For most companies, the network is their business. It is what they promote, tout, and spend all their time and energy looking for ways to differentiate — not to mention spending equal if not greater efforts on monetization. The problem, none of this is easy, and as this CEO explained, the business has become less fun that it once was. While we wouldn’t call it sounding stressed, we couldn’t help but hear a slight undercurrent of melancholy when describing the world of CPA.

As to what makes the business today less “fun,” the takeaways included the following:

Slim Margins. This doesn’t come as any surprise for those who have operated in the network space any appreciable amount of time. Unless a company has an exclusive, competitive pressures force networks to aim high and pay out an enormous percentage of the revenue.

Any network goes through this, even Google, who pays out on average 77% of their revenues to publishers. There are many networks for whom an average payout of 77% would feel amazing as they average more like 87% and above. Even on exclusives, the payouts tend to creep up in order to make the offers competitive.

And, despite efforts to keep payments a secret, publishers talk, which only adds pressure to the payout. Only newer networks offering a solution that no one else does can get away with revenue shares like 60/40.

Traffic Quality. Any network needs traffic in order to work, but traffic without quality is recipe for short-term success and long-term disaster. Getting traffic that actually works has become one of the most difficult challenges, and not surprisingly has driven many to seek out alternate, less sustainable sources.

Were we to draw a graph plotting traffic and competition over time, you would see it going high and to the right. At the same time the amount of time a person has before being copied has gone down. This results in a smaller and smaller number of affiliates/publishers being successful. The rest make decisions not optimal for advertisers in their quest to still make some money.

Traffic Source Changes. Unlike a few years ago, there is a great degree of variability in traffic. Like pop stars, many of today’s affiliates are almost one-hit wonders. They don’t fall out of favor because of the populace’s changing tides; they fall out of favor because so often their skill set becomes either obsolete or the trick that propelled them to success becomes a loophole closed.

Even the very best will often face a setback — e.g., a Google rule change, a Facebook T&C revision, mail deliverability change, or even regulatory changes — and few find their way back once having slipped. In today’s world, it seems these changes happen more frequently and with greater severity.

Being a Bank. Money is what drives publishers, and it’s amazing to see how the media buying culture has influenced the CPA Network space. Why? As people buy media with their credit cards, they often hit their limits. They need money to pay off that card to continue running their ads. This has created a culture of Net 7 or in some cases publishers wanting to receive payments twice per week.

The advertisers don’t pay Net 7. They pay Net 15 or Net 30. Ask any network owner, and they’ll tell you they actually pay much later than that. Imagine having a publisher who needs $50k/month. Now, imagine having 10 of them. That’s $500,000 that a company needs to have sitting in reserves.

Offer Sustainability. It’s hard enough to find a good offer let alone one that stands the test of time. Just as publisher’s sources of traffic have become harder to rely upon, (even the stalwart email has been dragging), finding an offer that can last is just as hard, if not harder.

In the past, people have built their entire businesses based around one offer or one vertical. Focusing on that offer or vertical generated eight-figure returns, but unlike an agency that might win a big brand’s budget and have a source of revenue for years, that doesn’t happen here. One tweak on the traffic side can result in an entire offer or channel of offers going away.

Cross-published at DMConfidential.com.

What we realized is that while it is true in the classic sense, it’s less true when looking at our industry as a whole instead of just the type of companies who comprise it. The path upwards may not be as concrete as the fabled mail room clerk to executive or fry-cook to manager, but it’s equally if not more abundant and more diverse — be it affiliate to network owner, media buyer to advertiser, etc. What we get by working in our industry is a flexible toolkit for making money on the most liquid exchange possible.

On a recent trip, admittedly not a business vacation, we couldn’t help but think of yet another benefit to working in our space. Of all places, the inspiration came while visiting a spa in a foreign country.

The person at the spa was not from that country. That happens all the time. What was different here was not just the relatively homogeneous population of other workers, it was what we learned when speaking to them. In the U.S., it’s pretty common to ask people from where they come, what brought them here. Whether it’s common in other countries, we can’t say; but, it doesn’t stop me from asking.

