The Coming Evolution In Affiliate Marketing: A Focus On Quality
Martin-Gill, W. et al, The Coming Evolution in Affiliate Marketing: A Focus on Quality
The Coming Evolution in Affiliate Marketing:
A Focus on Quality
Will Martin-Gill, Steve Hartman, Umesh Lalchand, Jarrod Schwarz and Chad Wehrmaker; eBay Inc.
ABSTRACT—Affiliate marketing—a multibillion dollar only for leads and sales, and the belief—borne out in
industry and one of the fastest growing segments of online
payment structures—is that all leads and sales are the same.
marketing—has seen fewer studies during the past decade
than other channels, like search engine marketing or The basic thinking is that all non-fraudulent activity is of
search engine optimization. Much sought-after average quality, and therefore all affiliates are paid equitably,
performance data from advertisers has been scarce, as
with notable exceptions being the volume tiers found in most
affiliate program management is generally outsourced programs, and bonuses offered to well-known affiliates. The
and internal teams tend to be small. When eBay brought
more sales and leads an affiliate sends a merchant (or the
its affiliate program in-house last year, the company better known he is), the better he must be, and the more the
gained valuable insights from performance data analysis.
merchant will pay.
These insights suggest advertisers may be able to improve
ROI and performance by evolving their programs to This approach can lead to suboptimal results for advertisers
better calculate and compensate for the value delivered
who overpay for larger volumes of lower-quality traffic, as
by their affiliates.
well as lost opportunity for affiliates who may do a better job
of sending more valuable traffic, albeit at lower volumes.
INTRODUCTION
However, beyond conversion rates, relatively little has been
The affiliate marketing opportunity is perhaps the best kept
written about, or has been done to manage, the quality of the
secret in the online ad space. Projected 13 percent year-over-
traffic that affiliates send advertisers. Most of the writing,
year increases through 20121 make the $6 billion+2 industry
thinking, and action in the affiliate space has been focused on
one of online advertising’s fastest growing segments.
how to attract and retain affiliates.
Yet surprisingly, fewer studies have been published on When advertisers do attempt to manage affiliate program
affiliate marketing by advertisers and industry analysts like
effectiveness or quality, they primarily use broad
Forrester or Jupiter than almost every other Internet brushstrokes at the program level, such as changing pricing
marketing channel. Internet Retailer data shows most (almost
and cookie latencies. Little is done to measure and reward
80%) of the top 100 online retailers outsource their affiliate
quality and performance at an individual affiliate level, other
programs3. As a result, detailed affiliate performance data is
than perhaps taking action on conspicuously fraudulent
scarce, as many companies lack the internal teams to develop
affiliates and manually bonusing certain top affiliates.
detailed analyses on data beyond typical affiliate click and
conversion metrics.
eBay’s findings, described below, show how using affiliate
performance data to revise the traditional program model can
When eBay brought its affiliate program in-house in April
benefit both the advertiser and the affiliate.
2008 and created the eBay Partner Network, it gained direct
access to affiliate performance data. After analyzing this new
1. Not all leads are created equal. In a pay-per-lead
information, the company has begun to rethink some of the
affiliate program, a merchant makes an estimate of the
traditional notions of affiliate marketing.
lifetime value of a new customer and pays an affiliate a
portion of that value. But just as years of traditional
A FOCUS ON AFFILIATE QUALITY
marketing have shown how some customers are worth
more to a company than others, it turns out that the
Affiliate programs are generally designed to pay affiliates
average quality and value of customers delivered by an
affiliate can vary significantly and consistently as well.
1 Source: Jupiter Research US Online Affiliate Marketing Forecast, 2007
Some affiliates—known as incentive affiliates—pay
to 2012
2 Marketing Sherpa Affiliate Marketing Report 2007
customers to register, leading to new sign-ups from
3 Source: eBay analysis on 2007 Internet Retailer Top 500 Guide data.
customers who seek the reward but do little else. Others
The figure is an estimate based on 80 out of 100 top retailers that reported
might attract audiences with lower purchasing power, or by
who they used to manage their affiliate marketing programs
Copyright SEMJ.org Volume 2 Issue 1 March 2009
Martin-Gill, W. et al, The Coming Evolution in Affiliate Marketing: A Focus on Quality
highlighting items of low value. As one example, an affiliate
drive more sales, when there should be more emphasis
site appealing to buyers of value-priced, entry-level DVD
on driving incremental sales, which eBay defines as
players will very likely yield customers with a lower lifetime
sales that would not have happened were it not for the
value than affiliate sites that cater to videophiles who are
efforts of the affiliate. But if sales aren’t the metric to
looking for the latest in high-end Blu-ray Disc players. The
effect of these differences is shown in Table I.
watch, what is?
