While we continue to believe that affiliate marketing is an effective marketing channel for businesses, we see the model coming under increasing threat from the rising popularity of contextual advertising. Here are a few trends to note that we have identified in our recent analysis:
- Google continues to aggressively recruit publishers in its AdSense program. With the availability of the program in many languages/countries, we expect that Google will soon dominate the contextual advertising space.
- Google has recently announced that bloggers who use Blogger.com can sign up for its AdSense program. While this may not bring many new bloggers (the bloggers that wanted to turn their blogs into revenue-generating enterprises already did so, but that required a proper website), it will definitely bring some new publishers who do not want to deal with the hassles of maintaining a website (Blogger.com, a Google company will do so now) and will motivate those that only blogged as a hobby to blog more seriously to turn their hobby into a business (sometimes also referred to as "nano-publishing").
- Publishers that have compared their earnings per click (EPC or any other equivalent measure) from affiliate programs with those of AdSense are abandoning affiliate programs. Our research shows that the difference is so significant that no amount of wooing by marketers can lure them back into the program (unless of course they offer a model that has some of the elements of pay-per-click).
- Piper Jaffray estimates that contextual advertising market would grow to $1.4 billion in 2008 from its 2004 forecast of $300 million. Like any other forecast (and particularly the one so far into the future for a technology that is still evolving), no one can say what is going to happen, but this is a very attractive growth rate.
- There is not enough inventory available for search advertising.
- After completion of a search session, our research shows, surfers often end up on content-rich websites and they appreciate Google's contextual listings. Thus, they can not only know more about a topic but also find out who supplies that product/service.
- Our research also shows that surfers think of Google text ads as if Google has done the research for them. The text ads are perceived as very targeted (most of the time) allowing surfers to find what they are looking for in less time.
- One-in-three surfers in iProceed's study also trusted the content on a non-advertiser website more than the content of an advertiser's website. This is definitely a plus for content publishers.
Implications for businesses
- Diversify your channels.
- A group of publishers will definitely be interested in being affiliates but expect to spend more on having enough impressions, attracting new afflliates, and keeping existing ones.
- Affiliate marketing is likely to undergo some modification in which the payment for a click will no longer be zero. As the advertising market has rebounded during recent months, it is hard to expect that publishers will continue to drive traffic to your website without any payoff at all, which is what happens for many affiliates.
- Plan on spending more on pay-per-click advertising through both search and contextual listings.
Related article: Affiliate marketing vs. Contextual advertising