Media platforms

Retail media platforms can learn and leverage a thing or two from an affiliate

Selleris a column written by the sell side of the digital media community.

Today’s column is written by Michael Jacobi, CEO and co-founder of Button.

Customer acquisition rates are up and ROAS is down in the walled gardens of Facebook and Google.

This is hardly news at this point. It’s also well known that without the conversion-based measurement they’ve grown accustomed to in walled gardens, marketers are flocking to media where they can reliably leverage purchase data.

Companies like Honey, Ibotta, and Impact have reached billion-dollar valuations thanks to this conversion-driven trend. I predict the next wave of unicorns in the marketing stack will emerge above retail media.

Amazon Ads, the first retail media-wide release, proved that marketers would spend on a seemingly uncapped basis when confident in the link between ads and sales. Privacy concerns add another feather to the retail media ceiling, as retailer platforms are largely unaffected by Apple’s changes.

But retail media strategies have taken inspiration from the great walled gardens by targeting customers almost exclusively at their own retail properties where first-party customer data is applied.

Retail media can learn from affiliate businesses that have implemented similar strategies with intentional web traffic, but without the power that retailers have – a well-known trademark that people buy from.

Wait, what does retail media have to do with affiliation?

Today, nothing.

But in the affiliate world, publishers are pursuing the same goal as retailers: converting online intent into a purchase journey.

Affiliate publishers are getting consumers used to linking from their sites to transact elsewhere through a mix of solid content, amplification via social media influencers, promotional offers and expert reviews. For retailers, that means great UX, personalization, and growing app downloads and loyalty programs.

There is minimal overlap between affiliate commerce and retail media (no one confuses an affiliate network with an online store). But there is a major untapped opportunity at this convergence.

Affiliate marketing may sound boring — it’s not CTV or the Metaverse — but retail media can learn (and profit) from affiliation.

What is the cut?

Traditional affiliate marketing programs work well and predictably – after all, they make money on direct ties to a sale. But they don’t dynamically scale to meet demand, and there are very few ways for marketers to increase their affiliate channel spend or for publishers to increase revenue. Only a limited number of readers click on a hyperlink, and that number simply cannot be increased, at least not without publishers spending an unsustainable amount on their own acquisition marketing.

Retail media is a way for affiliates to escape the enterprise value smurf they face by incorporating their media and purchase intent into a retail media offering.

How would retail media help affiliate?

Affiliate networks tied to static commissions can use retail media as a step towards auction dynamics. There is a huge piece of missing value in the programmatic market to sync with media that can attribute sales.

Rather than set commissions on sales, as affiliate marketing is almost always done, retailers can identify when commissions should go up if they need to eliminate a particular inventory or go down if a product is selling organically. And that’s just the handy fruit. Retail media platforms could also auction off affiliate links to brands when a page loads, much like retailers do with sponsored search units, dramatically enhancing media value.

So how does retail media benefit?

That sounds like a good deal for affiliate networks and publishers, but there’s also significant value for retailers and tech companies looking for retail media dollars.

On the one hand, there is pure enterprise value.

Affiliate networks (or “business marketing platforms”, if you prefer the nomenclature) are valued in the 2-10X revenue range. Shopify and many commercial advertising companies trade at 15-20X or more revenue. Retailers can offset these gains if they add an affiliate network at relatively low prices.

Affiliate networks could also help retail media break out of retail marketing silos. The affiliate industry works with savvy performance marketers – exactly the type of retail media that needs to branch out to digital native advertisers who place a high value on intent and conversion data from first part.

Affiliation would create whole new inventory opportunities for retailers, who are now mostly limited to banner ads or sponsored search results on their own sites.

If Retail Media Doesn’t Seize the Opportunity, Big Tech Will

It’s not just retailers and tech startups pursuing a retail media business. Often it is the strangers who see the opportunity most clearly.

When Microsoft Advertising acquired Xandr this year, the headlines were all about the AppNexus story.

But Microsoft’s title was “Microsoft to Acquire Xandr to Accelerate Delivery of Digital Advertising and Retail Media Solutions.”

Satya Nadella knows how to recognize a case when he sees it. And retail media is an absolute steal right now, compared to social media ROAS.

Better yet…users need it!

Internet dwellers will also benefit.

Recipe sites are a prime example of how advertisements have failed on the web. Pages are littered with ads and the category has struggled to grow despite high intent.

Affiliate relationships do exist there, but they are monetized at fractions of the potential value and are often not tied to where online grocery shopping takes place. The recipe publishing category is screaming to send hungry traffic to Instacart or Kroger, but currently the sites are drowning in banners instead. And there’s no way for recipe sites to capitalize on this potential revenue stream.

The same goes for retailers, who compete for the same audience of online shoppers, but still leave all that intentional traffic from other channels, like affiliate, on the table.

Follow Michel Jacobi (@michaeljaconi) and Ad Exchange (@adexchanger) on Twitter.

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