TABLE I
Metrics that describe user behavior around the sale can be
quite revealing in terms of the quality of an advertiser and its
placements. For example, time on the merchant’s site and
Average
Value of
average page-views after a click can be a proxy to measure
New
how effectively an affiliate generated interest for a
Users
Overpayment
merchant’s products or how well its audience aligns with a
Per
Underpayment
merchant’s target audience.
Affiliate
An affiliate whose customers spend a very short time on a
Payout per lead
merchant’s site after a click (eBay has seen averages as low
as 1 to 10 seconds) are probably either not reaching the right
audience for that particular merchant or potentially even
tricking unsuspecting users into clicking the links. Many are
Rank-ordered affiliates by long-term
later caught engaging in fraudulent behavior, such as cookie
value to eBay
stuffing. Although the advertiser won’t pay for those clicks,
A typical affiliate program paying a flat fee per lead will tend
cookies will be placed on those users’ machines. Any time
to overpay affiliates who deliver customers worth less than
that user goes back to the merchant site within the time the
this value (to the left of the chart), and underpay for cookie is active, the sale will be attributed to that affiliate.
customers worth more (toward the right). As the graph shows,
the value of customers delivered can vary widely and, in
Although this “cookie sprinkling” disproportionately affects
some cases, the over- or under-payment can be significant.
sites with a large reach like eBay, any advertiser with a long
cookie latency is encouraging this practice. Fraudsters know
eBay hypothesized that if it could adjust the commission to
that the longer the cookie duration, the larger the potential
match the value and pay more for high-quality leads and less
benefits of placing cookies out on many users’ machines.
for lower-quality leads, it might begin to affect the quality of
the new traffic driven to eBay through affiliates in the eBay is now tracking several dozen other variables that
program. In fact, that is exactly what was found.
closely correlate with quality and incrementality. Click-to-
sale conversion rates, number of masked or unknown
Payouts for Active New Registered Users (ACRUs—or new
referring URLs, and percentage of buyers with fraudulent
and active eBay members) were adjusted from $25 to $35
credit cards can be very indicative of the quality of an
under the old system (based on volume) to five new value-
affiliate’s traffic. These will of course vary for each
based tiers that pay $1 to $50 per lead (the tiers are $1, $10,
merchant and its objectives.
$28, $40, and $50).
SEGMENTING BY VALUE
In the four months since the new pricing launched, and
combined with some efforts to reduce overall fraud, the Using this value-based approach, one can start segmenting
number of new users referred by affiliates qualifying for the
affiliates with different business models and separating
top two tiers increased by 80 percent4, and the number of
affiliates who send high-quality incremental traffic from
new users in the lowest tier has decreased by 86 percent. those who don’t. While eBay’s findings could fill another
Although overall costs for eBay have decreased, and ROI has
paper, some high-level conclusions have begun to emerge.
significantly increased, thousands of affiliates receive
increased compensation of $28 and up, which is higher than
Some of the models that have historically produced the
the $25 most were receiving in the previous system.
highest volumes of clicks and sales in affiliate programs,
like remnant inventory ad networks, are some of the
2. Not all sales are created equal, either. This quality-
least incremental along these quality-based metrics.
based approach can also be applied to sales. Most
advertisers tend to focus on getting their affiliates to
Affiliates who take the time to create high-quality sites
with value-added content tend to perform better than
those who simply slap together hundreds of sites that
4 These figures exclude the typically high-performing Christmas season
Copyright SEMJ.org Volume 2 Issue 1 March 2009
Martin-Gill, W. et al, The Coming Evolution in Affiliate Marketing: A Focus on Quality
contain very little other than affiliate ads and AdSense. already using this type of thinking to reward their best
It probably doesn’t come as a shock that ads crammed
publishers. AdSense adjusts its cost-per-click payouts based
five or ten to a page on ringtone sites don’t capture the
on a series of quality-based metrics it has developed during
same quality of users as well conceived ads thoughtfully
the past few years. Amazon encourages quality in a way by
integrated into product-oriented content.
compensating more for deep linking and some of its tools,
which it presumably has tied to better-quality publishers and
Because of the great care many small affiliates put into overall results.
their sites, they often can outperform large affiliates in
terms of the traffic quality. This challenges
Hopefully this data invites more debate and studies about
TABLE II
quality in the affiliate channel and how advertisers can better
work with affiliates to improve some of these metrics.
