Affiliate marketing -- the practice of allowing thousands of small Web sites to send potential buyers to your e-business site -- is entering a renaissance of sorts.
I wrote in my previous columnthat new, more sophisticated forms of traffic swapping have earned the moniker “Affiliate Marketing 2.0.” This is a play on the popular Web 2.0 label that's been applied to sites loaded with user-provided Web content, such as MySpace.
Nowhere has the new, affiliate style of traffic management made more impact than in the business of “lead generation” -- paying affiliates to send you visitors who will enter their phone numbers, e-mail addresses, or physical addresses for follow-up by your marketing team.
Watching the Growth of Affiliate Marketing
Shawn Collins is co-founder of the Affiliate Summit, a twice-annual conference of Web sites that either send or receive traffic in these kinds of mutually beneficial relationships.
The winter 2006 edition of the summit attracted a final total of 2,079 registrants, Collins told me after the conference. That represents sizable growth over the summer 2006 event, which attracted 1,250 registrants, Collins added. (The summer 2007 conference is already set for July 8-10in Miami.)
Collins is full of anecdotes about the growth of affiliate relationships in the e-business sector of the Web. "Amazon.com has stated that 40 percent of their sales comes from affiliates," he notes.
MarketingSherpa, a research firm for the marketing industry, has estimated that affiliate commissions would total $6.5 billion in 2006. I have no doubt that this figure will continue to expand.
The Preeminence of Lead Generation
E-tail businesses depend on repeat customers to remain profitable. But a different segment of the market has come to the fore in affiliate marketing. This is the "lead generation" segment: those companies that must constantly generate new, first-time customers or die.
Mortgage brokerage companies, for example, must attract buyers of new homes and refinancers of existing ones. A supermarket might sell its produce to the same people every week, but a mortgage lender can't expect its customers to take out mortgages that often. Financial firms and others who sell once-in-a-generation products absolutely must generate new prospects daily.
That used to mean heavy advertising, either on television or by direct mail. Nowadays, however, savvy consumers enter their wishes into search engines when they're looking for loans and other products and services. Whoever can best direct these ready-to-buy consumers to companies who can fill their needs can take a healthy percentage of the business.
Mortgage leads represent about 35 percent of today's Internet lead-generation business, according to Jay Weintraub, director of corporate strategy for advertising firm Oversee.net. The second largest category of lead-generation, about 20 percent, directs interested parties to players in the education marketplace. (A prospective higher-education student, after all, usually shops for a college only once per lifetime.)
Subjecting Lead Generation to a Bidder's Marketplace
Lead generation in the mortgage market has been dominated to date by such Web advertisers as LowerMyBills.com. Almost anyone who's used a Web browser in the past few years has seen the company's banner ads, which proclaim, "Click your state and save thousands!" LowerMyBills spends millions of dollars per month placing such ads on various sites.
LeadPoint.comis going after LowerMyBills' audience with a new approach. Instead of running LowerMyBills' ads, says LeadPoint chief marketing officer Michael Rosenberg, why don't sites take a direct role in lead generation and keep for themselves almost the entire commission that's generated?
By sending interested mortgage customers through LeadPoint's bidding marketplace, Rosenberg says, a Web site cuts out the advertiser and receives a commission from one or more of the financial firms that are allowed to submit proposals to consumers. The traffic is routed to those bidders who are willing to pay the most for each valid lead.
The application of a bidder's marketplace to the mortgage business seems fairly obvious. But LeadPoint has also expanded its bidding war to the apparently unrelated fields of credit-card debt, student loans, and auto sales.
Because interested consumers must fill out a short questionnaire before being directed to the relevant Web sites, the value of each lead can be determined with some precision. "In the auto space," Rosenberg explains, "a Ford lead used to cost the same as a Ferrari lead." Dealers of luxury cars, however, are willing to pay far more for a consumer who is using LeadPoint's technology to look for a Ferrari than are dealers of lower-priced Fords.
Returning to the mortgage market, Rosenberg indicates that the price of real estate in various places now influences the value of potential borrowers. "Every [mortgage] lead used to be $25," he says, "but now a California refinance is worth more than a Texas home purchase -- by about five times."
If your business depends on a constant flow of new customers, and you're not attracting traffic from consumers who are searching the Internet, you may be leaving a large amount of money on the table.