'm seeing across the network for new or "smaller" affiliates who aren't producing $50k a month in sales.  I have absolutely no data for that outside of my own experience and observations (and with the caveat that the company I work for is a "CJ Performer."  Nonetheless, the two buzzwords I heard most at CJU from CJ employees, super affiliates, smaller affiliates and merchants were "consolidation" and "margins."  There's a palpable buzz and concern about the continue downward shift of the margins offered to all levels of affiliates.  Search affiliates, in particular, are watching this development. 

The market forces involved in this continued degradation of margins puts an emphasis on close relationships with merchants both inside and outside of the networks such as CJ.  It's no secret that to get the ear or eyeball of a merchant, a publisher or affiliate must be able to produce some level or quality of traffic.  Smaller affiliates have relied on the networks such as CJ to provide that leverage and in turn offer a marketable and sustainable margin of commission to make the deal worth their while.  It's simple long tail marketing as laid out by Chris Anderson.  What these shrinking margins indicate is a move away from such a structure and a move towards a confederation of top affiliates and networks to provide a steady and insured stream of content.  High traffic affiliates don't mind that arrangement because it insures their place in the food chain.  Smaller affiliates, however, are left out in the cold of the free market as the shift towards the Y axis continues with little resistance from the networks or super affiliates who previously served as safeguards against such trends.

This all leads to a merchant sided economy, or a buyer's market if you want to think in 1.0 terms (of course putting performance of affiliate marketing in a "buy" paradigm is difficult if not irrelevant).  The merchants I spoke to at CJU (albeit large merchants, but still bellwethers) are concerned most about the leakage issues involved in performance marketing, leading some to say that they are auditing their programs with a very close eye to see how the performance marketing channels are performing against other channels.  That's not necessarily a scary development as it allows for the cream to rise to the top and the market to move via the invisible hand.  However, that hand is not always a kind caregiver, but can often be the gloved hand of the hangman.  In this case, I think we are seeing the noose fall around the neck of smaller affiliates and publishers who don't have the traffic sources or long term solubility to fall on the radar screen of direct relationships with merchants or close relationships with the networks.

So where is this all heading? 

I'm not sure.  Consolidation seems to be the natural evolution of the performance marketing species as we move into the second decade of its lifespan.  This market grew quite quickly and with a good deal of volatility and now we stand on some new precipice where we haven't been before.  The coming consolidation is new for us (though follows similar trends from other industries), and will take many of us by surprise.   My advice is to focus on relationships with merchants and networks regardless of your size as an affiliate.  Make a name for yourself, focus on improving your stature in the industry and keep an eye where the mandrakes grow.








Selling Postcards From the Hanging: Reflections on CJU - Read More...