The ill-fortunes of e-commerce companies over the last nine months will have escaped the attention of very few, as they increasingly faced the onslaught of dwindling cash reserves, weak turnover, and a crisis of investor confidence during the period.
Since then, a tragically weakened advertising sector has added to the dotcom misery. In a viciously circular motion, it has cut off the main source of revenue for most e-commerce ventures, while failing to generate the level of publicity needed to ensure significant traffic and sales, which in turn has meant less cash available to spend on advertising.
Industry watchers now question the wisdom of such dependency on advertising and the vast amounts of money frittered away at its altar in the early days of the e-commerce revolution. Yahoo.com, AskJeeves.com and online ad agencies such as Doubleclick and 24/7 Media all recently issued profit warnings attributed to sluggish advertising revenues.
But while many were dragged in the wake, a few forward-looking firms sought alternative ways of getting heard above the white noise of millions of other websites. And, what has until now been a very well kept secret, is emerging as an option to expensive, yet ineffective, online advertising. It is called affiliate marketing.
Affiliate marketing generally involves agreements between retailers of complementary goods and services or with media sites, to feature links to one another's web pages. The thinking is that the schemes not only provide a ready-made revenue stream to websites that have no e-commerce capability, but also extend the reach of those that have. This can be done simply by attaching the merchant's logo to the affiliate's homepage, or context-specific section of the website, or 'buttons' and text hyperlinks that click through to product details on the merchant site.
Depending on the terms, commission (generally between 5% and 15%) is paid to the affiliate website for every referred visit or 'click through' to the merchant site, or just for those that convert into a sale.
Against a backdrop of scatter-gun banner advertising campaigns with little guarantee of sales from click throughs (generally costing between £35 and £40 per 1,000 page impressions) and even less cash to spend on marketing, many converts see these as relatively favourable terms.
Such is the faith of analysts in the concept, as an alternative to advertising revenue and a means of lowering of customer acquisition costs, that Forrester Research predicts it will be responsible for up to 21% of all sales over the internet by 2003, up from 13% a year ago.
Not surprisingly, the phenomenon is well established in the US, and Amazon.com claims the world's oldest and largest affiliate network. It boasts of having over half a million members, built up since 1996.
This will no doubt have stood the online giant in good stead for its record Christmas season as the most visited site this period. According to internet ratings company NetValue, Amazon.co.uk (with over 10,000 affiliates) sold more than three million items, with at least 15% of all UK internet users visiting the site during December. Affiliate members all did their bit, including santasmail.co.uk, Santa Clause's very own virtual mailbox and toy store, TV chef Jamie Oliver's website and the Northampton Symphony Orchestra .
Buy.com, a giant US online computer retailer also doing substantial business in the UK, swears by the effectiveness of its own affiliate programme, to the extent that it does not use banner advertising.
"As a means of customer acquisition, it is our most effective tool," says Gordon Henderson, Buy.com's vice president of marketing in the UK. "We've found that each first purchase is £100 or so, and the cost of that first-time customer is £5. For their next purchase they come straight to us, and cost us nothing."
Buy.com boasts of around 2,000 affiliates in the UK, including Yahoo!, MSN, AOL UK and egg.com, and is considering recruiting partner sites direct from the US for maximum reach. TradeDoubler, a Swedish agency, manages Buy.com's UK pro gramme - along with that of waterstones.co.uk and the beleaguered letsbuyit.com - and is one of an increasing number of firms set up for this purpose. Buy.com also has schemes run by rivals ukaffiliates.com and the US company, Commission Junction. Other competitors include MagicButton.net, the first UK-based agency, whose customers include Virginbiz.net and BT (whose own programme launched on January 3).
TradeDoubler, one of the biggest operators in the UK since arriving last February, also creates its own "virtual sales team" of affiliates. It stands currently at around 42,000 and spans 50 merchant programmes, using a proprietary, web-based system to track sales across affiliate sites.
"We can see if people just register their email address or buy a product, what the order number is and from which affiliate it was bought from," explains Will Cooper, TradeDoubler's UK marketing manager. For this service Buy.com pays 5% commission for each sale generated, plus a further 1.5% to the affiliate site, on a 'no sale, no fee' basis.
Alternatively, UK shopping portal mytaxi.com uses "about 15 affiliate marketing agencies" to increase the number of merchants and customer traffic on its site, with 350 affiliates so far, according to head of marketing Joanne Shurvell.
"Most of the affiliated merchants on mytaxi.com are there because we approached them directly or they've approached us. However, we have found affiliate marketing agencies very useful in that they allow us, with just a few key strokes, to quickly add shops to our portal," she says.
But despite using such a relatively high number of agencies, certain limitations restrict affiliate marketing as a substitute for banner advertising, to being more of a complement. "Their usefulness is limited in that as we have no direct contact with these affiliates, we aren't able to easily build relationships with them. A large part of our marketing effort involves working on various promotions with our affiliates, so it's more difficult to do this with the merchants we've obtained through affiliate agencies."
For retailers with the time and inclination to run their affiliate network in-house, there are tools. For example, US firm Be Free offers a plug in system that registers partners, tracks transactions and reports the results back to the merchant and its partners. It also claims to offer a private network of affiliates unique to each merchant.
Lastminute.com, BOL and Ask Jeeves are all subscribers. For Lastminute, which will launch its pan-European affiliate programme later in the year, the attraction is the potential for placing content onto affiliate sites, in addition to banners and buttons, which would be ideal for, say, special offers on the last night of a theatre performance.
"We could supply content feeds on to other sites," says Pete Flint, head of distribution at lastminute.com. "This would be dynamic content, which we could give to other websites for free. The theatre site, for example, would then be able to connect to particular categories on our website and the link would be contextual."
The gulf in revenues created by ineffectual ad campaigns will have to be filled somehow. And while the decision to charge for content and services on the internet remains a moot point, the affiliate network may just prove a worthy contender.
Affiliate Marketing agencies:
www.TradeDoubler.com
www.MagicButton.Net
www.befree.com
www.commissionjunction.com
www.affilinet.com
www.affilinet.com
