There are 2 approaches to managing affiliate programs these days:  affiliates as high-maintenance assets or as low-maintenance “let them wither on vine” liabilities.  Case in point Amazon’s decision this week to stop allowing affiliates to compete for the same customers using search engine ads.  Amazon knows better and has always changed-up the rules over time to manage risk.  Let’s look at which approach is best for your brand.

It never fails… affiliates, affiliate networks, trade magazines and those who run affiliate programs constantly ask us to believe facts that don’t hold water in real life.  Vendors and agencies insist online affiliate marketing is low risk and high ROI when those who are invested in it know otherwise.  This disingenuous “affiliate marketing is good for everyone” claim (uh, sales pitch) damages affiliate marketing’s already embattled reputation.

Internet Retailer tells us

“Affiliate marketing is a perennial revenue producer for e-retailers, made doubly attractive because of the low investment and risk involved.”

They go on to list how popular it is — as if this is some sort of proof or defensible rationalization.  Follow the herd!

Marketers: Raise Your Expectations
Affiliate programs produce revenue.  Ok.  But is that justification for investing in it?  That’s fairly naive yet how does your marketing team make decisions?  Often, many take the bait.

Stated plainly, do you know of a single Web marketing strategy that isn’t a revenue producer?  They all are but does this justify investment or influence how we execute?  This kind of mentality suggests rediculously simplistic goals in an economy that demands anything but simple answers.

More than a decade since the birth of affiliate programs marketers need to be looking beyond what generates revenue.   Metrics like customer lifetime value and *real* cost to acquire customers (when factoring in media spend across all Web channels) matter more than ever before.  However, more often than not, affiliate programs negatively impact these metrics — by design.  Hence, frequent change is needed.

Fact: Many retailers operate affiliate programs that are marginal at best — by design.  They’ll deny it but they ARE on auto-pilot.  Although they define value in terms extending beyond revenue they’ve set affiliate programs up for failure and walked away.  Amazon is a great example of a high profile exception.

Managing Retail Affiliate Programs: Asset or Liability
I don’t know many retailers *treating* affiliate marketing as a core online marketing strategy.  Do you?  Amazon’s decision is a marvelous example of how some retailers are trimming back.  Others are eliminating affiliates completely or letting them rot on the vine.  Why?

Some retailers (especially the larger ones) look at affiliate programs as an asset that must be constantly managed — again, just as Amazon has over the years.  Still others view them as liabilities — letting them rot on the vine out of fear of the unknown.  These fears typically revolve around perceived risk (not known risk).

As I see it, retailers like Amazon are becoming increasingly certain that they can shut down or reduce the scope of affiliate programs — recover or reduce undue “taxes” on orders coming through middle-man affiliates.

2008 Changed Everything
Think about it this way… In the past, nobody got fired for NOT shutting off their affiliate program or making major changes to affiliate terms & conditions.  Moving forward they may get promoted for making such sweeping changes in consideration of FTC rulings and State laws (New York and California “anti-affiliate” tax law).

Why are retailers going sour?  They’re deciding that, often, affiliates are not worth it — in specific terms or out of knee-jerk reaction.

Affiliate managers are constantly defending the affiliate channel — and feel powerless.  They are powerless for the most part.  Measurement rules and retailers are measuring for incremental value.  Even the likes of Commission Junction’s ValueClick are messin’ around with this thing called “conversion attribution.”  (come hear me speak about it with Jim Sterne, David Baker of Ave A/Razorfish and Raymund Sibulkin of Edmunds.com).

In the end, affiliate marketing has, for years, been an arbitrage game — where search-based affiliates arbitraged demand in an area that advertisers didn’t understand or practice in (search).  Today, what’s left?  Even Amazon is asking itself.