What surprised me were the answers, almost all dealing with when they arrived and how long they planned on staying. Thinking I’d hear of mix of arrival/departure information, what I heard were generally people who came less than a year ago and planned on staying less than a year. They didn’t come to the country to settle. They came to work for a bit and leave.

Having been trained to think of work in the paradigm of a profession, the idea of just going to a place to work and then leave didn’t really occur to me, unless of course a company sends you. These people didn’t go to a country because a company sent them. They went and sought work that could keep them.

We saw it again later at a restaurant where the person had a remarkably non-native accent. Again, finding people from all walks of life isn’t unusual in the United States, but finding them in certain jobs is. When asked, the waitress mentioned wanting to visit and wanting to stay.

Massage therapy and being wait staff are but two such jobs whose skills are portable. Applying them to a new environment in a relatively similar cultural environment doesn’t pose a big challenge. The hardest part is finding the work, something that happens more easily with tourist/seasonal locations.

What is interesting, though, are the rather limited number of occupations that could, if they so choose, go to a different country and find work. Most professionals can’t. A doctor or lawyer can’t just open up shop in a new place. It needs to be something a little more interchangeable into a business like a masseuse, a waitress, hotel reception staff, etc. That’s what makes what we do so unique.

Not everyone has the luxury of working wherever they would like. If you work at a company now, chances are you can’t just say that you’d like to go do your job from somewhere else. You might be able to, but it’s disruptive to the others, which is among the main reasons why you wouldn’t be allowed.

On the other hand, were you to run a small network or offer company, be a designer, consultant, affiliate social media expert, or Mixergy, among many others, you could if you so wanted pick up and move to a different location/run your business from a different location. That, however, is really just location flexibility. It’s not true portability.

Flexibility alone makes those with internet advertising and marketing skills enviable, but the portability is often overlooked. If you know how to do search or social, these are platforms that are universal. The language might differ, but the platforms themselves don’t. And while there are users in all countries, the power users are you.

It makes you incredibly valuable, and it means there is a wide audience that could learn so much from you. Like any other job portability, taking the leap means taking risk – heading to a place where a job might not exist already. But, if you want to do it, chances are you are more valuable than you think.

Originally published at DM Confidential. Reprinted with permission.

Introduction:

It began with a bang and finished with a boom. Five weeks, five companies, and more than $10 billion spent in the largest wave of consolidation in recent history, if not ever, in the Internet advertising space. And, for better or worse, it might not be over yet. In this week’s Trends Report, we look at what these deals suggest, picking apart the best of what has already been written all while trying not to say B-U-B-B-L-E.

Timeline:
April 13th – Google Announces Acquisition of DoubleClick for $3.1 billion
April 30th – Yahoo Announces Acquisition of outstanding shares of Right Media for $680 million
May 16th – AOL Announces Acquisition of Adtech AG for an undisclosed sum
May 17th – WPP Group Announces Acquisition of 24/7 Real Media (TFSM) for $649 million
May 18th – Microsoft Announces Acquisition of aQuantive (AQNT) for $6 billion

What We’ve Learned:

Microsoft Has Cash and Has Just Begun – When DoubleClick was sold, the assumption was that Microsoft was somehow not serious and/or didn’t want to spend that much money. With aQuantive, they proved both, paying almost twice what Google paid for DoubleClick and an astounding 85% premium on top of the then current stock price. Even if, out of desperation, Microsoft picked up 2600 people spread across two technology driven units – Atlas ad serving and Drive PM ad network along with the well-regarded service based online agency Avenue A / Razorfish. Leave it to Redmond though to send mixed signals about its future plans. Despite this mega-acquisition, the company still lacks the advertising base necessary to compete with Google in search along with the query volume. Picking up Yahoo, still makes sense to many analysts, as it “plugs a strategic hole,” but as senior vice president and chief advertising strategist, Yusuf Mehdi, said “We feel quite good that we have all of the pieces we need,” in an article appropriately titled, “Yahoo deal not needed, Microsoft exec suggests.” That said, Microsoft no doubt felt some pressure to their software business from the continuing trend towards free, ad supported software; this move helps them hedge even though any real pressure to their core business will not come for several years.

