Thoughts on the Future of Affiliate Marketing
Well, the guys over at Elite Retreat were holding a contest for a free ticket to attend the event. I decided to participate, but lost :). I wasn’t very confident in my submission, and struggled because I felt that the question was hard to answer concisely and I didn’t want to spend more than a two-page-writing amount of time on it.
Anyway, since I lost, I now have a page and a half long writeup of my thoughts on the future of affiliate marketing that I’m not using for anything, so even though I’m not particularly proud of it, I thought I’d post my submission here in case anyone’s interested in my opinion 
The question I chose to answer was “What do you feel the future of affiliate marketing holds for affiliates?”
The bell will never toll for affiliate marketing. Affiliate marketing, after all, is simply a new moniker for an age-old business concept: paying on commission. To suggest that affiliate marketing “is dying” or “will die” is no different than arguing that “the end is near for car salesmen, real estate agents, insurance agents and countless other professionals who depend upon commission payments.” Less sweeping laments might, however, be more accurate. Affiliate marketing will undoubtedly become more challenging and require its devotees to stay on the frontier by “thinking outside of the box.” There is no question—this is already taking place.
As markets mature, it becomes more difficult to earn a profit. This is economics 101 and is largely based on the principle of a barrier to entry. For a new marketplace, such as the internet, or to go further, affiliate marketing online, there is a huge conceptual barrier to entry. Despite the seemingly obvious business models used, the reality is that the vast majority of the population doesn’t understand affiliate marketing. Perhaps they are intimidated by the jargon—maybe it’s just that business on the internet carries complex connotations that scare people away—I don’t know, because I can’t personally understand it. By I do know that when I explain to an acquaintance or friend, as I have done hundreds of times over the past few years, how I make money online, it is a very rare occasion when I feel the listener really understands what I’m talking about. The difficulty nearly everyone has in comprehending the business model itself is the primary barrier to entry. These are smart people, but they aren’t competing in this amazingly lucrative marketplace because they just don’t understand how it works. It isn’t a business they learned about in school. It isn’t a market their dad, mom, or uncle was involved in.
Over the years, however, I have seen more and more of these smart people begin to “get it.” They come in to compete, and the availability and ease of profit declines. It is still present, but with every new affiliate the market grows increasingly saturated. After these entrepreneur 2.0s, as I’ll call this “new wave” of affiliates, has entered the space, the next heat is the companies/corporations themselves. As most of us experienced with the corporate world already know, these are the guys that really take a long time to “get it.” They are slow to catch up, but eventually many of them do. And when they do, they are able to leverage their immense resources and are willing to lose money in the pursuit of future profits (e.g. branding, lifetime value of a customer, etc.). When these companies enter the market in force and starting throwing their money around, competition increases even further, and once again the profit available to individual affiliates decreases. Naturally there are some affiliates that are still able to profit in this market place, but the ease with which they are able to do so, and the availability of profit is significantly reduced as compared to when the market was in its infancy.
In no area is this process more apparent than with PPC arbitrage. Why? Again, the reason has to do with barriers to entry. Although complex in its advanced forms, it is possible to start a PPC campaign and begin competing within minutes. Furthermore, PPC campaigns have results that are tangible and easy to delineate—as compared to SEO, for example, where results may come sporadically and months down the road. These factors, along with many others, have made PPC an appealing entrance point for individuals and companies alike.
It’s not that PPC is easy. PPC is difficult—and the ranking algorithm is, depending on who you ask, nearly as complex, or perhaps even more so, than it is for organic listings. Still, PPC is extremely attractive to new entrants. Results from an SEO campaign, as mentioned previously, are difficult to gauge and because it takes so long to see real results, inexperienced users are hesitant to give SEO a shot. Ultimately this has caused (and will continue to cause) a disproportionately large influx of competition in the pay per click and arbitrage markets. Yet again, the increased competition has made affiliate marketing more challenging within this sphere—unless, of course, an affiliate is able to think outside the box, innovate, and in this manner separate him/her self from the crowd (at the risk of being overly repetitive, I must mention again that this differentiation through innovation, or thinking beyond the ‘normal,’ is a barrier to entry in the sense that a lot of people just can’t do it).
Ultimately, affiliate marketing is here to stay. The only change will be where the affiliates position themselves—be it at a car dealership, a real estate agency, online, in the pay per click market place, in the organic results, or in any of a thousand other locations. With regard to affiliate marketing online in the forms of PPC and SEO, I’m comfortable making a few predictions. There will be a pronounced decline in the aggregate profit of affiliates utilizing PPC techniques due to rapidly increasing competition and discriminatory attitudes of search engines, which are often blatantly anti-affiliate and anti-arbitrage (think Quality Score). Creative affiliates capable of thinking innovatively will still find success, but the growing difficulty will persist. For SEO, the same is true, particularly with regard to spam/questionable sites created by myopic SEOs. As search engines improve their algorithms, these methods will become less successful, particularly because many of these tactics are easily replicated by competitors. In the organic results, however, well entrenched sites with established authority and useful content will continue to profit via affiliate marketing for many years to come. They are protected by a unique and very strong barrier to entry: the head start they enjoy in link development. When considering the bigger picture for affiliates—as opposed to obsessing over one explicitly defined category—it is clear that affiliate marketing will continue to be both effective and lucrative. The landscape will change—the principles will not.
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PS: Does anyone know if they posted the winning submission anywhere? I’d love to read it as this is definitely an interesting question (if the winner even chose this one–there were two options).
— (Yeah, I’m rusty with PHP, it probably shouldn’t have taken a whole day).