The Commodification of Affiliate Network Services

I recently had drinks with a friend who has worked in the Japanese affiliate industry for almost as long as I have. Having worked in product development and IT, he has a unique perspective into the inner dealings of Japanese affiliate networks. We discussed the current state of the industry, where we thought it was heading and who might be left standing 5 years from now. During the talk, my friend mentioned the word “commodification”, as in the commodification of affiliate services. This got me thinking about how network platforms have evolved over the years. We’ve seen improvements in tracking, more sophisticated reporting and most importantly, vast improvements in the media reach. But one thing that has not changed much is the manner in which we set up and launch an affiliate program. The process still requires a complex set of steps and human interactions. Forms are printed, completed, stamped and faxed. Tracking tags need to be installed on the merchant site and tests must be completed before actual launch. The process if done correctly can take up to three weeks. Compare this to the time it takes to set up a keyword buy on Google adwords: 15 minutes. It’s inevitable; Affiliate program services will one day become a mere commodity. I envision a time in the very near future (think Google PPA) when setting up an affiliate program will be as easy as buying keywords on Overture. This is what I mean by Commodification of Affiliate Services, and when it does begin to happen, we can expect the usual price reduction for services that follows whenever something becomes a commodity. Price reduction will lead to increased competition which will mean that weaker affiliate networks will inevitably be swallowed up by the stronger ones. But who will come out winning in the future industry consolidation? At last count there were 80 mobile and web affiliate service providers in the Japanese market. Already we are seeing market saturation, yet 5 new providers on average join the game every month. The pond is getting smaller and anytime now we can expect the big fishes to go after the little ones. I believe that those networks with the right platform architecture will be better positioned to absorb weaker networks. This means that Japanese affiliate network providers will have to continue to build their data and reporting systems with a view to the eventual merger of competing platforms. For example, what if an opportunity arises for a network like TrafficGate to buyout A8.net? But then TrafficGate realizes that the cost of merging the two differing platforms outweighs any benefit from the buyout. Industry consolidation is what will push affiliate services toward commodification. Networks need to simplify and commoditize their services if they wish to survive future buyouts and mergers.