Nature of Inventory is Changing – In past articles, we wrote how the nature of communication has changed online, that sites like MySpace represented the next evolution of how people interact. MySpace’s growth didn’t necessarily have to come at the expense of other sites, but it only makes sense that it would at some degree, and the numbers support this. We didn’t, however, take our observations about the growth in MySpace and others to the next level, which RBC Capital Markets analyst Jordan Rohan (whom we and almost every publication has referenced recently) did, when he mentioned in a recent conference call that portals have lost a little of their relevancy. User behavior has shifted, and over time (years not months), when the MySpace audience matures, they stand to lose even more. As Jordan says, they have become more narrow. No longer do they represent where people go to find information, to communicate, and/or begin the web exploration. This doesn’t mean Yahoo should worry, only that it makes sense they have invested heavily in properties outside their core web business and technology that allows them to leverage their ad sales outside of their portal pages.

These Are Strategic Acquisitions – While some of the prices might represent a tad more exuberance than I would like, the buyers aren’t doing so just to do so. WPP’s acquisition illustrates this point well. WPP and other large ad holding companies, as the Wall Street Journal summarizes,make most of their money by creating ads and planning where they should appear. They don’t make money from the actual display of ads or facilitating the display. As big brand advertisers continue to shift their budgets away from traditional media, WPP Group and other traditional advertising companies are at risk. WPP doesn’t really care about 24/7′s ad network, but for 1/10 the price of aQuantive, they picked up an ad serving solution (for publishers only now) that they can use as the basis for a broader play. All of the acquisitions above, including yesterday’s $100 million purchase of Feedburner by Google, have done so as part of a long term vision and commitment to Internet advertising. This brings us to our next point.

Advertising is about (a) Technology (Platform) – It might seem like a dash to grab whoever, or to have a solution ready in case advertisers and publishers want to jump ship from DoubleClick now that Google owns them, but as we see from above, this isn’t the case. Those would be nice side benefits, but the bigger vision is more cohesive. Companies have judged that the market is right and the technologies ready that they must become platforms. The various channels of online each require so much specialization and have grown so fragmented that the major stakeholders in online advertising needed to bring them closer. In a theme that echoes the strategic acquisition point above, these purchases have less to do with $30+ billion in interactive advertising marketers will spend this year and almost everything to do with the future of the $600 billion advertising market that continues to shift online. Success online, especially for companies that look to achieve and have achieved any real scale means technology. It means not just having eyeballs or advertisers but becoming an integral piece in how they connect.

Who is Next?
We have heard that IACI and Experian Interactive have expressed an interest in Valueclick, but those covering the stock see such an event on hold until the FTC issue clears, as that could impact the value by upwards of a billion dollars if not more. Additionally, while it might be tempting to grab Valueclick, the last of those with any scale in display and some underlying technology, they do not have the same depth of advertiser relationships that aQuantive and 24/7 have, nor do they have any exchange technology like Right Media or Doubleclick that would help a company with good relationships but too much extra inventory. Other companies certainly fared well by the speculations, including the unprofitable Answers.com and money loser Aptimus. They are available but not strategic. As we are seeing with Feedburner, AOL’s acquisition of Third Screen, and Yahoo’s potential $1 billion purchase of social networking site Bebo, the most likely to go next either have an audience that stems the bleeding, offer technology to reach a new channel of users, or targeting to better leverage in-house assets. At some point, it’s not unlikely to think that Revenue Science or Tacoda won’t get taken (when they can prove to add more value and have a greater network) or my personal favorite Facebook. When Yahoo offered more than $1 billion, I, like many, felt they should have taken it, that no such offer would come again. Good for them though, as we fully expect Facebook to become a Craigslist 2.0, meaning that if it doesn’t rush, it could not only do better than one billion; it could challenge Yahoo. Microsoft, get them now before they do what Google did and grow beyond their once potential suitor Yahoo.

Editor
DM Confidential
www.dmconfidential.com
e: confi@digitalmoses.com

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