Agency vs. Network

Inplace #2

DM CONFIDENTIAL – A few weeks ago, we received the dream call. We had one of the hottest customer acquisition brands contact us for our advice. They wanted the names of the affiliate agencies they could interview.

Had they asked for just about anything else, we would have inundated them with suggestions. Instead, not only did we answer with a pregnant pause, but the two names they did mention we had nothing of value to offer.

For as much as we thought we knew about the performance space, and for as many companies about which we thought we knew, or at the very least about which we’d heard, besides coming away feeling junior varsity, it also got us thinking about our space and the big bias that exists between the network space and the management space.

Networks. Everyone loves to hate them, but love them or hate them, they are some of the most forward-thinking entities around. They are nimble, quick to test, eager to evolve and hyper-focused. The downsides are also well-known: often aggressive, hard to differentiate and sometimes more associated with a quick buck than long-term gain.

Among the more interesting developments over the past several years in the CPA network space has revolved around technology. We might joke and say lack of technology, but the more correct answer would focus on the commoditization of technology. No one today would think about building their own tracking system and management interface for publishers and advertisers.

When just one such SaaS system existed, you could argue for an in-house platform, but with three successful and robust contenders, trying to recreate that wheel is like a web publisher or advertiser building their own ad serving technology.

As they aren’t technology companies, which is a great truth for the industry to embrace, what are they then? We’ve argued that they are part banks, part shrinks.

They are part banks as they lend out money to publishers, well before they actually receive the money from advertisers. We call networks part shrinks because the account managers spend a lot of time focused on their clients, listening to their problems and in many cases getting to know them better than their closest friends or loved ones.

Networks, at the end of the day, are publisher-focused risk enablers. They are about building trust and having people that will chose one over the other even when a very similar offering appears. Networks are trying to build brands. They are like products where generics exist, but the emotional connection of the brand has their customer picking them.

Managers. Outsourced program managers occupy another interesting but value-added niche. Their business is really an outsourcing business. It is an advertiser focused on where networks tend to be much more publisher centric.

There are two main client types it seems — those with established business that want to hand off the work to another or those new to affiliate advertising that have found the process of using affiliate networks confusing. In the first scenario, the work is about reports, knowing when to update creatives, managing new requests, etc. They are being paid so the brand can focus on what it does best.

The bulk of the second type of work is also administrative, but it involves getting them ready to run — understanding pricing, getting creatives made, and keeping them on as long as possible because most clients will not get a lot of traffic.

The management business tends to focus on more commerce related campaigns and the managers on the environments surrounding ShareASale, CJ, Linkshare and Google Affiliate. They pay their publishers when they get paid, and my suspicion is that they live in a very different world — one without 1 million-per-month arbitragers, thin pages made for data capture and call centers.

It doesn’t mean that they can’t have decent sized businesses, but they don’t have the home runs. They don’t, in my opinion, specialize in growth. They aren’t the ones to create lead lists, prospect for pubs non-stop, help with product, pricing and conversion as though it were their own. They are set up to manage; the team isn’t made up of marketers.

Agencies. Somewhere between networks and outsourced program managers sits agencies, or what an agency might be in our space. What networks and managers show is the divide between performance marketing and affiliate marketing. It’s one of our favorite topics and comes up often when trying to explain why there are four affiliate networks of note but multiple times that with cpa networks.

In a more traditional context, agencies helped take companies to market; they created their strategy and vision. They manage media spend to a budget and receive compensation based on what they spend. They posses two skills that any offer needs — design and account management.

The performance-based agency would look more like networks with a focus on conversion. They would be similar to the outsourced program manager in that they would want to manage a campaign globally — it’s not their publishers but the offer. They would want to try and all sources of traffic.

The perfect agency might look like a really good offer that has scaled their operations to handle multiple offers. Finding this combination is tough, and it might be why we haven’t seen a rise in true performance-based agencies. It’s hard to be both arbitrage friendly but brand sensitive, i.e., it’s hard to get paid on a performance basis but have constraints.

It’s also hard to both manage networks but also have buying power in-house. One half of the business is active, the other is passive — managing the client, managing the affiliates. Can you do two things well? Is it the dream opportunity to manage a hot brand on a performance basis, or is it best to keep these sides separate?