DM CONFIDENTIAL – This year has not been a particularly easy one for certain segments of the performance marketing space. It is the banking crisis plus the auto crisis all rolled into one — the storied companies and iconic brands facing iconic struggles, with debt crushing them and forcing once-unthinkable situations. Unfortunately, for the performance marketing space, no government bailouts exist to lend them the money and time they need to stay afloat. And, while not as massive in scale, the almost domino-like failure of the networks has similarly devastating consequences for the downstream publishers who rely on them for their own livelihood.
Even as recently as a year ago, the failure of a company like Epic Advertising would have seemed impossible. That Epic and many of its peers had made aggressive and ultimately faulty bets was known, but perhaps the financial crisis had us thinking failure just couldn’t happen, which in Epic’s network business took place eight days ago.
As is the case when big companies fail, controversy around both decisions past and present exist. That has happened here. There were early signs that something was amiss given that certain senior management members’ emails started to come from new domain that no one else had heard of. Going to the new domain’s site only caused more confusion, as there was an internal division doing the same thing. (Note AdExchanger’s great post on the subject, What Happened Epic Media Group? See Kinetic Social.)
There is enough classic corporate “survival/thrival” to only want to focus on the nuances of what happened, and we are not saying that this isn’t incredibly relevant or important, especially for those who are waiting on payment from what they thought was the parent company. For us, though, a more addressable topic is how we got to where we are. What has fundamentally changed in the affiliate/performance marketing space? Put simply, finding offers and running them on traffic platforms as is — i.e., not playing in the gray, from copy to IP blocking to pages — is a surefire way to lose money and gain lots of frustration.
Here are some of the reason that we typically use to describe this current state of performance marketing:
Lack of offer diversity: OfferVault has thousands of offers, but see above as to what that really means. In this space, the one thing that has sustained so many is subscription-based offers, which tie into to the second type — promo offers. The latter work because they are truly content-agnostic, and many have had to fish in even muddier streams, where only those can run.
Traffic source saturation: There aren’t any new ones at scale that others don’t know about. The newest, Twitter, has gone top-down in its approach — brands first before opening up to the masses. That leaves only the gray by spamming content.
Unsubstantiated technology: It is a commodity business that lends money — that has been the boom and bust. Sometimes companies can differentiate through offers, but that has been an ever-difficult proposition.
Technology is differentiator: Looking at those who seem to be succeeding, it is the platform companies — those who initially helped spawn the seemingly endless number of networks. They still have a healthy business there, but enabling advertisers has been the more recent focus. That has lead to…
Disintermediation: – Advertisers becoming networks. A great advertiser will attract traffic sources. They don’t have to rely on they networks as gate keepers.
We could stop there. It should be sufficient to help explain why companies went down the path they did, that of relying on unsustainable offers and loading up on debt. But, is that really the problem? We initially thought so, but then, a conversation with a recent ex-marketer changed everything.
What’s really changed are the people. There are fewer of them.
In years past, the growth hacker, as Andrew Chen is popularizing, did marketing. He/she did arb. He didn’t go to work at a big company, and for the most part he didn’t go work at Google. But Facebook, iOS and the new web has changed that. He doesn’t do marketing. The old marketer builds things today. Just check out this list, also by Andrew. A few of these people used to hover in the performance marketing space. The “newer” ones, also on the list, would have no idea about our space. That is the problem. Why try and make even seven figures a year when you can get plugged into one of the biggest ecosystems around and take a spin for tens if not hundreds of millions along with positive notoriety?
The new marketer takes a little bit of money from the likes of Y-Combinator, Tech Stars, and 500 Startups. They get a three-month intensive with business advice, spending time with peers, and most importantly in their minds a path for real profits — being acquired. That is the new self-funded money — exchanging some of their brain for early equity. And, while this model exists — while big-but-nimble companies like Facebook and Zynga can’t hire enough, needing to acquire instead — that’s where the talent will continue to go.