Affiliate Marketing's Last Stand?

Two years ago at this time, affiliate marketing was flying under everyone’s radar. Companies like BeFree, Dynamic Trade, Commission Junction and LinkShare pushed the idea of small sites selling others’ goods on commission rather than exchanging banners.

Last year at this time, affiliate marketing was a real hot topic. Companies like Amazon.com and Art.com crowed that it brought them big sales numbers at low cost.

These days, it’s mostly under the radar again. It turns out affiliate marketing is like a bear market: The trading is great for the brokers, the liquidity is necessary for listed stocks, but the investors get hosed. In this case, it turns out that very few affiliates make any money. Bill Lederer at Art.com calls it the “95-5” rule – 95 percent of the money goes to 5 percent of the sites.

While the business is under the radar, it’s changing. New affiliate operators like Affinia, Vstore and Nexchange claim they’re working for the sites, not the merchants, by offering complete lines of merchandise built around the theme of each affiliate site.

The idea is that sites can’t figure out exactly what to offer, and they don’t have the expertise to create attractive pages around affiliate offers. By building stores around the sites’ trade dress, and using the data they collect to fine-tune the offers, the new affiliate operators claim to increase sales for the sites, making the game more even.

But is it more even, or are the new affiliate arrangements merely more sophisticated ways to grab a site’s traffic without really paying for it?

Writing in Online Ads for January 3, Joel Gehman of iRant.com speculates it’s still the latter. Affinia’s cost-per-click model got him just $30 for 500 referrals to merchants, he complains, although the system is easy to use. Vstore, on the other hand, can’t really be customized to a site “in terms of look & feel, or product selection.”

In any case, it seems that affiliate networks have decided that concentrating on small sites is a sucker’s game. Even being an affiliate seems to now be a job for the big boys.

That, at least, is the conclusion I get from the excited tone of Nexchange’s first release of the New Year. The news is a deal with nFront, which sells Internet banking services to 210 small banks.

Under the terms of the “partnership,” as the release calls it, Nexchange will put retail malls into each of nFront’s virtual branches – the banks become Nexchange affiliates, and nFront is their agent. The banks will earn commissions of 5-30 percent, depending on how much business they bring in, but will be able to customize their online malls with their own trade dress. Among the stores that now work with Nexchange are Just for Feet, Proflowers, eBags, and Ashford.com.

Merchants love affiliate marketing, but the best way to get affiliates today, even among the newest affiliate networks, is to get them in bulk. If any of you bankers feel hosed six months from now, will you drop me a note and let me know? This may be affiliate marketing’s last chance, and I’d like to get the story straight.

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