How Performance Marketing Is Influencing The Next Generation Of Internet Startups

There have been several interesting announcements in the last week for the next wave of internet startups.

While Facebook’s IPO and subsequent lawsuit has been at the forefront, social sharing site Pinterest made a splash last week when they announced raising $100 million from Japanese ecommerce giant Rakuten.

Rakuten, the parent company Buy.com and Linkshare, has deep roots in internet retailing and performance marketing.

In an interview, the CEO of Rakuten said that Pinterest is growing exponentially in Japan, and that he wants Rakuten to grow with Pinterest to become the payment platform used when Pinterest users purchase something off the site. In Japan, a reported 75% of internet users have a Rakuten ID, like people in the US would have an Apple or Amazon ID with payment information associated.

This partnership could catapult Rakuten into competition with the likes of ecommerce giants like Amazon and Apple, if this becomes a method of payment in the Western hemisphere. I thought this move by Rakuten was smart, as Pinterest has tested several monetization methods but has yet to finalize its overall strategy.

Is Rakuten’s alignment with Pinterest a sign of things to come: performance marketing companies investing in startups that do not have a definitive monetization strategy? It’s definitely a trend worth looking at, both for prospective affiliates and for merchants.

The Next Generation Of Affiliate Marketers

If you look at the taxonomy of affiliates in the performance marketing industry today, they generally can be categorized as Loyalty, Coupon and Deals, Niche Content, Search, and Product sites.

There are also businesses leveraging affiliate marketing as part of their revenue model; affiliates that could be categorized as “emerging partners”.  These include service providers and technology companies that leverage the performance marketing as either part of their core revenue stream or as an incremental growth driver.

This concept is not new. Businesses like GoldenCAN, Skimlinks, VigLink, and others have grown successful businesses by being part of the affiliate marketing ecosystem.

But there are new companies emerging that are disrupting traditional business and monetization models. These companies are taking services and products that people and companies previously had to pay to use and changing the revenue model to be performance driven.

This can be seen with internet marketing companies like VE Interactive, who provide a technology platform that enables eCommerce companies to re-target customers that abandon the shopping cart in order to improve conversion. Email re-targeting is certainly not a new concept, but VE Interactive is changing the game by offering their technology free and working as an affiliate partner instead of charging merchants for their service.

3 Questions You Should Be Asking, Whether You Are A Startup Or Not

1.  Are there existing business alliances that make better sense as an affiliate partnership?

Oftentimes there are “strategic” partnerships that do not yield the projected revenue or value that are better suited for the affiliate channel than dedicating business development resources to manage and grow the relationship.

This can be true with partnerships your business initiated or vice versa. I’ve seen this most often with technology businesses that have both a reseller channel and affiliate channel. There is sometimes confusion about who goes where, and what makes a good affiliate partner vs. what makes a good reseller partner.

Resellers typically have a pre-existing customer base and are adding value by offering some level of service after the sale, while affiliate partners are focused on marketing activities that drive new customer acquisition.  Low-volume resellers are often times better as affiliates as they can earn more in the form of commission and merchants can test the waters with little to no risk.

2. Are there other performance marketing companies that would make good acquisition candidates?

There are several approaches to identifying companies that would make a good acquisition target for your business. Crowd sourcing is one of the most efficient and effective ways to accomplish this.

If your company has an affiliate program, this could be a good place to start if you think of your affiliate program and/or network as a derivative crowd sourcing platform.

Assuming your company has an affiliate program that is managed well and your affiliate manager is vetting affiliates based on them aligning with your business, products, and core values, your most successful affiliates could be good acquisition candidates.

Here’s why.  First, if your affiliate partners are driving significant revenue it means that they understand how to effectively market and promote your brand and products online. With the exception of arbitrage affiliates, this can lower the risk associated with an acquisition and enable you to better evaluate their business and the value they will add.

Second, given the scalable nature of affiliate programs, you are constantly onboarding new affiliates through proactive affiliate recruitment.  This can create a pipeline of new opportunities and allow you to approach acquisition targets differently than your competitors.

3.  Are there new revenue opportunities for your business leveraging performance marketing?

As a business, you likely have vendor agreements in place that you should review and see if adding revenue share elements is a feasible way to grow the relationship. This applies to relationships in which you are the vendor and ones in which you are the customer.

Sitting in the customer “seat”, ask your vendors about ways to grow the relationship.  Adding a performance incentive to the agreement could be a great way to control upfront costs and add a collaborative spirit to the relationship.

As a vendor, adding performance component to your agreement shows your customers you have “skin-in-the-game” and a vested interest in ensuring they are successful.  Regardless of the side of the table you are sitting on, performance marketing can add an interesting new dynamic to your business relationships and can result in incremental revenue.