Las Vegas – It seems like everyone is buzzing about "Web 2.0." This catch-all phrase is usually used to explain fast-growing portals, such as MySpace and YouTube, that rely on visitors to create most or all site content.
E-commerce seems to be experiencing its own "version 2.0," judging from comments by participants in the Affiliate Summit, a Web-marketing conference held here in America's gambling capital Jan. 21-23.
Affiliate Marketing 2.0, however, has nothing to do with a Web site allowing its visitors to create its content. Instead, it has everything to do with Internet businesses inducing thousands of unrelated Webmasters to send potential customers to Site A rather than Site B.
A Big Business and Getting Bigger
Affiliate marketing, in which a Web site pays for each referred visitor who buys something or signs up to be contacted by a salesperson, has grown to the point that businesses both large and small must pay heed. No matter how good an e-commerce site may be at advertising its products and services, there's no way it can reach as many eyeballs by itself as it can by also harnessing independent Webmasters as affiliates.
Shop.org, a service of the National Retail Federation, estimates that affiliate marketing was involved in $95 billion of retail e-commerce in 2006. If true, that's way more than half of the $120 billion of all U.S. retail e-commerce (which itself makes up 2.5 percent of the retail total). The organization projects that affiliate-related transactions will grow to $230 billion by 2008.
That's an impressive growth rate. But affiliate marketing, in which merchant sites pay a commission when independent sites send responsive customers, will face daunting challenges if it is to become truly mainstream.
One of the biggest headaches is the "quality" of visitors that come from individual affiliate sites. Thousands of such sites, many of which are pure dreck, have been set up solely to extract as much commission revenue from the system as possible.
Michael Sanchez, the CEO of ClubMom.com, a hugely successful shopping-rewards site for busy parents, took a big swing at affiliate quality in his keynote address to the conference. Mothers who sign up at his site — whether they discovered it through a ClubMom pay-per-click ad or word-of-mouse — generate 150 to 200 page-views per month on average, Sanchez said. But the typical new member who's driven to the site by an affiliate views only 12 pages a month.
Sanchez hasn't given up on affiliates, though. He announced a bounty of $1 million to any affiliate who can steadily generate new members who prove to be active and involved within the first 72 hours after signing up at the site. (No word yet on which affiliates might fill the bill.)
Creating a Market for 2.0-Style Affiliates
Shawn Collins, a co-founder of the Affiliate Summit — and, not incidentally, an employee of ClubMom from 2000 to 2004 — explains the lack of “quality” of the traffic sent to the site by affiliates by pointing out that the program is still in its infancy.
"It's brand new that they're doing that," Collins says. "So they may not have had time to reach the best affiliates yet."
Anyone looking for top-quality affiliates doesn't have to look far at Collins' conference. A sold-out audience of about 1,925 registrants signed up to attend the show. A few of those attendees, known in the trade as “super-affiliates,” make more than $1 million each year from affiliate commissions. Most affiliates, however, eke by on far less, continually looking for that new product to promote that will truly excite their visitors.
One new wrinkle in the affiliate game is the creation of buy-and-sell markets that match the highest-paying merchants with the highest-producing Webmasters.
One such marketplace is called LeadPoint. Its chief marketing officer, Michael Rosenberg, told me in an interview at the conference that Webmasters who've joined LeadPoint are currently feeding over 150,000 leads per month to home-mortgage originators alone. His company's service also hooks up consumers with sellers of student loans, credit-card offers, and auto sales, with other vertical industries to be covered soon.
Sending Qualified Prospects to Hungry Marketers
The marketplace works like this: Sites such as MyFICO and ArcaMax place on a Web page an interactive form for visitors to fill out. MyFICO — which computes consumers' credit scores and sells this data to credit bureaus — asks visitors who are interested in taking out a home mortgage, for example, to specify the size of the mortgage they need.
The site then looks up the applicant's credit score and sends the information upstream to LeadPoint. The two or three mortgage makers who've currently given LeadPoint the highest bids receive the information electronically. Because a mortgage origination can make thousands of dollars of profit on each mortgage, the going rate is about $50 for the referral of a live prospect. The winning bidders follow up by sending competitive mortgage proposals to the original visitor.
Overall, LeadPoint's Rosenberg states, his company's network has signed up more than 1,000 providers of products and services and 400 Webmasters who send prospects to these firms. Based on the last six months of leads sent to mortgage originators via his company's marketplace, he says, the owners of the MyFICO site are projected to receive $2 million a year in commissions.