PetSmart acquired Pet360 for $130 million in cash and up to $30 million more in future performance-based payments.
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Today, affiliate marketing is rising at the expense not only of other online advertising, but of offline tactics as well. “A few years ago, affiliate marketing was one of a whole variety of marketing programs retailers used, and many of them were offline-radio, TV, billboards, half a taxicab,” Hoffstein says. “But as money became tighter, we found a way to apply traditional marketing metrics online. In 2001, there was a big downturn in companies that sold online marketing venues that weren’t pay for performance. Yet our sales went up 18% that year.”
Be Free’s growth in the face of a down market underscores the major change in online marketing in the past 12 months: retailers want to track more than just affiliate marketing results.
That’s what drove outdoor gear retailer The Sportsman’s’ Guide Inc. to try out search management services from its affiliate marketing services provider Performics Inc. “I’m always game for new things,” says business development and Internet director Peter Jarnberg. “And the more I can be out there with a lineup that offers the potential of another pair of eyeballs to see and click on us, the more value I get.”
Closing the gap
Adding search management through Performics has driven a fourfold increase in the percentage of online business coming to Sportsmansguide.com through the affiliate services provider since it expanded into search optimization, Jarnberg says. In fact, search management is driving most of the growth across the company’s entire affiliate marketing program. While Sportsman’s Guide continues to do traditional affiliate marketing with Performics as well as another affiliate marketing provider, that tactic has produced only half the growth of search management services during the same period, he adds.
“Performics finds out for each search engine which of our keywords work best,” Jarnberg says. “It’s giving me a more optimal performance on search engine results than if I had to do it myself or hire a staff. By working with them, sales from search engine optimization has grown many times over as a percentage of our business.”
Performics’ search management services cover search optimization methods ranging from managing keywords to fit search engine algorithms to maintaining relationships with human search engine editors. And recently, it’s added securing paid keyword positions in search results and tracking their performance to the mix. The company actively sells the management of keywords with web search engine company Overture Services Inc. as part of its offering to online marketers.
Performics has developed technology that automates for clients the ongoing process of bidding for keywords at Overture, a dynamic process requiring constant monitoring and input as marketers bid competitively for top rights to popular keywords. The technology closes the bid gap up and down in a process similar to how consumers can automate bidding on eBay.
“If you see a big gap between the first bid and the second, you know that the bidder in the top place is overpaying for that word by whatever the spread is. Our automated bidding makes sure that the number one bid is only a penny over the second bid, and within the marketer’s cost parameters,” says Kate Bergin, vice president of marketing at Performics. “A lot of companies that manage their own keyword programs in-house can actively handle only 20 to 30 keywords, and they’re missing out on other opportunities. Because our technology automates management, we’ve found a sweet spot in handling between 500 and 1,000 words for clients.”
Jarnberg, who is just adding paid keyword management to search management services he buys from Performics, says that even without it, affiliate marketing is already a key contributor to Internet sales that rose to 27% of sales for the first quarter from 18% a year earlier. For 2001, annual sales for the company, which also has several catalogs, were $170 million, up from $155 million in 2000. Web sales were up by two-thirds-from $27.9 million to $45.9 million-while overall sales were up 10%.
As the experience of The Sportsman’s Guide and others shows, the past year has brought increased complexity as well as a broadening of performance-based opportunities available to marketers through affiliate marketing providers online.
“These days, even using the term affiliate marketing creates a perception of what we do that doesn’t tell the whole story,” Bergin says. “The traditional definition of the affiliate marketing model provides the marketer with a tool to get hooked up with various opportunities, meaning other web sites. But the traditional model doesn’t provide the service component that does those things for you. A marketer that signs up for the traditional model has to staff and manage back-end administration, payments to affiliates and more.”
Affiliate providers then moved toward more active management of those services, some for a monthly fee, others on a pay-for-performance basis. Performics, which has adopted the pay-for-performance model, offers those services as well as new tools like search management. “Most of our clients have other priorities and they’re not looking to set up a whole other back end to run this part of their marketing program,” Bergin says. “So we manage and implement backend administration including payment to affiliates.” Performics also handles prospecting and other duties on an increasing number of e-mail campaigns on behalf of clients. It now oversees distribution and tracks results on about 60 million to 70 million e-mails per month.
Though some online retailers are pushing the envelope to try new performance based tools and services now offered by affiliate marketing service providers, others are finding that they get plenty of mileage out of a more traditional model in which they themselves take a more active management role. Though he won’t disclose numbers, Handspring Inc. senior manager of customer acquisition Brook Lenox says his company’s affiliate marketing program with LinkShare has been successful and fits his program needs.
“What LinkShare does for us is provide infrastructure,” he says. “They have a simple, robust infrastructure that serves us well. We use it like an ASP. I can go in, see how sales are going. I’m able to message and pay our affiliates-all the things you need to do.” Since fall of 2000, when Handspring, a seller of handheld technology, signed up with LinkShare, payments to affiliates on sales have grown to represent 26% of Handspring’s quarterly online marketing budget, Lenox adds.