The more Internet marketing groups can raise the bar and
prove the incrementality of affiliate marketing in their own
organizations, the larger the investments in commissions,
tools and people that can be devoted to help this channel and
its best affiliates reach their full potential.
About the Authors
Will Martin-Gill, Senior Manager,
Internet Marketing, manages the North
America and Asia Pacific affiliate
programs on eBay Partner Network.
Before joining eBay, Will was a
some of the conventional wisdom in affiliate program
Consultant with Boston Consulting Group.
compensation, as most programs are set up precisely to
His projects included an engagement on
reward bigger affiliates more. A different picture emerges
the start-up team that created and launched Orbitz.com. Will
when you look at the results in Table II above. The data
holds a B.S. in systems engineering from the University of
would seem to suggest that some small affiliates driving Virginia, and an M.B.A. from Harvard Business School.
quality traffic should be compensated, bonused and rewarded
just as much as—or even more than—large affiliates.
Steve Hartman, Senior Director
responsible for eBay’s global affiliate
This can be difficult, as the manual process of bonusing large
network, has led the eBay Partner
affiliates is hard to scale and carry out for hundreds or
Network organization from the initial
thousands of smaller affiliates. Advertisers will need to invest
launch. Prior to eBay Steve held roles at
in better technology and more innovative commission
Creditland.com, an online financial
structures to reward and grow the best affiliates in their
services startup, and Accenture. Steve
programs.
holds a B.S. in mechanical engineering
from Carnegie Mellon University and dual M.B.A. degrees
MOVING AFFILIATE MARKETING INTO THE FUTURE
from Columbia University and the Haas School of Business
at U.C. Berkeley.
Metrics and pricing are no silver bullet for affiliate marketing
success—they must always be complemented by capable
Umesh Lalchand, Manager, eBay Partner
people who can develop close personal relationships with top
Network, leads analytic efforts for eBay’s
affiliates, help them attract and send over higher quality
Affiliate Marketing channel. Prior to eBay,
traffic, and identify new types of fraud when they occur.
Umesh held various roles applying
advanced analytics to support marketing at
The affiliate community needs to continue to ask these
Staples, the world’s largest office products
questions and help provide the right guidance and incentives
company. Umesh graduated from Loyola
to enhance both our networks and the industry as a whole.
College, India, with a B.A. in economics,
Compensation in the affiliate channel needs to continue to
and holds an M.S. in computer information systems from
evolve to reward and encourage the best affiliate models and
Bentley College.
to create a win-win situation for advertisers and affiliates.
Jarrod Schwarz, Manager, eBay Partner
Network, is responsible for Product
Some of the world’s leading affiliate and ad networks are
Strategy. Jarrod graduated from Duke
Copyright SEMJ.org Volume 2 Issue 1 March 2009
Martin-Gill, W. et al, The Coming Evolution in Affiliate Marketing: A Focus on Quality
University with a B.S. in economics and minors in
philosophy, and markets and management.
Kim Thai, Senior Manager, eBay Partner
Network Operations Team, has over eight
years of experience in the hi-tech industry.
She joined eBay in 2005, managing
various International and Trust and Safety
programs. Kim graduated from UC
Berkeley with a B.S. in economics.
Chad Wehrmaker, Senior Manager at eBay,
has been managing eBay Partner Network
operations since 2007. He joined eBay in
2003 as part of the acquisition of
FairMarket, Inc. where he spent five years
managing various aspects of private-
labeled auction websites, including Sam’s
Club, Playboy Enterprises, CompUSA and
Dell Auctions. Chad graduated from Trinity University with
a B.S. in business administration.
About eBay
Founded in 1995, eBay pioneers communities built on
commerce, sustained by trust, and inspired by opportunity.
eBay enables ecommerce on a local, national and
international basis with an array of websites—including the
eBay Marketplaces, PayPal, Skype, Kijiji, Rent.com and
Shopping.com—that bring together millions of buyers and
sellers every day.
Copyright SEMJ.org Volume 2 Issue 1 March 2009
