Affiliate Marketing Meets the Channel

Even after five years of growth and development, affiliate marketing is still primarily the domain of business-to-consumer (B2C) marketers. From books and music to clothing and airline tickets, affiliate marketing just won’t grow up. Meanwhile, the real meat of the economy rests in thousands of companies toiling away in dozens of unglamorous industries. And each is built on decades of “this is the way we’ve always done it” practices.

Even the world’s great consumer companies, from Procter & Gamble to Microsoft, don’t ship most goods directly to consumers (via the Web or otherwise). Instead products make their way from manufacturing plants to consumers via “the channel” — a labyrinth of middlemen — each collecting a few points of profit along the way. At last, one of these middlemen delivers a final product to the consumer.

What Is “the Channel”?

For example, consider the technology industry. Most products begin life offshore. After a long trip across the Pacific, container loads of bulk products often make their way to a warehouse, perhaps in San Francisco’s East Bay (which, if you’ve ever been there, isn’t anywhere close to SF).

Next, bulk products get kitted into a variety of form factors — OEM (original equipment manufacturer) packs, VAR (value-added reseller) packaging, white boxes, and pretty retail packaging. From here the products go their separate ways. OEM packs of Pentium chips, for example, may be shipped directly to Dell.

Just about every other form factor probably stops somewhere else first. Hence the two-tiered distribution systems the technology industry is famous for. For example, VAR packs of NICs (network interface cards) sometimes go directly to integrators such as CompuCom, though more often a company such as Tech Data gets them first.

White boxes of modems, speakers, or power cables often take very circuitous paths. Sometimes they go to a distributor, other times they go directly to places such as Fry’s. And the pretty packages also pass through an Ingram Micro before ending up on the store shelves at CompUSA or Best Buy.

How Does Affiliate Marketing Fit In?

That’s just it. All the standard affiliate networks really don’t have a solution. Oh, LinkShare claims to have a business-to-business (B2B) network, but it’s just a few dozen of its B2C merchants (Dell, for example) that are looking to be integrated into sites that attract business customers.

Uh, that’s hardly B2B to most of the world. That doesn’t solve the problems of companies such as Hewlett-Packard, IBM, or Compaq, each of which has tens of thousands of resellers in the United States alone.

Into the Void

The challenge of managing channel conflict while Internet-enabling Fortune 500 enterprises is being met by an entirely new class of participants. Companies such as iMediation and WebCollage illustrate two different approaches being taken.

iMediation

Billing itself as the “leading provider of collaborative sales and channel partner management solutions worldwide,” iMediation has certainly raised a pile of cash. Since the French company’s founding in 1998, iMediation raised a total of $88 million in funding from over a dozen investors, including GE Equity, the Singapore government, Intel, and Morgan Stanley Dean Witter.

Its core platform is called iChannel, an XML-based architecture that allows companies to administer critical business rules between partners, leverage existing channels, provide visibility on consumer behavior, and manage their brands online. So far, more than 70 companies worldwide have signed up. And with prices starting at $300,000 and ranging into the low millions, it’s no surprise to find Deutsche Telekom, Hewlett-Packard, L’Orial, and Philips Electronics on the list.

To see iMediation in action, venture no further than the Lanctme store at macys.com. (Note: Though the hyperlink works, for the full effect, navigate from the Macy’s home page to the cosmetics section.) As an iMediation customer, Lanctme builds and maintains this virtual cosmetic counter on behalf of Macy’s, just the way it manages the Lanctme counter in a brick-and-mortar department store.

Some of the real wizardry behind iMediation includes a shopping cart that integrates across the entire system. So even though the Macy’s shopper is technically shopping on a Lanctme server, the items are added to her Macy’s shopping cart for checkout with any non-Lanctme purchases. Back-end integration and business-rule development are two particularly thorny challenges iMediation seems to have solved.

iMediation also makes a point of its alliances and integration with vendors such as Asera, DiamondCluster, E.piphany, Modem Media, Open Market, Oracle, and Sun Microsystems. It currently has dual headquarters in San Francisco and Paris, plus another 10 offices throughout the U.S., Europe, and Asia.

WebCollage

Offering what it terms “e-service syndication,” WebCollage claims to allow companies to expand and create new types of B2B relations. At a recent conference, WebCollage offered an impressive demo of the technology at work.

Basically, the software allows a WebCollage customer such as Site59, for example, to tag its sites in a flavor of XML (WebCollage calls it Web Services Markup Language, or WSML). Next, Site59 gives each of its customers a single line of HTML code.

The result? Partners are able to call specific portions of the Site59 site (e.g., airline ticket reservation services) as if they were nothing more than banner ads. Really. WebCollage pitches the service as perfect for building quick and painless relationships with marketplaces, portals, and affinity groups. The company has offices in New York and Tel Aviv and closed a $16 million first round of funding in November from Sierra Ventures, Gilde IT Fund, and Cedar Fund.

A few others to investigate include BroadVision, BEA Systems, Intershop and InfoNow. If you know of firms tackling online channel/affiliate management issues at an enterprise level, please email me.

And in case you were wondering, channel management is merely one thread of my AffiliateFORCE/2001 keynote on “The Future of Pay-per-Performance.” While the four-day Bahamian cruise doesn’t leave until April 20, I’ve been told that fewer than 50 seats remain. I hope to see you there.